<PAGE> 1
PROSPECTUS DATED MAY 1, 1999
FOR
LIFESTAGES(R) -- A 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 the individual flexible premium LifeStages(R)
annuity policies. New York Life Insurance and Annuity Corporation ("NYLIAC")
issues these policies. We designed these policies to assist individuals with
their long-term retirement planning needs. You can use these policies with
retirement plans that do or do not qualify for special federal income tax
treatment. The policies offer flexible premium payments, access to your money
through partial withdrawals (some withdrawals may be subject to a surrender
charge and/or tax penalty), a choice of when income payments will commence, and
a guaranteed death benefit if the owner or annuitant dies before income payments
have commenced.
Your premium payments accumulate on a tax-deferred basis. This means your
earnings are not taxed until you take the money out of your policy which can be
done in several ways. You can split your premium payments among a guaranteed
interest option and the eighteen variable investment divisions listed below.
<TABLE>
<S> <C>
- MainStay VP Capital Appreciation
- MainStay VP Cash Management
- MainStay VP Convertible
- MainStay VP Government
- MainStay VP High Yield Corporate Bond
- MainStay VP International Equity
- MainStay VP Total Return
- MainStay VP Value
- MainStay VP Bond
- MainStay VP Growth Equity
- MainStay VP Indexed Equity
- Alger American Small Capitalization
- Calvert Social Balanced
- Fidelity VIP II Contrafund
- Fidelity VIP Equity-Income
- Janus Aspen Series Balanced
- Janus Aspen Series Worldwide Growth
- Morgan Stanley Dean Witter Emerging
Markets Equity
</TABLE>
We do not guarantee the investment performance of these variable investment
divisions. Depending on current market conditions, you can make or lose money in
any of the investment divisions.
You should read this Prospectus carefully before investing and keep 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
(VIP II), the Fidelity Variable Insurance Products Fund (VIP), the Janus Aspen
Series and the Morgan Stanley Dean Witter Universal Funds, Inc. (the "Funds",
each individually a "Fund").
To learn more about the policy, you can obtain a copy of the Statement of
Additional Information ("SAI"), dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this Prospectus. The table of contents for the SAI appears at the end of
this Prospectus. For a free copy of the SAI, call us at (800) 598-2019 or write
to us at the address above.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE POLICIES INVOLVE RISKS, INCLUDING POTENTIAL LOSS OF PRINCIPAL INVESTED.
THE POLICIES 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.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS............................ 3
FEE TABLE.............................. 4
QUESTIONS AND ANSWERS ABOUT
LIFESTAGES(R)........................ 8
FINANCIAL STATEMENTS................... 13
CONDENSED FINANCIAL INFORMATION........ 14
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION AND THE SEPARATE
ACCOUNT.............................. 15
New York Life Insurance and Annuity
Corporation....................... 15
The Separate Account................. 15
The Portfolios....................... 15
Additions, Deletions or Substitutions
of Investments.................... 16
Reinvestment......................... 17
THE POLICIES........................... 17
Qualified and Non-Qualified
Policies.......................... 17
Policy Application and Premium
Payments.......................... 18
Issue Ages........................... 18
Transfers............................ 18
Procedures for Telephone Transfers... 19
Dollar Cost Averaging................ 19
Automatic Asset Reallocation......... 20
Interest Sweep....................... 20
Accumulation Period.................. 21
(a) Crediting of Premium
Payments..................... 21
(b) Valuation of Accumulation
Units........................ 21
Policy Owner Inquiries............... 21
CHARGES AND DEDUCTIONS................. 21
Surrender Charges.................... 21
Amount of Surrender Charge........... 22
Exceptions to Surrender Charges...... 22
Other Charges........................ 22
(a) Mortality and Expense Risk
Charges...................... 22
(b) Administration Fee............ 22
(c) Policy Service Charge......... 22
(d) Fund Charges.................. 23
Group and Sponsored Arrangements..... 23
Taxes................................ 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTIONS UNDER THE POLICY......... 23
Surrenders and Withdrawals........... 23
(a) Surrenders.................... 24
(b) Partial Withdrawals........... 24
(c) Periodic Partial
Withdrawals.................. 24
(d) Hardship Withdrawals.......... 24
Required Minimum Distribution
Option........................... 24
Cancellations........................ 25
Annuity Commencement Date............ 25
Death Before Annuity Commencement.... 25
Income Payments...................... 26
(a) Election of Income Payment
Options...................... 26
(b) Other Methods of Payment...... 27
(c) Proof of Survivorship......... 27
Delay of Payments.................... 27
Designation of Beneficiary........... 27
Restrictions Under Internal Revenue
Code Section 403(b)(11)........... 27
Loans................................ 27
Riders............................... 28
(a) Living Needs Benefit Rider.... 28
(b) Unemployment Benefit Rider... 28
THE FIXED ACCOUNT...................... 29
(a) Interest Crediting............ 29
(b) Transfers to Investment
Divisions.................... 29
(c) Fixed Account Initial Premium
Guarantee..................... 29
FEDERAL TAX MATTERS.................... 30
Introduction......................... 30
Taxation of Annuities in General..... 30
Qualified Plans...................... 31
(a) Section 403(a) Plans.......... 31
(b) Section 403(b) Plans.......... 31
(c) Individual Retirement
Annuities.................... 31
(d) Roth Individual Retirement
Annuities.................... 31
(e) Deferred Compensation Plans.. 32
DISTRIBUTOR OF THE POLICIES............ 32
VOTING RIGHTS.......................... 32
TABLE OF CONTENTS FOR THE STATEMENT OF
ADDITIONAL INFORMATION............... 33
</TABLE>
THIS PROSPECTUS IS NOT CONSIDERED AN OFFERING IN ANY STATE WHERE THE SALE
OF THIS POLICY CANNOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATIONS REGARDING THE OFFERING OTHER THAN AS DESCRIBED IN THIS
PROSPECTUS OR IN ANY ATTACHED SUPPLEMENT TO THIS PROSPECTUS OR IN ANY
SUPPLEMENTAL SALES MATERIAL WE AUTHORIZE.
2
<PAGE> 3
DEFINITIONS
ACCUMULATION UNIT--An accounting unit we use 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 sum of the Variable Accumulation Value and the Fixed
Accumulation Value of a policy.
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 we are to make the first Income
Payment under the policy.
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
policy owner's death.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange ("NYSE")
is open for trading. Our Business Day ends at 4:00 p.m. Eastern Time or the
closing of the NYSE, if earlier.
ELIGIBLE PORTFOLIOS ("PORTFOLIOS")--The mutual fund portfolios of the Funds that
are available for investment through the Investment Divisions of the Separate
Account.
FIXED ACCOUNT--An account that is credited with a fixed interest rate which
NYLIAC declares and is not part of the Separate Account. The Accumulation Value
of the Fixed Account is supported by assets in NYLIAC's general account, which
are subject to the claims of our 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 any transfers and partial withdrawals from the Fixed Account,
and less any surrender charges and policy service charges that may have already
been assessed from the Fixed Account.
INCOME PAYMENTS--Periodic payments NYLIAC makes after the Annuity Commencement
Date.
INVESTMENT DIVISION--The variable investment option available with the policy.
Each Investment Division invests exclusively in shares of a specified Eligible
Portfolio.
NON-QUALIFIED POLICIES--Policies that are not available for use in connection
with employee retirement plans that qualify for special federal income tax
treatment.
PAYMENT YEAR(S)--With respect to any premium payment, the year(s) beginning on
the date such premium payment is made to the policy.
POLICY ANNIVERSARY--An anniversary of the Policy Date shown on the Policy Data
Page.
POLICY DATA PAGE--Page 2 of the policy which contains the policy specifications.
POLICY DATE--The date from which we measure Policy Years, quarters, months and
Policy Anniversaries. It is shown on the Policy Data Page.
POLICY YEAR--A year starting on the Policy Date. Subsequent Policy Years begin
on each Policy Anniversary, unless otherwise indicated.
QUALIFIED POLICIES--Policies issued under employee retirement plans that qualify
for special federal income tax treatment.
SEPARATE ACCOUNT--NYLIAC Variable Annuity Separate Account-III, a segregated
asset account we established to receive and invest premium payments paid under
the policies. The Separate Account's Investment Divisions, in turn, purchase
shares of Eligible Portfolios.
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.
3
<PAGE> 4
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
Surrender Charge (as a % of amount withdrawn)............. 7% during Payment Years 1-3; 6% during Payment Year 4; 5% during
Payment Year 5; 4% during Payment Year 6; and 0% thereafter
Transfer Fee.............................................. There is no transfer fee on the first 12 transfers in any Policy
Year. However, NYLIAC reserves the right to charge up to $30 for
each transfer in excess of 12 transfers per Policy Year.
Annual Policy Service Charge.............................. 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, 1998)(a)
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............................................ 0.08% 0.09% 0.16% 0.13% 0.08%
Total Fund Annual Expenses................................ 0.64% 0.54% 0.72%(b) 0.63% 0.58%
<CAPTION>
MAINSTAY VP
INTERNATIONAL
EQUITY
-------------
<S> <C>
OWNER TRANSACTION EXPENSES
Surrender Charge (as a % of amount withdrawn)............. 7% during Payment Years 1-3; 6% during Payment Year 4; 5% during
Payment Year 5; 4% during Payment Year 6; and 0% thereafter
Transfer Fee.............................................. There is no transfer fee on the first 12 transfers in any Policy
Year. However, NYLIAC reserves the right to charge up to $30 for
each transfer in excess of 12 transfers per Policy Year.
Annual Policy Service Charge.............................. 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, 1998)(a)
Advisory Fees............................................. 0.60%
Administration Fees....................................... 0.20%
Other Expenses............................................ 0.17%
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
Surrender Charge (as a % of amount withdrawn)............. 7% during Payment Years 1-3; 6% during Payment Year 4; 5% during
Payment Year 5; 4% during Payment Year 6; and 0% thereafter
Transfer Fee.............................................. There is no transfer fee on the first 12 transfers in any Policy
Year. However, NYLIAC reserves the right to charge up to $30 for
each transfer in excess of 12 transfers per Policy Year.
Annual Policy Service Charge.............................. 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, 1998)(a)
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% 0.07% 0.06% 0.08%
Total Fund Annual Expenses................................ 0.60% 0.65% 0.52% 0.51% 0.38%
</TABLE>
4
<PAGE> 5
FEE TABLE--(CONTINUED)
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
ALGER
AMERICAN CALVERT FIDELITY FIDELITY VIP JANUS
SMALL SOCIAL VIP II EQUITY- ASPEN SERIES
CAPITALIZATION BALANCED CONTRAFUND INCOME BALANCED
-------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Surrender Charge (as a % of amount withdrawn)............. 7% during Payment Years 1-3; 6% during Payment Year 4; 5% during
Payment Year 5; 4% during Payment Year 6; and 0% thereafter
Transfer Fee.............................................. There is no transfer fee on the first 12 transfers in any Policy
Year. However, NYLIAC reserves the right to charge up to $30 for
each transfer in excess of 12 transfers per Policy Year.
Annual Policy Service Charge.............................. 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, 1998)(a)
Advisory Fees............................................. 0.85% 0.70%(c) 0.59% 0.49% 0.72%
Administration Fees....................................... -- -- -- -- --
Other Expenses............................................ 0.04% 0.18%(c) 0.11% 0.09% 0.02%
Total Fund Annual Expenses................................ 0.89% 0.88%(c) 0.70%(d) 0.58%(d) 0.74%
<CAPTION>
JANUS MORGAN STANLEY
ASPEN SERIES DEAN WITTER
WORLDWIDE EMERGING
GROWTH MARKETS EQUITY
------------ --------------
<S> <C> <C>
OWNER TRANSACTION EXPENSES
Surrender Charge (as a % of amount withdrawn)............. 7% during Payment Years 1-3; 6% during Payment Year 4; 5% during
Payment Year 5; 4% during Payment Year 6; and 0% thereafter
Transfer Fee.............................................. There is no transfer fee on the first 12 transfers in any Policy
Year. However, NYLIAC reserves the right to charge up to $30 for
each transfer in excess of 12 transfers per Policy Year.
Annual Policy Service Charge.............................. 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, 1998)(a)
Advisory Fees............................................. 0.65% 0.00%
Administration Fees....................................... -- 0.00%
Other Expenses............................................ 0.07% 1.95%
Total Fund Annual Expenses................................ 0.72%(e) 1.95%(f)
</TABLE>
- ------------
(a) The Fund or its agents provided the fees and charges, which are based on
1998 expenses and may reflect estimated changes. We have not verified the
accuracy of the information.
(b) "Other Expenses" and "Total Fund Annual Expenses" for the MainStay VP
Convertible and MainStay VP International Equity Portfolios reflect an
expense reimbursement agreement that ended December 31, 1998 limiting "Other
Expenses" to 0.17% annually. In the absence of the expense reimbursement
arrangement, the "Total Fund Annual Expenses" would have been 1.17% for the
MainStay VP International Equity Portfolio.
(c) These fees are based on expenses for the fiscal year 1998, and have been
restated to reflect the complete assessment of transfer agency expenses of
0.01% expected to be incurred in 1999. "Other Expenses" reflect an indirect
fee. "Total Fund Annual Expenses" after reductions for fees paid indirectly
the complete assessment of, which are restated, would have been 0.86%.
(d) A portion of the brokerage commissions that these Portfolios pay was used to
reduce the Portfolios' expenses. In addition, these Portfolios have entered
into arrangements with their custodian whereby credits realized as a result
of uninvested cash balances were used to reduce custodian expenses.
Including these reductions, the "Total Fund Annual Expenses" would have been
0.66% for the Fidelity VIP II Contrafund Portfolio and 0.57% for the
Fidelity VIP Equity-Income Portfolio.
(e) The "Total Fund Annual Expenses" include a fee reduction to reduce the
"Advisory Fees" to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the "Advisory Fees" and
then against "Other Expenses". Janus Capital Corporation has agreed to
continue the other waivers and fee reductions until at least the next annual
renewal of the advisory agreement. Absent such waivers or reductions, the
"Total Fund Annual Expenses" would have been 0.74%.
(f) Morgan Stanley Dean Witter Investment Management Inc. has voluntarily waived
receipt of its "Advisory Fees" and agreed to reimburse the Portfolio, if
necessary, to the extent that the "Total Fund Annual Expenses" of the
Portfolio exceed 1.75% of average daily net assets. However, Morgan Stanley
Dean Witter has reflected under "Other Expenses" the Portfolio's interest
and foreign tax expenses incurred in 1998 which were equal to 0.20% of the
Portfolio's average daily net assets. The fee waivers and reimbursements
described above may be terminated by Morgan Stanley Dean Witter at any time
without notice. Absent such reductions, it is estimated that "Advisory
Fees", "Administrative Fees" and "Total Fund Annual Expenses" would be
1.25%, 0.25% and 3.45%, respectively.
5
<PAGE> 6
This table will help you to understand the various costs and expenses that
you will bear directly and indirectly. The table reflects charges and expenses
of the Separate Account and the Funds. However, the table does not reflect
optional charges under the policy. Charges and expenses may be higher or lower
in future years. For more information on the charges reflected in this table,
see "Charges and Deductions" at page 21 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)
You 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 stated 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
Alger American Small Capitalization................... $91.03 $149.07 $189.66 $295.36
Calvert Social Balanced............................... $90.93 $148.79 $189.18 $294.36
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
Morgan Stanley Dean Witter Emerging Markets Equity.... $99.27 $173.40 $230.36 $377.65
</TABLE>
2. If you annuitize your policy at the end of the stated 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, we have expressed the annual
policy service charge 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, 1998. This calculation method reasonably reflects the annual
policy service charges applicable to policies having an Accumulation Value
of less than $20,000 but does not reflect the annual policy service charges
on policies having an Accumulation Value of $20,000 or greater. This means
that the fees would be slightly lower if your policy's Accumulation Value is
$20,000 or greater on the Policy Anniversary or date of surrender.
6
<PAGE> 7
<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
Alger American Small Capitalization................... $91.03 $ 81.54 $139.13 $295.36
Calvert Social Balanced............................... $90.93 $ 81.23 $138.62 $294.36
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
Morgan Stanley Dean Witter Emerging Markets Equity.... $99.27 $107.58 $181.96 $377.65
</TABLE>
3. If you do not surrender your policy:
<TABLE>
<S> <C> <C> <C> <C>
MainStay VP Capital Appreciation...................... $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
Alger American Small Capitalization................... $26.55 $ 81.54 $139.13 $295.36
Calvert Social Balanced............................... $26.45 $ 81.23 $138.62 $294.36
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
Morgan Stanley Dean Witter Emerging Markets Equity.... $35.34 $107.58 $181.96 $377.65
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
PERFORMANCE OR EXPENSES. THE ACTUAL EXPENSES PAID OR PERFORMANCE ACHIEVED MAY BE
GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT LIFESTAGES(R)
NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT
LIFESTAGES(R). YOU SHOULD REFER TO THE BODY OF THIS PROSPECTUS FOR MORE DETAILED
INFORMATION.
1. WHAT IS LIFESTAGES(R)?
LifeStages(R) is a Flexible Premium Deferred Variable Retirement Annuity
policy. NYLIAC issues the policy. You may allocate premium payments to one or
more of the Investment Divisions of the Separate Account, or to the Fixed
Account. The Accumulation Value will fluctuate according to the performance of
the Investment Divisions selected and the interest credited to the amounts in
the Fixed Accounts.
2. WHERE CAN I ALLOCATE MY PREMIUM PAYMENTS?
You can allocate premium payments to one or more of the following
Allocation Alternatives:
(a) SEPARATE ACCOUNT
The Separate Account consists of thirty Investment Divisions.
Eighteen of these Investment Divisions are available under the policy.
They are listed on the first page of this Prospectus. When you allocate
a premium payment to one of the Investment Divisions, the Separate
Account will invest your premium payment exclusively in shares of the
corresponding Eligible Portfolio of the relevant Fund.
(b) FIXED ACCOUNT
Each premium payment, or the portion of any premium payments you
allocate to the Fixed Account will reflect a fixed interest rate. (See
"The Fixed Account" at page 29.)
3. CAN I MAKE TRANSFERS AMONG THE INVESTMENT DIVISIONS AND THE FIXED ACCOUNT?
You can transfer all or part of the Accumulation Value of your policy
between the Investment Divisions or from the Investment Divisions to the Fixed
Account at least 30 days before the Annuity Commencement Date. Generally you can
transfer a minimum amount of $500, unless we agree otherwise. You can make
unlimited transfers each Policy Year. We currently do not charge for transfers.
However we reserve the right to charge up to $30 for each transfer after the
first twelve in a given Policy Year. (See "Transfers" at page 18.)
You can make transfers from the Fixed Account, although certain
restrictions may apply. (See "The Fixed Account" at page 29). In addition, you
can request transfers through the Dollar Cost Averaging, Automatic Asset
Reallocation, or Interest Sweep options described at pages 20 and 21 of this
Prospectus.
4. WHAT CHARGES ARE ASSESSED AGAINST THE POLICY?
Before the date we start making Income Payments to you, we will deduct a
policy service charge on each Policy Anniversary or upon surrender of the policy
if on that date the Accumulation Value is below $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. In addition, we deduct on a daily basis a charge for
policy administration expenses. This charge is equal, on an annual basis, to
.15% of the net asset value of the Separate Account. (See "Other Charges" at
page 22.)
The policies are also subject to a charge for certain mortality and expense
risks NYLIAC assumes. We also deduct this charge on a daily basis. This charge
is equal, on an annual basis, to 1.25% of the net asset value of the Separate
Account. (See "Other Charges" at page 22.)
