AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1996
[DEFINITIVE FILING FOR FISCAL YEAR ENDED DECEMBER 31, 1995]
REGISTRATION NO. 2-35958 (1933 ACT)
811-1998 (1940 ACT)
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 32 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 18 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
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NEW YORK LIFE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
[A. THOMAS SMITH, III ESQ., SECRETARY (TEL. (212) 576-5773)
(AGENT FOR SERVICE)]
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
[X] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (b)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a) OF RULE (485 OR 486).
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<PAGE>
<TABLE>
CROSS-REFERENCE SHEET
Showing Location in Prospectus and Statement of
Additional Information of Information Required by Form N-1A
<CAPTION>
Prospectus and Statement of
Form N-1A Item Additional Information Captions
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<S> <C>
1. Cover Page.................................. Cover Page
2. Synopsis.................................... Synopsis
3. Condensed Financial Information............. Selected Per Share Data and Ratios
4. General Description of Registrant........... General Information and History; Investment
Policies and Restrictions
5. Management of the Fund...................... Incorporated by Reference to Annual Meeting Statement
("Board Structure"; "Investment Advisory Agreement")
6. Capital Stock and Other Securities.......... Shares of the Fund; Voting Rights; Federal Tax Aspects
7. Purchase of Securities Being Offered........ Shares of the Fund
8. Redemption or Repurchase.................... Shares of the Fund
9. Pending Legal Proceedings................... Pending Legal Proceedings
10. Cover Page.................................. Not Applicable
11. Table of Contents........................... Table of Contents
12. General Information and History............. Not Applicable
13. Investment Objectives and Policies.......... Investment Policies and Restrictions
14. Management of the Registrant................ Incorporated by Reference to Annual Meeting Statement
("Election of Directors"); ("Schedule I")
15. Control Persons and Principal Holders of
Securities................................ Voting Rights; Shares of the Fund
16. Investment Advisory and Other Services...... Incorporated by Reference to Annual Meeting Statement
("Investment Advisory Agreement"; "Schedule I";
"Miscellaneous---Custodian"; "Selection of Independent
Accountants")
17. Brokerage Allocation........................ Incorporated by Reference to Annual Meeting Statement
("Miscellaneous---Brokerage Commissions")
18. Capital Stock and Other Securities.......... Shares of the Fund
19. Purchase Redemption and Pricing of
Securities Being Offered.................. Net Asset Value; Shares of the Fund
20. Tax Status.................................. Federal Tax Aspects
21. Underwriters................................ Not Applicable
22. Calculation of Yield Quotations of Money
Market Fund............................... Not Applicable
23. Financial Statements........................ Incorporated by Reference to Annual Report
</TABLE>
<PAGE>
PART A. PROSPECTUS
PART B. STATEMENT OF ADDITIONAL INFORMATION
Introductory Note. The following document is a combined Prospectus and
Statement of Additional Information for the Registrant, as well as a prospectus
for New York Life Separate Accounts N and Q. It incorporates by reference
certain information contained in the Annual Meeting Statement and the Annual
Report of the Registrant, both of which are being filed with the Commission
contemporaneously and will be attached to this Prospectus/Statement of
Additional Information when delivered to Contract Owners as a three-part Annual
Disclosure Statement.
<PAGE>
III. PROSPECTUS SECTION
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NEW YORK LIFE INSURANCE COMPANY
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
NEW YORK LIFE SEPARATE ACCOUNTS N AND Q
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
(212) 576-7000
INVESTING
SOLELY IN SHARES OF
NEW YORK LIFE FUND, INC.
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
(212) 576-7000
INVESTMENT OBJECTIVE:
PRESERVATION OF CAPITAL AND
ITS POTENTIAL GROWTH THROUGH INVESTMENTS,
PRIMARILY IN COMMON STOCKS
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE INSURANCE COMMISSION NOR HAS THE COMMISSION
OR ANY STATE INSURANCE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS MARCH 29, 1996.
<PAGE>
SYNOPSIS
The Individual Variable Annuity Contracts ("Contracts") to which this
Prospectus relates were formerly offered by New York Life Insurance Company
("New York Life") and were distributed by NYLIFE Securities Inc. (formerly New
York Life Securities Corp.), a broker-dealer registered under the Securities
Exchange Act of 1934. The current distributor for the Contracts is NYLIFE
Distributors Inc., a broker-dealer registered under the Securities Exchange Act
of 1934. See "New York Life Separate Accounts N and Q," p. 3. Certain of these
Contracts were purchased for use in connection with pension, profit-sharing and
annuity plans and trusts including H.R. 10 plans, individual retirement account
or annuity plans including simplified employee pensions, tax sheltered annuities
and certain governmental type plans, qualifying for special federal tax
treatment. The remainder of the Contracts were purchased on a non-tax qualified
basis. The Contracts issued in connection with plans qualifying for special
federal tax treatment are funded through New York Life Separate Account Q
("Account Q"). All other Contracts which were not issued in connection with
plans qualifying for a special federal tax treatment are funded through New York
Life Separate Account N ("Account N"). Both Accounts N and Q are separate
accounts established by New York Life. The applicable rules governing federal
tax aspects of these Contracts are complex, and qualified counsel should be
consulted in this regard. See "Federal Tax Aspects," pp. 6-8.
New York Life is not subject to federal income taxation on either ordinary
investment income received or capital gains realized (including capital gain
dividend distributions received) by the Accounts. See "Federal Tax Aspects,"
pp. 6-8.
The public offering and sale of the Contracts was terminated as of November
27, 1979 and no new Contracts may be purchased or issued. See "New York Life
Separate Accounts N and Q," p. 3. Detailed information concerning the features
of the Contracts is contained in the Contracts themselves. Additional
information relating to the Contracts is contained in the Prospectus Section of,
or elsewhere in, the Annual Disclosure Statement. In May 1995, New York Life
commenced a redemption program offering contractowners an option to either
surrender their Contract for its accumulated cash value or exchange their
Contract for a fixed or variable annuity product offered by New York Life
Insurance and Annuity Corporation ("NYLIAC"). Should the redemption program be
acted upon by most or all of the remaining contractowners Accounts N and Q will
ultimately liquidate their remaining assets and cease to operate. The outcome of
the redemption program is not determinable at this time.
New York Life will make a deduction from each purchase payment for sales
and administrative expenses. Since there will be no future sale of these
Contracts, no further deduction will be made with respect to Single Purchase
Immediate or Single Purchase Deferred Contracts. Under Periodic Purchase
Deferred Contracts, the deduction amounts to 15% during the first premium year
and 7% thereafter which are, respectively, 17.65% and 7.53% of the net amount
invested for the applicable year. See "Deductions," p. 10, for the table showing
the allocation between sales and administrative expenses. In certain
jurisdictions, New York Life also will make deductions for state and local taxes
(generally known as "premium taxes") and the amounts thereof, if any, will
appear on purchase payment confirmations issued to Owners of Contracts shortly
after each transaction. Because of these deductions, any redemptions for the
cash value (which are described in the periodic purchase deferred contracts) may
prove to be disadvantageous during the early years.
The deduction for administrative expenses is designed only to reimburse New
York Life for actual administrative expenses. New York Life does not expect to
recover from this charge any amount above its aggregate expense of administering
the Contracts. See "Deduction for Sales and Administrative Expenses," p. 10.
After the deductions described above, net purchase payments directed to
provide variable benefits are allocated to either Account N or Account Q. Assets
of the Accounts will be invested solely in shares of New York Life Fund, Inc.
(the "Fund"), a registered investment company. The Fund is a diversified
open-end management investment company. See "New York Life Fund, Inc.," p. 3.
Its investments, in general, will be made primarily in common stocks and will be
based on an investment policy concerned with the preservation of capital and its
potential growth. There is no assurance that these objectives will be achieved
in view of general common stock portfolio risks which are inherent in stock
market fluctuations and specific price fluctuations of securities held in the
portfolio of the Fund. Ordinarily the realization of current income will be of
secondary importance. See "Investment Policies and Restrictions," pp. 4-5.
New York Life is investment adviser to the Fund and, as such, receives a
fee at the annual rate of 0.25% of the average daily net assets of the Fund. See
"Investment Advisory Agreement" at p. 6 of the Annual Meeting Statement Section
for details.
Shares of the Fund will be issued to separate accounts established by New
York Life for individual variable annuity ("IVA") contracts previously issued by
it which remain outstanding solely to the extent necessary to satisfy vested
rights exercised by the owners of such contracts. See "Shares of the Fund,"
p. 9.
Shares of the Fund will be sold and redeemed at net asset value determined
once daily as of the close of the New York Stock Exchange (or optionally, as of
the close of trading reported by the consolidated tape) on each day the Exchange
is open for trading and the Fund is open for business. See "Net Asset Value," p.
11. Detailed information concerning the above and other matters is contained in
the body of the Prospectus Section.
1
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TABLE OF CONTENTS
Page
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Financial Highlights ...................................................... 3
General Information and History ........................................... 3
New York Life Insurance Company ......................................... 3
New York Life Separate Accounts N and Q ................................. 3
New York Life Fund, Inc ................................................. 3
Objective of the Contracts ................................................ 3
Investment Policies and Restrictions ...................................... 4
Investment Policies ..................................................... 4
Investment Restrictions ................................................. 4
Limitations of New York Insurance Law ..................................... 5
Federal Tax Aspects ....................................................... 6
Pending Legal Proceedings ................................................. 8
Voting Rights ............................................................. 9
New York Life ........................................................... 9
Fund .................................................................... 9
Shares of the Fund ........................................................ 9
General ................................................................. 9
Sale and Redemption of Shares ........................................... 9
Deductions ................................................................ 10
Deduction for Applicable State and Local Taxes .......................... 10
Deduction for Sales and Administrative Expenses ......................... 10
Record Date: Purchase Payments, Redemptions, Exchanges and
Requests for Information ................................................ 11
Net Asset Value ........................................................... 11
General Information ....................................................... 11
State Regulation ........................................................ 11
Additional Information .................................................. 11
Incorporation by Reference ................................................ 12
New York Life Fidelity Bond ............................................... 12
2
<PAGE>
This Prospectus does not constitute an offering of any new or additional
individual variable annuity contracts. None of New York Life Insurance Company,
New York Life Fund, Inc., NYLIFE Distributors Inc., or NYLIFE Securities Inc.
(formerly New York Life Securities Corp. and New York Life Variable Contracts
Corporation) authorizes any information or representation regarding the subject
of the Prospectus Section other than as specified herein, elsewhere in the
Annual Disclosure Statement or in any supplement thereto.
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
Information concerning per share income, capital changes, ratios and other
matters is set forth in the Annual Report Section of this Disclosure Statement,
although it is not necessarily indicative of results for future fiscal periods.
GENERAL INFORMATION AND HISTORY
New York Life Insurance Company
New York Life is a mutual life insurance company organized under the laws
of the State of New York. It is authorized to carry on business in all 50
States, the District of Columbia and the Commonwealth of Puerto Rico.
New York Life Separate Accounts N and Q
New York Life is the depositor of the Accounts and assumes all obligations
under the Contracts. The Accounts are registered as unit investment trust type
investment companies under the Investment Company Act of 1940 (the "Investment
Company Act"). Such registration does not involve the supervision of management
or investment policies by the Securities and Exchange Commission. The income,
gains and losses allocable to the Accounts will be credited or charged to the
Accounts without regard to other income, gains and losses of New York Life. The
public offering of the Contracts began July 1, 1972 and was terminated as of
November 27, 1979.
New York Life Fund, Inc.
The Fund is a diversified open-end management investment company
incorporated in the State of New York on December 24, 1969. Shares of the Fund
will be purchased by the Accounts and redeemed by the Fund at their net asset
value calculated as described elsewhere in the Prospectus Section. See "Net
Asset Value," p. 11.
The Fund is registered under the Investment Company Act but such
registration does not involve supervision by the Securities and Exchange
Commission of its management or its investment practices or policies. The
business of the Fund is to invest in the securities of different companies in
accordance with the investment policies and restrictions described on pp. 4-5. A
redemption program is currently in effect whereby contractowners may either
surrender their Contract for its accumulated cash value or exchange their
Contract for a fixed or variable annuity product offered by NYLIAC. Should the
redemption program be acted upon by most or all of the remaining contractowners,
then the Accounts will ultimately liquidate their remaining assets and cease to
operate. The outcome of the redemption program is not determinable at this time.
OBJECTIVE OF THE CONTRACTS
The basic objective of the Contracts is to provide variable annuity
payments which will tend to reflect more closely than a fixed annuity, changes
in the cost of living. The assumption underlying this objective is that, since
the value of a diversified portfolio of common stocks has generally tended to
rise during periods of growth in the economy, variable annuity payments under a
Contract should tend to reflect changes in the cost of living more closely than
would fixed annuity payments. There is, of course, no assurance that this will
be the case. There have been periods when the cost of living has gone up while
the market value of common stocks has declined. The value of the Contracts is
subject to the risks inherent in the fluctuations of the stock market, and
specifically to price fluctuations of the securities held in the portfolio of
the Fund.
3
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The investments of the Fund will, in general, be made primarily in common
stocks and will be based on an investment policy concerned with the preservation
of capital and its potential growth. Ordinarily, the realization of current
income will be of secondary importance. Certain market risks are inherent in
investments in common stocks and in the other equity-type securities referred to
below. The Fund can therefore give no assurance that its investments will result
in the preservation and growth of its capital.
Investments may be made to a limited extent in preferred stocks and in debt
securities participating in earnings or convertible into stock or with warrants
or other rights to acquire stock. Investments may likewise be made to a limited
extent in securities that would have to be registered under the Securities Act
of 1933 before they could be sold to the public (see "Investment Restrictions,"
clause 9). At any time when investments in common stocks and other equity-type
securities may, because of market or economic conditions or other relevant
factors, be considered to be inconsistent with the investment policies of the
Fund, investments may be made in nonconvertible debt securities or in government
obligations, or assets may be held in cash. Limited amounts of investments may
be made in fee and leasehold interests in real estate (see "Investment
Restrictions," clause 4).
The policy of investing primarily in common stocks, as set forth above, is
a fundamental policy that may not be changed without the vote of a majority of
the outstanding shares of the Fund.
Temporary investments, without restriction as to amount, may be made in
government obligations, short-term commercial paper, certificates of deposit and
bankers' acceptances. Cash items may be temporarily held uninvested for such
periods as may be considered appropriate.
The Fund does not intend to engage in short-term trading. However,
securities may be sold without regard to the length of time they have been held
when in the opinion of management such action is advisable. The Fund expects
that its portfolio turnover rate (the lesser of purchases or sales of its
portfolio securities* during the year divided by the monthly average value of
such securities) should not generally exceed 150% in a given year and may be
substantially below such rate, although turnover rate will not be a limiting
factor when management deems portfolio changes appropriate. The portfolio
turnover rate in 1995 was 81.47%. This figure reflects a fair amount of
volatility in the financial markets and some restructuring to achieve strategic
objectives. The degree of portfolio activity will, of course, affect the Fund's
brokerage costs.
Investment Restrictions
In making investments the Fund is subject to investment restrictions
imposed by the Investment Company Act as well as to limitations of the New York
Insurance Law. The Fund will also observe a number of additional investment
restrictions that it has adopted as a matter of policy. In summary, the Fund
will not:
1. Invest in any one industry if immediately after such investment the
value of its investments in such industry would exceed 25% of the value of
its total assets;
2. Invest in any one issuer, other than an investment company or the
United States Government, if immediately after such investment more than 5%
of the value of its total assets would be invested in such issuer or more
than 10% of such issuer's outstanding voting securities would be owned by
it, except that up to 25% of the value of its total assets may be invested
without regard to such 5% and 10% limitations;
3. Invest in any other investment company if immediately after such
investment it would own more than 3% of the total outstanding voting stock
of such company, or own securities issued by such company having an
aggregate value in excess of 5% of the total assets of the Fund, or own
securities issued by such company and all other investment companies having
an aggregate value in excess of 10% of such total assets;
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* Exclusive of securities maturing within one year.
4
<PAGE>
4. Invest in fee or leasehold interests in real estate if immediately
after such investment more than 10% of the value of its total assets would
be invested in such fee and leasehold interests and in securities not
readily marketable as described in clause 9 below, provided that
investments in notes or other evidence of indebtedness secured by mortgage
liens or deeds of trust relating to such property shall not be deemed to be
investments in such property solely because they are secured by it, but
shall be deemed "securities" for purposes of clause 9 below;
5. Borrow money except from banks up to 5% of the value of its total
assets at the time of borrowing as a temporary measure for extraordinary or
emergency purposes but not for investment purposes;
6. Purchase any securities on margin except for the obtaining of such
short-term credits as are necessary for the clearance of securities
transactions; purchase or sell commodities or commodity contracts; or sell
any securities short except when the right to obtain securities equivalent
in kind and amount to those sold exists by virtue of other securities owned
by it, in which case such other securities will be retained while it is in
a short position;
7. Lend any of its assets, except to the extent that the acquisition
of bonds, debentures, or other corporate debt securities which are of a
character customarily purchased by institutional investors and which have
not been publicly distributed is deemed to be the making of a loan, and
provided that the acquisition of publicly distributed bonds, debentures, or
other corporate debt securities, and investment in government obligations,
short-term commercial paper, certificates of deposit and bankers'
acceptances, shall not be deemed to be the making of a loan;
8. Invest in companies for the purpose of controlling their
management; or
9. Act as an underwriter of securities of other issuers, except that
it may invest up to 10% of the value of its total assets at the time of
investment in securities that are subject to legal or contractual
restrictions on resale or are otherwise not readily marketable and in fee
and leasehold interests in real estate. Such securities would include
so-called "restricted securities" that the Fund might not be free to sell
to the public without registration under the Securities Act of 1933. The
length of time required for such a registration cannot be predicted and may
result in material delays in making a sale as well as an exposure to a loss
from a declining market. The question whether the issuer of the securities
to be so registered or the Fund will pay the expenses of registration will
in each case be the subject of negotiation. Also, the issuer may or may not
have agreed to effect such registration. If no such agreement exists, a
sale of such securities may have to be made subject to the same contractual
restriction as those under which they were purchased.
The investment restrictions stated above are fundamental and may not be
changed without the vote of a majority of the outstanding shares of the Fund.
As used in this prospectus, "the vote of a majority of the outstanding
shares of the Fund" means the vote, at any annual or special meeting, of the
lesser of (1) 67% or more of the shares represented at such meeting, if the
holders of more than 50% of the outstanding shares are present or represented by
proxy, or (2) more than 50% of the outstanding shares of the Fund.
LIMITATIONS OF NEW YORK INSURANCE LAW
In order for the shares of the Fund to be eligible investments for the
separate accounts of New York Life, the investments of the Fund must comply in
substance, at all times, with the limitations of the New York Insurance Law (the
"Insurance Law") that then apply to the investments of separate accounts of New
York Life's insurance companies.