We impose a surrender charge on certain partial withdrawals or surrenders
of the policies based on the amount of premium payments made. This charge is
assessed as a percentage of the amount withdrawn during the first six Payment
Years following each premium payment. We keep track of each premium payment
8
<PAGE> 9
and assess a charge based on the length of time a premium payment is in your
policy before it is withdrawn. The percentage declines after the first three
Payment Years as follows:
<TABLE>
<CAPTION>
PAYMENT YEAR SURRENDER CHARGE
- ------------ ----------------
<S> <C>
1........................................................... 7%
2........................................................... 7%
3........................................................... 7%
4........................................................... 6%
5........................................................... 5%
6........................................................... 4%
7+.......................................................... 0%
</TABLE>
For purposes of calculating the surrender charge, we treat withdrawals as
coming from the oldest premium payment first (on a first-in, first-out basis).
You can make withdrawals from the policy free of surrender charges based on
certain limitations. In any one Policy Year, you may withdraw free of a
surrender charge up to 10% of the Accumulation Value at the time of the
withdrawal ("10% Window"). In addition, for policies with total premium payments
of $100,000 or more, you may withdraw free of a surrender charge the greater of
(a) the 10% Window or (b) the Accumulation Value of the policy less the
accumulated premium payments. (See "Surrender Charges" at page 21 and
"Exceptions to Surrender Charges" at page 22.)
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. You can make
additional premium payments of at least $500 or such lower amount as we may
permit at any time. You have a choice of sending premium payments directly to
NYLIAC or through pre-authorized monthly deductions from banks, credit unions or
similar accounts. We may agree to other methods of payment. The maximum
aggregate amount of premium payments we accept is $1,000,000, without prior
approval. For Qualified Policies, you may not make premium payments in excess of
the amount permitted by law for the plan.
6. HOW ARE PREMIUM PAYMENTS ALLOCATED?
Except for premium payments or portions of premium payments applied to the
Fixed Account, we will hold the initial premium payment in the MainStay VP Cash
Management Investment Division for 15 days after we issue the policy. At the end
of this period, we will allocate the premium payment to the Investment Divisions
you have selected. We will apply initial premium payments you allocated to the
Fixed Account immediately.
You may allocate each premium payment in any number of Allocation
Alternatives. (See "Automatic Asset Reallocation" at page 20.) Moreover, you may
raise or lower the percentages of the premium payment (which must be in whole
number percentages) you place in each Allocation Alternative at the time you
make a premium payment. The minimum amount which you may place in 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 you may place in any one
Allocation Alternative.
7. WHAT HAPPENS IF PREMIUM PAYMENTS ARE NOT MADE?
If we do not receive any premium payments for a period of two years, and
both the Accumulation Value of your policy and your total premium payments less
any withdrawals and surrender charges are less than $2,000, we reserve the right
to terminate your policy. We will notify you of our intention to exercise this
right and give you 90 days to make a premium payment. If we terminate your
policy, we will pay you the Accumulation Value of your policy in one lump sum.
9
<PAGE> 10
8. CAN I WITHDRAW MONEY FROM THE POLICY BEFORE THE ANNUITY COMMENCEMENT DATE?
You may make withdrawals from your policy before the Annuity Commencement
Date and while the Annuitant is still alive. Your withdrawal request must be in
a form that is acceptable to us. Under most circumstances, you may make a
minimum partial withdrawal of $500. Withdrawals may be subject to a surrender
charge. In addition, you may have to pay income tax and a 10% penalty tax may
apply if you are under age 59 1/2. (See "Distributions Under the Policy" at page
23 and "Federal Tax Matters" at page 30.)
9. HOW WILL NYLIAC MAKE INCOME PAYMENTS ON THE ANNUITY COMMENCEMENT DATE?
We will make Income Payments on a fixed basis. We do not currently offer a
variable income payment option. We will make payments under the Life Income
Payment Option 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 26.)
We may offer other options, at our discretion, where permitted by state law.
10. WHAT IS A LIFE INCOME PAYMENT OPTION?
On the Annuity Commencement Date, we will make periodic payments for the
life of the Annuitant (or to the Annuitant and another person, the "Joint
Annuitant") with a guarantee of at least 10 years of payments. Income Payments
will always be the same specified amount. (See "Income Payments" at page 26.)
11. WHAT HAPPENS IF I DIE OR THE ANNUITANT DIES BEFORE THE ANNUITY COMMENCEMENT
DATE?
If you or the 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,
(b) the sum of all premium payments made, less any outstanding loan
balance, partial withdrawals and surrender charges previously imposed,
or
(c) the "reset value" (as described on page 25 of this Prospectus) plus any
additional premium payments made since the most recent "reset date,"
less any outstanding loan balance, less any partial withdrawals and
applicable surrender charges since the most recent "reset date."
If the Beneficiary is the spouse of the Annuitant or the owner, see
Question 12. (Also see "Death Before Annuity Commencement" at page 25 and
"Federal Tax Matters" at page 30.)
12. WHAT HAPPENS IF MY SPOUSE IS THE BENEFICIARY?
If you are the owner and Annuitant and you die before the Annuity
Commencement Date, your spouse may continue the policy as the new owner and
Annuitant if he/she is also the sole Beneficiary (for Non-Qualified, IRA, Roth
IRA, TSA or SEP policies only). If your spouse chooses to continue the policy,
we will not pay the death benefit proceeds as a consequence of your death, or
the Annuitant's death.
13. CAN I RETURN THE POLICY AFTER IT IS DELIVERED?
You can cancel the policy by returning it to us, or to the registered
representative through whom you purchased it, within 10 days of delivery of the
policy or such longer period as required under state law. You will then receive
from us the greater of (i) the initial premium payment less any prior partial
withdrawals or (ii) the Accumulation Value on the date we receive the policy,
without any deduction for premium taxes or a surrender charge.
14. WHAT ABOUT VOTING RIGHTS?
You can 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 32.)
15. HOW WILL NYLIAC CALCULATE INVESTMENT PERFORMANCE OF THE SEPARATE ACCOUNT?
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. In calculating the yield, we assume
that the income generated for that seven-day period is generated each seven-day
period over a 52-week period. The current yield is shown as a percentage of the
investment. The effective yield is calculated similarly but, when annualized,
the income earned in the Cash Management 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
10
<PAGE> 11
December 31, 1998, the MainStay VP Cash Management Investment Division's yield
and effective yield were 4.05% and 4.13%, 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 in that Investment Division over a specified thirty-day period. In
calculating the yield, we assume that the income generated by the investment
during that thirty-day period is generated each thirty-day period over a
12-month period. The current yield is shown as a percentage of the investment.
For the 30-day period ended December 31, 1998, the annualized yields for the
MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay VP
Bond Investment Divisions were 3.38%, 7.52% and 3.86%, 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 each of the Investment Divisions for periods ending December 31, 1998. The
average annual total return (if surrendered) data reflect all Separate Account
and Fund annual expenses shown in the Fee Table on pages 4 and 5. The average
annual total return (if surrendered) figures assume that the policy is
surrendered at the end of the periods shown. The annual policy service charge,
which is charged to policies with an Accumulation Value of less than $20,000, is
not reflected. This fee, if applicable, would reduce the rates of return. The
average annual total return (no surrenders) does not reflect the deduction of
any surrender charges. All rates of return 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 an Investment
Division's inception date, the performance of the Investment Division was
derived from the performance of the corresponding Portfolios, as modified to
reflect the Separate Account and Fund annual expenses as if the policy had been
available during the periods shown. The results shown are not an estimate or
guarantee of future investment performance for the Investment Divisions.
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED DECEMBER 31, 1998)
<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
--------------------- ------------ ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO INCEPTION DATE: 1/29/93 1/29/93 10/1/96 1/29/93 5/1/95 5/1/95
- -------------------------------------------
<CAPTION>
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..................................... 29.24% -2.79% -3.46% 0.73% -5.14% 14.40%
3 Year..................................... 23.26% 1.49% -- 3.24% 7.26% 9.21%
5 Year..................................... 18.96% 2.58% -- 4.49% -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 19.33% 2.53% 6.16% 4.67% 8.34% 10.13%
Since Investment Division Inception........ 24.52% 2.17% 6.16% 4.36% 8.34% 10.13%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year..................................... 36.24% 3.75% 3.03% 7.50% 1.24% 21.40%
3 Year..................................... 24.78% 3.70% -- 5.39% 9.25% 11.13%
5 Year..................................... 19.65% 3.53% -- 5.45% -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 19.82% 3.17% 8.99% 5.32% 9.85% 11.58%
Since Investment Division Inception........ 25.57% 3.73% 8.99% 5.95% 9.85% 11.58%
</TABLE>
11
<PAGE> 12
<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
--------------------- ----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO INCEPTION DATE: 1/29/93 5/1/95 1/23/84 1/23/84 1/29/93 9/2/86
- ----------------------------------------------
<CAPTION>
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........................................ 18.39% -11.43% 0.84% 17.86% 19.73% 7.68%
3 Year........................................ 15.48% 9.75% 3.26% 22.67% 24.59% 12.88%
5 Year........................................ 13.20% -- 4.44% 18.79% 21.22% 12.12%
10 Year....................................... -- -- 7.44% 16.27% -- 11.31%
Since Portfolio Inception..................... 13.52% 11.79% 8.49% 13.12% 19.05% 10.06%
Since Investment Division Inception........... 16.59% 11.79% 4.38% 22.64% 24.68% 14.07%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year........................................ 25.39% -5.47% 7.62% 24.86% 26.73% 14.68%
3 Year........................................ 17.20% 11.65% 5.40% 24.20% 26.08% 14.68%
5 Year........................................ 14.04% -- 5.41% 19.48% 21.86% 12.99%
10 Year....................................... -- -- 7.44% 16.27% -- 11.31%
Since Portfolio Inception..................... 14.14% 13.18% 8.49% 13.12% 19.55% 10.06%
Since Investment Division Inception........... 17.84% 13.18% 5.97% 23.73% 25.73% 15.39%
</TABLE>
<TABLE>
<CAPTION>
MORGAN
STANLEY
DEAN
JANUS ASPEN WITTER
ALGER AMERICAN JANUS ASPEN SERIES EMERGING
SMALL FIDELITY VIP II FIDELITY VIP SERIES WORLDWIDE MARKETS
INVESTMENT DIVISIONS: CAPITALIZATION CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
--------------------- -------------- --------------- ------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO INCEPTION DATE: 9/20/88 1/3/95 10/9/86 9/13/93 9/13/93 10/1/96
- ---------------------------------------
<CAPTION>
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................................. 6.95% 21.20% 3.16% 25.44% 20.16% -29.94%
3 Year................................. 6.73% 21.78% 14.40% 20.67% 23.40% --
5 Year................................. 10.60% -- 16.38% 16.71% 18.95% --
10 Year................................ 18.18% -- 14.02% -- -- --
Since Portfolio Inception.............. 17.20% 25.97% 12.69% 17.17% 21.74% -15.03%
Since Investment Division Inception.... 5.47% 23.13% 15.48% 21.90% 20.30% -15.03%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year................................. 13.95% 28.20% 10.10% 32.44% 27.16% -25.23%
3 Year................................. 8.74% 23.33% 16.16% 22.25% 24.91% --
5 Year................................. 11.52% -- 17.13% 17.46% 19.64% --
10 Year................................ 18.18% -- 14.02% -- -- --
Since Portfolio Inception.............. 17.20% 26.84% 12.69% 17.83% 22.30% -12.54%
Since Investment Division Inception.... 8.33% 25.50% 18.04% 24.30% 22.74% -12.54%
</TABLE>
For additional information regarding the total return calculations
described above, you should 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 27.)
12
<PAGE> 13
17. HOW DO I CONTACT NYLIAC?
<TABLE>
<S> <C> <C>
GENERAL INQUIRIES AND WRITTEN REQUESTS PREMIUM PAYMENTS AND LOAN PAYMENTS
REGULAR MAIL NYLIAC Variable Products Service Center New York Life Insurance and Annuity
P.O. Box 290781 Corporation
Wethersfield, CT 06129-0781 P.O. Box 8500-7230
Philadelphia, PA 19178-7230
EXPRESS MAIL NYLIAC Variable Products Service Center NYLIAC Variable Products Service Center
1290 Silas Deane Highway 1290 Silas Deane Highway
Wethersfield, CT 06109-4303 Wethersfield, CT 06109-4303
CUSTOMER SERVICE (800) 598-2019
AND UNIT VALUES
</TABLE>
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report)
for the fiscal years ended December 31, 1998, 1997 and 1996, and of the Separate
Account (including the auditor's report) for the periods ended December 31, 1998
and 1997 are included in the Statement of Additional Information.
13
<PAGE> 14
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 PricewaterhouseCoopers 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
---------------------------------- ----------------------------------- -------------------------
1998 1997 1996 1995(a) 1998 1997 1996 1995(a) 1998 1997 1996(b)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $16.95 $13.92 $11.89 $10.00 $ 1.10 $ 1.06 $ 1.03 $ 1.00 $11.78 $10.35 $10.00
Accumulation Unit value
(end of period)......... $23.09 $16.95 $13.92 $11.89 $ 1.14 $ 1.10 $ 1.06 $ 1.03 $12.14 $11.78 $10.35
Number of units
outstanding
(in 000s) (end of
period)................. 15,940 11,001 6,949 951 105,842 43,157 32,709 13,190 3,139 2,205 1,250
<CAPTION>
MAINSTAY VP
MAINSTAY VP HIGH YIELD
GOVERNMENT CORPORATE BOND
---------------------------------- ----------------------------------
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $11.51 $10.66 $10.57 $10.00 $13.95 $12.52 $10.83 $10.00
Accumulation Unit value
(end of period)......... $12.37 $11.51 $10.66 $10.57 $14.12 $13.95 $12.52 $10.83
Number of units
outstanding
(in 000s) (end of
period)................. 3,208 1,103 855 178 21,960 14,577 6,539 648
<CAPTION>
MAINSTAY VP
INTERNATIONAL EQUITY
----------------------------------
1998 1997 1996 1995(a)
----- ----- ----- -----
<S> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $12.32 $11.88 $10.90 $10.00
Accumulation Unit value
(end of period)......... $14.95 $12.32 $11.88 $10.90
Number of units
outstanding
(in 000s) (end of
period)................. 1,012 932 692 67
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE BOND
---------------------------------- ---------------------------------- ------------------------
1998 1997 1996 1995(a) 1998 1997 1996 1995(a) 1998 1997 1996
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $14.58 $12.55 $11.36 $10.00 $16.67 $13.76 $11.32 $10.00 $11.50 $10.64 $10.57
Accumulation Unit value
(end of period)......... $18.28 $14.58 $12.55 $11.36 $15.76 $16.67 $13.76 $11.32 $12.37 $11.50 $10.64
Number of units
outstanding
(in 000s) (end of
period)................. 11,136 7,629 5,154 665 10,004 7,236 3,377 432 4,993 1,981 1,193
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
BOND GROWTH EQUITY INDEXED EQUITY
--------- ---------------------------------- ----------------------------------
1995(a) 1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $10.00 $17.52 $14.01 $11.42 $10.00 $18.30 $13.97 $11.58 $10.00
Accumulation Unit value
(end of period)......... $10.57 $21.87 $17.52 $14.01 $11.42 $23.19 $18.30 $13.97 $11.58
Number of units
outstanding
(in 000s) (end of
period)................. 173 8,239 4,979 2,276 241 17,575 9,982 4,327 358
<CAPTION>
ALGER AMERICAN
SMALL
CAPITALIZATION
-------------------------
1998 1997 1996(b)
----- ----- -----
<S> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $10.51 $ 9.57 $10.00
Accumulation Unit value
(end of period)......... $11.97 $10.51 $ 9.57
Number of units
outstanding
(in 000s) (end of
period)................. 1,904 1,060 125
</TABLE>
<TABLE>
<CAPTION>
CALVERT FIDELITY VIP II FIDELITY VIP
SOCIAL BALANCED CONTRAFUND EQUITY-INCOME
---------------------------------- ------------------------- -------------------------
1998 1997 1996 1995(A) 1998 1997 1996(B) 1998 1997 1996(B)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $14.76 $12.46 $11.22 $10.00 $13.01 $10.63 $10.00 $13.20 $10.45 $10.00
Accumulation Unit value
(end of period)......... $16.92 $14.76 $12.46 $11.22 $16.68 $13.01 $10.63 $14.53 $13.20 $10.45
Number of units
outstanding
(in 000s) (end of
period)................. 594 282 123 17 7,022 3,079 241 5,850 2,267 149
<CAPTION>
JANUS
JANUS ASPEN SERIES MORGAN STANLEY DEAN WITTER
ASPEN SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
------------------------- ------------------------- ----------------------------
1998 1997 1996(B) 1998 1997 1996(B) 1998 1997 1996(b)
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)... $12.32 $10.24 $10.00 $12.48 $10.36 $10.00 $ 9.89 $10.00 $10.00
Accumulation Unit value
(end of period)......... $16.32 $12.32 $10.24 $15.86 $12.48 $10.36 $ 7.40 $ 9.89 $10.00
Number of units
outstanding
(in 000s) (end of
period)................. 6,418 2,043 125 7,855 4,392 269 841 827 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.
14
<PAGE> 15
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 we describe 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 $25.117 billion at the end of 1997. New York
Life has invested in NYLIAC, and will occasionally make additional contributions
to NYLIAC in order to maintain capital and surplus in accordance with state
requirements.
Year 2000 Readiness -- We rely upon various computer systems to process all
policy transactions and valuations. These systems are being adjusted to enable
us to continue to administer the policies in Year 2000 and later. As is the case
with most systems projects, risks and uncertainties exist, in part due to our
reliance on systems that belong to service providers who are not affiliated with
NYLIAC.
We are devoting substantial resources to make all necessary systems
modifications, and have received assurances from our service providers that they
are taking all necessary steps to address Year 2000 modifications with respect
to the computer systems that they use. Although we cannot give you guarantees,
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 on 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. This 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 our other assets. The Separate Account's assets are not
chargeable with liabilities incurred in any of NYLIAC's other business
operations (except to the extent that assets in the Separate Account exceed the
reserves and other liabilities of that Separate Account). The income, capital
gains and capital losses incurred on the assets of the Separate Account are
credited to or 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 the investment performance of the
Fixed Account and any other separate account of NYLIAC.
The Separate Account currently has 30 Investment Divisions, 18 of which are
available under the policies. Premium payments are invested solely in the
corresponding Eligible Portfolios of the relevant Fund.
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.
WE OFFER NO ASSURANCE THAT ANY OF THE ELIGIBLE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES.
The Funds also make their shares available to certain other separate
accounts funding variable life insurance policies offered by NYLIAC. This is
called "mixed funding." Except for MainStay VP Series Fund, all other Funds also
make their shares available to separate accounts of insurance companies
unaffiliated with NYLIAC. This is called "shared funding." Although we do not
anticipate any inherent difficulties arising from mixed and shared funding, it
is theoretically possible that, due to differences in tax treatment or other
considerations, the interests of owners of various contracts participating in a
certain Fund 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.
15
<PAGE> 16
We provide certain services to you 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, we receive 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. Madison Square Advisors, Inc. MainStay VP Bond;
MainStay VP Growth Equity
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
Morgan Stanley Dean Witter Morgan Stanley Dean Witter Morgan Stanley Dean Witter Emerging Markets
Universal Funds, Inc. Investment Management Inc. Equity
</TABLE>
Please refer to the attached prospectuses of the respective Funds for a complete
description of the Funds, the investment advisers and the Portfolios. The Funds'
prospectuses should be read carefully before any decision is made concerning the
allocation of premium payments to an Investment Division corresponding to a
particular Eligible Portfolio.
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
NYLIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Eligible Portfolio shares held by
any Investment Division. NYLIAC reserves the right to eliminate the shares of
any of the Eligible Portfolios and to substitute shares of another portfolio of
a Fund, or of another registered open-end management investment company. We may
do this if the shares of the Eligible Portfolios are no longer available for
investment or if we believe investment in any Eligible Portfolio would become
inappropriate in view of the purposes of the Separate Account. To the extent
required by law, we will not make substitutions of shares attributable to your
interest in an Investment Division until you have been notified of the change.
This does not prevent the Separate Account from purchasing other securities for
other series or classes of policies, or from processing a conversion between
series or classes of policies on the basis of requests made by policy owners.