The principal limitations now applicable, as amended by Chapter 567 of the
1983 Session Laws, effective September 19, 1983, and recodified by Chapters 367
and 805 of the 1984 Session Laws, effective September 1, 1984, may be summarized
as follows:
1. The Fund is required to invest and reinvest its assets in good
faith and with that degree of care that an ordinarily prudent person in a
like position would use under similar circumstances (the "Prudence Rule").
2. Subject to the Prudence Rule, the Fund may (a) invest in (i) any
investments contractually permitted by the Contracts issued for the
Accounts to which this Prospectus relates, and (ii) any investments of the
types that are eligible investments under the Insurance Law for the general
assets of a life insurance company, and
5
<PAGE>
(b) acquire securities or property as a dividend or pursuant to a judicial
or lawful non-judicial plan of reorganization or dissolution, or, in
certain circumstances, through the exercise of rights of conversion, stock
warrants or stock options; provided that any assets so acquired must be
disposed of within five years from the date of acquisition or such further
period as may be prescribed by the Superintendent of Insurance of the State
of New York, unless they meet the requirements for investment before the
expiration of the applicable period.
FEDERAL TAX ASPECTS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. 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 Contract. Any person concerned about these tax implications
should consult a competent tax adviser. This discussion is based upon New York
Life's understanding of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service (the "Service"). No
representation is made as to the likelihood of continuation of the present
federal income tax laws or of the current interpretations by the Service.
Moreover, no attempt has been made to consider any applicable state or other tax
laws except with respect to the imposition of any state premium taxes.
Taxation of the Fund and New York Life Insurance Company
Under the Internal Revenue Code (the "Code"), the Fund pays no federal
income tax provided that it maintains its status as a "regulated investment
company" and distributes all of its net investment income and net capital gains
to the Accounts. Federal tax laws impose a four percent nondeductible excise tax
on certain regulated investment companies with respect to an amount, if any, by
which a company does not meet specified distribution requirements. The Fund
intends to comply with such distribution requirements and therefore does not
expect to incur the four percent nondeductible excise tax. New York Life is
taxed as a life insurance company under Subchapter L of the Code. Since the
Accounts are not entities separate from New York Life, and their operations form
a part of New York Life, they will not be taxed separately as "regulated
investment companies" under Subchapter M of the Code. Net investment income and
net capital gains on the assets of the Accounts are reinvested and are taken
into account in determining the Contract Value. As a result, such net investment
income and net capital gains are automatically retained as part of the reserves
under the Contract. Under existing federal income tax law, New York Life
believes that Account net investment income and net capital gains should not be
taxed to the extent that such income and gains are retained as part of the
reserves under the Contract. Therefore, New York Life does not intend to make
provision for any such taxes. However, prior to 1984 when the foregoing tax
treatment became effective, New York Life made a provision in Account N for
capital gains tax. If changes in the federal tax law or interpretations thereof
result in New York Life's being taxed on income or gains attributable to the
Accounts, New York Life reserves the right to make a provision in the future for
any such taxes.
Taxation of Annuities in General
Section 817(h) of the Code, which is generally effective as of January 1,
1984, requires that the investments of the Accounts must be "adequately
diversified" in accordance with Treasury Regulations in order for the Contracts
to qualify as annuity contracts under section 72 of the Code (discussed below).
Final regulations specifying the diversification requirements were promulgated
on March 1, 1989 and New York Life expects that the Fund will comply with these
requirements.
The following discussion therefore assumes that the Contracts will qualify
as annuity contracts for federal income tax purposes.
Section 72 of the Code governs taxation of annuities in general. New York
Life believes that natural person annuity contract owners generally will not be
taxed on increases in the value of a contract until distribution occurs either
in the form of a lump sum received by withdrawing all or part of the cash value
(i.e., "withdrawals") or as income payments under the income payment option
elected. For contract owners that are not natural persons, however, increases in
value on contributions made after February 28, 1986 will generally be taxable to
the contractholder. The taxable portion of a distribution (in the form of an
annuity or lump sum payment) is taxed as ordinary income. For this purpose, the
loan, assignment, pledge, or agreement to assign or pledge any portion of the
Contract Value (and in the case of a Qualified Contract, i.e., a contract held
in connection with a qualified plan, any portion of an interest in the qualified
employer plan) generally will be treated as a distribution. Transfers of
annuities without adequate consideration can also result in current tax to the
contract owner.
6
<PAGE>
In the case of a withdrawal or surrender distributed to a participant or
beneficiary under a Non-Qualified Contract (i.e., a contract not held in
connection with a qualified plan) amounts received before the annuity starting
date will be treated first as taxable income, to the extent that the Contract's
cash value exceeds the "investment in the contract" at that time. The
"investment in the contract" equals the aggregate amount of any Purchase
Payments paid for the Contract less amounts previously withdrawn that were not
included in the individual's gross income. Any further withdrawals will be
treated as a return of principal. The tax treatment described in this paragraph
will be applicable only to amounts allocable to "investments in the contract"
made after August 13, 1982. Withdrawals of amounts allocable to "investments in
the contract" made before August 14, 1982, are taxable income only if, in the
aggregate, they exceed the "investment in the contract."
In the case of a withdrawal or surrender under a Qualified Contract (other
than a Qualified Contract 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 any amount received is taxable generally
based on the ratio of the "investment in the contract" to the Contract Value.
For Contracts issued in connection with qualified plans, the "investment in the
contract" can be zero. A special rule may apply to such surrenders or
withdrawals from Qualified Policies with respect to "investment in the contract"
as of December 31, 1986.
The tax consequences of income payments after the annuity starting date may
vary depending on the income payment option elected under the Contract. In
general, the portion of the income payment that represents a return of the
Contract Owner's "investment in the contract" will not be taxed. The remaining
amount of income payments is taxable. For variable income payments, in general,
the taxable portion is determined by a formula which establishes a specific
dollar amount of each income payment that is not taxed. The dollar amount is
determined by dividing the "investment in the contract" by the total number of
expected periodic payments. 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 amount of the income
payments for the term of the payments. The remainder of each income payment is
taxable. Once the investment in the Contract is recovered, however, all future
payments will be taxable. If there is unrecovered investment at the time of
death of the annuitant, the unrecovered amount is allowed as a deduction on the
annuitant's last tax return.
In the case of a distribution pursuant to a Non-Qualified Contract, there
may be imposed a penalty tax equal to 10% of the amount includable in income. In
general, there is no penalty tax on distributions: (1) made on or after the date
on which the Contract Owner is actual age 59 1/2, (2) made as a result of death
or disability, (3) received in substantially equal periodic (not less frequently
than annually) installments over the life (or life expectancy) of the owner, or
the joint lives (or joint life expectancies) of the owner and his beneficiary or
(4) allocable to an "investment in the contract" made before August 14, 1982.
Similar tax penalties apply to certain distributions pursuant to a Qualified
Contract.
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 New York Life of that election. The
election may not be available for certain payments to be delivered outside the
United States and for certain payments to nonresident aliens or foreign
corporations. In addition, some states have enacted legislation requiring
withholding.
Even if a recipient elects no withholding, special rules may require New
York Life to disregard the recipient's election if the recipient fails to supply
New York Life with a "TIN" or taxpayer identification number (social security
number for individuals).
Qualified Plans
The Contracts issued in connection with plans qualifying for special
federal tax treatment are funded through Account Q. These encompass Contracts
purchased for use in connection with tax-qualified pension, profit-sharing and
annuity plans and trusts including H.R. 10 plans, individual retirement account
or annuity plans including simplified employee pensions, tax-sheltered annuities
(issued under section 403(b) of the Code) and certain governmental type plans.
All other Contracts which were not issued in connection with plans qualifying
for special federal tax treatment are funded through Account N.
The tax rules applicable to participants and beneficiaries in 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). Adverse tax consequences
7
<PAGE>
may result from contributions in excess of specified limits, distributions prior
to age 59 1/2 (subject to certain exceptions), distributions that do not conform
to specified minimum distribution rules, aggregate distributions in excess of a
specified annual amount, and in certain other circumstances. Therefore, New York
Life makes no attempt to provide more than general information about use of the
Contracts with the various types of qualified plans. Contract 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 Contract issued in connection therewith.
Purchasers of Contracts for use with any qualified plan should seek competent
legal and tax advice regarding the suitability of the Contract therefor.
(a) Section 403(b) Plans. Under section 403(b) of the Code, payments made
by public school systems and certain tax-exempt organizations to purchase
annuity policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be subject
to FICA (social security) taxes.
(b) Individual Retirement Annuities. Sections 219 and 408 of the Code
permit individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity" or "IRA", including an
employer-sponsored Simplified Employee Pension ("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 an
Individual Retirement Annuity on a tax-deferred basis.
(c) Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans. Sections
401(a) and 403(a) of the Code permit corporate employers to establish various
types of retirement plans for employees, and self-employed individuals to
establish qualified plans for themselves and their employees. Such retirement
plans may permit the purchase of the Contracts to provide benefits under the
Plans.
(d) State and Local Government 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, certain tax exempt
organizations, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities which enjoy special treatment. The Contracts can be
used with such plans. Under such plans, a participant may specify the form of
investment in which his or her participation will be made. All such investments,
however, are owned by, and are subject to the claims of the general creditors of
the sponsoring employer.
(e) Eligible Rollover Distributions. Under amendments to the Internal
Revenue Code which became effective in 1993, distributions from a qualified plan
(other than non-taxable distributions representing a return of capital,
distributions meeting the minimum distribution requirement, distributions for
the life or life expectancy of the recipient(s) or distributions that are made
over a period of more than 10 years) are "eligible rollover distributions."
Eligible rollover distributions which are paid to the Policyowner or beneficiary
are subject to 20% mandatory federal income tax withholding. The imposition of
this withholding on a distribution that is eligible for a tax-free rollover may
limit the recipient's ability to take full advantage of the tax-free rollover
provisions and may result in the imposition of a 10% penalty tax if the
recipient is under age 59 1/2. Eligible rollover distributions which are paid in
a "direct rollover" to another qualified plan are not subject to federal income
tax withholding until subsequently distributed. Distributions which do not
qualify as eligible rollover distributions are subject to the voluntary
withholding rules which require that federal income tax be withheld unless a
written election not to have federal income tax withheld is furnished by the
Policyowner or beneficiary prior to the payment.
PENDING LEGAL PROCEEDINGS
Neither the Separate Accounts nor the Fund is a party to any litigation.
New York Life is engaged in litigation of various kinds which in its judgment is
not of material importance in relation to its total assets.
8
<PAGE>
VOTING RIGHTS
New York Life
Holders of policies issued by New York Life, including Contracts, that have
been in force for at least one year have the right to vote in each election of
the directors of New York Life. Each such holder has one vote for the directors
of New York Life irrespective of the number or amount of his or her policies or
Contracts.
Fund
Refer to "Notice of Annual Meeting of New York Life Fund, Inc.," and
"Statement to Persons Entitled to Give Voting Instructions in Connection with
New York Life Separate Account Individual Variable Annuity Contracts," p. 1, in
the Annual Meeting Statement section.
SHARES OF THE FUND
General
The authorized capital of the Fund is 10,000,000 shares of common stock of
the par value $1 per share*. All shares are of the same class, with equal
rights and privileges. Each share is entitled to participate equally and ratably
in any income dividends and any capital gains distributions declared by the Fund
and, in case of liquidation, to participate equally and ratably in any assets of
the Fund remaining after satisfaction of its outstanding liabilities. The Fund
is authorized to issue shares in fractional denominations. Any fractional shares
issued will be entitled to participate in their respective proportions in any
income dividends and any capital gains distributions declared by the Fund and in
any distribution of net assets of the Fund upon liquidation. The By-Laws of the
Fund authorize it to maintain for each shareholder a shareholder open account in
which will be recorded such shareholder's ownership of shares and all changes in
such ownership. Certificates will not be required to be issued for shares so
recorded unless requested by the shareholders.
The shares are fully paid and non-assessable when issued and have no
preemptive, conversion or exchange rights. Shareholders are entitled to have
shares redeemed by the Fund as set forth under "Sale and Redemption of Shares,"
below.
Sale and Redemption of Shares
The shares of the Fund will be sold only to separate accounts established
by New York Life, and to New York Life itself and organizations approved by it.
Sales will be at net asset value as next determined after receipt by the Fund of
the request for purchase. Redemptions will be at net asset value next determined
after receipt of the request for redemption.
Payment for shares redeemed will be made as soon as possible and within 7
days after the day on which the Fund receives the request for redemption,
together with the certificate for or other evidence of ownership of such shares,
if any. However, the right of redemption may be suspended or the payment date
postponed for any period during which the New York Stock Exchange is closed
(other than customary week-end and holiday closings), or trading on it is
restricted as determined pursuant to rules and regulations of the Securities and
Exchange Commission; or for any period during which an emergency exists, as
determined pursuant to such rules and regulations, as a result of which disposal
by the Fund of securities owned by it or the determination of the value of its
net assets is not reasonably practicable; or for other periods permitted by the
Commission.
The net asset value of the shares of the Fund will fluctuate as a result of
changes in the market value of the securities owned by the Fund. The amount a
shareholder will receive upon the redemption of shares may therefore be more or
less than the amount paid for them.
- ----------
* The statutory terms "par value" and "stated capital" normally have no
relation to the market value of a security.
9
<PAGE>
DEDUCTIONS
Deduction for Applicable State and Local Taxes
Where deductions from gross purchase payments have been made for applicable
premium taxes, the amount is disclosed in confirmations issued with respect to
purchase payments. The surrender of accumulation units, in whole or in part, for
cash may result in a credit against the state and local tax liability of New
York Life. In such event, there will be paid by New York Life, in addition to
the cash value of the accumulation units being surrendered, an amount equal to
the lesser of (1) the amount by which New York Life's state and local tax
liability is reduced or (2) the amount previously deducted from gross purchase
payments for state and local taxes. No representation can be made that upon any
such surrender of accumulation units, in whole or in part, any such payment will
be made, since applicable tax laws at the time of surrender would be
determinative.
Deduction for Sales and Administrative Expenses
Deductions from the basic amount of payments will be made by New York Life
for expenses in connection with sales and administrative functions relative to
the Contracts. The net amount, after all deductions, will be applied to purchase
accumulation units or annuity units. Administrative expenses include such items
as salaries, rent, postage, telephone, travel, legal, actuarial, auditing and
accounting fees, office equipment and stationery. New York Life agrees that
these deductions, which are set out in the following table, will not be
increased during the continuance of the Contract.
PERIODIC PURCHASE DEFERRED CONTRACTS
Percentage of Basic Percentage of Net
Purchase Payments* Purchase Payments
-------------------------- ---------------------------
Adminis- Adminis-
Sales trative Sales trative
Year+ Expense Expense Total Expense Expense Total
- ----- ------- ------- ----- ------- ------- ------
1 ................. 11.0% 4.0% 15.0% 12.94% 4.71% 17.65%
2 and subsequent .. 4.5 2.5 7.0 4.84 2.69 7.53
No. of
Years+ Average Over Number of Years Indicated++
- ------ -------------------------------------------------------
4 ................. 6.13% 2.87% 9.00% 6.73% 3.16% 9.89%
5 ................. 5.80 2.80 8.60 6.35 3.06 9.41
10 ................. 5.15 2.65 7.80 5.59 2.87 8.46
15 ................. 4.93 2.60 7.53 5.34 2.81 8.15
20 ................. 4.82 2.58 7.40 5.21 2.78 7.99
25 ................. 4.76 2.56 7.32 5.14 2.76 7.90
30 ................. 4.72 2.55 7.27 5.09 2.75 7.84
- ----------
* "Basic purchase payments" are gross purchase payments after deductions
for any applicable state and local taxes (generally known as "premium taxes") or
gross purchase payments where there are no such taxes.
+ Year, or "premium year," is a one-year period, except that failure to
make a scheduled purchase payment will extend a premium year by the period
beginning with the due date of such payment and ending with the due date of the
payment made when scheduled payments are resumed. The first premium year begins
on the date of the Contract. Consequently, the percentage deductible for sales
and administrative expenses specified above for the first premium year will
apply until the scheduled purchase payments for such year have been paid.
++ Assuming level payments over the period indicated.
10
<PAGE>
RECORD DATE: PURCHASE PAYMENTS, REDEMPTIONS,
EXCHANGES AND REQUESTS FOR INFORMATION
Under all contracts purchase payments will be applied, and requests for
redemption or exchange made effective, as of the record dates of such payments
or requests. The record date of each such payment or request will be the day on
which it is first received by New York Life at the Home Office or a Service
Office except that the record date of a payment or request received on other
than a business day, or after the close of the New York Stock Exchange, will be
the next business day. Since all requests will be effective as of the record
dates, the requests must be unconditional and any conditional requests will not
be acceptable. A "business day" is any day on which the New York Stock Exchange
is open for trading, except for any such day on which the Home Office is closed.
All payments, requests for redemption, or exchanges of fixed or variable
accumulation units for units of the other kind should be sent to NYLIFE
Distributors Inc. c/o the appropriate New York Life Service Office. Existing IVA
Contract Owners have been notified by mail of the address of the appropriate New
York Life Service Office. Requests for information should be sent to NYLIFE
Distributors Inc. c/o the appropriate New York Life Service Office or New York
Life Consumer Information and Service Center at 51 Madison Avenue, New York, New
York 10010.
NET ASSET VALUE
In accordance with procedures approved by the Board of Directors of the
Fund, the net asset value of the shares of the Fund is determined once daily as
of the regular close of trading on the New York Stock Exchange, on each day on
which it is open for trading and the Fund is open for business. The Fund will be
open for business each day the Exchange is open for trading, except for any such
day on which New York Life's Home Office is closed. The Fund reserves the right
to determine net asset value once daily at the close of trading reported by the
consolidated tape, instead of at the regular close of trading on the Exchange.
Net asset value is calculated in the following manner. Securities traded on
an exchange (or exchanges) will be valued at the closing sales price on the
exchange where they are principally traded. Securities for which there is no
sale on that day and securities traded in only the over-the-counter market will
be valued at the last representative bid price available. Securities for which
quotations are not readily available, restricted securities, and other assets of
the Fund, will be valued at fair value as determined in good faith by or at the
direction of the Board of Directors of the Fund. Cash and other receivables and
other assets of the Fund will be added and liabilities of the Fund will be
deducted. The resulting amount will represent the net assets of the Fund which
will be divided by the number of shares outstanding to determine a net asset
value per share.
GENERAL INFORMATION
State Regulation
New York Life is subject to the New York Insurance Law and other laws of
the State of New York governing life insurance companies organized in that
State. The New York Insurance Law provides for the regulation and supervision of
such life insurance companies by the Department of Insurance of the State of New
York which periodically examines the affairs of such companies. In addition, New
York Life is subject to the insurance laws and regulations of all other States
and jurisdictions in which it is authorized to do business. In connection with
such regulation and supervision, New York Life is required to submit annual
statements of its operations, including financial statements, to the Insurance
Departments of the various jurisdictions in which it is authorized to do
business for purposes of determining solvency and compliance with local
insurance laws and regulations.
Additional Information
This prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission, and because
the Company is no longer offering new Contracts. The information so omitted may
be obtained from the Commission's principal office in Washington, D.C., upon
payment of the fees prescribed by the Commission.
The features of the Contracts described herein are subject to the actual
terms of the Contracts themselves, specimen copies of which have been filed as
exhibits to the registration statement. Reference is made to these exhibits for
a complete statement of the terms and conditions of the Contracts.
11
<PAGE>
INCORPORATION BY REFERENCE
Certain information concerning the Fund and the Accounts is also included
in the Annual Meeting Statement and the Annual Report sections attached to this
Prospectus. The following portions of such documents are incorporated herein by
reference:
Annual Meeting Statement Section. "Election of Directors" (pp. 3-4),
"Remuneration" (p. 5), "Board Structure" (p. 5), "Selection of Independent
Accountants" (p. 5), "Investment Advisory Agreement" (p. 6), "Brokerage
Commissions" (pp. 6-7), "Custodian" (p. 8) and "Deduction for Sales and
Administrative Expenses, Charge for Mortality and Expense Risks" (p. 8) and
"Schedule I" (pp. 9-17).
Annual Report Section. Financial Statements and Financial Highlights of New
York Life Fund, Inc. (pp. 9-17).
NEW YORK LIFE FIDELITY BOND
New York Life has for its protection a fidelity bond, in the usual form, in
an amount not less than $15 million covering officers and employees.
12
<PAGE>
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
(a) Financial Statements
Reference is made to the Annual Report section (which will be part of
the Registrant's March 29, 1996 Annual Disclosure Statement) which is
filed with the Securities and Exchange Commission on the same date as
this Form N-1A.
(b) Exhibits
--Consent of Price Waterhouse LLP.
25. Persons Controlled by or under Common Control with Registrant
Reference is made to the information concerning the relationship between
New York Life Insurance Company ("New York Life") and the Registrant
contained under the headings "Investment Advisory Agreement" and
"Schedule I" in the Annual Meeting Statement section (which will be part
of the Registrant's March 29, 1996 Annual Disclosure Statement) filed
with the Securities and Exchange Commission on the same date as this Form
N-1A as well as Part II of the New York Life Separate Account N and Q
Post-Effective Amendments Nos. 32 and 33, respectively, to Form S-6 (File
No. 2-35959 and 2-35960) filed with the Securities and Exchange
Commission on the same date as this Form N-1A.
26. Number of Holders of Securities
<TABLE>
<CAPTION>
Shares of $1 Par Value
Voting Common Stock Owner
and Beneficiary of
Name of Security Holder Record 12/31/95 Percentage
----------------------- ------------------------- ----------
<S> <C> <C>
New York Life Separate Account N ...................... 239,854 33.45%
c/o New York Life Insurance Company, Depositor
51 Madison Avenue
New York, New York 10010
New York Life Separate Account Q (same address) ..... 477,207 66.55%
------- -------
Total ............................................... 717,061 100.00%
======= =======
</TABLE>
27. Indemnification
(a) New York Law and By-Laws
Section 13.01 of the Registrant's By-Laws provides, among other things, that
the Registrant shall indemnify any director or officer of Registrant, or of
any corporation on which such officer or director serves at the request of
Registrant, in the manner and to the maximum extent permitted by Article 7
of the Business Corporation Law of New York, as amended from time to time.
Reference is made to Sections 721 through 726 of the New York Business
Corporation Law and Section 17(h) of the Investment Company Act of 1940
[15 U.S.C. 80a-17], dealing with the indemnification of directors and
officers.
(b) Insurance
Under an endorsement to a directors and officers liability/corporation
reimbursement ("D&O") insurance policy issued to New York Life Insurance
Company by National Union Fire Insurance Company of Pittsburgh, PA.,
directors and officers of the Registrant, New York Life Insurance Company
and its subsidiaries are insured on a claims-made basis for certain
liabilities which they may incur in such capacity. Excess directors and
officers insurance is also provided by a policy issued by the Aetna Casualty
and Surety Company.
<PAGE>
28. Business and Other Connections of Investment Adviser
Reference is made to Part A of this Post-Effective Amendment under the
heading "New York Life Insurance Company" as well as the caption "Investment
Advisory Agreement" in the Annual Meeting Statement section (which will be
part of the Registrant's March 29, 1996 Annual Disclosure Statement) which
is filed with the Securities and Exchange Commission on the same date as
this Post-Effective Amendment.
29. Principal Underwriters
This is not applicable because the Registrant sells its shares directly and
exclusively to two insurance company separate accounts. Reference is made to
Part A of this Post-Effective Amendment under the sub-heading "Sale and
Redemption of Shares."
30. Location of Accounts and Records
The Registrant's accounts, books and records and other documents are in the
physical possession of and maintained by the Registrant at its principal
office at 51 Madison Avenue, New York, New York 10010 and at Cokesbury Road,
Lebanon, New Jersey 08833.
31. Management Services
None.
32. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York on the 25th day
of March, 1996, with respect to matters pertaining to the Registrant.
NEW YORK LIFE FUND, INC.
(Registrant)
By: /s/ RICHARD M. KERNAN, JR.
--------------------------
(Richard M. Kernan, Jr.)
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ RICHARD M. KERNAN, JR. Chairman of the Board March 25, 1996
- ---------------------------- (Chief Executive Officer)
(Richard M. Kernan, Jr.)
/s/ ANNE F. POLLACK Director and President March 25, 1996
- ---------------------------- (Chief Administrative
(Anne F. Pollack) Officer)
/s/ ROBERT D. ROCK Director and Vice March 25, 1996
- ---------------------------- President
(Robert D. Rock)
/s/ MARC J. CHALFIN Controller March 25, 1996
- ----------------------------
(Marc J. Chalfin)
/s/ JAY S. CALHOUN Treasurer March 25, 1996
- ---------------------------- (Principal Financial
(Jay S. Calhoun) Officer)
<PAGE>
Signature Title Date
--------- ----- ----
/s/ MICHAEL J. DRABB Director March 25, 1996
- ----------------------------
(Michael J. Drabb)
/s/ JILL FEINBERG Director March 25, 1996
- ----------------------------
(Jill Feinberg)
/s/ DANIEL HERRICK Director March 25, 1996
- ----------------------------
(Daniel Herrick)
/s/ ROMAN L. WEIL Director March 25, 1996
- ------------------------
(Roman L. Weil)
/s/ GREGORY J. MULLIGAN
- ----------------------------
*By
(Gregory J. Mulligan,
- ----------------------------
as attorney-in-fact for
the Directors and
officers whose name
appears as asterisk.)
<PAGE>
EXHIBIT INDEX
Page
Exhibit Number
- ------- ------
11 Consent of Price Waterhouse LLP ................................
17 Power of Attorney ..............................................
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Post-Effective Amendment No. 32 to the Registration
Statement on Form N-1A of our report dated February 2, 1996 relating to the
financial statements and financial highlights of New York Life Fund, Inc., which
appear in the "Annual Report Section" of the "Annual Disclosure Statement." We
also consent to the incorporation by reference in such Prospectus of the
reference to us which appears under "Selection of Independent Accountants" in
the Annual Meeting Statement Section" of the "Annual Disclosure Statements."
PRICE WATERHOUSE LLP
New York, New York
March 27, 1996
EXHIBIT 17
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of New
York Life Funds, Inc. (the "Fund") does hereby constitute and appoint each of
Richard M. Kernan, Jr., Anne F. Pollack, Robert D. Rock, A. Thomas Smith III and
Gregory J. Mulligan her true and lawful attorney-in-fact and agent, each with
full power of substitution and resubstitution for her in her name, place and
stead, to sign any and all Registration Statements applicable to the Fund and
any amendments or supplements thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as she might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Signature Title Date
--------- ----- ----
/s/ JILL FEINBERG Director May 16, 1995
---------------------
Jill Feinberg
I. ANNUAL MEETING STATEMENT SECTION
NEW YORK LIFE INSURANCE COMPANY
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
NOTICE OF ANNUAL MEETING OF NEW YORK LIFE FUND, INC.
to Persons Entitled to Give Voting Instructions in Connection
with Contracts of Separate Accounts N and Q
Under the Individual Variable Annuity Contracts (the "Contracts") of New
York Life Insurance Company ("New York Life") funded through New York Life
Separate Accounts N and Q (the "Accounts"):
(a) The net purchase payments under the Contracts directed to provide
variable benefits are allocated to the Accounts, and
(b) The assets of the Accounts are invested solely in shares of New York
Life Fund, Inc. (the "Fund").
New York Life will, at the annual meeting of the shareholders of the Fund
to be held at 3:00 p.m., New York City time, on April 23, 1996, in Room 1304, at
51 Madison Avenue, New York, New York, vote shares of the Fund held in the
Accounts, representing the interests in the Accounts, as of the March 4, 1996
record date for the meeting, of owners of Contracts providing variable
accumulation units and (when appropriate) payees under Contracts and payees
under variable settlement options, in accordance with voting instructions hereby
solicited from such owners and payees.
A Statement to Persons Entitled to Give Voting Instructions in Connection
with the Contracts (the "Statement") describing matters to be acted on at the
annual meeting and a Voting Instruction Form for use in giving voting
instructions, are enclosed. Copies of the 1995 Annual Reports and Prospectus of
the Accounts and the Fund are also enclosed. You will note that the number of
shares for which you are entitled to give voting instructions is stated on the
front of the Voting Instruction Form. This number of shares was determined upon
the basis established for the type and status of the Contract bearing the number
set forth on the front of the Form. The bases for such determinations, and a
description of the right of certain persons who are not owners or payees to give
voting instructions, are set forth in the Statement.
Please read the Statement and complete the Voting Instruction Form and
return it to us in the enclosed postpaid reply envelope. We recommend that you
instruct New York Life to
(1) VOTE FOR election of the directors named in the Statement and Voting
Instruction Form, and
(2) VOTE FOR ratification of selection of Price Waterhouse LLP as
independent accountants of the Fund for 1996.
To be given effect, the voting instructions must be received by New York
Life at P.O. Box 13, Madison Square Station, New York, N.Y. 10159, not later
than 5:00 p.m., New York City time, April 12, 1996. Shares for which no timely
voting instructions are received will be voted by New York Life in the same
proportion as the shares for which timely voting instructions are received with
regard to the respective Accounts described in the Statement. However, if no
timely voting instructions are received for more than 50% of the shares of the
Fund held in either or both of the Accounts for which voting instructions may be
given, New York Life may, in its discretion, vote all shares of the Fund held in
such Account or Accounts for one or more adjournments of the annual meeting to
permit further solicitation of instructions.
HARRY G. HOHN
Chairman of the Board
March 29, 1996 NEW YORK LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SPECIAL NOTICE TO OWNERS OF 100% FIXED UNITS
--------------------------------------------
OWNERS OF AND ANNUITANTS UNDER CONTRACTS WITH 100% FIXED ACCUMULATION UNITS ARE
NOT ENTITLED TO GIVE VOTING INSTRUCTIONS WITH RESPECT TO SUCH CONTRACTS BECAUSE
THE FIXED UNITS ARE NOT PROVIDED OR FUNDED BY NEW YORK LIFE SEPARATE ACCOUNTS N
AND Q. NEVERTHELESS, THE INFORMATION CONTAINED IN THIS BOOKLET IS PROVIDED TO
OWNERS OF AND ANNUITANTS UNDER SUCH CONTRACTS BECAUSE OF THE RIGHT TO CONVERT
ALL OR A PORTION OF THEIR FIXED BENEFITS TO VARIABLE DURING THE ACCUMULATION
PERIODS OF THEIR CONTRACTS. HOWEVER, REFERENCES TO VOTING PRIVILEGES,
INSTRUCTIONS, FORMS, RULES AND PROCEDURES, IN CONNECTION WITH ANNUAL MEETINGS
(OR ADJOURNMENTS THEREOF) OF THE FUND SHALL NOT APPLY TO CONTRACTS HAVING 100%
FIXED ACCUMULATION UNITS.
- --------------------------------------------------------------------------------
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
March 29, 1996
STATEMENT TO PERSONS ENTITLED TO GIVE VOTING INSTRUCTIONS
IN CONNECTION WITH NEW YORK LIFE SEPARATE ACCOUNT
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Soliciting Instructions for the Voting of Shares of New York Life Fund, Inc.
at the Annual Meeting to be Held April 23, 1996
New York Life Insurance Company ("New York Life") established New York Life
Separate Accounts N and Q (the "Accounts") on November 19, 1969 under the
provisions of the New York Insurance Law. The net purchase payments under the
individual variable annuity contracts (the "Contracts") funded through the
Accounts that are directed to provide variable benefits will be allocated to the
Accounts. The Accounts are unit investment trusts registered under the
Investment Company Act of 1940 ("Investment Company Act"). The assets of the
Accounts are invested solely in shares of New York Life Fund, Inc. (the "Fund"),
which is a diversified open-end management investment company registered under
such Act. The primary difference between Accounts N and Q relates to the Federal
tax status of the plan (if any) which the Contract is used to fund. See
Prospectus Section, "Federal Tax Aspects," pp. 6-8.
New York Life has title to the shares of the Fund held in the Accounts and
will vote them in accordance with voting instructions received from owners of
the Contracts and (when appropriate) payees under Contracts and payees under
variable settlement options. Each share of the Fund is entitled to one vote.
This solicitation of voting instructions is made by New York Life on behalf of
the Board of Directors of the Fund.
The annuitant under an Account Q Contract is entitled to give such voting
instructions if he or she is the owner or, if he or she is not the owner, to
give voting instructions to the owner of the Contract. In those cases where the
annuitant is not the owner, New York Life has supplied the owner with copies of
this Statement and a form for giving voting instructions to the owner, and
hereby requests the owner of the Account Q Contract to forward a copy of such
documents to each person entitled to give voting instructions to the owner.
This statement is first being furnished on March 29, 1996 in connection
with the solicitation of voting instructions from persons entitled to give such
instructions for the voting of shares of the Fund at the annual meeting of
shareholders of the Fund to be held in Room 1304, at 51 Madison Avenue, New
York, New York, at 3:00 p.m., New York City time, on April 23, 1996. At this
meeting shareholders will be asked:
(a) to vote for
(1) the election of a board of 7 directors of the Fund for a term of
one year; and
(2) the ratification of the selection of Price Waterhouse LLP as
independent accountants of the Fund for 1996; and
(b) to act on any other matters that may properly come before the meeting.
The election of directors requires a plurality, and the ratification of the
selection of accountants requires a majority, of the votes cast at the meeting,
at which representation of a majority in interest of the outstanding shares of
the Fund is necessary to constitute a quorum for the transaction of business. As
used in this Statement, "the vote of a majority of the outstanding shares of the
Fund" means the vote at the meeting of the lesser of (1) 67% or more of the
shares represented at the meeting, if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or (2) more than 50% of
the outstanding shares of the Fund.
1
<PAGE>
RECORD DATE; VOTING RIGHTS; OUTSTANDING SHARES
New York Life hereby solicits, and will accept, voting instructions from
persons who were owners of Contracts, and (when appropriate) from persons who
were payees under Contracts or payees under variable settlement options, as of
March 4, 1996, which has been fixed as the record date for the meeting.
The number of shares for which voting instructions may be given is
specified on the front of the accompanying Voting Instruction Form and was
determined upon whichever of the following bases was applicable on such record
date. If the applicable Contract was a deferred Contract under which the payment
of annuity benefits had not yet begun, the number of shares for which voting
instructions may be given was determined upon the basis of the number of
variable accumulation units credited to the Contract. If the applicable Contract
was an immediate Contract (viz., one under which there is no accumulation
period), or a deferred Contract under which annuity payments had begun, or if
payments were being made under a variable settlement option, the number of
shares for which voting instructions may be given was determined upon the basis
of the amount of reserves in the appropriate Account attributable to such
Contract or option divided by the value of a variable accumulation unit as of
March 4, 1996.
Voting instructions furnished pursuant to this solicitation must be
received by New York Life at P.O. Box 13, Madison Square Station, New York, New
York 10159, not later than 5:00 p.m., New York City time, April 12, 1996 in
order to be given effect, and may be revoked before that time by written notice
to New York Life. Shares of the Fund held in the Accounts for which no timely
voting instructions are received will be voted by New York Life in the same
proportion as shares held in the respective Accounts for which timely voting
instructions are received. However, if no timely voting instructions are
received for more than 50% of the shares held in either or both of the Accounts
for which voting instructions may be given, New York Life may, in its
discretion, vote all shares of the Fund held in such Account or Accounts for one
or more adjournments of the annual meeting to permit further solicitation of
voting instructions. The cost of the solicitation of these voting instructions
will be borne by New York Life.
The total number of shares of the Fund issued and outstanding as of March
4, 1996 was 546,675, of which 190,970 were held in Account N and 355,705 were
held in Account Q. No shares of the Fund are beneficially owned, directly or
indirectly, by any director of the Fund.
2
<PAGE>
ELECTION OF DIRECTORS
Currently, the Fund has 7 directors who hold office until the annual
meeting following their election and until they are re-elected or their
successors have been elected and have qualified. The nominees named below are
presently available for election to serve for the annual term commencing with
the April 23, 1996 annual meeting. (If any of these nominees should become
unavailable to serve as a director of the Fund, New York Life will vote shares
of the Fund held in the Accounts for the other person(s) nominated by the
directors of the Fund.)
<TABLE>
<CAPTION>
Business Experience During
Name of Nominee Age Position with Fund Past Five Years; Other Directorships
--------------- --- ------------------ ------------------------------------
<S> <C> <C> <C>
Michael J. Drabb .......... 62 Director from May 19, 1994 Executive Vice President and Director of
to date. O'Brien Asset Management, Inc. from
August 1993 to date. Executive Vice
President of The Mutual Life Insurance
Company of New York, ( "MONY"), from
May 1989 to April 1992. Mr. Drabb is
also a Director of the following
Corporations: MONY Series Fund,
Webcraft Technologies, Inc., J.P. Food
Services, Inc. and a director of New
York Life MFA Series Fund, Inc.
Jill Feinberg ............. 41 Director from April 25, 1995 Consultant, Jill Feinberg & Company from
to date. 1989 to date. Ms. Feinberg is also a
director of New York Life MFA Series
Fund, Inc.
Daniel Herrick ............ 75 Director from April 22, 1975 Treasurer, and Senior Executive, National
to date. Gallery of Art, Washington, D.C., from
December 1985 to June 1995; Mr.Herrick
is also a director of New York Life MFA
Series Fund, Inc.