We may establish new Investment Divisions when we determine, in our sole
discretion, that marketing, tax, investment or other conditions so warrant. We
will make any new Investment Divisions available to existing policy owners on a
basis we determine. We may also eliminate one or more Investment Divisions, if
we determine, in our sole discretion, that marketing, tax, investment or other
conditions warrant.
16
<PAGE> 17
In the event of any substitution or change, NYLIAC may, by appropriate
endorsement, change the policies to reflect such substitution or change. If
deemed to be in the best interests of persons having voting rights, we may (a)
operate the Separate Account as a management company under the Investment
Company Act of 1940, (b) deregister it under such Act in the event such
registration is no longer required, or (c) combine it with one or more other
separate accounts.
REINVESTMENT
We automatically reinvest all dividends and capital gain distributions from
Eligible Portfolios in shares of the distributing Portfolio at their net asset
value on the payable date.
THE POLICIES
We only offer the policies on the lives of individual Annuitants. We only
offer flexible premium policies which means additional premium payments can be
made.
The policies are variable. This means that the Accumulation Value will
fluctuate based on the investment experience of the Investment Divisions you
select and the interest credited on the Fixed Accumulation Value. NYLIAC does
not guarantee the investment performance of the Separate Account or of the
Funds. You bear the entire investment risk with respect to amounts allocated to
the Investment Divisions of the Separate Account. We offer no assurance that the
investment objectives of the Investment Divisions 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 in the Funds' investments.
As the owner of the policy, you have the right to (a) change the
Beneficiary, (b) name a new owner (on Non-Qualified Policies only), (c) receive
Income Payments and (d) name a payee to receive Income Payments. You cannot lose
these rights. However, all rights of ownership cease upon your death.
QUALIFIED AND NON-QUALIFIED POLICIES
We designed the policies primarily for the accumulation of retirement
savings, and to provide income at a future date. We issue both Qualified and
Non-Qualified Policies. Both types of policies offer tax-deferred accumulation.
You may purchase a Non-Qualified Policy with after-tax dollars to provide for
retirement income other than through a tax-qualified plan. You may purchase a
Qualified Policy with pre-tax dollars for use with any one of the tax-qualified
plans listed below.
(1) Section 403(b) Tax Sheltered Annuities purchased by employees of
certain tax-exempt organizations and certain state-supported
educational institutions;
(2) Section 408 or 408A Individual Retirement Annuities ("IRAs"), including
Roth IRAs;
(3) Section 457 Deferred Compensation Plans; and
(4) Section 403(a) annuities.
Please see "Federal Tax Matters" at page 30 for a detailed description of
these plans.
If you are considering a Qualified Policy, you should be aware that there
are fees and charges in an annuity that may not be included in other types of
investments which may be more or less costly. However, the fees and charges
under the policies are designed to provide for certain payment guarantees and
features that may not be available in these other types of investments. They
include:
(1) a Fixed Account option, which features a guaranteed fixed interest
rate;
(2) a death benefit that is payable should you die while the policy is in
force, which is reset every three years (six years in Texas) and is
guaranteed to be at least the amount of your premium payments, less any
outstanding loan balance, partial withdrawals and surrender charges;
(3) the option for your Beneficiary to receive a guaranteed amount of
monthly income for his or her lifetime should you die prior to the
Annuity Commencement Date;
(4) the option to receive a guaranteed amount of monthly income for life
after the first Policy Year; and
(5) two riders (an Unemployment Benefit Rider and a Living Needs Benefit
Rider), which allow you to withdraw money from your policy without the
imposition of surrender charges, subject to the terms of each rider.
17
<PAGE> 18
These features are explained in detail in this Prospectus. You should consult
with your tax or legal advisor to determine if the policy is suitable for your
tax qualified plan.
POLICY APPLICATION AND PREMIUM PAYMENTS
You can purchase a policy by completing an application. The application
will be sent along with your initial premium payment to NYLIAC. If the
application is complete and accurate, we will credit the initial premium payment
within two Business Days after receipt. If we cannot credit the initial premium
payment within five Business Days after we receive it because the application is
incomplete or inaccurate, we will contact you and explain the reason for the
delay. Unless you consent to NYLIAC's retaining the initial premium payment and
crediting it as soon as the necessary requirements are fulfilled, we will offer
to refund the initial premium payment immediately. Acceptance of applications is
subject to NYLIAC's rules. We reserve the right to reject any application or
initial premium payment. Our rules generally require that only one policy 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.
We will allocate the initial premium payments to the Fixed Account
immediately. We will allocate the initial premium payments designated to
Investment Divisions to the MainStay VP Cash Management Investment Division
until 15 days after the policy is issued. At the end of this period, we will
allocate the premium payments in accordance with your instructions. We credit
subsequent premium payments to the policy at the close of the Business Day on
which they are received at NYLIAC.
You may allocate premium payments in any of the Allocation Alternatives.
Moreover, you may increase or decrease the percentages of premium payments
(which must be in whole number percentages) allocated to each Allocation
Alternative at the time a premium payment is made.
Unless we permit otherwise, the minimum initial premium payment is $2,000
for Qualified Policies and $5,000 for Non-Qualified Policies. You may make
additional premium payments of at least $500 each or such lower amount as we may
permit at any time or by any other 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
your bank, a credit union or similar accounts and by any other method agreed to
by us. You may make premium payments at any time before the Annuity Commencement
Date and while you and the Annuitant are living. The aggregate amount of premium
payments we accept is $1,000,000 without prior approval. NYLIAC reserves the
right to limit the dollar amount of any premium payment.
For Qualified Policies, you may not make premium payments in any Policy
Year that exceed the amount permitted by the plan or by law.
ISSUE AGES
We can issue Non-Qualified Policies if both you and the Annuitant are not
older than age 85 (age 80 in New York and Pennsylvania). We will accept
additional premium payments until either you or the Annuitant reaches the age of
85, unless we agree otherwise. For IRA, Roth IRA, TSA and SEP plans, you must
also be the Annuitant. We can issue Qualified Policies if the Owner/Annuitant is
between the ages of 18 and 80. 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
You may transfer amounts between Investment Divisions of the Separate
Account or to the Fixed Account at least 30 days before the Annuity Commencement
Date. Except in connection with transfers made pursuant to the Dollar Cost
Averaging, Automatic Asset Reallocation and Interest Sweep options, the minimum
that you may transfer from one Investment Division to other Investment Divisions
or to the Fixed Account is $500. Except for the Dollar Cost Averaging, Automatic
Asset Reallocation and Interest Sweep options, if the value of the remaining
Accumulation Units in an Investment Division or the Fixed Account would be less
than $500 after you make a transfer, we will transfer the entire value unless
NYLIAC in its discretion determines otherwise. The amount(s) transferred to
other Investment Divisions must be a minimum of $25 for each Investment
Division.
18
<PAGE> 19
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. You can make transfers from the Fixed Account to the Investment
Divisions in connection with the Interest Sweep option and in certain other
situations. (See "The Fixed Account" at page 29.)
Your 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" at page 19.) We will make transfers from Investment
Divisions will be made based on the Accumulation Unit values at the end of the
Business Day on which we receive the transfer request. (See "Delay of Payments"
at page 27.)
PROCEDURES FOR TELEPHONE TRANSFERS
You may make telephone transfers in two ways: (1) you may directly contact
a service representative or (2) you may also request access to an electronic
service known as a Voice Response Unit (VRU). The VRU permits you to transfer
monies among the Investment Divisions and/or the Fixed Account and change the
allocation of future premium payments. You can elect this feature by completing
and signing a Telephone Authorization Form. However, we reserve the right to
temporarily discontinue the availability of the VRU.
We will use 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. We will assign a personal identification number (PIN) to
all policy owners who request VRU access. You must properly enter the PIN before
we allow any transactions through the VRU. Furthermore, we confirm all telephone
transactions in writing.
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. We must receive telephone transfer requests no later than 4:00 p.m.
Eastern Time in order to assure same-day processing. We will process requests
received after 4:00 p.m. on the next Business Day.
DOLLAR COST AVERAGING
The main objective of dollar cost averaging is to achieve an average cost
per share that is lower than the average price per share during volatile market
conditions. Since you transfer the same dollar amount to an Investment Division
with each transfer, you purchase more units in an Investment Division if the
value per unit is low and fewer units if the value per unit is high. Therefore,
you achieve a lower than average cost per unit if prices fluctuate over the long
term. Similarly, for each transfer out of an Investment Division, you sell more
units in an Investment Division if the value per unit is low and fewer units if
the value per unit is high. Dollar cost averaging does not assure a profit or
protect against a loss in declining markets. Because it involves continuous
investing regardless of price levels, you should consider your financial ability
to continue to make purchases during periods of low price levels. We do not
count transfers under dollar cost averaging as part of your 12 free transfers
each Policy Year.
Under this option, you 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. You 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). You may not
make transfers from the Fixed Account, but you may make transfers into the Fixed
Account. Each transfer from an Investment Division must be at least $100. You
must have a minimum Accumulation Value of $5,000 to elect this option. NYLIAC
may reduce the minimum transfer amount and minimum Accumulation Value at its
discretion.
NYLIAC will make all dollar cost averaging transfers on the day of each
calendar month that you specify or on the next Business Day (if the day you have
specified is not a Business Day). You may specify any day of the month with the
exception of the 29th, 30th or 31st of a month. In order to process a transfer,
NYLIAC must have received a request in writing no later than one week prior to
the date the transfers are to begin.
You may cancel the Dollar Cost Averaging option at any time in a written
request. NYLIAC may also cancel this option if the Accumulation Value is less
than $5,000, or such lower amount as we may determine.
19
<PAGE> 20
You may not elect the Dollar Cost Averaging option if you have selected the
Automatic Asset Reallocation option.
We have set forth below an example of how dollar cost averaging works. In
the example, we have assumed that you want to move $100 from the Cash Management
Investment Division to the MainStay VP Growth Equity Investment Division each
month. Assuming the Accumulation Unit values below, you would purchase the
following number of Accumulation Units:
<TABLE>
<CAPTION>
AMOUNT ACCUMULATION ACCUMULATION UNITS
MONTH TRANSFERRED UNIT VALUE PURCHASED
<S> <C> <C> <C>
1 $100 $10.00 10.00
2 $100 $ 8.00 12.50
3 $100 $12.50 8.00
4 $100 $ 7.50 13.33
Total $400 $38.00 43.83
</TABLE>
The average unit price is calculated as follows:
<TABLE>
<S> <C> <C> <C> <C>
Average share price $38.00
- -------------------- = ------ = $9.50
Number of months 4
</TABLE>
The average unit cost is calculated as follows:
<TABLE>
<S> <C> <C> <C> <C>
Total amount transferred $400.00
- ------------------------ = ------- = $9.13
Total units purchased 43.83
</TABLE>
In this example, you would have paid an average cost of $9.13 per unit
while the average price per unit is $9.50.
AUTOMATIC ASSET REALLOCATION
This option allows you to maintain the percentage allocated to each
Investment Division at a pre-set level. For example, you might specify that 50%
of the Variable Accumulation Value of your 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 fluctuations in each of those Investment Division's investment results
will shift the percentages. 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. You must also specify the day of the month that reallocations are
to occur (with the exception of the 29th, 30th or 31st of a month). The minimum
Variable Accumulation Value required to elect this option is $5,000. There is no
minimum amount which you must allocate among the Investment Divisions under this
option.
You can cancel the Automatic Asset Reallocation option at any time in a
written request. NYLIAC may also cancel this option if the Accumulation Value is
less than $5,000, or such a lower amount as we may determine. You may not elect
the Automatic Asset Reallocation option if you have selected the Dollar Cost
Averaging option.
INTEREST SWEEP
You can request, prior to the Annuity Commencement Date, that interest
earned on monies allocated to the Fixed Account be transferred from the Fixed
Account to any combination of Investment Divisions. You will specify the
Investment Divisions, the frequency of the transfers (either monthly, quarterly,
semi-annually or annually) and the day of each calendar month to make the
transfers (except the 29th, 30th or 31st of a month). The minimum Fixed
Accumulation Value required to elect this option is $5,000, but this amount may
be reduced at our discretion. NYLIAC will make all Interest Sweep transfers on
the day that you specify, or on the next Business Day (if the day you have
specified is not a Business Day).
You may request the Interest Sweep option 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, we will process the Interest Sweep transfer first.
20
<PAGE> 21
YOU MAY NOT TRANSFER MORE THAN 20% of the Fixed Accumulation Value at the
beginning of the Policy Year from the Fixed Account to the Investment Divisions
during a Policy Year. (See "The Fixed Account -- Transfers to Investment
Divisions" at page 29.) If an Interest Sweep option transfer would cause more
than 20% of the Fixed Accumulation Value at the beginning of the Policy Year to
be transferred from the Fixed Account, we will not process the transfer and the
Interest Sweep option will be automatically suspended. Participation in the
Interest Sweep option will not affect the applicability of the Fixed Account
Initial Premium Guarantee described on page 29.
You can cancel the Interest Sweep option at any time in a written request.
We may also cancel this option 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
You can allocate a portion of each premium payment to one or more
Investment Divisions or the Fixed Account. The minimum amount that you may
allocate to any one Investment Division or the Fixed Account is $25 (or such
lower amount as we may permit). We will place the initial premium payment,
except any initial premium payment you allocate to the Fixed Account, in the
MainStay VP Cash Management Investment Division until 15 days after we issue the
policy. At the end of this period, we will allocate the premium payment to the
Investment Divisions and/or the Fixed Account as requested. We will allocate all
additional premium payments to the Investment Divisions and/or Fixed Account as
requested.
We will credit that portion of each premium payment you allocate to an
Investment Division in the form of Accumulation Units. We determine the number
of Accumulation Units we credit to a policy by dividing the amount allocated to
each Investment Division by the Accumulation Unit value for that Investment
Division on the day we are making this calculation. The value of an Accumulation
Unit will vary with the investment experience of the Portfolio in which the
Investment Division invests. The number of Accumulation Units we credit 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 29 for a description of
interest crediting.)
(b) Valuation of Accumulation Units
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 we value the
Accumulation Units.
POLICY OWNER INQUIRIES
Your inquiries should be addressed to NYLIAC. (See page 13.)
CHARGES AND DEDUCTIONS
SURRENDER CHARGES
Since no deduction for a sales charge is made from premium payments, we
impose a surrender charge on certain partial withdrawals and surrenders of the
policies. The surrender charge is based on your premium payments and is not
assessed on any earnings. The surrender charge covers certain expenses relating
to the sale of the policies, including commissions to registered representatives
and other promotional expenses. We measure the surrender charge as a percentage
of the amount withdrawn or surrendered. The surrender charge may apply to
amounts applied under certain Income Payment options.
If you surrender the policy, we deduct the surrender charge from the amount
paid to you. In the case of a partial withdrawal, you can direct 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 you. If
the remaining value in an Allocation Alternative is less than the necessary
surrender charge, we will deduct the remainder of the charge from the amount
withdrawn from that Allocation Alternative.
The maximum surrender charge will be 7% of the amount withdrawn. The
percentage of the surrender charge varies, depending upon the length of time a
premium payment is in your policy before it is withdrawn. For purposes of
calculating the applicable surrender charge, we deem premium payments to be
withdrawn on a first-in, first-out 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
21
<PAGE> 22
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......................................................... 7%
2......................................................... 7%
3......................................................... 7%
4......................................................... 6%
5......................................................... 5%
6......................................................... 4%
7+........................................................ 0%
</TABLE>
EXCEPTIONS TO SURRENDER CHARGES
We will not assess a surrender charge:
(a) on amounts you withdraw in any one Policy Year which do not exceed 10%
of the Accumulation Value at the time of surrender or withdrawal (the
"10% Window");
(b) on amounts you withdraw in any Policy Year which are less than or equal
to the greater of (i) the 10% Window or (ii) the Accumulation Value
less accumulated premium payments, for policies with total premium
payments of $100,000 or more;
(c) if NYLIAC cancels the policy;
(d) when we pay proceeds upon the death of the policy owner or the
Annuitant;
(e) when you select an Income Payment Option in any Policy Year after the
first Policy Year;
(f) when a required minimum distribution is made under a Qualified Policy
(this amount will, however, count against the first exception described
above); and
(g) on withdrawals you make under the Living Needs Benefit Rider or
Unemployment Benefit Rider.
OTHER CHARGES
(a) Mortality and Expense Risk Charges
Prior to the Annuity Commencement Date, NYLIAC imposes risk charges to
compensate it for bearing certain mortality and expense risks under the
policies. This charge is equal, on an annual basis, to 1.25% of the average
daily net asset value of the Separate Account and is deducted daily. We
guarantee that these charges will not increase. If these charges are
insufficient to cover actual costs and assumed risks, the loss will fall on
NYLIAC. If the charges are more than sufficient, we will add any excess to our
general funds.
The mortality risk assumed is the risk that Annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more Income Payments than we planned. We also assume a risk that the
mortality assumptions reflected in our guaranteed annuity payment tables, shown
in each policy, will differ from actual mortality experience. Lastly, we assume
a mortality risk that, at the time of death, the guaranteed minimum death
benefit will exceed the policy's Accumulation Value. The expense risk assumed is
the risk that the cost of issuing and administering the policies will exceed the
amount we charge for these services.
(b) Administration Fee
Prior to the Annuity Commencement Date, we impose an administration fee
intended to cover the cost of providing policy administration services. This
charge is equal, on an annual basis, to .15% of the net asset value of the
Separate Account and is deducted daily.
(c) Policy Service Charge
We deduct an annual policy service charge each Policy Year on the Policy
Anniversary or upon surrender of the policy if on the Policy Anniversary or date
of surrender the Accumulation Value is less than $20,000. This charge is 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. We deduct the annual policy
service charge from each Allocation
22
<PAGE> 23
Alternative in proportion to its percentage of the Accumulation Value on the
Policy Anniversary or date of surrender. This charge is designed to cover the
costs for providing services under the policy such as collecting, processing and
confirming premium payments and establishing and maintaining the available
methods of payment.
(d) Fund Charges
The value of the assets in the Separate Account will indirectly reflect the
Funds' total fees and expenses. The Funds's total fees and expenses are not part
of the policy. They may vary in amount from year to year. These fees and
expenses are described in detail in the relevant Fund's prospectus.
GROUP AND SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the surrender
charge and the policy service charge or change the minimum initial and
additional premium payment requirements. Group arrangements include those in
which a trustee or an employer, for example, purchases policies covering a group
of individuals on a group basis. Sponsored arrangements include those in which
an employer allows us to sell policies to its employees or retirees on an
individual basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or sponsored arrangements that
have been set up solely to buy policies or that have been in existence less than
six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a policy is approved. We may change these
rules from time to time. Any variation in the surrender charge or policy service
charge will reflect differences in costs or services and will not be unfairly
discriminatory.
TAXES
NYLIAC may, where premium taxes are imposed by state law, deduct such taxes
from your 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 your current state of residency, and the insurance laws and NYLIAC's
status 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 also 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 30.) Based upon
these expectations, no charge is being made currently for corporate federal
income taxes which may be attributable to the Separate Account. Such a charge
may be made in future years for any federal income taxes NYLIAC incurs.
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS AND WITHDRAWALS
You can 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 we receive
the request, less any outstanding loan balance, surrender charges, premium taxes
which we may deduct, and the policy service charge, if applicable. If you have
not provided us with a written election not to withhold federal income taxes at
the time you make a withdrawal or surrender request, NYLIAC must by law withhold
such taxes from the taxable portion of any surrender or withdrawal. We will
remit that amount to the federal government. In addition, some states have
enacted legislation requiring withholding. We will pay all surrenders or
withdrawals 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 27.)
23
<PAGE> 24
Since you assume 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 30.)
(a) Surrenders
We may deduct a surrender charge and any state premium tax, if applicable,
less any outstanding loan balance, and less the annual policy service charge, if
applicable, from the amount paid. We will pay the proceeds in a lump sum to you
unless you elect a different Income Payment method. (See "Income Payments" at
page 26.) 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 30.)