Richard M. Kernan, Jr.* ... 55 Chairman and Chief Executive Executive Vice President of New York Life
Officer from August 1, 1989 Insurance Company from March 1991 to
to date; Director, President date. Mr. Kernan is also Chairman and
and Chief Administrative Chief Executive Officer of New York Life
Officer from January 27, MFA Series Fund, Inc., Chairman of
1987 to August 1, 1989; New York Life International Investment
Vice President from April 23, Inc., a wholly-owned Delaware
1984 to January 27, 1987. subsidiary of NYLIFE Inc.; a director of
NYLIFE Healthcare Management, Inc.; a
director of New York Life Insurance and
Annuity Corporation, and NYLIFE Inc.,
wholly-owned subsidiaries of New York
Life; New York Life Worldwide Holding,
Inc., NYLIFE Resources Inc., NYLIFE
Equity Inc., Greystone Realty
Corporation, New York Life Capital
Corporation and MacKay-Shields Financial
Corporation, wholly-owned Delaware
subsidiaries of NYLIFE Inc.; NYLCare
Health Plans, Inc. a majority-owned
Delaware subsidiary of NYLIFE Inc.; a
director of NYLIFE Securities Inc., a
wholly-owned New York subsidiary of
NYLIFE Inc.; a director of Japan Gamma
Asset Management Limited; a director of
Quorum Capital Management Limited and
Monetary Research Ltd., subsidiaries of
New
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Business Experience During
Name of Nominee Age Position with Fund Past Five Years; Other Directorships
--------------- --- ------------------ ------------------------------------
<S> <C> <C> <C>
(Richard M. Kernan, Jr. continued from previous page) York Life International Investment,
Inc.; a director of New York Life (U.K.)
Limited, and GEO New York Life, S.A.
subsidiaries of New York Life Worldwide
Holding, Inc. and a director of Express
Scripts, Inc. a subsidiary of NYLIFE
Healthcare Management, Inc.
Anne F. Pollack* .......... 40 Director, President and Chief Senior Vice President of New York
Administrative Officer from Life from March 1992 to date; Vice
January 23, 1990 to date; President of New York Life from
Director from October 24, February 1988 to March 1992.
1989 to January 23, 1990. Ms. Pollack is also a director of New York
Life MFA Series Fund, Inc. a director
of NYLIFE Insurance Company of
Arizona and a director of Quorum
Capital Management Limited, a
subsidiary of New York Life
International Investment, Inc.
Robert D. Rock* ........... 41 Director from May 19, 1994 Senior Vice President in charge of the
to date. Individual Annuity Department of New
York Life Insurance Company from
March 1991 to date. Mr. Rock is also a
director of New York Life Insurance
and Annuity Corporation and NYLIFE
Insurance Company of Arizona a
wholly-owned subsidiary of New York
Life; a director of NYLIFE Securities,
Inc. and New York Life Settlement
Corp. subsidiaries of NYLIFE Inc.; and
a director of Aegis Technologies,
Inc., a majority-owned Delaware
subsidiary of NYLIFE Inc.
Roman L. Weil ............. 55 Director from May 19, 1994 Professor of Accounting and Sigmund
to date. E. Edelstone Professor of Accounting,
Graduate School of Business,
University of Chicago, from September
1976 to present. Visiting Professor of
Law, Stanford University Law School,
from September 1990 to date. Mr. Weil is
also a director of New York Life MFA
Series Fund, Inc.
</TABLE>
- ----------
* An "interested person" (as defined in the Investment Company Act of 1940) of
New York Life, the investment adviser of the Fund, by reason of their
affiliation with New York Life.
4
<PAGE>
REMUNERATION
Directors of the Fund who are interested persons of New York Life, the
investment adviser to the Fund, by reason of being officers of New York Life,
receive no compensation allocable to their services to the Fund, such personnel
being provided by New York Life without charge other than 1/4 of 1% advisory fee
paid by the Fund under the investment advisory agreement with New York Life
described below. The Contracts issued by New York Life and the operations of the
Fund comprise less than 1% of the business of New York Life. Pursuant to the
investment advisory agreement, the Fund paid total fees of $76,000 to the
non-interested directors for meetings from May 1995 through February 1996, each
of whom received an annual stipend of $16,000 paid in four equal installments of
$4,000, payable at the end of each quarter, plus a $750 meeting fee (aggregating
$3,000 in the case of each director) for the four regular quarterly meetings
held by the Board, usually on a Tuesday of February, May, August and November.
All directors attended all of the regular quarterly meetings. Two such directors
also received $2,757.77 reimbursement for travel expenses of attending Board
meetings from May 1995 through February 1996 . The fees of non-interested
directors, all of which are payable by the Fund, are not expected to exceed a
total of $80,000 during 1996.
At the meeting, the shareholders will be asked to vote for the election of
the 7 nominees listed above as directors of the Fund to serve until the next
annual meeting and until their successors have been elected and have qualified.
BOARD STRUCTURE
Because the Board consists of a majority of directors who are not
"interested persons" (as defined in the Investment Company Act) by reason of
their affiliations with New York Life, its members have not found it necessary
to establish an Audit, Compensation, Nominating or other Committee for the
efficient governance of the Fund. The Board held 4 meetings in 1995 and
customarily functions on a quarterly meeting schedule.
In accordance with applicable provisions of the Investment Company Act,
matters relating to the investment advisory agreement, selection of independent
accountants and fidelity bond coverage are determined by a majority of the
directors who are not "interested persons" of the Fund and who have no known
material relationship with New York Life which might adversely affect the
exercise of their independent business judgment in determining issues coming
before the Board.
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Fund, including a majority of the directors
who are not "interested persons" of the Fund, has selected Price Waterhouse LLP
to serve as independent accountants of the Fund for the fiscal year ending
December 31, 1996.
At the meeting, the shareholders will be asked to ratify or reject this
selection of Price Waterhouse LLP as independent accountants. Representatives of
the accountants are expected to be present at the annual meeting with the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions. Price Waterhouse LLP has acted as independent accountants
of the Fund since its organization, reporting directly to the members of the
Fund's Board of Directors, which functions without an audit or similar
committee. All services rendered the Fund by Price Waterhouse LLP have been
provided in connection with its professional audit functions, at customary rates
and terms (all of which are paid by New York Life under the terms of its
below-described investment advisory agreement with the Fund) which are subject
to reconsideration if unexpected issues involving accounting or auditing should
be encountered. Since its inception, no such reconsideration has occurred and
the Fund has no reason to expect that such issues are likely to be encountered
this year.
The Fund has been advised by Price Waterhouse LLP that, as of December 31,
1995, neither that firm nor any of its partners had any direct or material
indirect financial interest in the Fund or in New York Life, or any connection
during the preceding three years with the Fund or New York Life in the capacity
of promoter, underwriter, voting trustee, director, officer or employee. No
director or officer of the Fund, or any associate of any director or officer,
has any financial interest, direct or indirect, in the appointment of the
independent accountant.
5
<PAGE>
INVESTMENT ADVISORY AGREEMENT
New York Life serves as the investment adviser to the Fund under an
investment advisory agreement between New York Life and the Fund entered into as
of March 16, 1971, as amended as of May 19, 1972 (the "Agreement"), which was
approved and renewed by the shareholders at the 1973 annual meeting and renewed
for the current year by the Board of Directors of the Fund on February 22, 1996.
The Fund pays New York Life a fee, at the annual rate of 0.25% of the average
daily net assets of the Fund, for the investment advisory services and other
services rendered under the Agreement. The fee is payable on a quarterly basis,
within 15 days after the end of each calendar quarter. The amount of such fee
incurred by the Fund for services rendered by New York Life under the Agreement
aggregated $22,747 for 1995. The Agreement provides that the investments of the
Fund shall be made in accordance with the investment policies and restrictions
stated in the governing prospectus of the Fund and shall be subject to the
general supervision of the Board of Directors of the Fund to which New York Life
will report quarterly on investment decisions made for the Fund.
With a full staff of investment officers and analysts, New York Life is
well equipped to serve as investment adviser to the Fund. The name of the Chief
Executive Officer of New York Life, and the name and principal occupation of
each director and principal executive officer of New York Life, are set forth in
Schedule I hereto. Each officer of the Fund is also an officer of New York Life
as set forth in Schedule I hereto and receives no compensation except from New
York Life. For the purposes of this Statement, the business address of each of
the foregoing persons is 51 Madison Avenue, New York, New York 10010.
The Agreement will continue in effect from year to year provided it is
approved at least annually by the vote of the Board of Directors of the Fund
(including a majority of the directors who are not parties to the Agreement or
"interested persons" of any such party). It was last so approved by the Board on
February 22, 1996 at a meeting specially noticed for such purpose. The Agreement
provides that it will terminate in the event of its assignment. It may be
terminated without penalty at any time, upon 60 days written notice, by New York
Life or by the Board of Directors of the Fund or by a vote of a majority of the
outstanding shares of the Fund.
The Agreement provides that so long as it is in effect and the shares of
the Fund are sold only to and owned only by separate accounts of New York Life,
New York Life itself and organizations approved by it, New York Life will pay,
or reimburse the Fund for, the expenses incurred by the Fund for officers and
other personnel, office space, and all information and services (including
legal, auditing and accounting services and filing fees) required in connection
with the registration of the Fund and its shares under the federal securities
laws, qualification of the Fund and its shares under state securities laws, all
reports to the Securities and Exchange Commission and to shareholders of the
Fund, and proxy solicitation statements and materials.
New York Life is not required under the Agreement to pay, or reimburse the
Fund for, brokers' commissions; issue or transfer taxes; taxes and corporate
fees payable by the Fund to federal, state or other governmental agencies (other
than fees payable to the Securities and Exchange Commission); fees and expenses
payable to directors who are not interested persons of New York Life; charges or
expenses of any bank or other third party that may be appointed to act as
custodian of the securities or other assets of the Fund or as transfer or paying
agent for the Fund; or any legal fees or court costs attributable to the
activities or responsibilities of the Fund, except those payable by New York
Life as described in the preceding paragraph.
As of December 31, 1995, the net assets of the Fund amounted to $4,317,071
and, as stated above, the total fee incurred by the Fund for services rendered
by New York Life under the Agreement during 1995 was $22,747.
MISCELLANEOUS
Brokerage Commissions
For the years ended December 31, 1993, December 31, 1994 and December 31,
1995, the Fund paid total brokerage commissions of $45,041, $38,404 and $30,104,
respectively. No commissions were paid to any person affiliated with the Fund or
New York Life.
6
<PAGE>
As investment adviser, New York Life arranges for the placement of orders,
the execution of transactions and such matters as are related to investments for
the Fund. New York Life, in selecting brokers or dealers to be used in
investment transactions, endeavors to give primary consideration to the broker's
or dealer's ability to execute transactions at prices most favorable to the
Fund. In this connection among the factors considered are:
(1) the price at which the security is traded,
(2) basic commission, and
(3) the ability of the broker to receive the order, make the trade at the
desired price and complete the paper work on an accurate, expeditious
and professional basis.
In selecting the brokers which it believes are capable of meeting the above
standards on a consistent basis in institutional-type trading, New York Life
bases its judgment principally on such brokers' past performance. Selection is
generally evaluated from day to day (as to rates), on an ongoing basis (as to
quality of execution) and includes comparison of a given broker's performance
with both (a) other New York Life transactions handled by different brokers and
(b) non-New York Life transactions of a similar nature, involving other
investors to the extent that such transactions are public knowledge and come to
the attention of New York Life. Such evaluations are made on a continuing basis
and are not quantified.
In addition to purchases of securities listed on the New York Stock
Exchange or other exchanges through brokerage transactions, New York Life also
purchases for the Fund such listed securities from non-exchange members in
transactions off the exchanges. In purchasing over-the-counter securities for
the Fund, New York Life deals directly with the market makers for the particular
securities unless it believes it can obtain more favorable prices and executions
through others. The Fund bears the cost of the brokerage commissions, transfer
taxes and other charges and fees attributable to investment transactions.
Subject to the primary consideration of seeking executions and prices most
favorable to the Fund, New York Life, in the allocation of portfolio brokerage,
considers the value of general research, investment information and other
services provided by brokers and dealers to the extent that such research,
information and services are of assistance to New York Life in its independent
research operation and may pay higher commissions when in its judgment warranted
by the circumstances. New York Life also considers such factors as the rate of
commission or size of the broker-dealer's "spread," the size and difficulty of
the order, the nature of the market for the security, the willingness of the
broker-dealer to position, and the reliability, financial condition and
operational capabilities of the broker-dealer. To date, New York Life has
allocated a large portion of the brokerage transactions to firms providing such
research, information and services, but has not used any percentage, ratio or
formula in making such allocations. "Research" means the in-depth financial
analysis of individual industries or companies. "Services" is broader,
encompassing, for example, statistical evaluations of the Fund's portfolio
compared with other investment funds; lists of securities held by banks and
other institutions; charts or computer print-outs of historical, current and
projected economic and investment information; educational seminars; and the
like.
Such research information is useful and partially reduces expenses to New
York Life but its value is not determinable. Because these services are useful,
the quality of research is evaluated periodically through questionnaires
completed by each of New York Life's investment analysts and informally on a
day-to-day basis by the particular analysts involved. As a result of such
evaluations, New York Life is able to give some recognition to research and
other services in negotiating commission rates with brokers and dealers. New
York Life believes that all commissions paid by it and the Fund are reasonable
in relation to the research and services provided and that the Fund is a primary
beneficiary of the research and service arrangements described above.
The research and other services provided in connection with the Fund's
brokerage transactions are available for use by New York Life for its own
general and other separate accounts. Conversely, the research and other services
provided by brokers and dealers in connection with New York Life's portfolio
transactions are used in investment analysis for the Fund. It is the practice of
New York Life to permit the Fund's purchases or sales to be combined or
"bundled" with New York Life's other investment transactions, when feasible, on
a pro rata basis intended to assure fair and equitable treatment of the Fund.
This is done in order to afford the Fund cost-saving volume brokerage discounts
similar to those customarily enjoyed by New York Life.
The portfolio turnover rate (the lesser of purchases or sales of the Fund's
portfolio securities, exclusive of securities maturing within one year, during
the year divided by the monthly average value of such securities) in 1995 was
81.47%.
7
<PAGE>
Custodian
As permitted under an order of the Securities and Exchange Commission, a
custody arrangement has been established with Chemical Bank ("Chemical"). Under
this arrangement, portfolio securities of the Fund are deposited with Chemical
which redeposits eligible securities with The Depository Trust Company ("DTC"),
a clearing agency registered with the Securities and Exchange Commission. As
further permitted under the order, portfolio securities and investments
ineligible for deposit with DTC are held in the custody of either New York Life
or Chemical.
Deduction for Sales and Administrative Expenses,
Charge for Mortality and Expense Risks
The deductions for sales and administrative expenses, which are set out for
the last three years in the table below, are described in the Prospectus Section
at p. 10. In consideration for its assumption of the mortality and expense risks
described below, New York Life also makes a charge, in determining variable
accumulation and variable annuity unit values, at the annual rate of 0.75% of
such values, of which approximately 0.50% represents the charge for the
mortality risk and the remainder the charge for the expense risk. The amounts of
such charges for the last three years are also set forth in the following
tabulation. Although variable annuity payments will reflect the performance of
the respective Account's investment in shares of the Fund and will vary in
accordance with such performance, New York Life has agreed that the duration and
amounts of such payments will not be decreased because of adverse mortality
experience or expense experience incurred by New York Life. In assuming the
mortality risk, New York Life has agreed to make annuity payments, determined in
accordance with annuity tables specified and other provisions contained in the
respective Contracts, regardless of how long the Annuitant lives or how long all
other Annuitants live. By virtue of this agreement, the Annuitant is protected
against any reductions in the annuity payments because he or other Annuitants
live longer than expected. Similarly, in assuming the expense risk, New York
Life has agreed that its deductions for sales and administrative expenses will
not be increased regardless of the sufficiency of such deductions for actual
expenses incurred.
Deductions by New York Life
New York Life for Charges for
Calendar Separate Sales Administrative Aggregate Mortality and
Year Account Expenses Expenses Expenses Expense Risks
- -------- -------- -------- -------------- --------- --------------
1993 N 726 404 1,130 19,271
Q 2,438 1,355 3,793 59,559
1994 N 618 344 962 18,495
Q 1,985 1,104 3,089 55,618
1995 N 478 270 748 16,417
Q 1,096 617 1,713 47,441
OTHER MATTERS
New York Life knows of no matters other than the election of directors and
ratification of the selection of independent accountants that may come before
the meeting. If any other matters should properly come before the meeting, New
York Life intends to vote shares of the Fund in the Accounts upon such matters
at its discretion.
PROPOSALS OF PERSONS ENTITLED TO GIVE VOTING INSTRUCTIONS
Proposals intended to be presented at the 1997 annual meeting of the Fund
by or on behalf of persons entitled to give voting instructions in connection
with the Contracts, must be received by
A. Thomas Smith, III, Esq.
New York Life Fund, Inc.
Room 10SB
51 Madison
Avenue New York, New York 10010
on or before November 16, 1996 for inclusion in New York Life's 1997
Individual Variable Annuity Contracts Annual Meeting Statement and Voting
Instruction Form relating to such meeting.
HARRY G. HOHN
Chairman of the Board
New York Life Insurance Company
March 29, 1996
8
<PAGE>
SCHEDULE I
The officers of the Fund as of March 15, 1996 (who receive no compensation
or other benefits from the Fund for their services, nor any allocable
remuneration therefor from New York Life), whose current annual terms of office
expire April 23, 1996 and the offices held by them in their principal business
occupation as executives of the Fund's investment adviser, New York Life, are as
follows:
<TABLE>
EXECUTIVE OFFICERS
<CAPTION>
Name Age Office Held with Fund Office Held with New York Life
---- --- --------------------- ------------------------------
<S> <C> <C> <C>
Richard M. Kernan, Jr. ....... 55 Chairman and Chief Executive Executive Vice President from March
Officer from August 1, 1989 to 1991 to date; Senior Vice President
date; Director, President and from May 1984 to March 1991.
Chief Administrative Officer
from January 27, 1987 to
August 1, 1989; Vice President
from April 23, 1984 to January
27, 1987.
Anne F. Pollack .............. 40 Director, President and Chief Senior Vice President from March 1992
Administrative Officer from to date; Vice President from February
January 23, 1990 to date; Director 1988 to March 1992; Investment Vice
from October 24, 1989 to January President from 1985 to February 1988.
23, 1990.
Marc J. Chalfin .............. 50 Controller from April 1991 to date. Senior Vice President and Controller
from March 1995 to date; Vice
President and Controller from
February 1994 to March 1995; Vice
President and Deputy Controller of
New York Life from March 1991 to
February 1994; Vice President from
June 1988 to March 1991; Corporate
Vice President from May 1986 to June
1988.
Jay S. Calhoun ............... 40 Treasurer from January 19, 1993 to Vice President and Treasurer from
date. November 1992 to date; Vice President
from January 1992 to November 1992;
Corporate Vice President from May
1989 to January 1992.
OTHER OFFICERS
A. Thomas Smith, III ......... 39 Secretary Assistant General Counsel
Edward Pilner ................ 46 Assistant Treasurer Assistant Treasurer
Gregory J. Mulligan .......... 31 Assistant Secretary Assistant Counsel
Richard W. Zuccaro ........... 46 Tax--Vice President Vice President--Tax
</TABLE>
All incumbent executive officers of the Fund are expected to be proposed
for re-election to a further yearly term of office on April 23, 1996. All such
nominees are available and have consented to serve.
The Chairman of the Board of Directors and Chief Executive Officer of New
York Life is Harry G. Hohn. For purposes of the foregoing Statement, the
business address of the Chairman and the Directors of New York Life and the
officers of the Fund is 51 Madison Avenue, New York, New York 10010.
9
<PAGE>
New York Life is managed by a Board of Directors elected by its
policyholders. The directors and principal executive officers of New York Life
as of March 15, 1996, and their principal occupations during the last five years
are as follows:
<TABLE>
DIRECTORS
<CAPTION>
Principal Occupations
Name Committee Memberships During Last Five Years
---- --------------------- ------------------------
<S> <C> <C>
Robert M. Baylis ................. Investment Vice Chairman and Managing Director/Senior
Advisor of CS First Boston, Inc. from
January 1995 to January 1996; Vice
Chairman from August 1994 to January
1995; Chairman and Chief Executive
Officer of CS First Boston (Pacific)
Inc. from March 1993 to August 1994;
Vice Chairman of First Boston, Inc. from
March 1992 to March 1993; Corporate
Director.
William G. Burns ................. Audit, Investment Chief Executive Officer of Galen Associates
from March 1990 to December 31, 1990;
Vice Chairman of NYNEX Corp. from
January 1984 to May 1989; Corporate
Director.
Patricia T. Carbine .............. Audit, COCC, Investment President of Ms. Foundation for Education
and Communication, Inc. from November
1979 to date; Corporate Director.
Paul W. Douglas .................. Audit, COCC, Executive & Chairman and Chief Executive Officer of
Insurance The Pittston Company from January 1984 to
September 1991; Corporate Director.
Kent B. Foster ................... Executive & Insurance President, GTE Corp. from July 1995 to date;
President and Vice Chairman, GTE
Telephone Operations, from January 1989
to July 1995; Corporate Director.
Lee M. Gammill, Jr. .............. Executive & Insurance Vice-Chairman of New York Life from February 1995
to date; Executive Vice President of New
York Life from April 1989 to February
1995; Corporate Director.
Richard L. Gelb .................. COCC, Investment Chairman Emeritus of Bristol-Myers Squibb Company
from May 1995 to date; Chairman from 1976 to
May 1995 and Chief Executive Officer
from January 1972 to January 1994;
Corporate Director.
William R. Grant ................. Executive & Insurance, Chairman of Galen Associates from May 1989
Investment to date; Corporate Director.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name Committee Memberships During Last Five Years
---- --------------------- ------------------------
<S> <C> <C>
Harry G. Hohn .................... Executive & Insurance Chairman of the Board and Chief
Investment Executive Officer of New York Life from
August 1990 to date; Chairman-elect from
January 1990 to July 1990; Vice Chairman
from May 1986 to July 1990; Corporate
Director.
Thomas W. Langfitt, M.D. ......... Audit, Executive & Chairman and Chief Executive Officer of
Insurance The Glenmede Corporation from January
1994 to date; President and Chief
Executive Officer of The Glenmede Trust
Company from April 1987 to date;
President of The Pew Charitable Trusts
from April 1987 to January 1994;
Corporate Director.
Leslie G. McCraw ................. Investment Chairman of Fluor Corporation from January 1991
to date; Chief Executive Officer from
January 1990 to date; Vice Chairman from
January 1990 to January 1991; President
from January 1988 to January 1990;
Corporate Director.
David W. Mitchell ................ Audit, Investment Chairman of Avon Products, Inc. from July 1983
to December 1983; Chairman and Chief
Executive Officer from March 1977 to July
1983; Corporate Director.
Richard R. Pivirotto ............. COCC, Executive & Insurance, President of Richard R. Pivirotto Co., Inc.
Investment from February 1981 to date; Corporate
Director.
Robert J. Richardson ............. Audit, COCC Consultant from January 1987 to date;
Corporate Director.
Donald K. Ross ................... Executive & Insurance, Chairman of the Board and Chief Executive
Investment Officer of New York Life from May 1981 to
July 1990; President from December 1986
to July 1990; Corporate Director.
Seymour Sternberg ................ Executive & Insurance, President and Chief Operating Officer of
Investment New York Life from October 1995 to date;
Vice Chairman and President-elect from
February 1995 to October 1995; Executive
Vice President from March 1991 to
February 1995; Corporate Director.
Directors Emeriti
William A. Marquard .............................................. Chairman of the Board of Arkansas Best Corp.
from August 1995 to date; Chairman of the
Board of American Standard Inc. from
February 1989 to August 1995; Corporate
Director.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name Committee Memberships During Last Five Years
---- --------------------- ------------------------
<S> <C>
George B. Munroe ................................................. Consultant to Phelps Dodge Corporation from
February 1987 to January 1990; Chairman
from 1975 to February 1987; Chief
Executive Officer from 1969 to February
1987; Corporate Director.
George L. Shinn .................................................. Chairman of the Executive Committee of the
Board of First Boston, Inc. from April
1983 to December 1988; Chairman and Chief
Executive Officer from 1976 to 1983;
Corporate Director.
Margaret B. Young ................................................ Chairman of the Whitney M. Young, Jr. Memorial
Foundation from August 1971 to March 1,
1992; Consultant and Director of Philip
Morris Companies, Inc. from 1972 to 1992;
Corporate Director.
</TABLE>
12
<PAGE>
<TABLE>
PRINCIPAL EXECUTIVE OFFICERS (OTHER THAN OFFICER-DIRECTORS)
AS OF MARCH 15, 1996
<CAPTION>
Principal Occupations
Name Position During Last Five Years
- ---------------------------------- ------------------------ ---------------------------------------
<S> <C> <C>
Alice T. Kane .................... Executive Vice President Executive Vice President from
February 1995 to date; Executive Vice
President and General Counsel from
February 1994 to February 1995;
Executive Vice President, General
Counsel and Secretary from March 1992
to February 1994; Senior Vice
President, General Counsel and
Secretary from April 1989 to March
1992.
Richard M. Kernan, Jr. ........... Executive Vice President Executive Vice President from
March 1991 to date.
Gary R. McPhail .................. Executive Vice President Executive Vice President from
August 1995 to date; Executive Vice
President in charge of Sales and
Marketing, Lincoln National
Corporation, prior thereto.
Fredrick J. Sievert .............. Executive Vice President Executive Vice President from
February 1995 to date; Senior Vice
President and Chief Financial
Officer--Individual Operations from
January 1992 to February 1995; Senior
Vice President, Individual Insurance
Division, Royal Maccabees Life
Insurance Company prior thereto.
George J. Trapp .................. Executive Vice President and Executive Vice President and Secretary
Secretary from November 1995 to date; Executive
Vice President in charge of Human
Resources from February 1995 to
November 1995; Senior Vice President
in charge of Human Resources from
March 1991 to February 1995.
Frank M. Boccio .................. Senior Vice President in charge of Senior Vice President in charge of
Individual Policy Services Individual Policy Services from July
1995 to date; Vice President prior
thereto.
Jefferson C. Boyce ............... Senior Vice President in charge of Senior Vice President in charge of
Mutual Funds, Structured Finance Mutual Funds, Structured Finance
and NYLIFE Securities and NYLIFE Securities from February
1994 to date; Vice President from May
1989 to February 1994.
Patrick G. Boyle ................. Senior Vice President in charge of Senior Vice President in charge of
the Pension Department the Pension Department from March
1991 to date.
Steven R. Braden ................. Senior Vice President--North Senior Vice President--North Central
Central Agencies Agencies from August 1995 to date;
Vice President--Pacific Agencies
prior thereto.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name Position During Last Five Years
- ---------------------------------- ------------------------ ---------------------------------------
<S> <C> <C>
Walter M. Brady .................. Senior Vice President-- Senior Vice President--Northeastern
Northeastern Agencies Agencies from July 1995 to date;
Senior Vice President prior thereto.
C. Andrew Brauer ................. Senior Vice President in charge of Senior Vice President in charge of
the Mergers and Acquisitions the Mergers and Acquisitions
Department Department from March 1992 to date;
Senior Vice President in charge of
the Asset Liability Management
Department from September 1988 to
March 1992.
Jay S. Calhoun ................... Vice President and Treasurer Vice President and Treasurer from
November 1992 to date; Vice President
and Associate Treasurer from March
1992 to November 1992; Corporate Vice
President prior thereto.
Michael L. Callahan .............. Senior Vice President in charge of Senior Vice President in charge of
the Corporate Compliance the Corporate Compliance Department
Department from November 1994 to date; Vice
President from April 1994 to November
1994; Vice President in Corporate
Office of Business Conduct from July
1993 to April 1994; Assistant
Director of the National Association
of Securities Dealers (NASD) from
January 1992 to June 1993; Director
of Internal Review of the NASD from
1984 to January 1992.
Marc J. Chalfin .................. Senior Vice President and Senior Vice President and Controller
Controller from March 1995 to date; Vice
President and Controller from
February 1994 to date; Vice President
and Deputy Controller from March 1991
to February 1994.
Jessie M. Colgate ................ Senior Vice President in charge of Senior Vice President in charge of
Governmental Affairs Governmental Affairs from March 1995
to date; Vice President in charge of
Governmental Affairs prior thereto.
John J. DiNiro ................... Senior Vice President in charge of Senior Vice President in charge of
the Disability Income the Disability Income Department from
Department April 1993 to date; Vice President
prior thereto.
Michael G. Gallo ................. Senior Vice President in charge of Senior Vice President in charge of
the Individual Life Department the Individual Life Department from
July 1995 to date; Senior Vice
President--Northeastern Agencies from
February 1994 to July 1995; Vice
President prior thereto.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name Position During Last Five Years
- ---------------------------------- ------------------------ ---------------------------------------
<S> <C> <C>
Solomon Goldfinger ............... Senior Vice President in charge of Senior Vice President in charge of
Financial Management Financial Management from July 1995
to date; Senior Vice President in
charge of the Individual Life
Department from March 1992 to July
1995; Vice President and Actuary in
charge of the Individual Life
Department from November 1991 to
March 1992; in charge of the Inforce
Management Department prior thereto.
Richard A. Hansen ................ Senior Vice President in charge of Senior Vice President in charge of
the Corporate Office of Business the Corporate Office of Business
Conduct Conduct 1993 to date. Senior Vice
President in charge of the Mutual
Funds Department from December 1988
to 1993.
Jean E. Hoysradt ................. Senior Vice President in charge of Senior Vice President in charge of
the Investment Department the Investment Department from March
1992 to date; Vice President prior
thereto.
Gerald Kaplan .................... Senior Vice President and Senior Vice President and Tax Counsel
Tax Counsel from March 1994 to date; Vice
President and Tax Counsel April 1989
to March 1994.
L. Michael Keone ................. Senior Vice President-- Senior Vice President--Pacific
Pacific Agencies Agencies from June 1989 to date.
Lee Lapioli ...................... Senior Vice President and Senior Vice President and Chief
Chief Information Officer Information Officer from December
1994 to date; Senior Vice President
and Chief Information Officer,
Phoenix Home Life, from February 1982
to December 1994.
Michael J. McLaughlin ............ Senior Vice President and Senior Vice President and General
General Counsel Counsel from October 1995 to date;
Senior Vice President and Deputy
General Counsel from November 1991 to
October 1995; Senior Vice President
from August 1988 to November 1991.
Paul B. Morris ................... Senior Vice President-- Senior Vice President--Southeastern
Southeastern Agencies Agencies from December 1995 to date;
Senior Vice President, Agency from
July 1995 to December 1995; Vice
President prior thereto.
Carolyn Nightingale .............. Senior Vice President in charge of Senior Vice President in charge of
the Agency Department the Agency Department from January
1996 to date; Senior Vice President
of Customer Service and Client
Relationship Management, Lincoln
National Corporation prior thereto.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name Position During Last Five Years
- ---------------------------------- ------------------------ ---------------------------------------
<S> <C> <C>
Melbourne Nunes .................. Senior Vice President and Deputy Senior Vice President and Deputy
General Counsel General Counsel from November 1995 to
date; Senior Vice President, Deputy
General Counsel and Secretary from
March 1994 to November 1995; Vice
President and Deputy General Counsel
from November 1990 to February 1994;
Vice President prior thereto.
Frank J. Ollari .................. Senior Vice President in charge of Senior Vice President in charge of
the Mortgage Finance the Mortgage Finance Department
Department from October 1989 to date.
Anne F. Pollack .................. Senior Vice President Senior Vice President from March 1992
to date; Vice President prior
thereto.
Michael W. Reeves ................ Senior Vice President-- Senior Vice President--Western
Western Agencies Agencies from June 1989 to date.
Robert D. Rock ................... Senior Vice President in charge of Senior Vice President in charge of
the Individual Annuity the Individual Annuity Department
Department from March 1992 to date; Vice
President in charge of Individual
Annuity Department from November 1991
to March 1992; Vice President prior
thereto.
Lester L. Schoenberg ............. Senior Vice President in charge of Senior Vice President in charge of
Sales and Marketing Sales and Marketing from July 1995 to
date; Senior Vice President in charge
of Individual Policy Services from
November 1991 to July 1995; Senior
Vice President--Agency Staff
Operations from April 1989 to
November 1991.
Paul T. Smith .................... Senior Vice President Senior Vice President--the Investment
Department from February 1991 to date.
Robert L. Smith .................. Senior Vice President Senior Vice President from March
1993 to date; Vice President prior
thereto.
Stephen N. Steinig ............... Senior Vice President and Chief Senior Vice President and Chief
Actuary Actuary from February 1994 to date;
Chief Actuary and Controller from
January 1992 to February 1994; Senior
Vice President and Chief Actuary from
November 1989 to January 1992.
Walter W. Ubl .................... Senior Vice President Senior Vice President from March
1995 to date; Vice President prior
thereto.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name Position During Last Five Years
- ---------------------------------- ------------------------ ---------------------------------------
<S> <C> <C>
Thomas J. Warga .................. Senior Vice President and Senior Vice President and General
General Auditor Auditor from November 1994 to date;
Vice President and General Auditor
from May 1989 to November 1994.
Richard A. Wecker ................ Senior Vice President in charge of Senior Vice President in charge of
the Marketing Department the Marketing Department from
November 1991 to date.
</TABLE>
17
<PAGE>
II. ANNUAL REPORT SECTION
Pages 1-8
Annual Reports
of
New York Life Separate Accounts N and Q
<PAGE>
NEW YORK LIFE FUND, INC.
STATEMENT OF INVESTMENTS
December 31, 1995
Shares Value
------ -----
(in thousands)
Common Stock (88.2%)@
Computer & Business Equipment (12.6%)
Cisco Systems, Inc. # ............................ 1,000 $ 74
Equifax, Inc. .................................... 4,200 90
First Data Corp. ................................. 2,220 148
General Motors Corp. CL E ........................ 2,500 132
Hewlett-Packard Co. .............................. 1,300 109
------
553
------
Oil & Energy Services (7.1%)
Schlumberger Ltd. ................................ 2,050 142
Smith International Inc. # ....................... 3,400 80
Triton Energy Corp. # ............................ 1,200 69
XCL Ltd. # ....................................... 62,500 23
------
314
------
Drugs (6.2%)
Merck & Co., Inc. ................................ 1,000 66
Pfizer Inc. ...................................... 2,000 126
Schering-Plough Corp. ............................ 1,500 82
------
274
------
Lodging & Restaurants (5.7%)
Marriott International, Inc. ..................... 3,200 122
McDonald's Corp. ................................. 2,800 126
------
248
------
Chemicals (5.3%)
IMC Global, Inc. ................................. 3,000 122
Sealed Air Corp. # ............................... 4,000 113
------
235
------
Hospital & Medical Services (4.9%)
Columbia HCA Healthcare Corp. .................... 1,100 56
Healthsouth Corp. # .............................. 2,100 61
Sybron Corp. # ................................... 4,200 100
------
217
------
Transportation (4.9%)
Conrail, Inc. .................................... 1,500 105
Rollins Truck Leasing Corp. ...................... 10,000 111
------
216
------
Electronics (4.5%)
Allied-Signal Inc. ............................... 1,500 71
Lockheed Martin Corp. ............................ 1,600 126
------
197
------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NEW YORK LIFE FUND, INC.
STATEMENT OF INVESTMENTS--(Continued)
December 31, 1995
Shares Value
------ -----
(in thousands)
Finance & Miscellaneous (4.3%)
Chelsea GCA Realty, Inc. ......................... 2,500 $ 75
Federal National Mortgage Association ............ 900 112
------
187
------
Electrical (4.2%)
Emerson Electric Co. ............................. 1,400 114
General Electric Co. ............................. 1,000 72
------
186
------
Banks (4.1%)
Amsouth Bancorporation ........................... 1,500 61
Morgan, (JP) & Co., Inc. ......................... 1,500 120
------
181
------
Media (4.1%)
Disney (Walt) Co. ................................ 1,500 89
Viacom, Inc. # ................................... 1,900 90
------
179
------
Miscellaneous (3.8%)
Kinder Care Learning Ctrs, Inc. # ................ 8,000 101
Service Corp. Intl. .............................. 1,500 66
------
167
------
Retail Trade & Merchandising (3.5%)
Federated Department Stores, Inc. # .............. 3,000 83
Smart & Final, Inc. .............................. 3,300 70
------
153
------
Aerospace/Defense (2.8%)
Loral Corp. ...................................... 2,000 71
UNC Inc. # ....................................... 9,000 54
------
125
------
Foods (2.6%)
General Mills, Inc. .............................. 2,000 116
------
116
------
Insurance (2.3%)
American Intl. Group, Inc. ....................... 500 46
Amerin Corp. # ................................... 2,000 54
------
100
------
Communications (2.0%)
Allen Group, Inc. ................................ 4,000 90
------
90
------
Electric Utilities (1.7%)
CMS Energy Corp. ................................. 2,500 75
------
75
------
The accompanying notes are an integral part ofthe financial statements.
10
<PAGE>
NEW YORK LIFE FUND, INC.
STATEMENT OF INVESTMENTS--(Continued)
December 31, 1995
Shares Value
------ -----
(in thousands)
Manufacturing (1.6%)
Honeywell, Inc. .................................. 1,400 $ 68
------
68
------
Total Common Stocks (Identified Cost: $2,903) .... $3,881
======
Principal
Amount Value
------ -----
(in thousands)
Short-term Investments (11.8%)@
Commercial Paper (11.8%)
Associates Corp.--N.A.