(b) Partial Withdrawals
The minimum amount that can be withdrawn is $500, unless we agree
otherwise. We will withdraw the amount from the Allocation Alternatives in
accordance with your request. If you do not specify how to allocate a partial
withdrawal among the Allocation Alternatives, we 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 30.)
If the requested partial withdrawal is greater than the value in any of the
Allocation Alternatives from which the partial withdrawal is being made, we will
pay the entire value of that Allocation Alternative, less any surrender charge
that may apply, to you. We 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
You may elect to receive regularly scheduled withdrawals from the policy.
These periodic partial withdrawals may be paid on a monthly, quarterly,
semi-annual, or annual basis. You will elect 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). We will make all withdrawals on the day of each
calendar month you specify, or the next Business Day (if the day you have
specified is not a Business Day). You must specify the Investment Divisions
and/or Fixed Account from which the periodic withdrawals will be made. The
minimum amount under this feature 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 30.) If you do not specify otherwise, we will
withdraw money on a pro-rata basis from each Investment Division and/or the
Fixed Account.
You can 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, you must have 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 29.
(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.
REQUIRED MINIMUM DISTRIBUTION OPTION
For IRAs and IRA SEPs, the policy 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 policy 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 later.
24
<PAGE> 25
CANCELLATIONS
If we do not receive any premium payments for a period of two years, and
both the Accumulation Value of your policy and your total premium payments less
any withdrawals and surrender charges are less than $2,000, we reserve the right
to terminate your policy subject to any applicable state insurance law or
regulation. We will notify you of our intention to exercise this right and give
you 90 days to make a premium payment. If we terminate your policy, we will pay
you the Accumulation Value of your policy in one lump sum.
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. You may change the Annuity Commencement Date to an earlier date by
providing written notice to NYLIAC. You may defer the Annuity Commencement Date
to a later date if we agree to it, provided that we receive a written notice of
the request 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.
DEATH BEFORE ANNUITY COMMENCEMENT
If you or the Annuitant dies prior to the Annuity Commencement Date, we
will pay an amount as proceeds to the designated Beneficiary, as of the date we
receive proof of death and all requirements necessary to make the payment. 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, partial withdrawals and surrender charges on those withdrawals; or
(c) the "reset value" plus any additional premium payments made since
the most recent "Reset Anniversary", less any outstanding loan balance,
partial withdrawals made since the most recent Reset Anniversary and any
surrender charges applicable to such partial withdrawals.
We calculate the reset value, with respect to any policy every three years
(six years in Texas) from the date of the initial premium payment ("Reset
Anniversary") until you or the Annuitant reaches age 85, unless otherwise
required by applicable state laws. We calculate the reset value on the Reset
Anniversary 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.
We have set forth below an example of how the death benefit is calculated.
In this example, we have assumed the following:
(1) you purchase a policy with a $200,000 premium payment;
(2) the Accumulation Value is $250,000 in the second Policy Year;
(3) a $20,000 withdrawal is made prior to the policy's third Policy
Anniversary;
(4) the Accumulation Value is $220,000 on the third Policy Anniversary
(Reset Anniversary); and
(5) you die in the fourth Policy Year and the Accumulation Value of the
policy has decreased to $175,000.
<TABLE>
<S> <C> <C>
The death benefit is the greater of:
(a) Accumulation Value = $175,000
(b) Premium payments less any
partial withdrawals; or = $180,000 ($200,000 - $20,000)
(c) Reset value (Accumulation Value
on third Policy Anniversary) = $220,000
</TABLE>
In this example, your Beneficiary(ies) would receive $220,000.
25
<PAGE> 26
The formula guarantees that the amount we pay 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 we receive proof of death and all requirements necessary
to make the payment to that Beneficiary. We will keep the remaining balance in
the policy to pay the other Beneficiaries. Due to market fluctuations the
remaining Accumulation Value may increase or decrease and we may pay subsequent
Beneficiaries a different amount.
We will make payments in a lump sum to the Beneficiary unless you have
elected or the Beneficiary elects otherwise in a signed written notice which
gives us the information that we need. If such an election is properly made, we
will apply all or part of these proceeds:
(i) under the Life Income Payment Option to provide an immediate
annuity for the Beneficiary who will be the policy owner and
Annuitant; or
(ii)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 policy owner's death (as determined
for federal tax purposes), and must begin within one year after
the policy owner's death. (See "Income Payments" at page 26.)
If your spouse is the Beneficiary, we can pay the proceeds to the surviving
spouse if you die before the Annuity Commencement Date or the policy can
continue with the surviving spouse as (a) the new policy owner, and, (b) if you
were the Annuitant, as the Annuitant. Generally, NYLIAC will not issue a policy
to joint owners. However, if NYLIAC makes an exception and issues a jointly
owned policy, ownership rights and privileges under the policy must be exercised
jointly and benefits under the policy will be paid upon the death of any joint
owner. (See "Federal Tax Matters--Taxation of Annuities in General" at page 30.)
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.
We will make any distribution or application of policy proceeds will within
7 days after NYLIAC receives all documents (including documents necessary to
comply with federal and state tax law) in connection with the event or election
that causes the distribution to take place, subject to postponement in certain
circumstances. (See "Delay of Payments" at page 27.)
INCOME PAYMENTS
(a) Election of Income Payment Options
We will make Income Payments 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 lump sum payment be made if the Accumulation Value is less
than $2,000. At any time before the Annuity Commencement Date, you may change
the Income Payment option or request any other method of payment we agree to. If
the Life Income Payment Option is chosen, we may require proof of birth date
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 should be greater. We will make payments under
the Life Income Payment Option in the same specified amount and 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. We base Income Payment
Options involving life income on annuity tables that vary on the basis of sex,
unless the policy was issued under an employer sponsored plan or in a state
which requires unisex rates.
26
<PAGE> 27
(b) Other Methods of Payment
If NYLIAC agrees, you (or the Beneficiary upon the death of you or the
Annuitant prior to the Annuity Commencement Date) may choose to have Income
Payments made under some other method of payment or in a lump sum.
(c) Proof of Survivorship
We may require satisfactory proof of survival, from time to time before we
pay any Income Payments or other benefits. We will request the proof at least 30
days prior to the next scheduled payment date.
DELAY OF PAYMENTS
We will pay any amounts due from the Separate Account under the policy
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 ("NYSE") is closed for other than usual
weekends or holidays, or trading on the NYSE is otherwise
restricted;
2. An emergency exists as defined by the Securities and Exchange
Commission ("SEC");
3. The SEC 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, we will delay transfers from the Separate Account to
the Fixed Account.
We may also delay payments of any amount due from the Fixed Account. 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. We will
pay interest of at least 3.5% per year on any partial or full surrender request
deferred for 30 days or more.
DESIGNATION OF BENEFICIARY
You may select one or more Beneficiaries and name them in the application.
Thereafter, before the Annuity Commencement Date and while the Annuitant is
living, you may change the Beneficiary by written notice to NYLIAC. If before
the Annuity Commencement Date, the Annuitant dies before you 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 you. If you are the Annuitant,
the proceeds pass to your estate. However, if the policy 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 policy 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 still 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 of 1940, NYLIAC relies upon a November 28, 1988 no-action
letter for exemptive relief.
Under the terms of your plan, you may have the option to invest in other
403(b) funding vehicles, including 403(b)(7) custodial accounts. You should
consult your plan document to make this determination.
LOANS
Loans are available only if you have purchased your policy in connection
with a 403(b) plan and may not be available in all states for plans subject to
the Employment Retirement Income Security Act of 1974
27
<PAGE> 28
("ERISA"). 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 you may take is the lesser
of: (a) 50% of the policy's Accumulation Value on the date of the loan or (b)
$50,000. We withdraw a loan processing fee of $25 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, we will transfer sufficient
Accumulation Value 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, you may not make partial withdrawals or transfers
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 ERISA, the interest rate paid by the policy owner
of the loan will equal 5%. We will credit the assets being held in the Fixed
Account to secure the loan with the minimum guaranteed interest rate of 3%. For
plans subject to ERISA, we will apply the interest charged on the loan at the
then current prime rate plus 1%. We will credit the money being held in the
Fixed Account to secure the loan 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, we will assess interest in arrears as part of the
periodic loan repayments.
You must repay the loan on a periodic basis at a frequency not less
frequently than quarterly and over a period not 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. We will take such a repayment on a first-in, first-out (FIFO)
basis from amounts allocated to the Fixed Account.
We permit loans to acquire a principal residence 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.
We deduct any outstanding loan balance including any accrued interest from
the Fixed Accumulation Value prior to payment of a surrender or the commencement
of the annuity benefits. On death of the policy owner or Annuitant, we deduct
any outstanding loan balance from the Fixed Accumulation Value as a partial
withdrawal as of the date we receive the notice of death.
Loans are subject to the terms of the policy, your 403(b) plan and the
Internal Revenue 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
At no additional charge, we include two riders under the policy: an
Unemployment Benefit Rider, for Non-Qualified, IRA and Roth IRA policies, and a
Living Needs Benefit Rider, 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 a surrender charge upon the happening 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 may be eligible to receive all or a portion of the Accumulation Value
without paying a surrender charge. The policy must have been inforce for at
least one year and have a minimum Accumulation Value of $5,000. You must also
provide us with proof that the Annuitant has spent 60 or more consecutive days
in a nursing home. 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, IRA and Roth IRA policies, if you become unemployed,
you may be eligible to increase the amount that can be withdrawn from your
policy up to 50% without paying surrender charges. This rider can only be used
once. The policy must have been inforce for at least one year and have a minimum
Accumulation Value of $5,000. You also must have been unemployed for at least 60
consecutive
28
<PAGE> 29
days. 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. The Fixed Account is not
registered under the federal securities laws and is not generally subject to
their provisions. Furthermore, 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 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. We credit interest on a daily basis. 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. 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
You may transfer amounts from the Fixed Account to the Investment Divisions
up to 30 days prior to the Annuity Commencement Date, subject to the following
conditions.
1. The maximum amount you are allowed to transfer from the Fixed
Account to the Investment Divisions during any Policy Year is 20% of the
Fixed Accumulation Value at the beginning of the Policy Year.
2. The minimum amount that you may transfer 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. We determine amounts transferred from the
Fixed Account on a first-in, first-out ("FIFO") basis, for purposes of
determining the rate at which we credit interest on monies remaining in the
Fixed Account.
Except as part of an existing Dollar Cost Averaging request, you may not
transfer money into the Fixed Account if you made a transfer out of the Fixed
Account during the previous six-month period.
You must make transfer requests in writing on a form approved by NYLIAC or
by telephone in accordance with established procedures. See "Procedures for
Telephone Transfers" at page 19.
We will deduct partial withdrawals and apply any surrender charges 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 you allocated such payments or transfers 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, you 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 you transfer any amount
out of the Fixed Account (except transfers made under the Interest Sweep option)
or makes any partial withdrawals during such period.
See the policy for details and a description of the Fixed Account.
29
<PAGE> 30
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 you, 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. We
cannot predict 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, this
discussion does not take into consideration 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 policy 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, a policy owner of any
deferred annuity policy who is not a natural person must include in income any
increase in the excess of the policy owner's Accumulation Value over the policy
owner's investment in the contract during the taxable year. However, there are
some exceptions to this exception. 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.
30
<PAGE> 31
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 a penalty tax equal to 10% of the amount
treated as taxable income may be imposed. 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
policy 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 policy 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 policy owner. Accordingly, a policy 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 policy owner, may result in certain income
or gift tax consequences to the policy owner. A policy 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, this discussion only
provides general information about use of the policies with the various types of
qualified plans. Policy 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 with the plan. Purchasers of policies for use with any qualified plan
should seek competent legal and tax advice regarding the suitability of the
policy.
(a) Section 403(a) Plans. Under Section 403(a) of the Code, payments
made by employers to purchase annuity contracts, which meet certain
requirements, for their employees are excludible from the gross income of
the employee. Any amounts distributed to the employees under such annuity
contracts are taxable to them in the years in which distributions are made.
(b) 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.
(c) 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.
(d) 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.
31
<PAGE> 32
(e) 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. It 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 and typically do not hold routine annual
stockholder meetings. Special stockholder meetings will be called when
necessary. To the extent required by law, NYLIAC will vote the Eligible
Portfolio shares held in the Investment Divisions at special stockholder
meetings of the Funds in accordance with instructions we receive from persons
having voting interests in the corresponding Investment Divisions. If, however,
the federal securities laws are amended, or if NYLIAC's present interpretation
should change, and as a result, NYLIAC determines that it is allowed to vote the
Eligible Portfolio shares in its own right, we may elect to do so.
Prior to the Annuity Commencement Date, you hold a voting interest in each
Investment Division to which you have money allocated. We will determine the
number of votes which are available to you by dividing the Accumulation Value
attributable to an Investment Division by the net asset value per share of the
applicable Eligible Portfolios. We will calculate the number of votes which are
available to you separately for each Investment Division. We will determine that
number by applying your percentage interest, if any, in a particular Investment
Division to the total number of votes attributable to the Investment Division.
We will determine the number of votes of the Eligible Portfolio which are
available as of the date established by the Portfolio 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.
If we do not receive timely instructions, we will vote those shares in
proportion to the voting instructions which are received with respect to all
policies participating in that Investment Division. We will apply voting
instructions to abstain on any item to be voted upon 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.
32
<PAGE> 33
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI is available which contains more details concerning the subjects
discussed in this Prospectus. The following is the Table of Contents for the
SAI:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES................................................ 2
INVESTMENT PERFORMANCE CALCULATIONS......................... 2
GENERAL MATTERS............................................. 4
FEDERAL TAX MATTERS......................................... 4
DISTRIBUTOR OF THE POLICIES................................. 5
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS...................... 6
STATE REGULATION............................................ 6
RECORDS AND REPORTS......................................... 6
LEGAL PROCEEDINGS........................................... 6
INDEPENDENT ACCOUNTANTS..................................... 6
OTHER INFORMATION........................................... 6
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
How to obtain a LifeStages(R) Statement of Additional Information.
Call (800) 598-2019 or send this request form to:
NYLIAC Variable Products Service Center
P.O. Box 290781
Wethersfield, CT 06129-0781
- --------------------------------------------------------------------------------
Please send me a LifeStages(R) Statement of Additional Information dated May 1,
1999:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
33
<PAGE> 34
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 35
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 is not part of the Prospectus. It 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 Internal Revenue Code. Such contributions shall be in cash and
shall be invested 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
Internal Revenue 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
Internal Revenue 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).
IRA-1
<PAGE> 36
(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 1999, 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 you may elect to defer up to $10,000 in
1999 (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 Internal Revenue Code, 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 $31,000 (for 1999). The
threshold level if you are married and file a joint tax return is $51,000 (for
1999), 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> 37
The $31,000 and $51,000 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>
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>
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> 38
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
IRA-4
<PAGE> 39
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 expenses or
certain qualified higher education expenses. 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 converted a regular IRA into a Roth IRA in 1998, the additional tax
liability will be spread over four years (1998, 1999, 2000, and 2001), unless
you elected to pay the entire amount when you filed your 1998 federal income tax
return.
(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> 40
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 41
LOGO
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
ROTH 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 includes non-technical explanation of some of the requirements
applicable to Roth Individual Retirement Annuities (Roth IRAs). The information
provided applies to contributions made and distributions received on and after
January 1, 1998.
1. REVOCATION OF YOUR ROTH IRA
You may revoke your Roth IRA at anytime within seven days after it is
established by mailing or delivering a written notice of revocation to New York
Life Insurance and Annuity Corporation, 51 Madison Avenue, Room 452, New York,
NY 10010. Any notice of revocation will be deemed mailed on the date of postmark
(or if sent be certified or registered mail, the date of certification or
registration) if it is deposited in the U.S. Postal Service in an envelope, or
other appropriate wrapper, first-class postage prepaid, properly addressed. Upon
revocation, you will be entitled to a full refund of your entire Roth IRA
without any adjustments (for items such as administrative expenses, fees, or
fluctuation in market value).
2. CONTRIBUTIONS
(a) Regular Roth IRA. The policyowner may make periodic contributions to a
Roth IRA in any amount up to the contribution limit described in Section 3
(Deductibility of Contributions). All contributions to your Roth IRA must be
made in cash. Contributions for a taxable year must be made no later than April
15 of the following year.
(b) Rollover Roth IRA. A rollover contribution by the policyowner shall be
a nonperiodic deposit in cash, with respect to which contribution the
policyowner warrants that 1) the entire amount rolled over is attributable to a
distribution from a regular Individual Retirement Annuity (a "regular IRA") or
another Roth IRA which meets the requirements of Code Section 408(d)(3); 2)
within one (1) year of receiving such distribution, the policyowner did not
receive another distribution which constituted a "rollover" of a Roth IRA to
another Roth IRA; and 3) the contribution as made satisfies all the requirements
for Roth IRA rollover contributions as set forth under the Internal Revenue Code
"Code".
Strict limitations apply to rollovers, and you should seek competent tax
advice in order to comply with all the rules governing rollovers.
(c) Transfers and Conversions. The policyowner may make an initial or
subsequent contribution hereunder, provided that your Modified Adjusted Gross
Income (MAGI) does not exceed $100,000 during the year of such transfer and you
do not file your income tax return as married filing separately, by directing a
Trustee of an existing regular IRA to directly transfer an amount in cash from
or, if permitted by the Trustee, to convert, such regular IRA into this Roth
IRA. The policyowner may also direct a Trustee of an existing Roth IRA to
directly transfer an amount in cash from an existing Roth IRA to the Trustee of
this Roth IRA without regard to such income or return filing limitations.
(d) Tax Consequences of Rollovers and Transfers. A rollover, transfer, or
conversion of a regular IRA to a Roth IRA is permitted if your MAGI does not
exceed $100,000 and you do not file your income tax return as married filing
separately. Such a rollover, transfer, or conversion will be treated as a
taxable distribution of the regular IRA, but the 10% excise tax on early
distributions will not apply. For such rollovers, transfers, and conversions of
regular IRAs into Roth IRAs during 1998, a special rule applies and any amount
required to be so included in taxable income will be included ratably over 1998,
1999, 2000, and 2001.
(e) Responsibility of the policyowner. If the policyowner contemplates
future periodic contributions, rollovers, or transfers to the Roth 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. New York Life Insurance and
Annuity Corporation (NYLIAC) and its employees are not permitted to provide tax
advice, and assume no liability for the tax consequences of any contribution to,
or distribution from, the Roth IRA.
ROTH IRA-1
<PAGE> 42
3. DEDUCTIBILITY OF CONTRIBUTIONS
(a) Eligibility. Under the law, you may make a contribution of up to the
lesser of $2,000 or 100% of compensation, reduced by the amount of contributions
you make to any other regular IRA (except Education IRAs) or Roth IRA for the
taxable year, provided that if your MAGI is above the specified level, the
amount of the contribution you may make to a Roth IRA is phased down and
eventually eliminated. Contributions to a Roth IRA are not deductible for income
tax purposes.
(b) Modified Adjusted Gross Income (MAGI). You must look at your Modified
Adjusted Gross Income for the year (if you and your spouse file a joint tax
return, use your combined MAGI) to determine whether you can make a Roth IRA
contribution. Your tax return will show you how to calculate your MAGI for this
purpose, except that you should disregard any income resulting from a taxable
rollover, transfer, or conversion of a regular IRA to a Roth IRA. Only if you
are at or below a certain MAGI level, called the Threshold Level, can you make a
contribution to a Roth IRA.
If you are single, your MAGI Threshold Level is $95,000. The Threshold
Level if you are married and file a joint tax return is $150,000, and if you are
married but file a separate tax return, the Threshold Level is $0.