5.30% Master Note, due on demand (yield 5.44%).... $ 40 $ 40
Chevron Oil Finance Co.
5.90% Note, due 1/3/96 (yield 5.91%).............. 250 250
General Electric Capital Corp.
6.00% Note, due 1/3/96 (yield 6.00%).............. 230 230
------
Total Short-Term Investments (Amortized Cost: $520) $ 520
------
TOTAL INVESTMENTS (100%) (Cost: $3,423*)........... $4,401**
======
- -----------
@ Percentages indicated are based on total investments.
# Securities which were non-income producing during the twelve month period
ending December 31, 1995.
* The cost stated also represents the aggregate cost for federal income tax
purposes.
** Total net unrealized appreciation on investments of $978,000 consists of
gross unrealized appreciation on all investments of $1,074,000 and gross
unrealized depreciation on all investments of $96,000.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NEW YORK LIFE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
(in thousands)
A S S E T S
Investments in securities, at market value (Cost: $3,423) ............ $4,401
Dividends and interest receivable .................................... 8
Cash ................................................................. 7
------
Total assets .................................................... $4,416
------
L I A B I L I T I E S
Payable to New York Life for fund shares redeemed .................... $ 80
Investment advisory fees payable ..................................... 4
Directors' fees and expenses payable ................................. 15
------
Total liabilities ............................................... $ 99
------
N E T A S S E T S
Capital stock (Authorized 10,000,000 shares--Par Value $1.00)......... $ 717
Paid-in capital ...................................................... 2,049
Accumulated undistributed net investment income ...................... 78
Accumulated undistributed net realized gain on investments ........... 495
Unrealized appreciation on investments ............................... 978
------
Net assets applicable to outstanding shares ..................... $4,317
======
Number of shares outstanding .................................... 717
======
Net asset value per share outstanding in dollars ................ $ 6.02
======
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NEW YORK LIFE FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(in thousands)
Net investment income:
Income:
Dividends ........................................................ $ 150
Interest ......................................................... 41
------
Total income ................................................... 191
------
Expenses:
Investment advisory fee ........................................... 23
Directors' fees and expenses ...................................... 89
Franchise taxes ................................................... 1
------
Total expenses ................................................ 113
------
Net investment income ........................................ 78
------
Net realized and unrealized gain on investments:
Net realized gain on investments .................................. 1,401
Change in unrealized appreciation/depreciation on investments ..... 543
------
Net gain on investments ...................................... 1,944
------
Increase in net assets resulting from operations ........... $2,022
======
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
NEW YORK LIFE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
Year Ended December 31,
-----------------------
1995 1994
---- ----
Increase (decrease) in net assets:
- ---------------------------------
Operations:
Net investment income .................................. $ 78 $ 116
Net realized gain on investments ....................... 1,401 1,112
Change in unrealized appreciation/depreciation
on investments ....................................... 543 (1,016)
------ -------
Net increase in assets from operations ............ 2,022 212
------ -------
Distributions to shareholders from:
Net investment income .................................. (49) (127)
Net realized gain on investments ....................... (1,181) (1,161)
------ -------
Distributions to shareholders ..................... (1,230) (1,288)
------ -------
Capital stock transactions:
Proceeds from sale of shares ........................... 34 49
Net asset value of shares issued to shareholders upon
reinvestment of distributions ........................ 1,230 1,288
------ -------
1,264 1,337
Cost of shares redeemed ................................ (6,812) (2,135)
------ -------
Capital stock transactions ........................ (5,548) (798)
------ -------
Decrease in net assets .......................... (4,756) (1,874)
------ -------
Net assets:
- -----------
Beginning of period .................................... 9,073 10,947
------ -------
End of period (including undistributed net investment
income of $78 and $49, respectively) ................. $4,317 $ 9,073
====== =======
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
NEW YORK LIFE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 1--Organization and Accounting Policies:
New York Life Fund, Inc. ("the Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company. Shares of the Fund are currently offered only to New York Life
Insurance Company ("New York Life") for allocation to New York Life's Separate
Account Q and Separate Account N ("Variable Account Q" and "Variable Account N,"
respectively, and "Variable Accounts," collectively). Sale of new variable
contracts related to the Variable Accounts was terminated in November 1979.
In May 1995, New York Life commenced a redemption program offering the
contractholders of individual variable annuity contracts issued by New York Life
Insurance Company through Separate Accounts N&Q an option to either surrender
their contract for its accumulated cash value or exchange their contract for a
fixed or variable annuity product offered by New York Life Insurance and Annuity
Corporation. Should the redemption program be acted upon by most or all the
remaining contractholders of the individual variable annuity contracts, the Fund
will ultimately liquidate its remaining assets and cease to operate. The outcome
of the redemption program is not determinable at this time.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
Security valuation--Short-term securities which mature in more than 60 days
are valued at current market quotations. Short-term securities which mature in
60 days or less are valued at amortized cost, if their term to maturity at
purchase was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original term to maturity at purchase exceeded 60 days.
Common stock issues traded on a national securities exchange are valued at the
last reported sale price on the principal exchange on which the security is
traded. Common stock issues traded in an over-the-counter market are valued at
the last bid price on the day the securities are being valued.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Directors of the Fund.
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). Dividend
income received by the Fund and dividends and distributions to shareholders of
the Fund are recorded as of their respective ex-dividend dates. Interest income
on debt securities is recorded daily.
Dividends to shareholders--Income and capital gain dividends are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to differing
treatments for deferral of wash sales and post October losses. All permanent
book and tax basis differences are reclassified to paid-in capital.
NOTE 2--Portfolio Transactions:
Transactions in securities, other than short-term securities, for the year
ended December 31, 1995 were asfollows (in thousands):
Purchases:
Common stocks ................................ $ 6,775
Preferred stocks ............................. --
-------
$ 6,775
=======
Proceeds From Sales:
Common stocks ................................ $12,959
Preferred stocks ............................. 174
-------
$13,133
=======
15
<PAGE>
NEW YORK LIFE FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995
NOTE 3--Investment Adviser:
The Fund has entered into an investment advisory agreement with New York
Life under which New York Life will provide, subject to the direction of the
Board of Directors of the Fund, investment advisory and related services.
This investment advisory agreement requires that New York Life pay certain
Fund expenses, including custodian and transfer agent fees, legal and accounting
fees, and printing expenses, as well as provide the Fund with administrative
services, office space and equipment, and pay salaries of the officers of the
Fund and administrative personnel necessary for advising the Fund. All officers
of the Fund are officers of the investment adviser. Investment advisory fees are
paid to New York Life at the annual rate of 0.25% of the average daily net
assets. These fees are charged daily and paid quarterly.
NOTE 4--Income Taxes:
Federal income taxes are not provided on net investment income and net
realized capital gains as the Fund qualifies as a regulated investment company
as defined under the Internal Revenue Code. Accordingly, the Fund intends to
distribute annually to its shareholders, within the allowable time limit, its
net investment income and net realized capital gains on investments in an amount
sufficient to relieve it from liability for Federal income taxes.
NOTE 5--Distributions to Shareholders:
Dividends from net investment income and distributions of net realized
capital gains of the Fund are declared at least annually.
The Tax Reform Act of 1986 (TRA) imposes a four percent non-deductible
excise tax on regulated investment companies which fail to declare by the end of
the calendar year, and pay before February 1 of the following year, 98% of net
investment income earned during the calendar year and of net realized capital
gains earned during a specified twelve month period. In 1995, the Fund declared
and paid dividends from undistributed net investment income of $49,000 amounting
to $.03 per share and net realized capital gains of $1,181,000 amounting to
$1.79 per share. The dividends declared and paid by the Fund in 1995 were
sufficient to eliminate any excise tax liability. Any remaining undistributed
amounts will be paid by the Fund in 1996.
NOTE 6--Capital Stock:
At December 31, 1995, there were 10,000,000 shares of $1.00 par value
capital stock authorized. Transactions in capital stock were as follows
(in thousands):
Year Ended December 31,
-----------------------
1995 1994
---- ----
Shares sold ........................................... 5 7
Shares issued to shareholders upon reinvestment
of distributions .................................... 199 201
----- -----
204 208
Shares redeemed ....................................... (927) (307)
----- -----
Net decrease ...................................... (723) (99)
Shares outstanding, beginning of period ............... 1,440 1,539
----- -----
Shares outstanding, end of period ..................... 717 1,440
===== =====
16
<PAGE>
NEW YORK LIFE FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995
Financial Highlights:
The following table presents selected per share income and capital changes
(for a share outstanding throughout each period) and selected ratios:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987* 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period ......................... $ 6.30 $ 7.11 $ 7.26 $ 7.55 $ 6.28 $ 6.93 $ 7.47 $ 7.64 $ 9.18 $ 10.42
------ ------ ------- ------- ------- ------ ------ ------- ------- -------
Net investment income .............. .11 .09 .10 .11 .12 .17 .32 .27 .24 .27
Net realized and unrealized gains
(losses) on security
transactions (includes the
effect of capital share
transactions) ..................... 1.43 .06 1.00 .76 2.01 (.61) 1.47 .85 .06 .38
------ ------ ------- ------- ------- ------ ------ ------- ------- -------
Total from investment
operations ........................ 1.54 .15 1.10 .87 2.13 (.44) 1.79 1.12 .30 .65
------ ------ ------- ------- ------- ------ ------ ------- ------- -------
Less dividends and distributions:
Dividends from net investment
income ............................ (.03) (.09) (.09) (.19) (.17) (.05) (.32) (.25) (.48) (.29)
Distributions from net realized
capital gains on security
transactions ...................... (1.79) (.87) (1.16) (.97) (.69) (.16) (2.01) (1.04) (1.36) (1.60)
------ ------ ------- ------- ------- ------ ------ ------- ------- -------
Total dividends and
distributions ..................... (1.82) (.96) (1.25) (1.16) (.86) (.21) (2.33) (1.29) (1.84) (1.89)
------ ------ ------- ------- ------- ------ ------ ------- ------- -------
Net asset value, end
of period ......................... $ 6.02 $ 6.30 $ 7.11 $ 7.26 $ 7.55 $ 6.28 $ 6.93 $ 7.47 $ 7.64 $ 9.18
====== ====== ======= ======= ======= ====== ====== ======= ======= =======
TOTAL INVESTMENT RETURN ............ 24.45% 2.10% 15.22% 11.50% 33.96% (6.34)% 24.04% 14.66% 3.28% 6.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) .................... $4,317 $9,073 $10,947 $10,705 $10,738 $8,377 $9,509 $14,708 13,706 $14,358
Ratio of expenses to average
net assets ........................ 1.27% .73% .37% .39% .41% .44% .39% .37% .33% .33%
Ratio of net investment income
to average net assets ............. 0.88% 1.12% 1.23% 1.42% 1.70% 2.65% 2.89% 3.21% 2.39% 2.62%
Portfolio turnover rate ............ 81.47% 101.69% 112.96% 81.58% 97.28% 111.58% 105.14% 128.16% 58.65% 75.90%
- ------------
* Per share based upon average monthly shares during the period.
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
NEW YORK LIFE FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the New York Life Fund, Inc. (the
"Fund") at December 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the ten years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's 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 securities at
December 31, 1995 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
[Price Waterhouse LLP Signature]
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 2, 1996
18
<PAGE>
PAGES 19-45
FINANCIAL STATEMENTS OF NEW YORK LIFE
INSURANCE COMPANY
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
STATEMENT OF FINANCIAL POSITION
(Prepared from the Annual Statement filed with the
New York State Insurance Department)
December 31,
-----------------
1995 1994
---- ----
(in millions)
ASSETS
Bonds ...................................................... $37,594 $34,134
Mortgage loans ............................................. 5,239 5,020
Preferred and common stocks ................................ 3,298 2,595
Real estate ................................................ 1,144 1,171
Policy loans ............................................... 4,981 4,960
Other long-term investments ................................ 795 774
Cash and short-term investments ............................ 1,571 1,922
Deferred and uncollected premiums .......................... 967 927
Investment income due and accrued .......................... 808 810
Separate account assets .................................... 2,435 2,609
Other assets ............................................... 583 421
------- -------
Total assets ............................................ $59,415 $55,343
======= =======
LIABILITIES AND SURPLUS
Liabilities:
Policy reserves ........................................... $29,809 $27,800
Deposit funds ............................................. 16,245 14,991
Dividends and policy proceeds deposited with the Company .. 2,077 2,030
Dividends payable to policyowners ......................... 1,186 1,121
Policy claims ............................................. 315 297
Taxes--federal, state and other ........................... 415 175
Securities sold under agreements to repurchase ............ 480 497
Separate account liabilities .............................. 2,434 2,609
Other liabilities ......................................... 1,113 989
Interest maintenance reserve .............................. 317 188
Asset valuation reserve ................................... 1,268 923
------- -------
Total liabilities ....................................... 55,659 51,620
------- -------
Surplus:
Surplus notes ............................................. 449 449
Special surplus funds ..................................... 77 71
Unassigned surplus ........................................ 3,230 3,203
------- -------
Total surplus ........................................... 3,756 3,723
------- -------
Total liabilities and surplus ........................... $59,415 $55,343
======= =======
See accompanying notes to financial statements.
19
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(Prepared from the Annual Statement filed with the
New York State Insurance Department)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
------- ------- -------
(in millions)
<S> <C> <C> <C>
Income
Premiums .................................................... $ 9,498 $ 9,030 $ 9,097
Net investment income ....................................... 3,850 3,717 3,618
Dividends and policy proceeds deposited with the Company .... 683 645 477
Other income ................................................ 231 74 75
------- ------- -------
Total income .............................................. 14,262 13,466 13,267
------- ------- -------
Benefits and expenses
Benefit payments:
Death benefits ............................................. 1,008 955 868
Annuity benefits ........................................... 668 624 620
Health and disability insurance benefits ................... 626 595 621
Surrender benefits ......................................... 1,186 1,034 930
Payments of amounts previously deposited with the Company .. 727 707 509
Payments on matured contracts .............................. 3,990 3,197 3,210
------- ------- -------
8,205 7,112 6,758
Additions to policy reserves ................................ 1,856 1,584 1,705
Additions to other insurance reserves ....................... 1,076 1,669 1,714
Operating expenses .......................................... 1,377 1,298 1,346
------- ------- -------
Total benefits and expenses ............................... 12,514 11,663 11,523
------- ------- -------
Gain from operations before dividends and federal income taxes 1,748 1,803 1,744
Dividends to policyowners .................................... 1,219 1,167 1,094
------- ------- -------
Gain from operations before federal income taxes ............. 529 636 650
Federal income taxes ......................................... 251 350 337
------- ------- -------
Net gain from operations ..................................... 278 286 313
Net realized capital gains, after transferring $168 million,
$(184) million and $288 million of net realized capital
gains (losses) to the interest maintenance reserve for
1995, 1994 and 1993, respectively .......................... 252 27 22
------- ------- -------
Net income ................................................... $ 530 $ 313 $ 335
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN SURPLUS
(Prepared from the Annual Statement filed with the
New York State Insurance Department)
Year Ended December 31,
-------------------------------
1995 1994 1993
------ ------ ------
(in millions)
Surplus, beginning of year .............. $3,723 $3,449 $2,838
Net income .............................. 530 313 335
Issuance of surplus notes--net .......... -- -- 400
Net unrealized gains on investments ..... 200 7 235
Increase in asset valuation reserve ..... (345) (97) (271)
Other adjustments, net .................. (352) 51 (88)
------ ------ ------
Surplus, end of year .................... $3,756 $3,723 $3,449
====== ====== ======
See accompanying notes to financial statements.
21
<PAGE>
<TABLE>
NEW YORK LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(Prepared from the Annual Statement filed with the
New York State Insurance Department)
<CAPTION>
Year Ended Deember 31,
------------------------------
1995 1994 1993
------- ------- -------
(in millions)
<S> <C> <C> <C>
Cash flow from operations
Premiums received .......................................................... $ 9,461 $ 9,003 $ 9,009
Net investment income received ............................................. 3,724 3,578 3,457
Other ...................................................................... 808 787 567
------- ------- -------
Total received ............................................................ 13,993 13,368 13,033
------- ------- -------
Benefits and other payments ................................................ 8,195 7,117 6,753
Operating expenses ......................................................... 1,358 1,334 1,341
Dividends to policyowners .................................................. 1,149 1,076 1,091
Other ...................................................................... 3 561 1,005
------- ------- -------
Total paid ................................................................ 10,705 10,088 10,190
------- ------- -------
Net cash provided from operations ........................................... 3,288 3,280 2,843
------- ------- -------
Proceeds from investments sold .............................................. 20,057 17,948 10,362
Proceeds from investments matured or repaid ................................. 3,984 4,864 7,597
Securities sold under agreements to repurchase .............................. 10,536 12,861 9,722
Securities repurchased ...................................................... (10,552) (13,352) (8,734)
Cost of investments acquired ................................................ (27,514) 24,349 (22,081)
------- ------- -------
Net cash used for investments ............................................... (3,489) (2,028) (3,134)
------- ------- -------
Proceeds from issuance of surplus notes ..................................... -- -- 445
------- ------- -------
Other, net .................................................................. (150) (596) (70)
------- ------- -------
Net change in cash and short-term investments ............................... (351) 656 84
Cash and short-term investments, beginning of year .......................... 1,922 1,266 1,182
------- ------- -------
Cash and short-term investments, end of year ................................ $ 1,571 $ 1,922 $ 1,266
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE 1--Nature of Operations
New York Life Insurance Company ("the Company"), a mutual life insurance
company, offers a wide range of insurance and investment products and services
including life and health insurance, pension products, mutual funds (through its
broker-dealer subsidiary) and other investments to a large cross section of the
total insurance market. The Company markets individual insurance products, group
insurance products and group pension products in all 50 of the United States,
its territories, and the District of Columbia, primarily through its agency
force. The Company also markets individual insurance and investment products in
Mexico, Europe, Asia and South America.
NOTE 2 --Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the New York State Insurance
Department ("statutory accounting practices"). Statutory accounting practices
are currently considered generally accepted accounting principles for mutual
life insurance companies. The Financial Accounting Standards Board has issued an
Interpretation which establishes a different definition of generally accepted
accounting principles for mutual life insurance companies. Under that
Interpretation, financial statements of mutual life insurance companies for
periods beginning after December 15, 1995 which are prepared on the basis of
statutory accounting practices will no longer be characterized as in conformity
with generally accepted accounting principles. Financial statements prepared in
conformity with statutory accounting practices will continue to be required by
insurance regulatory authorities.
Management of the Company has not yet determined the effect on its December
31, 1995 financial statements of applying the new Interpretation nor whether the
Company will continue to present its general purpose financial statements in
conformity with the statutory basis of accounting or adopt the accounting
changes required in order to continue to present its financial statements in
conformity with generally accepted accounting principles. If the Company chooses
to adopt the accounting changes required, the effect of the changes would be
reported retroactively through restatement of all previously issued financial
statements presented for comparative purposes. The cumulative effect of adopting
these changes would be included in the earliest year restated.