If your MAGI is less than $15,000 ($10,000 in the case of a joint return)
above your Threshold Level, you will still be able to make a Roth IRA
contribution, but it will be limited in amount. The amount by which your MAGI
exceeds your Threshold Level (MAGI minus the Threshold Level) is called your
Excess MAGI. The maximum allowable contribution is $2,000. You can calculate
your contribution limit as follows:
<TABLE>
<C> <C> <S> <C> <C>
$15,000 ($10,000 in the case) - Excess
(of a joint return) MAGI Maximum
- ----------------------------------------------- X Allowable = Contribution Limit
$15,000 ($10,000 in the case) Contribution
(of a joint return)
</TABLE>
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 contribution limit is $200. Your contribution limit cannot, in any event,
exceed 100% of your compensation.
The maximum contribution you and your spouse may make to all your IRAs in
the aggregate, including Roth IRAs, is the lesser of 100% of your combined
compensation or $4,000 annually ($2,000 individually).
(c) Deductions. No deduction is allowed for Roth IRA contributions.
(d) 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 includible
in your gross income, but does not include deferred compensation or any amount
received as a pension or annuity.
4. DISTRIBUTIONS
(a) Required Distributions After Death. If you die before the entire
interest is distributed to you, but after distribution to you from your Roth IRA
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) Roth IRA Distributions
(i) Qualifying nontaxable distributions.
ROTH IRA-2
<PAGE> 43
A distribution from your Roth IRA will not be includible in your gross
income if it is:
(a) made on or after the date you attain age 59 1/2
(b) made after you die or become disabled, or
(c) made as a qualified first time homebuyer distribution
and is made after the five taxable year period beginning with the first
taxable year in which you or your spouse made a contribution to a Roth IRA,
or, in the case of a rollover from a regular IRA to a Roth IRA, after the
five taxable year period beginning with the taxable year of the rollover.
Distributions meeting these requirements are known as "qualifying
distributions".
(ii) Other distributions partly taxable.
If a distribution from your Roth IRA does not meet the requirements of
a qualifying distribution as described in (i), then the distribution will
be treated first as a return of nontaxable Roth IRA contributions, and
second, after all such contributions have been returned, as distributions
of taxable earnings, which in addition to income tax may be subject to the
10% penalty tax on early distributions, as discussed below.
In addition, you will not be entitled to use any form of income
averaging to reduce the federal income tax on the taxable portion of your
distribution. Also, no portion of your distribution is taxable as a capital
gain.
(c) Withholding. Unless you elect not to have withholding apply, federal
income tax will be withheld from any taxable portion of your Roth IRA
distributions. If payments are delivered to foreign countries, however, tax
will, generally, be withheld at a 10% rate unless you certify to the Trustee
that you are not a U.S. citizen residing abroad or a "tax avoidance expatriate"
as defined in the Internal Revenue Code Section 877.
5. PENALTIES
(a) Excess Contributions. If at the end of any taxable year your Roth IRA
contributions (other than rollovers or transfers) exceed the maximum allowable
annuity 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. Alternatively, excess
contributions for one year may be carried forward as Roth IRA contributions in
the next year to the extent that the excess, when aggregated with your Roth IRA
contributions (if any) for the subsequent year, does not exceed the maximum
allowable 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 a Roth IRA is to accumulate
funds for retirement, your receipt or use of any portion of your Roth IRA
account (for example, as collateral for a loan) which is not a qualifying
distribution before you attain age 59 1/2, to the extent it is taxable to you as
described above, constitutes an early distribution unless the distribution is a
result of 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, is used to pay certain medical expenses, or is used for certain
qualified first-time homebuyer expenses, or certain qualified higher education
expenses. The amount of an early distribution which is not a qualifying
distribution and is not a return of previous Roth IRA contributions is
includible 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 Roth IRA as a
qualifying rollover contribution.
(c) Minimum Distributions. If the minimum distribution rules described in
4(a) 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) Prohibited Transactions. If you or your beneficiary engage in any
prohibited transaction (such as any sale, exchange or leasing of any property
between you 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
ROTH IRA-3
<PAGE> 44
distributed to you. The value of the entire annuity (excluding the nondeductible
contributions included therein) will be includible in your gross income; if at
the time of the prohibited transaction you are under age 59 1/2 you will also be
subject to the 10% penalty tax on early distributions.
6. FEDERAL ESTATE GIFT TAXES
Any amount distributed from your Roth IRA upon your death may be subject to
federal estate and gift taxes.
7. 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, or premature distribution from, your Roth IRA. You must report distributions
from your Roth IRA on your federal income tax return for the year.
(b) IRS Approval. This Roth IRA plan has not been approved as to form by
the Internal Revenue Service. Approval by the IRS of the Roth IRA plan is a
determination only as to the form of the annuity and does not represent a
determination of the merits of such annuity.
(c) Vesting. Your interest in your Roth IRA must be nonforfeitable at all
times.
ROTH IRA-4
<PAGE> 45
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
FOR
LIFESTAGES(R) -- A VARIABLE ANNUITY
FROM
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
This Statement of Additional Information ("SAI") is not a prospectus. This
SAI contains information that expands upon subjects discussed in the current
LifeStages(R) Prospectus. You should read this SAI in conjunction with the
current LifeStages(R) Prospectus dated May 1, 1999. You may obtain a copy of the
Prospectus by calling New York Life Insurance and Annuity Corporation ("NYLIAC")
at (800) 598-2019 or writing to NYLIAC at P.O. Box 290781, Wethersfield, CT
06129-0781. Terms used but not defined in this SAI have the same meaning as in
the current LifeStages(R) Prospectus.
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES (17)........................................... 2
Valuation of Accumulation Units (21)................... 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............................................. 4
FEDERAL TAX MATTERS (30).................................... 4
Taxation of New York Life Insurance and Annuity
Corporation.......................................... 4
Tax Status of the Policies............................. 4
DISTRIBUTOR OF THE POLICIES (32)............................ 5
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS...................... 6
STATE REGULATION............................................ 6
RECORDS AND REPORTS......................................... 6
LEGAL PROCEEDINGS........................................... 6
INDEPENDENT ACCOUNTANTS..................................... 6
OTHER INFORMATION........................................... 6
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
- ------------
* (Numbers in parentheses refer to page numbers of corresponding sections of the
current LifeStages(R) Prospectus.)
<PAGE> 46
THE POLICIES
The following provides additional information about the policies and
supplements the description in the Prospectus.
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. We arbitrarily set the value of each
Accumulation Unit as of the date operations began for the Investment Division.
Thereafter, the value of an Accumulation Unit of an Investment Division for any
Business Day equals the value of an Accumulation Unit in that Investment
Division as of the immediately preceding Business Day multiplied by the "Net
Investment Factor" for that Investment Division for the current Business Day.
We determine the Net Investment Factor for each Investment Division for any
period from the close of the preceding Business Day to the close of the current
Business Day (the "Valuation Period") is determined by the following formula:
(a/b)-c
Where: a = 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. (See "Other Charges" at page 22 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
2
<PAGE> 47
actual yield is affected by changes in interest rates on money market
securities, average portfolio maturity of the MainStay VP Cash Management
Portfolio, the types and quality of portfolio securities held by the MainStay VP
Cash Management Portfolio, and its operating expenses.
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.
We compute the yield 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:
(6)
YIELD = 2[(a-b+1) -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
policy 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.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return quotations for
the Investment Divisions 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:
(n)
P(1+T) = 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).
All total return figures are prepared under methods the SEC requires when
advertising performance information. For periods beginning on or after the dates
when the Investment Divisions started operations, the average annual total
return (if surrendered) figures may be referred to as "standardized"
performance. For periods before the dates when the Investment Divisions started
operations, the figures are considered "non-standardized". The average annual
total return (no surrender) figures are all considered "non-standardized".
3
<PAGE> 48
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. Dividends are not
paid.
MISSTATEMENT OF AGE OR SEX. If the Annuitant's stated age and/or sex 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 26 of
the Prospectus.) If we made payments 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, you may assign a Non-Qualified Policy or any
interest in it 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 30 of the Prospectus.)
MODIFICATION. NYLIAC may not modify the policy without your consent except
to make the policy meet the requirements of the Investment Company Act of 1940,
or to make the policy comply with any changes in the Internal Revenue Code or as
required by the Code in order to continue treatment of the policy as an annuity,
or by any other applicable law.
INCONTESTABILITY. We rely on statements made in the application. They are
representations, not warranties. We will not contest the policy 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. Because 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.
4
<PAGE> 49
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 policy 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 policy owner from being considered the owner of the assets of the
Separate Account or otherwise to qualify the policy for favorable tax treatment.
The Code also requires that non-qualified annuity contracts contain
specific provisions for distribution of the policy proceeds upon the death of
any policy 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 policy 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 policy
owner's death; and (b) if any policy owner dies before the Annuity Commencement
Date, the entire interest in the policy must generally be distributed within 5
years after the policy 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 policy
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. If the Beneficiary
is the policy owner's surviving spouse, the policy may be continued with the
surviving spouse as the new policy owner. If the policy 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") is the distributor of the
policies. 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 years ended December 31, 1996, 1997 and 1998, the aggregate amount
of underwriting commissions paid to NYLIFE Distributors Inc. was $528,880,
$1,662,404, and $2,924,756, respectively, of which $264,440, $831,203 and
$1,462,378 was retained by them, respectively.
The policies are sold and premium payments are accepted is on a continuous
basis.
5
<PAGE> 50
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
The Separate Account holds title to assets of the Separate Account. 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. We file an annual statement with the Delaware Commissioner of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of NYLIAC as of December 31 of the
preceding calendar year. Periodically, the Delaware Commissioner of Insurance
examines the financial condition of NYLIAC, including the liabilities and
reserves of the Separate Account.
In addition, NYLIAC is subject to the insurance laws and regulations of all
the states where it is licensed to operate. The availability of certain policy
rights and provisions depends on state approval and/or filing and review
processes. Where required by state law or regulation, the policies will be
modified accordingly.
RECORDS AND REPORTS
NYLIAC maintains all records and accounts relating to the Separate Account.
As presently required by the federal securities laws, NYLIAC will mail to you at
your known address of record, at least semi-annually after the first Policy
Year, reports containing information required under the federal securities laws,
or by any other applicable law or regulation.
LEGAL PROCEEDINGS
NYLIAC is a defendant in individual and/or alleged class action suits
arising from its agency sales force, insurance (including variable contracts
registered under the federal securities law), investment, retail securities
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 which cannot be predicted, NYLIAC nevertheless believes that, after
provisions made in the financial statements, the ultimate liability that could
result from 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
PricewaterhouseCoopers LLP, independent accountants, 1177 Avenue of the
Americas, New York, New York audited the annual financial statements of the
Separate Account and NYLIAC. We have included the financial statements in this
Statement of Additional Information in reliance on the reports of
PricewaterhouseCoopers LLP, given on the authority of that firm as experts in
auditing and accounting.
OTHER INFORMATION
NYLIAC filed a registration statement 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. We have not
included all of the information set forth in the registration statement,
amendments and exhibits to the registration statement in this Statement of
Additional Information. We intend the statements contained in this Statement of
Additional Information concerning the content of the policies and other legal
instruments to be summaries. For a complete statement of the terms of these
documents, you should refer to the instruments filed with the Securities and
Exchange Commission.
6
<PAGE> 51
FINANCIAL STATEMENTS
F-1
<PAGE> 52
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value............................. $369,240,373 $121,462,704 $ 38,243,492
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.................. 1,262,605 384,115 132,494
------------ ------------ ------------
Total equity.......................................... $367,977,768 $121,078,589 $ 38,110,998
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
15,939,907; 105,842,139; 2,139,153; 3,208,286;
21,960,095; 1,012,107; 11,135,691; 10,003,621;
4,993,163; 8,239,308, respectively.................... $367,977,768 $121,078,589 $ 25,970,463
Equity of New York Life Insurance and
Annuity Corporation:
Variable accumulation units outstanding for the
Convertible Investment Division: 1,000,000............ -- -- 12,140,535
------------ ------------ ------------
Total equity.......................................... $367,977,768 $121,078,589 $ 38,110,998
============ ============ ============
Variable accumulation unit value........................ $ 23.09 $ 1.14 $ 12.14
============ ============ ============
Identified Cost of Investment............................... $255,993,869 $121,463,167 $ 39,757,000
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH VALUE
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value............................. $409,034,255 $ 24,645,549 $ 16,654,494
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.................. 1,446,660 77,336 55,364
------------ ------------ ------------
Total equity.......................................... $407,587,595 $ 24,568,213 $ 16,599,130
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
17,574,978; 1,262,753; 629,338; 407,583;
572,618; 1,904,339; 593,826; 7,021,878;
5,849,671; 6,417,639, respectively.................... $407,587,595 $ 13,710,548 $ 6,411,477
Equity of New York Life Insurance and
Annuity Corporation:
Variable accumulation units outstanding: --; 1,000,000;
1,000,000; 1,000,000; 1,000,000; --; --; --; --; --,
respectively.......................................... -- 10,857,665 10,187,653
------------ ------------ ------------
Total equity.......................................... $407,587,595 $ 24,568,213 $ 16,599,130
============ ============ ============
Variable accumulation unit value........................ $ 23.19 $ 10.86 $ 10.19
============ ============ ============
Identified Cost of Investment............................... $320,208,773 $ 22,406,222 $ 15,899,695
============ ============ ============
</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> 53
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 39,801,237 $311,163,398 $ 15,191,588 $204,214,608 $158,221,639 $ 61,983,803 $180,783,507
127,349 1,043,003 55,847 696,968 578,625 195,568 618,234
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 39,673,888 $310,120,395 $ 15,135,741 $203,517,640 $157,643,014 $ 61,788,235 $180,165,273
============ ============ ============ ============ ============ ============ ============
$ 39,673,888 $310,120,395 $ 15,135,741 $203,517,640 $157,643,014 $ 61,788,235 $180,165,273
-- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 39,673,888 $310,120,395 $ 15,135,741 $203,517,640 $157,643,014 $ 61,788,235 $180,165,273
============ ============ ============ ============ ============ ============ ============
$ 12.37 $ 14.12 $ 14.95 $ 18.28 $ 15.76 $ 12.37 $ 21.87
============ ============ ============ ============ ============ ============ ============
$ 39,938,942 $340,608,990 $ 13,411,058 $162,769,251 $169,377,814 $ 63,549,793 $164,365,944
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY GROWTH CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 16,489,610 $ 14,396,044 $ 22,879,777 $ 10,081,066 $117,500,242 $ 85,283,345 $105,067,024
56,022 46,911 77,922 34,250 387,541 299,079 332,409
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 16,433,588 $ 14,349,133 $ 22,801,855 $ 10,046,816 $117,112,701 $ 84,984,266 $104,734,615
============ ============ ============ ============ ============ ============ ============
$ 4,758,550 $ 5,224,775 $ 22,801,855 $ 10,046,816 $117,112,701 $ 84,984,266 $104,734,615
... 11,675,038 9,124,358 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
... $ 16,433,588 $ 14,349,133 $ 22,801,855 $ 10,046,816 $117,112,701 $ 84,984,266 $104,734,615
============ ============ ============ ============ ============ ============ ============
$ 11.68 $ 9.12 $ 11.97 $ 16.92 $ 16.68 $ 14.53 $ 16.32
============ ============ ============ ============ ============ ============ ============
$ 14,069,923 $ 14,432,850 $ 21,128,348 $ 9,756,793 $ 95,340,737 $ 79,462,183 $ 87,092,753
============ ============ ============ ============ ============ ============ ============
</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> 54
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
As of December 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES RESEARCH SERIES
-------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value......................... $125,041,287 $ 4,609,931 $ 2,736,163
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.............. 427,236 12,070 7,307
------------ ------------ ------------
Total equity...................................... $124,614,051 $ 4,597,861 $ 2,728,856
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
7,855,397; 435,136; 251,870, respectively......... $124,614,051 $ 4,597,861 $ 2,728,856
============ ============ ============
Variable accumulation unit value.................... $ 15.86 $ 10.57 $ 10.83
============ ============ ============
Identified Cost of Investment........................... $107,531,683 $ 4,190,602 $ 2,478,822
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value......................... $ 6,239,614 $ 10,108,780 $ 425,282
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.............. 23,613 27,051 1,474
------------ ------------ ------------
Total equity...................................... $ 6,216,001 $ 10,081,729 $ 423,808
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
840,557; 995,465; 52,854, respectively............ $ 6,216,001 $ 10,081,729 $ 423,808
============ ============ ============
Variable accumulation unit value.................... $ 7.40 $ 10.13 $ 8.02
============ ============ ============
Identified Cost of Investment........................... $ 9,207,190 $ 9,858,641 $ 422,795
============ ============ ============
</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> 55
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-5
<PAGE> 56
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
---------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income........................................... $ 322,876 $ 4,101,582 $ 1,798,354
Mortality and expense risk charges........................ (3,586,846) (1,126,088) (465,272)
------------ ------------ ------------
Net investment income (loss).......................... (3,263,970) 2,975,494 1,333,082
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments......................... 12,394,452 167,003,109 3,510,198
Cost of investments sold.................................. (7,562,274) (167,002,400) (3,159,579)
------------ ------------ ------------
Net realized gain on investments...................... 4,832,178 709 350,619
Realized gain distribution received....................... 3,372,386 -- 1,219,130
Change in unrealized appreciation (depreciation) on
investments............................................. 80,264,752 (526) (2,295,772)
------------ ------------ ------------
Net gain (loss) on investments........................ 88,469,316 183 (726,023)
------------ ------------ ------------
Increase (decrease) attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account............................ (227,414) (9,626) (1,174)
------------ ------------ ------------
Net increase (decrease) in total equity resulting from
operations.......................................... $ 84,977,932 $ 2,966,051 $ 605,885
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH(a) VALUE(a)
---------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income........................................... $ 3,986,130 $ 113,894 $ 79,261