Investments
Investments are carried in accordance with methods and values prescribed by
the National Association of Insurance Commissioners ("NAIC"). Bonds are
generally stated at amortized cost. Preferred stocks are generally stated at
cost. Common stocks of non-affiliates are stated at market value. Investments in
subsidiaries are stated at the value of their underlying net assets. Mortgage
loans on real estate are stated at cost or amortized cost, but at no time stated
at more than the appraised value of the underlying collateral. Real estate is
stated at the lower of cost less accumulated depreciation and encumbrances or
market value, except for real estate joint ventures which are stated on the
equity basis. Depreciation of real estate (excluding foreclosed properties which
are not depreciated) is calculated using the straight-line method over the
estimated lives of the assets (generally 30 years), except for fully depreciated
properties where costs of permanent improvements are depreciated for no more
than 20 years. Policy loans are stated at the aggregate balance due (which
approximates fair value). Limited partnership investments (included in other
long-term investments) are stated on the equity basis. The value of invested
assets has been adjusted for impairments that are other than temporary.
Investment income is recorded on the accrual basis, except where collection is
90 days past due or is considered uncertain.
Prepayment assumptions for loan-backed bonds were developed internally
using a proprietary model; outside services were used for structured securities.
The prospective adjustment method is used to adjust the amortization of premiums
and accretion of discounts on such securities.
23
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Derivative financial instruments used by the Company to hedge exposure to
interest rate and foreign currency fluctuations are accounted for on an accrual
basis. Gains and losses related to contracts that are effective hedges on
specific assets are deferred and recognized in income in the same period as
gains and losses on the hedged asset.
The Asset Valuation Reserve ("AVR") is required by insurance regulators to
stabilize surplus from fluctuations in the market value of bonds, stocks,
mortgage loans, real estate and other invested assets. Changes in the reserve
are accounted for as direct increases or decreases in surplus. The Interest
Maintenance Reserve ("IMR"), also required by insurance regulators, captures
interest related realized gains and losses (net of taxes) on fixed income
investments (bonds, preferred stocks and mortgage loans) which are amortized
into net investment income over the expected years to maturity of the
investments sold using the seriatim method for bonds and the grouped method for
preferred stocks and mortgage loans.
Amounts payable or receivable under interest rate, currency and commodity
swap agreements and interest rate floor agreements are recognized as investment
income or expense when earned. Premiums paid for floor agreements are amortized
into interest expense over the life of the agreement. Unamortized premiums are
included in other assets in the Statement of Financial Position.
Unrealized gains and losses on foreign exchange forward contracts are
reported as other assets or liabilities, as appropriate. Realized gains and
losses are recognized in net income upon termination of the contracts.
Dividends from subsidiaries are recorded as investment income and any
changes in the value of the investment in the subsidiaries are recorded directly
to surplus as unrealized gains or losses. The excess of cost over the value of a
subsidiary's net assets is recorded as an unrealized loss on the investment in
the year of acquisition for insurance subsidiaries, and over a period not to
exceed ten years for non-insurance subsidiaries.
Premiums and Related Expenses
Premiums are taken into income over the premium-paying period of the
policies. Guaranteed investment contract ("GIC") funds are recorded as income
when received. Maturation of GICs are reported as payments on matured contracts.
Commissions and other costs associated with acquiring new business are charged
to operations as incurred.
Benefit Plans
The Company has non-contributory defined benefit pension plans and
associated excess benefit plans covering substantially all employees and agents.
The benefits are based primarily on years of service and compensation. Assets of
the pension plans are invested in a diversified portfolio that primarily
consists of debt and equity securities and are held in the general account and
separate accounts of the Company and in the MainStay Institutional Funds. All
assets are managed by the Company or its affiliates.
In addition to pension benefits, the Company provides certain health care
and life insurance benefits ("postretirement benefits") for retired employees
and agents including their eligible dependents. Substantially all employees
become eligible for these benefits after age 55 with at least 10 years of
service. Agents generally need 30 years of service prior to age 60, 20 years of
service at ages 60-64 and 5 years of service after age 65 for eligibility. Life
insurance benefits are set by formula amounts. For employees, life insurance is
non-contributory and health insurance became contributory for retirements after
December 31, 1992. Agents have contributory and non-contributory life insurance
and contributory health insurance. Assets of the postretirement plans are
invested in a diversified portfolio that primarily consists of debt and equity
securities and are held in the general account of the Company and in the
MainStay Institutional Funds. All assets are managed by the Company or its
affiliates.
Policy Reserves
Policy reserves are based on mortality tables and valuation interest rates
which are consistent with statutory requirements and are designed to be
sufficient to provide for contractual benefits.
24
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Dividends to Policyowners
The liability for dividends to policyowners consists principally of
dividends expected to be paid during the subsequent year. The allocation of
dividends is approved annually by the Board of Directors and is determined by
means of formulas which reflect the relative contribution of each group of
policies to the results of operations. At December 31, 1995 and 1994,
participating life insurance contracts represented 99% of total life insurance
in-force.
Federal Income Taxes
A provision is made for federal income taxes estimated to be payable,
including the equity base tax. Adjustments to such estimates, including those
related to the true-up or true-down of the equity base tax, are recorded in net
gain from operations when known. Realized gains and losses are reported after
adjustment for the associated federal tax.
Change in Accounting Policy for the Equity Base Tax
Each year, an estimated Differential Earnings Rate (DER) is used to
determine the equity base tax reported in the annual statement as part of net
gain from operations for that year. When the final DER is known, the Company
records a true-up or true-down adjustment for the difference between the
estimated and final DER.
Based on recent NAIC discussions of this item, the Company changed that
policy to accelerate the recognition of the DER adjustment by one year and to
record DER adjustments through net gains. Previously, the Company recorded such
adjustments directly to surplus. The effect of this change, including
$80,000,000 for the effect of adjusting for prior years, was an increase to net
gains of $46,000,000, and a decrease to surplus of $76,000,000.
Separate Accounts
The Company has established both non-guaranteed and guaranteed separate
accounts of varying investment objectives which are segregated from the
Company's general account and are maintained for the benefit of separate account
contractholders. Separate account assets are primarily invested in bonds and
common stocks and are generally stated at market value. Separate account
liabilities generally reflect market value.
The liability for non-guaranteed separate accounts represents
contractholders' interests in the separate account assets, including accumulated
net investment income and realized and unrealized gains and losses on those
assets.
Guaranteed separate accounts provide a guarantee of principal and interest
for contracts held to maturity. Prior to maturity, payments are made to
contractholders at separate account market value. Interest rates on these
contracts are adjusted annually, or more frequently as required by each
contract. At maturity, if the market value of the investment of an individual
contractholder is below the minimum guaranteed amount, the Company is liable for
the difference. Under statutory accounting practices, the Company maintains
assets in a supplemental separate account to fund the excess of the actuarial
liability for future guaranteed payments over the market value of assets for
these contracts.
Nonadmitted Assets
Under statutory accounting practices, certain assets are designated as
"nonadmitted assets", and are not included in the Statement of Financial
Position.
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 bonds,
mortgage loans, and cash and short-term investments is reported in Note 3. Fair
values for insurance liabilities (policy reserves and deposit funds and
dividends and policy proceeds deposited with the Company) are reported in Note
5. Fair values for derivative financial instruments are included in Note 11.
25
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Permitted Statutory Accounting Practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the New York
State Insurance Department. Prescribed statutory accounting practices include
state laws and regulations along with NAIC regulations. Permitted statutory
accounting practices encompass accounting practices that are not prescribed;
such practices differ from state to state, may differ from company to company
within a state, and may change in the future. Furthermore, the NAIC has started
a project to codify statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change the definitions of what comprises prescribed versus permitted
statutory accounting practices, and may result in changes to the accounting
policies that insurance enterprises use to prepare their statutory financial
statements. The Company has no material permitted statutory accounting
practices.
Business Risks and Uncertainties
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. As a
provider of life and health insurance, pension products, and annuity products,
the Company's operating results in any given period depend on estimates of
policy reserves required to provide for future policyowner benefits.
The development of policy reserves for the Company'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, in many cases, state insurance laws require specific
mortality, morbidity and investment assumptions to be used by the Company.
Actual results could differ materially from those estimates. Management monitors
actual experience, and where circumstances warrant, revises its assumptions and
the related reserve estimates.
The Company regularly invests in mortgage backed securities and other
securities subject to prepayment and call risk. Significant changes in
prevailing interest rates may adversely affect the timing and amount of cash
flows on such securities. In addition, the amortization of market premium and
accretion of market discount for mortgage backed securities is based on
historical experience and estimates of future payment speeds 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.
The Company has a 69% ownership in Express Scripts, Inc. (ESI), a publicly
traded company, which is owned through NYLIFE Inc., a direct, wholly owned
subsidiary. NYLIFE Inc. values ESI at market value subject to liquidity
restrictions. Appreciation in the market value of ESI has resulted in cumulative
unrealized capital gains of $424,000,000. A significant decline in the value of
this stock could have an adverse effect on the Company's surplus position.
As a mutual life insurance company, New York Life is subject to a tax on
its equity base. The rates applied to the Company's equity base are determined
annually by the Internal Revenue Service after comparison of mutual life
insurance company earnings for the year to the average earnings of the 50
largest stock life insurance companies for the prior three years. Due to the
timing of earnings information, estimates of the current year's tax must be made
by management. The ultimate amounts of equity base tax incurred may vary
considerably from the original estimates. (See Note 2--Federal Income Taxes and
Change in Accounting Policy for the Equity Base Tax.)
NOTE 3--Investments
Bonds
Fair values of bonds as shown below are based on published market values,
if available. For investments without readily ascertainable market values, fair
value has been determined using one of the following sources: market dealer
26
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
quotations, a discounted cash flow approach, or a proprietary matrix pricing
model. Fair values do not necessarily represent the values for which these
securities could have been sold at December 31, 1995 or 1994; therefore, care
should be exercised in drawing any conclusions from these fair values. The
method for determining statement values is described in Note 2.
At December 31, 1995 and 1994, the maturity distribution of bonds was as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
Estimated Estimated
Statement Fair Statement Fair
Value Value Value Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Due in one year or less ............................ $ 678 $ 684 $ 385 $ 383
Due after one year through five years .............. 5,107 5,310 4,335 4,265
Due after five years through ten years ............. 6,746 7,222 5,340 5,149
Due after ten years ................................ 10,964 12,310 11,302 10,803
Asset-backed securities:
Government or government agency ................... 12,232 12,722 11,114 10,737
Other ............................................. 1,867 l,939 1,658 1,645
------- ------- ------- -------
Total ........................................... $37,594 $40,187 $34,134 $32,982
======= ======= ======= =======
At December 31, 1995 and 1994, the distribution of unrealized gains and
losses on bonds was as follows (in millions):
1995
--------------------------------------------------
Estimated
Statement Fair
Value Gains Losses Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies ......................... $ 5,537 $ 319 $ 4 $ 5,852
U.S. agencies, state and municipal ................. 9,980 486 11 10,455
Foreign governments ................................ 1,353 122 2 1,473
Corporate .......................................... 18,857 1,668 57 20,468
Other .............................................. 1,867 76 4 1,939
------- ------- ------- -------
Total ............................................ $37,594 $ 2,671 $ 78 $40,187
======= ======= ======= =======
1994
--------------------------------------------------
Estimated
Statement Fair
Value Gains Losses Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies ......................... $ 4,990 $ 36 $ 250 $ 4,776
U.S. agencies, state and municipal ................. 9,024 77 361 8,740
Foreign governments ................................ 1,400 22 91 1,331
Corporate .......................................... 17,062 277 848 16,491
Other .............................................. 1,658 24 38 1,644
------- ------- ------- -------
Total ............................................ $34,134 $ 436 $ 1,588 $32,982
======= ======= ======= =======
</TABLE>
27
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Mortgage Loans
The Company attempts to minimize the risk of investing in mortgage loans by
diversification of geographic locations and types of properties and
collateralization of mortgage loans based on management's credit assessment of
the borrower. The maximum and minimum lending rates for mortgage loans during
1995 were: commercial loans, 10.00% and 7.16% (10.64% and 6.80% for 1994);
residential loans, 10.00% and 7.19% (10.00% for 1994).
At December 31, 1995 and 1994, the distribution of the mortgage loan
portfolio by geographic location and property type was as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
-------------------- ---------------------
Statement % of Statement % of
Value Total Value Total
-------- ----- --------- -----
<S> <C> <C> <C> <C>
Geographic Distribution:
Middle Atlantic .................................... $1,574 30.0% $1,600 31.9%
South Atlantic ..................................... 999 19.1 883 17.6
Pacific ............................................ 722 13.8 693 13.8
East North Central ................................. 586 11.2 591 11.8
West South Central ................................. 429 8.2 337 6.7
Mountain ........................................... 243 4.6 215 4.3
East South Central ................................. 196 3.7 214 4.3
New England ........................................ 181 3.5 137 2.7
West North Central ................................. 159 3.0 174 3.4
Other .............................................. 150 2.9 176 3.5
------ ----- ------ -----
Total ............................................ $5,239 100.0% $5,020 100.0%
====== ===== ====== =====
1995 1994
-------------------- ---------------------
Statement % of Statement % of
Value Total Value Total
-------- ----- --------- -----
<S> <C> <C> <C> <C>
Property Type:
Office Building .................................... $2,836 54.1% $2,978 59.3%
Retail ............................................. 1,039 19.8 905 18.0
Apartments ......................................... 794 15.2 673 13.4
Industrial ......................................... 320 6.1 286 5.7
Residential ........................................ 147 2.8 47 .9
Hotel/Motel ........................................ 87 1.7 88 1.8
Other .............................................. 16 .3 43 .9
------ ----- ------ -----
Total ............................................ $5,239 100.0% $5,020 100.0%
====== ===== ====== =====
</TABLE>
At December 31, 1995 and 1994, anticipated maturities in the Company's
mortgage loan portfolio were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Due in one year or less ................................ $ 283 $ 289
Due after one year through five years .................. 1,473 1,208
Due after five years through ten years ................. 1,917 2,124
Due after ten years .................................... 1,566 1,399
------ ------
Total ............................................... $5,239 $5,020
====== ======
</TABLE>
28
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Fair values for the mortgage loan portfolio at December 31, 1995 and 1994
were estimated to be $5,402,000,000 and $4,884,000,000, respectively, and were
determined by discounting the projected cash flow for each individual loan to
determine the current net present value. The discount rate used approximates the
current rate for new mortgages with comparable characteristics and similar
remaining maturities. As mortgage loans are generally intended to be held to
maturity and fair values do not necessarily represent the values for which these
loans could have been sold at December 31, 1995 or 1994, care should be
exercised in drawing any conclusions from these fair values. The method for
determining statement values is described in Note 2.
Real Estate
At December 31, 1995 and 1994, the Company's real estate portfolio, at
statement value, consisted of the following (in millions):
1995 1994
------ ------
Commercial:
Investment .................................... $ 684 $ 636
Acquired through foreclosure .................. 278 309
Properties for Company use ..................... 103 98
Real estate joint ventures ..................... 79 128
------ ------
Total real estate ............................ $1,144 $1,171
====== ======
In November 1995, the Company sold one of its Home Office properties.
Consideration received on the sale totaled $65,000,000. The book value of the
building was $9,000,000, resulting in a capital gain of $56,000,000. The Company
has leased back a portion of the building through 2010.
Accumulated depreciation on real estate at December 31, 1995 and 1994
totaled $371,000,000 and $418,000,000, respectively. Depreciation expense for
1995, 1994 and 1993 totaled $44,000,000, $45,000,000 and $49,000,000
respectively, and was recorded as an investment expense.
Other Long-Term Investments
Other long-term investments primarily consist of limited partnership
interests in oil and gas producing properties and venture capital and leveraged
buy-out funds. The underlying net equity of these investments amounted to
$795,000,000 and $774,000,000 at December 31, 1995 and 1994, respectively. Net
unrealized gains (losses) of $83,000,000, $(6,000,000) and $8,000,000 for the
years ended December 31, 1995, 1994 and 1993, respectively, were recorded on
these investments.
Cash and Short-Term Investments
Short-term investments consist of securities that have maturities of one
year or less at acquisition. The carrying amount reported in the Statement of
Financial Position for cash and short-term investments approximates fair value.
Common and Preferred Stocks
Common and preferred stocks include the Company's investments in
unaffiliated stocks and the following direct, wholly owned subsidiaries: New
York Life Insurance and Annuity Corporation, New York Life and Health Insurance
Company, NYLIFE Insurance Company of Arizona, and NYLIFE Inc.
Investments in unaffiliated common stocks totaled $952,000,000 and
$700,000,000 at December 31, 1995 and 1994, respectively. In 1995, 1994 and
1993, the Company recorded net unrealized gains (losses) of $94,000,000,
$(62,000,000) and $(20,000,000), respectively.
29
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Investments in subsidiaries totaled $1,985,000,000 and $1,596,000,000 at
December 31, 1995 and 1994, respectively. The Company records its share of
income or loss, less dividends paid, of affiliates as unrealized gain or loss on
investments. In 1995, 1994 and 1993, the Company recorded unrealized gains of
$34,000,000, $119,000,000 and $241,000,000, respectively, and unrealized losses
of $41,000,000, $8,000,000 and $8,000,000, respectively.
In 1995, investors in the New York Life Oil and Gas Producing Partnership
Programs were advised that the managing general partners were in the process of
evaluating the economics of continuing the operation of the partnerships. The
Company's investment in NYLIFE Inc. was reduced by $90,000,000 after tax in 1995
to reflect the potential discontinuance of these as well as NYLIFE Inc.'s other
proprietary partnership operations and certain claims made in connection
therewith.
Under terms of Service Agreements between the Company and its subsidiaries,
the Company provides certain of its subsidiaries with services and facilities
for the sale of insurance and other business related purposes. The Company is
reimbursed for the identified costs associated with these services and
facilities. Such costs amounting to $251,000,000, $235,000,000 and $219,000,000
for the years ended December 31, 1995, 1994 and 1993, respectively, were
incurred by the Company and billed to its subsidiaries. As these costs represent
expenses of the Company's subsidiaries, they are not reflected in the Company's
Statement of Operations.