Mortality and expense risk charges........................ (4,006,571) (141,162) (111,611)
------------ ------------ ------------
Net investment income (loss).......................... (20,441) (27,268) (32,350)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments......................... 9,178,549 340,580 236,080
Cost of investments sold.................................. (5,440,758) (375,953) (257,838)
------------ ------------ ------------
Net realized gain (loss) on investments............... 3,737,791 (35,373) (21,758)
Realized gain distribution received....................... 3,479,147 -- --
Change in unrealized appreciation (depreciation) on
investments............................................. 61,206,441 2,239,326 754,799
------------ ------------ ------------
Net gain (loss) on investments........................ 68,423,379 2,203,953 733,041
------------ ------------ ------------
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account.... (209,334) (6,952) (3,408)
------------ ------------ ------------
Net increase (decrease) in total equity resulting from
operations.......................................... $ 68,193,604 $ 2,169,733 $ 697,283
============ ============ ============
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-6
<PAGE> 57
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,672,373 $ 28,166,123 $ 345,340 $ 3,693,529 $ 2,489,083 $ 3,183,051 $ 1,307,242
(322,280) (3,710,696) (187,409) (2,109,253) (2,093,392) (549,159) (1,801,130)
------------ ------------ ------------ ------------ ------------ ------------ ------------
1,350,093 24,455,427 157,931 1,584,276 395,691 2,633,892 (493,888)
------------ ------------ ------------ ------------ ------------ ------------ ------------
4,245,011 11,428,582 1,601,128 1,573,147 5,644,367 1,068,740 2,384,087
(3,945,264) (10,653,482) (1,533,795) (1,189,391) (4,365,232) (1,036,248) (2,027,162)
------------ ------------ ------------ ------------ ------------ ------------ ------------
299,747 775,100 67,333 383,756 1,279,135 32,492 356,925
-- 779,456 -- 5,245,257 12,582,107 1,562,448 13,289,553
(88,614) (25,710,885) 2,291,030 28,857,896 (25,490,442) (1,391,302) 16,134,563
------------ ------------ ------------ ------------ ------------ ------------ ------------
211,133 (24,156,329) 2,358,363 34,486,909 (11,629,200) 203,638 29,781,041
------------ ------------ ------------ ------------ ------------ ------------ ------------
(3,824) (422) (10,483) (95,981) 15,885 (7,219) (88,398)
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 1,557,402 $ 298,676 $ 2,505,811 $ 35,975,204 $(11,217,624) $ 2,830,311 $ 29,198,755
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY(a) GROWTH(a) CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10,215 $ -- $ -- $ 224,360 $ 306,142 $ 472,906 $ 2,426,150
(113,276) (94,657) (221,783) (97,039) (1,004,905) (818,178) (771,391)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(103,061) (94,657) (221,783) 127,321 (698,763) (345,272) 1,654,759
------------ ------------ ------------ ------------ ------------ ------------ ------------
344,831 365,414 10,566,541 578,840 525,913 876,965 377,495
(350,068) (496,369) (10,822,400) (500,929) (426,592) (790,810) (305,485)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(5,237) (130,955) (255,859) 77,911 99,321 86,155 72,010
-- -- 1,965,062 503,162 2,252,334 1,682,987 347,759
2,419,687 (36,805) 1,178,171 300,085 18,490,256 3,410,204 16,353,009
------------ ------------ ------------ ------------ ------------ ------------ ------------
2,414,450 (167,760) 2,887,374 881,158 20,841,911 5,179,346 16,772,778
------------ ------------ ------------ ------------ ------------ ------------ ------------
(6,423) (3,676) (9,820) (2,809) (56,749) (20,934) (50,484)
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 2,304,966 $ (266,093) $ 2,655,771 $ 1,005,670 $ 20,086,399 $ 4,813,140 $ 18,377,053
============ ============ ============ ============ ============ ============ ============
</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> 58
STATEMENT OF OPERATIONS (CONTINUED)
For the year ended December 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES(a) RESEARCH SERIES(a)
------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income................................... $ 2,419,077 $ -- $ --
Mortality and expense risk charges................ (1,224,410) (15,005) (9,472)
----------- ----------- -----------
Net investment income (loss).................. 1,194,667 (15,005) (9,472)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................. 6,516,664 302,835 150,437
Cost of investments sold.......................... (4,659,864) (321,329) (168,415)
----------- ----------- -----------
Net realized gain (loss) on investments....... 1,856,800 (18,494) (17,978)
Realized gain distribution received............... 961,481 -- --
Change in unrealized appreciation (depreciation)
on investments.................................. 14,600,486 419,329 257,341
----------- ----------- -----------
Net gain on investments....................... 17,418,767 400,835 239,363
----------- ----------- -----------
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account.................... (63,694) (829) (595)
----------- ----------- -----------
Net increase in total equity resulting
from operations............................. $18,549,740 $ 385,001 $ 229,296
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME(a) ASSETS(a)
-----------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income................................... $ 35,188 $ 81,894 $ --
Mortality and expense risk charges................ (102,229) (36,282) (2,516)
----------- ----------- -----------
Net investment income (loss).................. (67,041) 45,612 (2,516)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................. 1,990,930 756,879 348,884
Cost of investments sold.......................... (2,656,232) (793,532) (401,441)
----------- ----------- -----------
Net realized loss on investments.............. (665,302) (36,653) (52,557)
Realized gain distribution received............... -- 258,411 --
Change in unrealized appreciation (depreciation)
on investments.................................. (1,402,784) 250,139 2,487
----------- ----------- -----------
Net gain (loss) on investments................ (2,068,086) 471,897 (50,070)
----------- ----------- -----------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account.................... 3,898 (1,005) 34
----------- ----------- -----------
Net increase (decrease) in total equity
resulting
from operations............................. $(2,131,229) $ 516,504 $ (52,552)
=========== =========== ===========
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-8
<PAGE> 59
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-9
<PAGE> 60
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
----------------------------- -----------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ (3,263,970) $ (2,004,809) $ 2,975,494 $ 1,557,178
Net realized gain (loss) on investments.......... 4,832,178 1,461,967 709 384
Realized gain distribution received.............. 3,372,386 2,490,645 -- --
Change in unrealized appreciation (depreciation)
on investments................................. 80,264,752 24,856,920 (526) 89
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account............................... (227,414) (54,419) (9,626) (3,261)
------------- ------------- ------------- -------------
Net increase in total equity resulting from
operations................................... 84,977,932 26,750,304 2,966,051 1,554,390
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 13,162,525 10,878,222 913,610,826 533,387,885
Policyowners' surrenders......................... (9,195,564) (3,833,164) (2,866,672) (593,348)
Policyowners' annuity and death benefits......... (1,384,891) (570,014) (110,206) (89,388)
Net transfers from (to) Fixed Account............ (1,075,455) 139,248 (4,500,370) (2,565,258)
Transfers between Investment Divisions........... 95,055,794 56,355,081 (835,614,042) (518,855,377)
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 96,562,409 62,969,373 70,519,536 11,284,514
------------- ------------- ------------- -------------
Increase in total equity..................... 181,540,341 89,719,677 73,485,587 12,838,904
TOTAL EQUITY:
Beginning of year................................ 186,437,427 96,717,750 47,593,002 34,754,098
------------- ------------- ------------- -------------
End of year...................................... $ 367,977,768 $ 186,437,427 $ 121,078,589 $ 47,593,002
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
----------------------------- -----------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ 157,931 $ 748,310 $ 1,584,276 $ 1,111,058
Net realized gain (loss) on investments.......... 67,333 52,686 383,756 338,596
Realized gain distribution received.............. -- -- 5,245,257 2,007,938
Change in unrealized appreciation (depreciation)
on investments................................. 2,291,030 (522,105) 28,857,896 9,625,259
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account................... (10,483) 386 (95,981) (28,939)
------------- ------------- ------------- -------------
Net increase (decrease) in total equity
resulting from operations.................... 2,505,811 279,277 35,975,204 13,053,912
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 442,310 652,833 8,659,295 6,536,163
Policyowners' surrenders......................... (301,242) (221,697) (5,204,970) (2,714,075)
Policyowners' annuity and death benefits......... (91,591) (24,509) (766,712) (620,414)
Net transfers from (to) Fixed Account............ (63,428) 2,289 (707,925) (367,210)
Transfers between Investment Divisions........... 1,168,012 2,565,306 54,347,173 30,635,555
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 1,154,061 2,974,222 56,326,861 33,470,019
------------- ------------- ------------- -------------
Increase in total equity..................... 3,659,872 3,253,499 92,302,065 46,523,931
TOTAL EQUITY:
Beginning of year................................ 11,475,869 8,222,370 111,215,575 64,691,644
------------- ------------- ------------- -------------
End of year...................................... $ 15,135,741 $ 11,475,869 $ 203,517,640 $ 111,215,575
============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-10
<PAGE> 61
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,333,082 $ 689,559 $ 1,350,093 $ 664,227 $ 24,455,427 $ 11,015,928
350,619 69,551 299,747 (36,044) 775,100 250,557
1,219,130 1,382,924 -- -- 779,456 8,027,954
(2,295,772) 524,116 (88,614) 215,099 (25,710,885) (4,636,421)
(1,174) (8,739) (3,824) (2,274) (422) (45,438)
------------- ------------- ------------- ------------- ------------- -------------
605,885 2,657,411 1,557,402 841,008 298,676 14,612,580
------------- ------------- ------------- ------------- ------------- -------------
1,768,847 859,834 893,428 656,652 19,432,879 15,824,644
(619,313) (244,202) (1,102,640) (396,389) (11,532,193) (4,527,694)
(129,950) (72,117) (186,772) (48,462) (1,549,873) (1,111,802)
(114,198) 37,227 (152,490) (159,195) (2,618,743) 460,931
10,614,613 9,809,745 25,977,645 2,680,687 102,753,150 96,235,470
------------- ------------- ------------- ------------- ------------- -------------
11,519,999 10,390,487 25,429,171 2,733,293 106,485,220 106,881,549
------------- ------------- ------------- ------------- ------------- -------------
12,125,884 13,047,898 26,986,573 3,574,301 106,783,896 121,494,129
25,985,114 12,937,216 12,687,315 9,113,014 203,336,499 81,842,370
------------- ------------- ------------- ------------- ------------- -------------
$ 38,110,998 $ 25,985,114 $ 39,673,888 $ 12,687,315 $ 310,120,395 $ 203,336,499
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 395,691 $ 386,063 $ 2,633,892 $ 1,176,988 $ (493,888) $ (220,472)
1,279,135 101,581 32,492 (62,669) 356,925 54,420
12,582,107 5,111,434 1,562,448 63,187 13,289,553 11,231,183
(25,490,442) 9,929,931 (1,391,302) 256,928 16,134,563 1,410,618
15,885 (33,267) (7,219) (3,926) (88,398) (29,274)
------------- ------------- ------------- ------------- ------------- -------------
(11,217,624) 15,495,742 2,830,311 1,430,508 29,198,755 12,446,475
------------- ------------- ------------- ------------- ------------- -------------
8,504,850 7,389,878 2,962,500 1,711,859 7,854,006 5,229,461
(4,951,446) (2,348,977) (1,415,205) (541,597) (3,939,312) (1,146,808)
(1,204,738) (381,578) (172,811) (137,890) (665,675) (121,552)
(1,354,692) 100,929 (56,985) (22,994) (259,908) 150,624
47,245,084 53,907,058 34,854,154 7,660,804 60,766,288 38,749,467
------------- ------------- ------------- ------------- ------------- -------------
48,239,058 58,667,310 36,171,653 8,670,182 63,755,399 42,861,192
------------- ------------- ------------- ------------- ------------- -------------
37,021,434 74,163,052 39,001,964 10,100,690 92,954,154 55,307,667
120,621,580 46,458,528 22,786,271 12,685,581 87,211,119 31,903,452
------------- ------------- ------------- ------------- ------------- -------------
$ 157,643,014 $ 120,621,580 $ 61,788,235 $ 22,786,271 $ 180,165,273 $ 87,211,119
============= ============= ============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-11
<PAGE> 62
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
AMERICAN
CENTURY
MAINSTAY VP INCOME
INDEXED EQUITY & GROWTH
----------------------------- -------------
1998 1997 1998(a)
---------------------------------------------
<S> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ (20,441) $ 638,114 $ (27,268)
Net realized gain (loss) on investments.......... 3,737,791 513,469 (35,373)
Realized gain distribution received.............. 3,479,147 4,074,683 --
Change in unrealized appreciation (depreciation)
on investments................................. 61,206,441 22,999,711 2,239,326
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account............................... (209,334) (52,444) (6,952)
------------- ------------- -------------
Net increase (decrease) in total equity
resulting from operations.................... 68,193,604 28,173,533 2,169,733
------------- ------------- -------------
Contributions and withdrawals:
Equity contribution by New York Life Insurance
and Annuity Corporation........................ -- -- 10,000,000
Policyowners' premium payments................... 20,576,362 12,909,902 634,838
Policyowners' surrenders......................... (9,009,769) (2,242,151) (79,172)
Policyowner's annuity and death benefits......... (1,003,566) (495,418) --
Net transfers from (to) Fixed Account............ (82,202) 158,473 46,387
Transfers between Investment Divisions........... 146,203,904 83,737,908 11,796,427
------------- ------------- -------------
Net contributions and withdrawals.............. 156,684,729 94,068,714 22,398,480
------------- ------------- -------------
Increase in total equity..................... 224,878,333 122,242,247 24,568,213
TOTAL EQUITY:
Beginning of year................................ 182,709,262 60,467,015 --
------------- ------------- -------------
End of year...................................... $ 407,587,595 $ 182,709,262 $ 24,568,213
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIAL VIP II
BALANCED CONTRAFUND
----------------------------- -----------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ 127,321 $ 56,155 $ (698,763) $ (228,447)
Net realized gain on investments................. 77,911 122,929 99,321 32,698
Realized gain distribution received.............. 503,162 198,489 2,252,334 115,953
Change in unrealized appreciation (depreciation)
on investments................................. 300,085 41,821 18,490,256 3,633,056
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation retained
by
Separate Account............................... (2,809) (963) (56,749) (8,761)
------------- ------------- ------------- -------------
Net increase in total equity resulting from
operations................................... 1,005,670 418,431 20,086,399 3,544,499
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policy owners' premium payments.................. 448,798 229,133 6,539,351 3,143,721
Policyowners' surrenders......................... (178,847) (50,664) (2,091,645) (339,799)
Policyowner's annuity and death benefits......... (74,437) -- (193,257) (51,672)
Net transfers from (to) Fixed Account............ (105,315) (27,090) 54,147 232,305
Transfers between Investment Divisions........... 4,790,643 2,062,746 52,658,032 30,973,881
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 4,880,842 2,214,125 56,966,628 33,958,436
------------- ------------- ------------- -------------
Increase in total equity..................... 5,886,512 2,632,556 77,053,027 37,502,935
TOTAL EQUITY:
Beginning of year................................ 4,160,304 1,527,748 40,059,674 2,556,739
------------- ------------- ------------- -------------
End of year...................................... $ 10,046,816 $ 4,160,304 $ 117,112,701 $ 40,059,674
============= ============= ============= =============
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-12
<PAGE> 63
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
Dreyfus Eagle Asset Lord Alger
Large Management Abbett American
Company Growth Developing Small
Value Equity Growth Capitalization
------------- ------------- ------------- -----------------------------
1998(a) 1998(a) 1998(a) 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ (32,350) $ (103,061) $ (94,657) $ (221,783) $ (84,204)
(21,758) (5,237) (130,955) (255,859) 12,244
-- -- -- 1,965,062 181,977
754,799 2,419,687 (36,805) 1,178,171 575,759
(3,408) (6,423) (3,676) (9,820) (1,898)
------------- ------------- ------------- ------------- -------------
697,283 2,304,966 (266,093) 2,655,771 683,878
------------- ------------- ------------- ------------- -------------
10,000,000 10,000,000 10,000,000 -- --
641,398 278,603 354,560 1,298,003 836,724
(95,950) (13,083) (50,429) (667,185) (186,892)
-- -- -- (123,482) (5,920)
10,210 37,328 42,726 83,274 126,538
5,346,189 3,825,774 4,268,369 8,414,198 8,490,851
------------- ------------- ------------- ------------- -------------
15,901,847 14,128,622 14,615,226 9,004,808 9,261,301
------------- ------------- ------------- ------------- -------------
16,599,130 16,433,588 14,349,133 11,660,579 9,945,179
-- -- -- 11,141,276 1,196,097
------------- ------------- ------------- ------------- -------------
$ 16,599,130 $ 16,433,588 $ 14,349,133 $ 22,801,855 $ 11,141,276
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY JANUS ASPEN SERIES
VIP SERIES WORLDWIDE
EQUITY-INCOME BALANCED GROWTH
----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ (345,272) $ (131,338) $ 1,654,759 $ 282,861 $ 1,194,667 $ (63,335)
86,155 29,096 72,010 29,884 1,856,800 41,873
1,682,987 235,647 347,759 15,180 961,481 135,117
3,410,204 2,411,326 16,353,009 1,622,795 14,600,486 2,881,305
(20,934) (4,837) (50,484) (5,264) (63,694) (8,481)
------------- ------------- ------------- ------------- ------------- -------------
4,813,140 2,539,894 18,377,053 1,945,456 18,549,740 2,986,479
------------- ------------- ------------- ------------- ------------- -------------
5,720,100 2,301,288 5,898,289 2,080,572 7,060,394 5,065,954
(1,598,980) (233,692) (1,550,539) (252,056) (2,524,290) (689,464)
(309,345) (16,054) (253,681) (29,064) (281,189) (100,782)
15,447 139,382 177,556 112,186 (39,738) 502,000
46,428,934 23,623,399 56,910,948 20,033,507 47,042,242 44,252,676
------------- ------------- ------------- ------------- ------------- -------------
50,256,156 25,814,323 61,182,573 21,945,145 51,257,419 49,030,384
------------- ------------- ------------- ------------- ------------- -------------
55,069,296 28,354,217 79,559,626 23,890,601 69,807,159 52,016,863
29,914,970 1,560,753 25,174,989 1,284,388 54,806,892 2,790,029
------------- ------------- ------------- ------------- ------------- -------------
$ 84,984,266 $ 29,914,970 $ 104,734,615 $ 25,174,989 $ 124,614,051 $ 54,806,892
============= ============= ============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-13
<PAGE> 64
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
MFS
GROWTH
WITH MFS
INCOME SERIES RESEARCH SERIES
------------- ---------------
1998(A) 1998(A)
-------------------------------
<S> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment loss.............................. $ (15,005) $ (9,472)
Net realized loss on investments................. (18,494) (17,978)
Change in unrealized appreciation (depreciation)
on investments................................. 419,329 257,341
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account............................... (829) (595)
------------- -------------
Net increase in total equity resulting from
operations................................... 385,001 229,296
------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 245,609 193,769
Policyowners' surrenders......................... (23,721) (5,144)
Net transfers from Fixed Account................. 42,863 5,543
Transfers between Investment Divisions........... 3,948,109 2,305,392
------------- -------------
Net contributions and withdrawals.............. 4,212,860 2,499,560
------------- -------------
Increase in total equity..................... 4,597,861 2,728,856
TOTAL EQUITY:
Beginning of year................................ -- --
------------- -------------
End of year...................................... $ 4,597,861 $ 2,728,856
============= =============
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
----------------------------- ------------- -------------
1998 1997 1998(A) 1998(A)
-------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ (67,041) $ (24,058) $ 45,612 $ (2,516)
Net realized gain (loss) on investments.......... (665,302) 138,123 (36,653) (52,557)
Realized gain distribution received.............. -- 245,953 258,411 --
Change in unrealized appreciation (depreciation)
on investments................................. (1,402,784) (1,574,419) 250,139 2,487
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account................... 3,898 1,437 (1,005) 34
------------- ------------- ------------- -------------
Net increase (decrease) in total equity
resulting from operations.................... (2,131,229) (1,212,964) 516,504 (52,552)
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 544,180 1,173,626 737,336 23,746
Policyowners' surrenders......................... (303,684) (79,912) (86,228) (3,416)
Policyowners' annuity and death benefits......... (28,128) -- -- --
Net transfers from (to) Fixed Account............ (222,426) 75,384 218,947 (44,240)
Transfers between Investment Divisions........... 177,768 7,422,353 8,695,170 500,270
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 167,710 8,591,451 9,565,225 476,360
------------- ------------- ------------- -------------
Increase (decrease) in total equity.......... (1,963,519) 7,378,487 10,081,729 423,808
TOTAL EQUITY:
Beginning of year................................ 8,179,520 801,033 -- --
------------- ------------- ------------- -------------
End of year...................................... $ 6,216,001 $ 8,179,520 $ 10,081,729 $ 423,808
============= ============= ============= =============
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-14
<PAGE> 65
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
NYLIAC 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 and financial 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., the Alger American Fund, the Calvert Variable Series Inc.
(formerly, "Acacia Capital Corporation"), 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., the Van Eck Worldwide Insurance
Trust 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 thirty variable Investment Divisions, with their
respective fund portfolios, for Policyowners to invest premium payments. These
financial statements and notes relate only to the following twenty-six
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, American Century Income & Growth, Dreyfus Large Company
Value, Eagle Asset Management Growth Equity, Lord Abbett Developing Growth,
Alger American Small Capitalization, Calvert Social Balanced (formerly "Calvert
Socially Responsible"), 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 and Van Eck Worldwide Hard Assets. 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-15
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
A
t December 31, 1998, 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........................................ 12,062 121,463 3,700
Identified cost*........................................ $255,994 $121,463 $ 39,757
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH VALUE
------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 15,800 2,259 1,627
Identified cost*........................................ $320,209 $ 22,406 $ 15,900
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $109,475 $240,702 $ 17,624
Proceeds from sales..................................... 12,394 167,003 3,510
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH(A) VALUE(A)
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $169,969 $ 22,782 $ 16,158
Proceeds from sales..................................... 9,179 341 236
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
F-16
<PAGE> 67
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3,877 28,503 1,225 10,216 11,337 4,686 7,655
$ 39,939 $340,609 $ 13,411 $162,769 $169,378 $ 63,550 $164,366
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY GROWTH CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1,400 1,563 520 4,717 4,808 3,355 4,670
$ 14,070 $ 14,433 $ 21,128 $ 9,757 $ 95,341 $ 79,462 $ 87,093
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 31,105 $143,524 $ 2,920 $ 64,954 $ 67,062 $ 41,550 $ 79,179
4,245 11,429 1,601 1,573 5,644 1,069 2,384
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY(A) GROWTH(A) CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 14,420 $ 14,929 $ 21,348 $ 6,109 $ 59,256 $ 52,664 $ 63,768
345 365 10,567 579 526 877 377
</TABLE>
F-17
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES RESEARCH SERIES
---------------------------------------------------------------
<S> <C> <C> <C>
Number of shares................................ 4,298 229 144
Identified cost*................................ $107,532 $ 4,191 $ 2,479
</TABLE>
<TABLE>
<CAPTION>
MORGAN
STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
---------------------------------------------------------------
<S> <C> <C> <C>
Number of shares................................ 878 525 46
Identified cost*................................ $ 9,207 $ 9,859 $ 423
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES(a) RESEARCH SERIES(a)
---------------------------------------------------------------
<S> <C> <C> <C>
Purchases....................................... $ 60,119 $ 4,512 $ 2,647
Proceeds from sales............................. 6,517 303 150
</TABLE>
<TABLE>
<CAPTION>
MORGAN
STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME(A) ASSETS(A)
---------------------------------------------------------------
<S> <C> <C> <C>
Purchases....................................... $ 2,093 $ 10,652 $ 824
Proceeds from sales............................. 1,991 757 349
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
F-18
<PAGE> 69
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
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-19
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners and New York Life Insurance and Annuity
Corporation (in 000's):
- --------------------------------------------------------------------------------
A
t December 31, 1998, 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).......................... $248,670 $115,663 $ 34,476
Accumulated net investment income (loss).................... (5,915) 5,429 2,114
Accumulated net realized gain on investments and realized
gain distributions received............................... 12,267 -- 3,044
Unrealized appreciation (depreciation) on investments....... 113,246 -- (1,513)
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account...... (290) (13) (10)
-------- -------- --------
Net amount applicable to Policyowners and New York Life
Insurance and Annuity Corporation......................... $367,978 $121,079 $ 38,111
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH VALUE
------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners and New York Life Insurance and Annuity
Corporation (net of withdrawals).......................... $305,267 $ 22,397 $ 15,901
Accumulated net investment income (loss).................... 1,147 (27) (32)
Accumulated net realized gain (loss) on investments and
realized gain distributions received...................... 12,621 (35) (21)
Unrealized appreciation (depreciation) on investments....... 88,825 2,239 754
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account...... (272) (6) (3)
-------- -------- --------
Net amount applicable to Policyowners and New York Life
Insurance and Annuity Corporation......................... $407,588 $ 24,568 $ 16,599
======== ======== ========
</TABLE>
F-20
<PAGE> 71
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 37,027 $289,628 $ 11,925 $150,504 $148,034 $ 57,166 $135,443
2,630 39,023 1,277 3,651 1,024 4,625 (634)
160 10,972 165 8,049 19,767 1,574 29,062
(137) (29,445) 1,780 41,445 (11,156) (1,565) 16,417
(6) (58) (11) (131) (26) (12) (123)
-------- -------- -------- -------- -------- -------- --------
$ 39,674 $310,120 $ 15,136 $203,518 $157,643 $ 61,788 $180,165
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY GROWTH CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 14,129 $ 14,612 $ 19,466 $ 8,519 $ 93,449 $ 77,633 $ 84,404
(103) (94) (307) 216 (930) (478) 1,948
(5) (130) 1,903 991 2,500 2,033 464
2,419 (36) 1,751 324 22,159 5,821 17,974
(6) (3) (11) (3) (65) (25) (55)
-------- -------- -------- -------- -------- -------- --------
$ 16,434 $ 14,349 $ 22,802 $ 10,047 $117,113 $ 84,984 $104,735
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-21
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES RESEARCH SERIES
------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners (net of withdrawals)................... $103,042 $ 4,212 $ 2,499
Accumulated net investment income (loss).................... 1,140 (15) (9)
Accumulated net realized gain (loss) on investments and
realized gain distributions received...................... 2,995 (18) (18)
Unrealized appreciation (depreciation) on investments....... 17,509 419 257
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account...... (72) -- --
-------- -------- --------
Net amount applicable to Policyowners....................... $124,614 $ 4,598 $ 2,729
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners (net of withdrawals)................... $ 9,549 $ 9,567 $ 476
Accumulated net investment income (loss).................... (90) 45 (2)
Accumulated net realized gain (loss) on investments and
realized gain distributions received...................... (281) 221 (52)
Unrealized appreciation (depreciation) on investments....... (2,967) 250 2
Increase (decrease) attributable to funds of New York Life
Insurance and Annuity Corporation retained by Separate
Account................................................... 5 (1) --
-------- -------- --------
Net amount applicable to Policyowners....................... $ 6,216 $ 10,082 $ 424
======== ======== ========
</TABLE>
F-22
<PAGE> 73
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-23
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
T
ransactions in accumulation units for the years ended December 31, 1998 and
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
--------------------------- ---------------------------
1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments....................... 686 701 812,628 492,361
Units redeemed on surrenders........................... (476) (242) (2,547) (548)
Units redeemed on annuity and death benefits........... (72) (36) (97) (82)
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (54) 7 (3,989) (2,361)
Units issued (redeemed) on transfers between Investment
Divisions............................................ 4,855 3,622 (743,310) (478,922)
-------- -------- -------- --------
Net increase......................................... 4,939 4,052 62,685 10,448
Units outstanding, beginning of year................... 11,001 6,949 43,157 32,709
-------- -------- -------- --------
Units outstanding, end of year......................... 15,940 11,001 105,842 43,157
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
--------------------------- ---------------------------
1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments....................... 33 54 542 482
Units redeemed on surrenders........................... (22) (18) (324) (197)
Units redeemed on annuity and death benefits........... (7) (2) (48) (45)
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (5) -- (48) (28)
Units issued on transfers between Investment
Divisions............................................ 81 206 3,385 2,263
-------- -------- -------- --------
Net increase......................................... 80 240 3,507 2,475
Units outstanding, beginning of year................... 932 692 7,629 5,154
-------- -------- -------- --------
Units outstanding, end of year......................... 1,012 932 11,136 7,629
======== ======== ======== ========
</TABLE>
F-24
<PAGE> 75
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
144 78 76 59 1,361 1,184
(51) (22) (91) (36) (817) (335)
(10) (6) (16) (4) (110) (84)
(11) 2 (12) (14) (199) 34
862 903 2,148 243 7,148 7,239
-------- -------- -------- -------- -------- --------
934 955 2,105 248 7,383 8,038
2,205 1,250 1,103 855 14,577 6,539
-------- -------- -------- -------- -------- --------
3,139 2,205 3,208 1,103 21,960 14,577
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
504 485 246 155 404 329
(302) (152) (118) (49) (204) (70)
(70) (24) (14) (13) (35) (7)
(91) 5 (4) (2) (17) 11
2,727 3,545 2,902 697 3,112 2,440
-------- -------- -------- -------- -------- --------
2,768 3,859 3,012 788 3,260 2,703
7,236 3,377 1,981 1,193 4,979 2,276
-------- -------- -------- -------- -------- --------
10,004 7,236 4,993 1,981 8,239 4,979
======== ======== ======== ======== ======== ========
</TABLE>
F-25
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN
CENTURY
MAINSTAY VP INCOME
INDEXED EQUITY & GROWTH
------------------- ----------
1998 1997 1998(a)
--------------------------------
<S> <C> <C> <C>
Units issued on equity contribution by New York
Life Insurance and Annuity Corporation........... -- -- 1,000
Units issued on premium payments................... 1,003 776 66
Units redeemed on surrenders....................... (438) (134) (8)
Units redeemed on annuity and death benefits....... (50) (29) --
Units issued (redeemed) on net transfers from (to)
Fixed Account.................................... (8) 10 5
Units issued on transfers between Investment
Divisions........................................ 7,086 5,032 1,200
-------- -------- --------
Net increase..................................... 7,593 5,655 2,263
Units outstanding, beginning of year............... 9,982 4,327 --
-------- -------- --------
Units outstanding, end of year..................... 17,575 9,982 2,263
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIAL VIP II
BALANCED CONTRAFUND
------------------- -------------------
1998 1997 1998 1997
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 29 16 457 259
Units redeemed on surrenders....................... (11) (4) (145) (27)
Units redeemed on annuity and death benefits....... (5) -- (13) (4)
Units issued (redeemed) on net transfers from (to)
Fixed Account.................................... (7) (2) 1 19
Units issued on transfers between Investment
Divisions........................................ 306 149 3,643 2,591
-------- -------- -------- --------
Net increase..................................... 312 159 3,943 2,838
Units outstanding, beginning of year............... 282 123 3,079 241
-------- -------- -------- --------
Units outstanding, end of year..................... 594 282 7,022 3,079
======== ======== ======== ========
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
F-26
<PAGE> 77
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS EAGLE ASSET LORD ALGER
LARGE MANAGEMENT ABBETT AMERICAN
COMPANY GROWTH DEVELOPING SMALL
VALUE EQUITY GROWTH CAPITALIZATION
-------- ----------- ---------- -------------------
1998(A) 1998(A) 1998(A) 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,000 1,000 1,000 -- --
68 27 44 121 84
(10) (1) (6) (61) (18)
-- -- -- (11) (1)
1 4 5 6 13
570 378 530 789 857
-------- -------- -------- -------- --------
1,629 1,408 1,573 844 935
-- -- -- 1,060 125
-------- -------- -------- -------- --------
1,629 1,408 1,573 1,904 1,060
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY JANUS ASPEN SERIES
VIP SERIES WORLDWIDE
EQUITY-INCOME BALANCED GROWTH
------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
409 188 424 180 487 418
(116) (19) (109) (22) (174) (56)
(22) (1) (19) (2) (20) (8)
(4) 12 11 10 (6) 41
3,316 1,938 4,068 1,752 3,176 3,728
-------- -------- -------- -------- -------- --------
3,583 2,118 4,375 1,918 3,463 4,123
2,267 149 2,043 125 4,392 269
-------- -------- -------- -------- -------- --------
5,850 2,267 6,418 2,043 7,855 4,392
======== ======== ======== ======== ======== ========
</TABLE>
F-27
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS
GROWTH
WITH MFS
INCOME RESEARCH
SERIES SERIES
-------- --------
1998(a) 1998(a)
-------------------
<S> <C> <C>
Units issued on premium payments........................ 24 18
Units redeemed on surrenders............................ (2) (1)
Units issued on net transfers to Fixed Account.......... 5 1
Units issued on transfers between Investment
Divisions............................................. 408 234
-------- --------
Net increase.......................................... 435 252
Units outstanding, beginning of year.................... -- --
-------- --------
Units outstanding, end of year.......................... 435 252
======== ========
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
------------------- -------- ---------
1998 1997 1998(a) 1998(a)
------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments........................ 62 105 76 2
Units redeemed on surrenders............................ (36) (7) (9) --
Units redeemed on annuity and death benefits............ (3) -- -- --
Units issued (redeemed) on net transfers from (to) Fixed
Account............................................... (21) 6 22 (5)
Units issued on transfers between Investment
Divisions............................................. 12 643 906 56
-------- -------- -------- --------
Net increase.......................................... 14 747 995 53
Units outstanding, beginning of year.................... 827 80 -- --
-------- -------- -------- --------
Units outstanding, end of year.......................... 841 827 995 53
======== ======== ======== ========
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
F-28
<PAGE> 79
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-29
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
T
he following table presents selected per accumulation unit income and
capital changes (for an accumulation unit outstanding throughout each year)
with respect to each Investment Division of the Separate Account:
<TABLE>
<CAPTION>
MAINSTAY VP
CAPITAL APPRECIATION
-------------------------------------
1998 1997 1996 1995(a)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $16.95 $13.92 $11.89 $10.00
Net investment income (loss)................................ (0.25) (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)............................................. 6.39 3.25 2.20 1.83
------ ------ ------ ------
Unit value, end of year..................................... $23.09 $16.95 $13.92 $11.89
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
HIGH YIELD
CORPORATE BOND
-------------------------------------
1998 1997 1996 1995(a)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $13.95 $12.52 $10.83 $10.00
Net investment income....................................... 1.31 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)............................................. (1.14) 0.38 0.67 (0.32)
------ ------ ------ ------
Unit value, end of year..................................... $14.12 $13.95 $12.52 $10.83
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
BOND
-------------------------------------
1998 1997 1996 1995(a)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $11.50 $10.64 $10.57 $10.00
Net investment income (loss)................................ 0.80 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)............................................. 0.07 0.10 (0.92) (1.59)
------ ------ ------ ------
Unit value, end of year..................................... $12.37 $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.
(c) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
F-30
<PAGE> 81
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CASH MANAGEMENT CONVERTIBLE GOVERNMENT
------------------------------------- --------------------------- -------------------------------------
1998 1997 1996 1995(a) 1998 1997 1996(B) 1998 1997 1996 1995(a)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.10 $ 1.06 $ 1.03 $ 1.00 $11.78 $10.35 $10.00 $11.51 $10.66 $10.57 $10.00
0.04 0.04 0.04 0.02 0.49 0.38 0.08 0.70 0.69 0.86 2.49
-- -- (0.01) 0.01 (0.13_) 1.05 0.27 0.16 0.16 (0.77) (1.92)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 1.14 $ 1.10 $ 1.06 $ 1.03 $12.14 $11.78 $10.35 $12.37 $11.51 $10.66 $10.57
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN VALUE
------------------------------------- ------------------------------------- -------------------------------------
1998 1997 1996 1995(a) 1998 1997 1996 1995(A) 1998 1997 1996 1995(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$12.32 $11.88 $10.90 $10.00 $14.58 $12.55 $11.36 $10.00 $16.67 $13.76 $11.32 $10.00
0.16 0.90 0.87 1.36 0.17 0.17 0.27 0.79 0.04 0.07 0.11 0.20
2.47 (0.46) 0.11 (0.46) 3.53 1.86 0.92 0.57 (0.95) 2.84 2.33 1.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$14.95 $12.32 $11.88 $10.90 $18.28 $14.58 $12.55 $11.36 $15.76 $16.67 $13.76 $11.32
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
CENTURY LARGE
MAINSTAY VP MAINSTAY VP INCOME COMPANY
GROWTH EQUITY INDEXED EQUITY & GROWTH VALUE
----------------------------------- ----------------------------------- -------- -------
1998 1997 1996 1995(a) 1998 1997 1996 1995(a) 1998(c) 1998(c)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$17.52 $14.01 $11.42 $10.00 $18.30 $13.97 $11.58 $10.00 $10.00 $10.00
(0.07) (0.06) 0.05 0.35 -- 0.09 0.21 0.62 (0.02) (0.03)
4.42 3.57 2.54 1.07 4.89 4.24 2.18 0.96 0.88 0.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$21.87 $17.52 $14.01 $11.42 $23.19 $18.30 $13.97 $11.58 $10.86 $10.19
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-31
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EAGLE ASSET LORD
MANAGEMENT ABBETT
GROWTH DEVELOPING
EQUITY GROWTH
------------ ------------
1998(c) 1998(c)
---------------------------
<S> <C> <C>
Unit value, beginning of year............................... $10.00 $10.00
Net investment income (loss)................................ (0.09) (0.08)
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received (includes
the
effect of capital share transactions)..................... 1.77 (0.80)
------ ------
Unit value, end of year..................................... $11.68 $ 9.12
====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
VIP
EQUITY-INCOME
------------------------------------------
1998 1997 1996(b)
------------------------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $13.20 $10.45 $10.00
Net investment income (loss)................................ (0.08) (0.13) (0.02)
Net realized and unrealized gains on security transactions
and realized capital gain distributions received (includes
the
effect of capital share transactions)..................... 1.41 2.88 0.47
------ ------ ------
Unit value, end of year..................................... $14.53 $13.20 $10.45
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MFS
GROWTH
WITH MFS
INCOME SERIES RESEARCH SERIES
--------------- ---------------
1998(c) 1998(c)
---------------------------------
<S> <C> <C>
Unit value, beginning of year............................... $10.00 $10.00
Net investment income (loss)................................ (0.07) (0.07)
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received (includes
the
effect of capital share transactions)..................... 0.64 0.90
------ ------
Unit value, end of year..................................... $10.57 $10.83
====== ======
</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.
(c) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
F-32
<PAGE> 83
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER
AMERICAN CALVERT FIDELITY
SMALL SOCIAL VIP II
CAPITALIZATION BALANCED CONTRAFUND
--------------------------- ------------------------------------- ---------------------------
1998 1997 1996(b) 1998 1997 1996 1995(a) 1998 1997 1996(b)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.51 $ 9.57 $10.00 $14.76 $12.46 $11.22 $10.00 $13.01 $10.63 $10.00
(0.15) (0.14) (0.02) 0.29 0.31 0.35 1.60 (0.14) (0.14) (0.03)
1.61 1.08 (0.41) 1.87 1.99 0.89 (0.38) 3.81 2.52 0.66
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.97 $10.51 $ 9.57 $16.92 $14.76 $12.46 $11.22 $16.68 $13.01 $10.63
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
JANUS ASPEN SERIES
SERIES WORLDWIDE
BALANCED GROWTH
--------------------------- ---------------------------
1998 1997 1996(b) 1998 1997 1996(b)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$12.32 $10.24 $10.00 $12.48 $10.36 $10.00
0.42 0.28 0.17 0.20 (0.03) 0.08
3.58 1.80 0.07 3.18 2.15 0.28
------ ------ ------ ------ ------ ------
$16.32 $12.32 $10.24 $15.86 $12.48 $10.36
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
--------------------------------- --------- ---------
1998 1997 1996(b) 1998(c) 1998(c)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.89 $10.00 $10.00 $10.00 $10.00
(0.08) (0.05) 0.02 0.08 (0.06)
(2.41) (0.06) (0.02) 0.05 (1.92)
------ ------ ------ ------ ------
$ 7.40 $ 9.89 $10.00 $10.13 $ 8.02
====== ====== ====== ====== ======
</TABLE>
F-33
<PAGE> 84
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 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, formerly known as Calvert Socially
Responsible, 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 and Van Eck Worldwide Hard Assets Investment Divisions
(constituting the NYLIAC Variable Annuity Separate Account-III, formerly known
as LifeStages(SM) Annuity Separate Account) at December 31, 1998, 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, 1998 with 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, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
F-34
<PAGE> 85
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value $13,081 $12,170
Held to maturity, at amortized cost 725 801
Equity securities 100 83
Mortgage loans 1,622 1,305
Real estate 116 151
Policy loans 491 481
Other long-term investments 26 20
------- -------
Total investments 16,161 15,011
Cash and cash equivalents 948 773
Deferred policy acquisition costs 859 688
Other assets 297 345
Separate account assets 6,852 4,315
------- -------
Total Assets $25,117 $21,132
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $14,709 $13,716
Future policy benefits 315 276
Policy claims 60 55
Deferred taxes 101 93
Other liabilities 992 727
Separate account liabilities 6,792 4,303
------- -------
Total Liabilities 22,969 19,170
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
Accumulated other comprehensive income 201 157
Retained earnings 1,442 1,300
------- -------
Total stockholder's equity 2,148 1,962
------- -------
Total liabilities and stockholder's equity $25,117 $21,132
======= =======
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 86
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,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees $ 293 $ 271 $ 236
Net investment income 1,115 1,066 1,048
Investment gains, net 56 126 65
Other income 122 78 56
------ ------ ------
Total revenues 1,586 1,541 1,405
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances 784 748 723
Policyholder benefits 175 141 117
Operating expenses 405 352 299
------ ------ ------
Total expenses 1,364 1,241 1,139
------ ------ ------
Income before Federal income taxes 222 300 266
Federal income taxes:
Current 97 114 121
Deferred (17) (1) (24)
------ ------ ------
Total Federal income taxes 80 113 97
------ ------ ------
Net income $ 142 $ 187 $ 169
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 87
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Net Income $142 $187 $ 169
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during period 79 -- --
Unrealized holding gains arising during period,
including reclassification adjustments -- 89 (159)
Less: reclassification adjustment for gains included
in net income 35 -- --
---- ---- -----
Other comprehensive income 44 89 (159)
---- ---- -----
Comprehensive income $186 $276 $ 10
==== ==== =====
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 88
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,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Stockholder's equity, beginning of year $1,962 $1,686 $1,676
Net Income 142 187 169
Other comprehensive income 44 89 (159)
------ ------ ------
Stockholder's equity, end of year $2,148 $1,962 $1,686
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 89
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,
------------------------------
1998 1997 1996
------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 142 $ 187 $ 169
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2 (43) (18)
Net capitalization of deferred policy acquisition costs (192) (85) (44)
Universal life and annuity fees (198) (202) (188)
Interest credited to policyholders' account balances 784 748 723
Net realized investment gains (56) (126) (65)
Deferred income taxes (17) (1) (24)
(Increase) decrease in net separate account assets (42) 30 6
Increase (decrease) in loaned securities 425 -- --
(Increase) decrease in other assets and other
liabilities (90) 126 (127)
Increase (decrease) in policy claims 4 (2) (24)
Increase (decrease) in future policy benefits 39 25 18
------- -------- -------
Net cash provided by operating activities 801 657 426
------- -------- -------
Cash Flows from Investing Activities:
Proceeds from sale of available for sale fixed maturities 5,325 13,378 5,787
Proceeds from maturity of available for sale fixed
maturities 1,610 1,137 1,505
Proceeds from sale of held to maturity fixed securities -- 3 --
Proceeds from maturity of held to maturity fixed
maturities 102 112 141
Proceeds from sale of equity securities 77 140 47
Proceeds from repayment of mortgage loans 238 220 143
Proceeds from sale of real estate and other invested
assets 47 40 59
Cost of available for sale fixed maturities acquired (7,670) (14,391) (7,447)
Cost of held to maturity fixed maturities acquired (49) (281) (95)
Cost of equity securities acquired (83) (163) (43)
Cost of mortgage loans acquired (558) (413) (280)
Cost of real estate and other invested assets acquired (20) (29) (43)
Policy loans (10) (17) (29)
Securities sold under agreements to repurchase (net) (45) 134 (37)
------- -------- -------
Net cash used in investing activities (1,036) (130) (292)
------- -------- -------
Cash Flows from Financing Activities:
Policyholders' account balances:
Deposits 1,493 1,189 929
Withdrawals (1,151) (1,235) (1,188)
Net transfers from the separate accounts 67 58 33
------- -------- -------
Net cash provided (used) by financing activities 409 12 (226)
------- -------- -------
Effect of exchange rate changes on cash and cash equivalents 1 (2) 2
------- -------- -------
Net increase (decrease) in cash and cash equivalents 175 537 (90)
------- -------- -------
Cash and cash equivalents, beginning of year 773 236 326
------- -------- -------
Cash and cash equivalents, end of year $ 948 $ 773 $ 236
======= ======== =======
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 90
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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.
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the current year presentation.
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 maturity and
equity securities are 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. 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 that have maturities of between 91-365 days at date of purchase are
included in fixed maturities on the balance sheet and are carried at amortized
cost, which approximates fair value.
Derivative financial instruments hedging exposure to interest rate
fluctuation on available for sale securities are accounted for at fair market
value. Unrealized gains and losses are reported in stockholder's equity, net of
deferred taxes and related adjustments. Amounts payable or receivable under
interest rate 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. Realized gains and losses are recognized in net income upon
termination or maturity of the contracts.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business and certain costs of issuing policies
that vary with and are primarily related to the production of new business have
been deferred and recorded as an asset in the balance sheet. These consist
primarily of commissions, certain expenses of underwriting and issuing
contracts, and certain agency expenses. Acquisition costs for universal life and
annuity contracts are amortized in proportion to
F-40
<PAGE> 91
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
DEFERRED POLICY ACQUISITION COSTS -- (CONTINUED)
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 comprehensive income.
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 expenses 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 NYLIAC is allocated its
share of the consolidated tax provision or benefit determined generally 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
insurance subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate ("DER") (the actual rate will be announced at a later
date by the Internal Revenue Service ("IRS")) used to compute the equity base
tax.
REINSURANCE
NYLIAC enters into reinsurance agreements in the normal course of its
insurance business to reduce overall risk. NYLIAC remains liable for reinsurance
ceded if the reinsurer fails to meet its obligation on the business it has
assumed. NYLIAC evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
SEPARATE ACCOUNTS
NYLIAC has established separate accounts with varying investment objectives
which are segregated from NYLIAC's general account and are maintained for the
benefit of separate account 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 includes interest credited to the policies.
F-41
<PAGE> 92
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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/or 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.
ACCOUNTING CHANGES
During 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income" which establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income is defined as net income adjusted for changes in stockholder's equity
resulting from events other than net income.
This Statement was adopted for the 1998 NYLIAC financial statements. The
1997 and 1996 financial statements were not restated to report the
reclassification adjustments separately from unrealized gains (losses) which
arose during the period. Adoption of this Statement had no effect on reported
net income or stockholder's equity.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement). This Statement establishes new
GAAP accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
This Statement is effective for the 2000 financial statements of the Company.
NYLIAC is currently evaluating what impact, if any, this Statement will have on
its financial results.
This Statement requires that derivatives be reported in the balance sheet
at their fair value, regardless of any hedging relationship that may exist.
Accounting for the gains or losses resulting from changes in the values of those
derivatives would depend on the use of the derivative and whether it qualifies
for hedge accounting. Changes in fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria will be
reported in earnings.
F-42
<PAGE> 93
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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 generally
based upon the assumption such securities will be held to maturity, or a
proprietary matrix pricing model.
At December 31, 1998 and 1997, the maturity distribution of fixed
maturities was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE COST FAIR VALUE
- ------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 518 $ 521 $ 480 $ 482
Due after one year through five years 3,473 3,533 3,053 3,099
Due after five years through ten years 1,804 1,885 2,156 2,230
Due after ten years 3,028 3,235 2,425 2,608
Asset-backed securities:
Government or government agency 2,080 2,121 2,271 2,324
Other 1,740 1,786 1,411 1,427
------- ------- ------- -------
Total Available for Sale $12,643 $13,081 $11,796 $12,170
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $ 27 $ 28 $ 30 $ 30
Due after one year through five years 225 291 225 239
Due after five years through ten years 219 228 226 240
Due after ten years 193 207 224 238
Asset-backed securities 61 62 96 97
------- ------- ------- -------
Total Held to Maturity $ 725 $ 816 $ 801 $ 844
======= ======= ======= =======
</TABLE>
At December 31, 1998 and 1997, the distribution of gross unrealized gains
and losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1998
---------------------------------------------------
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 $ 1,006 $ 45 $ 1 $ 1,050
U.S. agencies, state and municipal 1,927 39 4 1,962
Foreign governments 234 22 -- 256
Corporate 7,736 338 47 8,027
Other 1,740 48 2 1,786
------- ---- --- -------
Total Available for Sale $12,643 $492 $54 $13,081
======= ==== === =======
HELD TO MATURITY
Corporate $ 664 $ 91 $ 1 $ 754
Other 61 1 -- 62
------- ---- --- -------
Total Held to Maturity $ 725 $ 92 $ 1 $ 816
======= ==== === =======
</TABLE>
F-43
<PAGE> 94
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
FIXED MATURITIES -- (CONTINUED)
<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>
EQUITY SECURITIES
Estimated fair value of equity securities has been determined using quoted
market prices for publicly traded securities and a matrix pricing model for
private placement securities. At December 31, 1998 and 1997, 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>
1998 $76 $27 $3 $100
1997 $66 $25 $8 $ 83
</TABLE>
MORTGAGE LOANS
NYLIAC's mortgage loans are diversified by property type, location and
borrower, and are generally collateralized by the related property.
The fair market value of the mortgage loan portfolio at December 31, 1998
and 1997 is estimated to be $1,728 million and $1,408 million, respectively.
Market values are determined by discounting the projected cash flows for each
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, 1998 and 1997, contractual commitments to extend credit
under commercial and residential mortgage loan agreements amounted to
approximately $76 million and $108 million, respectively, 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 $1 million and $14 million
at December 31, 1998 and 1997, respectively. The activity in the specific and
general reserves as of December 31, 1998 and 1997 is summarized below (in
millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Beginning Balance $14 $20
Reductions credited to operations (5) (1)
Recoveries of amounts previously written-down (8) (5)
--- ---
Ending Balance $ 1 $14
=== ===
</TABLE>
F-44
<PAGE> 95
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
MORTGAGE LOANS -- (CONTINUED)
Impaired mortgage loans along with specific provisions for losses as of
December 31, 1998 and 1997, were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Impaired mortgage loans with provisions for losses $-- $19
Provision for losses -- (8)
-- ---
Net impaired mortgage loans $-- $11
== ===
</TABLE>
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, 1998 and 1997, the distribution of the mortgage loan
portfolio by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Property Type:
Office building $ 753 $ 601
Retail 330 255
Apartments 187 187
Residential 247 172
Other 105 90
------ ------
Total $1,622 $1,305
====== ======
Geographic Region:
Central $ 359 $ 250
Pacific 211 145
Middle Atlantic 451 426
South Atlantic 418 362
New England 121 73
Other 62 49
------ ------
Total $1,622 $1,305
====== ======
</TABLE>
REAL ESTATE
At December 31, 1998 and 1997, NYLIAC's real estate portfolio consisted of
the following (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Investment $105 $103
Acquired through foreclosures 11 19
Real estate joint ventures and limited partnerships -- 29
---- ----
Total real estate $116 $151
==== ====
</TABLE>
Accumulated depreciation on real estate at December 31, 1998 and 1997, was
$12 million and $8 million, respectively. Depreciation expense totaled $3
million in 1998, 1997 and 1996.
F-45
<PAGE> 96
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
The components of net investment income for the years ended December 31,
1998, 1997 and 1996, were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Fixed maturities $ 972 $ 961 $ 920
Equity securities 7 6 3
Mortgage loans 116 96 93
Real estate 15 18 21
Policy loans 40 39 37
Other 9 1 6
------ ------ ------
Gross investment income 1,159 1,121 1,080
Investment expenses (44) (55) (32)
------ ------ ------
Net investment income $1,115 $1,066 $1,048
====== ====== ======
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, realized investment
gains computed under the specific identification method are as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- --------------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturities $ 87 $(29) $172 $ (83) $100 $ (64)
Equity securities 7 (7) 9 (4) 22 (1)
Mortgage loans 16 (8) 12 (8) 15 (19)
Real estate 6 (2) 3 (2) 6 (3)
Derivative instruments -- -- 80 (71) 46 (41)
Other 3 (17) 19 (1) 7 (3)
---- ---- ---- ----- ---- -----
Subtotal $119 $(63) $295 $(169) $196 $(131)
---- ---- ---- ----- ---- -----
Investment gains, net $56 $126 $65
=== ==== ===
</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.
Stockholder's equity at December 31, 1998 and 1997 includes net unrealized
gains as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net unrealized gains on investments before adjustments $472 $382
---- ----
Related adjustments
Deferred policy acquisition costs (169) (148)
Policyholder liabilities 6 7
Deferred Federal income taxes (108) (84)
---- ----
(271) (225)
---- ----
Net unrealized gains on investments included in
Stockholder's equity $201 $157
==== ====
</TABLE>
F-46
<PAGE> 97
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES -- (CONTINUED)
Changes in net unrealized gains and losses on investments were as follows
(in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Unrealized gains (losses) on investments:
Beginning of year $382 $163
End of year 472 382
---- ----
Net change 90 219
Change in related adjustments of balance sheet accounts:
Deferred policy acquisition costs (21) (88)
Policyholder liabilities (1) 5
Deferred Federal income taxes (24) (47)
---- ----
Change in unrealized gains on investments 44 89
Net unrealized gains on investments at beginning of year 157 68
---- ----
Net unrealized gains on investments at end of year $201 $157
==== ====
</TABLE>
NOTE 5 -- INSURANCE LIABILITIES
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, 1998 and 1997, was $6,905 million and $7,150 million,
respectively.
NOTE 6 -- SEPARATE ACCOUNTS
NYLIAC maintains eight non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products. NYLIAC maintains
investments in the registered separate accounts of $54 million and $12 million
at December 31, 1998 and 1997, 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 non-proprietary
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. At December 31, 1998, no policies had yet been issued for one of these
separate accounts.
NOTE 7 -- DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs (DAC) for the years ended
December 31, 1998, 1997 and 1996 is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Balance at beginning of year before adjustment for
unrealized gains on investments $ 836 $ 751 $ 707
Current year additions 286 200 151
Amortized during year (94) (115) (107)
Balance at end of year before adjustment for
unrealized gains on investments 1,028 836 751
Adjustment for unrealized gains on investments (169) (148) (60)
------ ----- -----
Balance at end of year $ 859 $ 688 $ 691
====== ===== =====
</TABLE>
F-47
<PAGE> 98
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 8 -- FEDERAL INCOME TAXES
The components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policyholder benefits $196 $153
Employee and agents' benefits 53 49
Other -- 6
---- ----
Gross deferred tax assets 249 208
==== ====
Deferred tax liabilities:
Deferred policy acquisition costs 168 147
Investments 174 149
Other 8 5
---- ----
Gross deferred tax liabilities 350 301
---- ----
Net deferred tax liability $101 $ 93
==== ====
</TABLE>
The gross deferred tax asset relates to temporary differences that are
expected to reverse as net ordinary deductions. Management believes that
NYLIAC's taxable income in future years will be sufficient to realize the
deferred tax benefits and therefore, no valuation allowance has been recorded.
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Equity base tax 1.7 3.3 3.2
Tax exempt income (.5) (.5) (.7)
Other (.2) (.1) (.9)
---- ---- ----
Effective tax rate 36.0% 37.7% 36.6%
==== ==== ====
</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
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.
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
NYLIAC uses derivative financial instruments to manage interest rate,
commodity and market risk. These derivative financial instruments include
interest rate floors and interest rate and commodity swaps. NYLIAC has not
engaged in derivative financial instrument transactions for speculative
purposes.
F-48
<PAGE> 99
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- (CONTINUED)
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 and 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>
1998 1997
-------------------- --------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps $125,000 $9,125 $125,000 $2,973
Floors $150,000 $ 748 $150,000 $ 251
</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, 1998 are between six years, eight months
and nineteen years in maturity. At December 31, 1997 such contracts were between
seven years, eight months and twenty years in maturity. NYLIAC does not act as
an intermediary or broker in interest rate swaps.
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Receive - fixed swaps - Notional amount (in thousands) $125,000 $125,000
Average receive rate 6.64% 6.64%
Average pay rate 5.65% 5.70%
</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 $9,125,000 and $2,973,000 at December 31, 1998 and 1997, 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, 1998 and 1997, unamortized premiums on interest rate floors
amounted to $372,000 and $447,000, respectively. Fair values of such agreements
were $748,000 and $251,000 at December 31, 1998 and 1997, respectively, based on
quoted market prices.
F-49
<PAGE> 100
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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 in both 1998 and 1997. The credit exposure of these swaps was $1,290,000
and $3,021,000 at December 31, 1998 and 1997, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
NYLIAC is a defendant in individual and/or alleged class action suits
arising from its agency sales force, insurance (including variable contracts
registered under the federal securities law), investment, retail securities
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 which cannot be predicted, NYLIAC nevertheless believes that, after
provisions made in the financial statements, the ultimate liability that could
result from 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, 1998 and 1997, $571 million
and $659 million, respectively, of NYLIAC's fixed maturities and equity
securities were on loan to others, but were fully collateralized in an account
held in trust for NYLIAC. Such assets reflect the extent of NYLIAC's involvement
in securities lending, not NYLIAC's risk of loss.
NYLIAC enters into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The
liability reported in the balance sheet (included in other liabilities) at
December 31, 1998 of $139 million ($184 million at December 31, 1997)
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 $342 million for the year ended December 31,
1998 ($247 million for 1997 and $191 million for 1996) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
In 1998, NYLIAC sold a Corporate Owned Life (COLI) policy to its parent,
New York Life Insurance Company, for $250 million in premium. The policy was
sold on the same basis as policies sold to unrelated customers.
F-50
<PAGE> 101
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 13 -- ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated Other Comprehensive Income is as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Unrealized gains on securities:
Beginning balance $157 $ 68 $ 227
Current period change 44 89 (159)
---- ---- -----
Ending balance $201 $157 $ 68
==== ==== =====
</TABLE>
The related tax effects allocated to Other Comprehensive Income are as
follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period $123 $(44) $79
Less: reclassification adjustment for gains
(losses) in net income 54 (19) 35
---- ---- ---
Other Comprehensive Income $ 69 $(25) $44
==== ==== ===
</TABLE>
NOTE 14 -- SUPPLEMENTAL CASH FLOW INFORMATION
Federal income taxes paid were $67 million, $126 million, and $146 million
during 1998, 1997 and 1996, respectively.
Total interest paid was $27 million, $35 million and $10 million during
1998, 1997 and 1996, respectively.
NOTE 15 -- 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,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory Surplus $1,095 $1,089 $ 998
------ ------ ------
Adjustments:
Deferred policy acquisition costs 859 688 691
Investment related 458 377 151
Asset valuation reserve 197 165 164
Interest maintenance reserve 120 105 35
Non-admitted assets 66 59 31
Policyholder liabilities (447) (330) (263)
Deferred taxes (101) (94) (47)
Employee benefit liabilities (79) (74) (72)
Other (20) (23) (2)
------ ------ ------
Total adjustments 1,053 873 688
------ ------ ------
Total GAAP Stockholder's Equity $2,148 $1,962 $1,686
====== ====== ======
</TABLE>
F-51
<PAGE> 102
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 15 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP -- (CONTINUED)
The following chart reconciles NYLIAC's statutory net income determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with net income on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Statutory Net Income $ 10 $134 $148
----- ---- ----
Adjustments:
Deferred policy acquisition costs 192 63 44
Investment related 19 7 2
Interest maintenance reserve 15 70 9
Policyholder liabilities (110) (84) (62)
Deferred taxes 17 1 24
Other (1) (4) 4
----- ---- ----
Total Adjustments 132 53 21
----- ---- ----
GAAP Net Income $ 142 $187 $169
===== ==== ====
</TABLE>
Financial statements prepared on the statutory basis of accounting vary
from those prepared under GAAP, primarily as follows: (1) the costs related to
acquiring business, principally commissions and certain policy issue expenses
are charged to income in the year incurred, whereas under GAAP they would be
deferred and amortized over the periods benefitted; (2) funds received under
deposit-type contracts are reported as premium income, whereas under GAAP, such
funds are recorded as a liability; (3) life insurance reserves are based on
different assumptions than they are under GAAP; (4) life insurance companies are
required to establish an Asset Valuation Reserve ("AVR") by a direct charge to
surplus to offset potential investment losses, whereas under GAAP, the AVR is
not recognized and any 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 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; (7) deferred
federal income taxes are not provided for as they are under GAAP; and (8)
certain assets are considered non-admitted and are excluded from assets in the
balance sheet, whereas they are included under GAAP.
The Delaware 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
Delaware 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, 1998 and 1997 on a statutory basis, admitted assets were
$23,351 million and $20,059 million respectively, and total liabilities were
$22,256 million and $18,970 million, respectively, which included policy
reserves of $14,626 million and $13,666 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 statutory surplus funds which is derived from net operating profits
and realized capital gains. Such available and accumulated funds at December 31,
1998 were $590 million.
F-52
<PAGE> 103
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 and comprehensive 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, 1998 and 1997, and
the results of its operations and its cash flows for the three years in the
period ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York 10036
March 9, 1999
F-53