Significant Subsidiary
New York Life Insurance and Annuity Corporation ("NYLIAC") is engaged in
the life and annuity businesses. A summary of NYLIAC's statutory basis financial
position at December 31, 1995 and 1994 and results of operations for the years
then ended is as follows (in millions):
1995 1994
------- -------
Assets:
Bonds ......................................... $12,262 $11,141
Mortgage loans and real estate ................ 1,203 1,088
Separate account assets ....................... 1,444 971
Other ......................................... 1,068 1,299
------- -------
Total assets ................................ $15,977 $14,499
======= =======
Liabilities and Surplus:
Policy reserves ............................... $12,821 $12,100
Separate account liabilities .................. 1,396 905
Other liabilities ............................. 882 649
Capital and surplus ........................... 878 845
------- -------
Total liabilities and surplus ............... $15,977 $14,499
======= =======
Results of Operations:
Net gain from operations ...................... $ 95 $ 162
Net realized capital gains .................... -- 4
------- -------
Net income .................................... $ 95 $ 166
======= =======
30
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
NOTE 4--Investment Income and Capital Gains and Losses
The components of net investment income for the years ended December 31,
1995, 1994 and 1993 were as follows (in millions):
1995 1994 1993
------ ------ ------
Bonds ................................ $2,917 $2,723 $2,608
Mortgage loans ....................... 439 474 513
Preferred and common stocks .......... 91 182 145
Real estate .......................... 243 250 239
Policy loans ......................... 329 324 324
Other long-term investments .......... (9) (36) (2)
Short-term investments ............... 112 80 60
Amortization of IMR .................. 39 37 20
Other ................................ 37 37 28
------ ------ ------
Gross investment income ............. 4,198 4,071 3,935
Investment expenses .................. 348 354 317
------ ------ ------
Net investment income ............. $3,850 $3,717 $3,618
====== ====== ======
Investment income includes dividends from NYLIFE Inc. of $42,000,000,
$73,000,000 and $35,000,000 for 1995, 1994 and 1993, respectively, and dividends
from NYLIAC of $0, $70,000,000 and $71,000,000 for 1995, 1994 and 1993,
respectively.
31
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Investment income also includes $41,000,000, $45,000,000 and $43,000,000
for 1995, 1994 and 1993, respectively, representing rent charged to the Company
for the use of company-owned properties in its insurance and investment
operations, in accordance with statutory accounting practices. Investment
expenses comprise allocations of expenses incurred in connection with investment
operations, including an allocation of rent expense charged by the Company for
use of company-owned properties.
For the years ended December 31, 1995, 1994 and 1993, realized capital
gains and losses were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------------------- ----------------- ------------------
Gains Losses Gains Losses Gains Losses
------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Bonds ..................................... $ 421 $(192) $ 275 $(573) $487 $(104)
Mortgage loan ............................. 8 (10) 15 (7) 14 (24)
Preferred and common stock ................ 147 (56) 58 (36) 74 (38)
Real estate ............................... 81 (23) 21 (11) 12 (23)
Other long-term investments ............... 345 (46) 116 (28) 104 (20)
Derivative Instruments .................... 129 (140) 235 (265) 39 (32)
Other assets .............................. 2 (33) 2 (41) 4 (5)
------ ----- ----- ----- ---- -----
$1,133 $(500) $ 722 $(961) $734 $(246)
====== ===== ===== ===== ==== =====
Net realized capital gains (losses)
before capital gains tax and
transfers to the IMR ........................ $ 633 $(239) $ 488
Less:
Capital gains tax (benefit) ................. 213 (82) 178
Gains (losses) transferred to the IMR ....... 168 (184) 288
----- ----- -----
Net realized capital gains after
capital gains tax and transfers
to the IMR .................................. $ 252 $ 27 $ 22
===== ===== =====
</TABLE>
Proceeds from investments in bonds sold, matured or repaid were
$21,941,000,000, $20,611,000,000 and $16,193,000,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
NOTE 5--Insurance Liabilities
Policy Reserves and Deposit Funds
Reserves for life insurance policies are maintained principally using the
1941, 1958, and 1980 Commissioners' Standard Ordinary (CSO) Mortality Tables
under the net level premium method or the Commissioners' Reserve Valuation
Method (CRVM) with valuation interest rates ranging from 2.0% to 7.25%. Reserves
for supplementary contracts involving life contingencies and annuities involving
current mortality risks are based principally on 1951 a-49 Group Annuity and
1971 and 1983-a Individual Annuity mortality tables, with assumed interest rates
ranging from 2.0% to 11.25%. Generally, owners of annuities in payout are not
able to withdraw funds from their policies attheir discretion.
32
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
The Company's liabilities for investment-type contracts, primarily
annuities certain, are included with policy reserves. Fair values for
investment-type contracts are based on interest rates being offered for
investment contracts with maturities consistent with those remaining for the
contracts being valued. The statement value and fair value of the Company's
liabilities for annuities certain at December 31, 1995 were $691,000,000
($590,000,000 at December 31, 1994) and $779,000,000 ($594,000,000 at December
31, 1994), respectively.
Deposit funds consist primarily of GICs, which at December 31, 1995 and
1994 had a weighted average interest rate of 7.37% and 7.59%, respectively, and
a weighted average remaining maturity of 2 years 4 months and 2 years 7 months,
respectively. Withdrawal prior to maturity is generally subject to 60 days
deferral of payment and involves penalties if interest rates increased since
contract issuance.
Fair values for the Company's deposit fund liabilities are generally
estimated using discounted cash flow calculations, based on interest rates
currently being offered for similar contracts with maturities consistent with
those remaining for the contracts being valued. The fair values of the Company's
deposit fund liabilities at December 31, 1995 and 1994 were $16,803,000,000 and
$14,758,000,000, respectively.
In 1995, the Company strengthened policy reserves on disability income
policies for both active and disabled lives ($70,000,000, net of reinsurance)
and for Stable Value GIC products ($50,000,000). These actions resulted in a
corresponding charge to surplus. Also, in 1995, the Company recorded reserve
adjustments of $80,000,000, including $67,000,000 to reflect the correction of
certain prior year reserve balances.
Dividends and Policy Proceeds Deposited With the Company
Dividends and policy proceeds deposited with the Company consist of
dividend accumulations and supplementary contracts without life contingencies.
The carrying amount reported in the Statement of Financial Position for these
liabilities approximates its fair value.
The following table reflects the withdrawal characteristics of annuity
reserves, deposit funds and dividend accumulations (in millions):
<TABLE>
<CAPTION>
1995 1994
------------------ -----------------
% of % of
Amount Total Amount Total
------- ----- ------- -----
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment ....................................................... $13,808 53% $13,067 54%
At book value less surrender charge of 5% or more .................................. -- -- -- --
At market value .................................................................... 2,323 9 2,254 9
------- --- ------- ---
Total with adjustment or at market value ............................................ 16,131 62 15,321 63
At book value without adjustment (minimal
or no charge or adjustment) ........................................................ 2,912 11 2,062 9
Not subject to discretionary withdrawal provisions .................................. 6,964 27 6,900 7.8
------- --- ------- ---
Total annuity reserves, deposit fund liabilities and
dividend accumulations ............................................................. $26,007 100% $24,283 100%
======= === ======= ===
</TABLE>
33
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Liability for Unpaid Accident and Health Claims and Claim Adjustment Expenses
Activity in the liability for unpaid accident and health claims and claim
adjustment expenses is summarized as follows (in millions):
1995 1994
---- ----
Net Balance at January 1 ............................... $332 $344
Plus reinsurance recoverables ........................ 227 154
---- ----
Gross Balance at January 1 ............................. 559 498
Gross Incurred related to:
Current year .......................................... 687 632
Prior years ........................................... 135 51
---- ----
Total gross incurred ................................... 822 683
---- ----
Gross Paid related to:
Current year .......................................... 436 434
Prior years ........................................... 204 188
---- ----
Total gross paid ....................................... 640 622
---- ----
Gross Balance at December 31 ........................... 741 559
Less reinsurance recoverables ......................... 199 227
---- ----
Net Balance at December 31 ............................. $542 $332
==== ====
NOTE 6--Separate Accounts
For Group Annuity contracts, the Company has established market value
separate accounts funding guaranteed and non-guaranteed benefits, and separate
accounts maintained on an amortized cost/book value basis funding guaranteed
benefits.
Market value separate accounts funding guaranteed benefits provide a
guarantee of principal and interest during active status. Separate accounts
funding non-guaranteed benefits provide no guarantee of principal or interest
during active status. At discontinuance of either type of account, payout is at
market value. Separate accounts maintained on an amortized cost/book value basis
provide a guarantee of principal and interest during active status, and a book
value payout at discontinuance.
Information regarding the separate accounts of the Company is as follows
(in millions):
<TABLE>
<CAPTION>
Separate Accounts with Guarantees
---------------------------------
Nonindexed Nonindexed Nonguaranteed
Guarantee Less Guarantee Separate
than/Equal to 4% More than 4% Accounts Total
---------------- ------------ ------------- ------
<S> <C> <C> <C> <C>
Premiums, considerations or deposits for year
ended 12/31/95 ...................................... $ 23 -- $ 28 $ 51
Reserves at 12/31/95:
For accounts with assets at:
Market value ....................................... $1,616 $336 $372 $2,324
Amortized cost ..................................... 6 -- -- 6
------ ---- ---- ------
Total reserves ....................................... $1,622 $336 $372 $2,330
By withdrawal characteristics:
At market value .................................... $1,616 $336 $371 $2,323
At book value without MV adjustment and
with current surrender charge less than 5% ........ 6 -- -- 6
------ ---- ---- ------
Subtotal ............................................ 1,622 336 371 2,329
Not subject to discretionary withdrawal ............ -- -- 1 1
------ ---- ---- ------
Total reserves ....................................... $1,622 $336 $372 $2,330
====== ==== ==== ======
</TABLE>
34
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
The following is a reconciliation of net transfers from the Company to the
Separate Accounts (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Transfers as reported in the Summary of Operations of the
Separate Accounts Statement:
Transfers to Separate Accounts ........................................ $ 51 $ 434 $ 963
Transfers from Separate Accounts ...................................... (295) (279) (223)
----- ----- -----
Net transfers (from) to Separate Accounts ............................ $(244) $ 155 $ 740
===== ===== =====
Transfers as reported in "additions to other insurance
reserves" on the Statement of Operations of the Company ................ $(244) $ 155 $ 740
===== ===== =====
</TABLE>
Guaranteed Separate Accounts
The Company currently maintains twenty-four guaranteed separate accounts
with assets of $2,062,000,000 and $2,179,000,000 at December 31, 1995 and 1994,
respectively. These assets are invested primarily in investment grade
mortgage-backed securities and short-term securities. The Company maintained
$12,000,000 and $11,000,000 at December 31, 1995 and 1994, respectively, in
supplemental separate account assets to fund the excess of the actuarial
liability for future guaranteed payments over the market value of assets for
these contracts.
Non-Guaranteed Separate Accounts
The Company currently maintains eighteen non-guaranteed separate accounts
with assets of $373,000,000 and $430,000,000 at December 31, 1995 and 1994,
respectively. The non-guaranteed separate accounts primarily include the
Company's retirement and pension plan. The Company and its pension plan
maintained investments in non-guaranteed separate accounts of $257,000,000 and
$265,000,000 at December 31, 1995 and 1994, respectively. In addition, the
Company's defined contribution plan for agents maintained investments in
non-guaranteed separate accounts of $50,000,000 at December 31, 1994. Effective
January 24, 1995, defined contribution plan investments for agents totaling
$51,000,000 were transferred to the New York Life General Account and MainStay
Institutional Funds.
NOTE 7--Federal Income Taxes
The Company files a consolidated federal income tax return with certain of
its domestic insurance and non-insurance subsidiaries. The consolidated income
tax liability is allocated among the members of the group in accordance with a
tax allocation agreement. The tax allocation agreement provides that each member
of the group is allocated its share of the consolidated tax provision or
benefit, including the equity base tax, determined generally on a separate
return basis, but may, where applicable, recognize the tax benefits of net
operating losses or capital losses utilizable in the consolidated group.
Estimated payments for taxes are made between the members of the consolidated
group during the year.
35
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Set forth below is a reconciliation of the statutory federal income tax
rate to the effective tax rate for 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
Statutory federal income tax rate ... 35.0% 35.0% 35.0%
Equity base tax:
Current year estimate .............. 7.9 6.1 5.0
Change in accounting policy ........ (8.7) -- --
Increase in statutory reserves (in
excess of increase in tax reserves) . 7.7 11.9 13.3
Net pension credit .................. (5.3) (1.1) (3.0)
Acquisition costs deferred for
tax purposes ....................... 8.9 8.3 9.2
Change in non-deductible policyholder
dividend reserves .................. 3.2 3.1 (.9)
Dividends from subsidiaries ......... (2.7) (7.7) (5.7)
Other ............................... 1.4 (.6) (1.1)
---- ---- ----
Effective tax rate ................ 47.4% 55.0% 51.8%
==== ==== ====
NOTE 8--Reinsurance
The Company enters into reinsurance agreements in the normal course of its
insurance business to reduce overall risks. The Company remains liable for
reinsurance ceded if the reinsurer fails to meet its obligations on the business
it has assumed. Life insurance reinsured was 18% and 17% of total life insurance
in-force at December 31, 1995 and 1994, respectively. Life insurance reinsured,
excluding a block of term insurance ceded to one reinsurer, was 9% and 6% of
total life insurance in-force at December 31, 1995 and 1994, respectively. The
reserve reductions taken for life insurance reinsured at December 31, 1995 and
1994 were $82,000,000 and $62,000,000, respectively. The reserve reductions
taken for disability income policies reinsured at December 31, 1995 and 1994
were $180,000,000 and $108,000,000, respectively.
Effective December 31, 1995 the Company terminated its reinsurance
agreement with NYLIAC for group health long-term disability business. As a
result, the Company recaptured the reserves held by NYLIAC to support the claims
of those disabled lives. At December 31, 1995 the Company recorded a receivable
for the recapture of reserves of $119,000,000. In the first quarter of 1996, a
final settlement will be made to NYLIAC representing the net of premiums due
reduced by a benefit reimbursement and experience refund.
NOTE 9--Surplus
Surplus Notes
On December 15, 1993, the Company issued Surplus Notes ("Notes") with a
principal balance of $450,000,000: $150,000,000 of a 6.40% Surplus Note, due
2003 and $300,000,000 of a 7.50% Surplus Note due 2023. These Notes were issued
pursuant to Rule 144A under the Securities Act of 1933 and were underwritten by
Goldman Sachs and Co., CS First Boston and Salomon Brothers Inc. and are
currently administered by First Trust New York as registrar/paying agent. At
December 31, 1995, there were no affiliates that held any portion of the Notes.
In addition, at December 31, 1995 there were two entities (Liberty Mutual
Casualty Insurance Company and the Treasurer of the State of Oregon) who held
10% or more of the $150,000,000 Note and one entity (Treasurer of the State of
South Carolina) who held more than 10% of the $300,000,000 Note.
36
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
The Notes are unsecured and subordinated to all present and future
indebtedness, policy claims and other creditor claims of the Company. Under New
York State Insurance law, the Notes are not part of the legal liabilities of the
Company. The Notes do not repay principal prior to maturity. Each payment of
interest or principal may be made only with the prior approval of the
Superintendent of Insurance of the State of New York ("Superintendent") and only
out of surplus funds which the Superintendent determines to be available for
such payments under New York State Insurance law. The 6.40% Note may not be
redeemed at the option of the Company or any holder of the Notes. Subject to
prior approval of the Superintendent, the 7.50% Note may be redeemed at the
Company's election, in whole or in part, at any time on or after December 15,
2003 at a premium until December 15, 2012 and thereafter at a redemption price
equal to 100% of the principal amount.
The $400,000,000 reported in the Statement of Changes in Surplus for 1993
represents statement value of $449,000,000 less a $45,000,000 indemnification
reserve established in connection with the issuance of the Notes and $4,000,000
of issuance costs. As part of the Surplus Note offering, the Company was
required to establish a reserve for 10% of the principal balance ($45,000,000),
which would be used to indemnify the underwriters for potential legal judgements
in connection with the Notes. The establishment of this reserve was approved by
the New York State Insurance Department.
Interest on the 6.40% Note is scheduled to be paid semi-annually on April
15 and October 15 of each year ($10,000,000 and $8,000,000 was paid in 1995 and
1994, respectively). Interest on the 7.50% Note is scheduled to be paid
semi-annually on July 15 and January 15 of each year ($23,000,000 and
$13,000,000 was paid in 1995 and 1994, respectively). In addition, the January
15, 1996 payment of the 7.50% Note was approved by the Superintendent and
accordingly, interest expense totaling $10,000,000 was accrued at December 31,
1995.
Other Surplus Adjustments
Other adjustments in the Statement of Changes in Surplus principally
include the effects of the following (in millions):
1995 1994 1993
----- ----- -----
Reserve adjustments (See Note 5) ............. $ (80) $ 7 $ (6)
Cumulative effect of change in accounting
policy for the equity base tax (See Note 2) . (80) -- --
Increase in nonadmitted assets ............... (75) (29) (51)
Reserve strengthening on disability income
policies (See Note 5) ....................... (70) -- --
Reserve strengthening on Stable Value GIC
products (See Note 5) ....................... (50) -- --
Decrease in liability for federal income
taxes of prior years ........................ 3 31 47
Provision associated with the sale of
Canadian operations ......................... -- 40 (40)
Large claims contingency reserve ............. -- -- (25)
Establishment of general contingency reserve . -- -- (25)
----- ----- -----
Total ..................................... $(352) $ 49 $(100)
===== ===== =====
37
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
On April 1, 1994, the Company sold its wholly owned life insurance
subsidiary, New York Life Insurance Company of Canada ("NYLICAN"), and reinsured
a substantial portion of its Canadian Branch business with Canada Life Assurance
Company. Assets of the Canadian Branch business and the Company's investment in
NYLICAN totaled $700,000,000 at April 1, 1994. In 1993, a provision for the sale
was established for $40,000,000, primarily representing U.S. federal income
taxes estimated to be payable, a significant portion of which is deferred from
prior years. In 1994, the provision was released and the actual loss was
recorded as a realized loss.
NOTE 10--Benefit Plans
Pension Plans
A reconciliation of the funded status of the pension plans at December 31,
1995, 1994 and 1993 is as follows(in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ............................................. $1,554 $1,189 $1,320
====== ====== ======
Accumulated benefit obligation ........................................ $1,711 $1,298 $1,449
====== ====== ======
Plan assets at fair value ............................................. $2,169 $1,912 $1,913
Projected benefit obligation .......................................... 2,082 1,529 1,787
------ ------ ------
Plan assets in excess of projected benefit obligation ................. 87 383 126
Unrecognized net loss ................................................. 422 148 437
Prior service cost .................................................... (85) (111) (123)
Unamortized transition asset .......................................... (72) (111) (151)
------ ------ ------
Prepaid pension expense .............................................. $ 352 $ 309 $ 289
====== ====== ======
</TABLE>
Prepaid pension expense is considered a nonadmitted asset and is therefore
excluded from total assets.
The components of net periodic pension cost for 1995, 1994 and 1993 are as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost--benefits earned during the year .......................... $ 60 $ 81 $ 64
Interest cost on projected benefit obligations ......................... 127 121 112
Curtailment expense .................................................... 6 -- --
Net amortization and deferral .......................................... 58 (140) (23)
Less: Return on plan assets ............................................ (290) (79) (198)
----- ----- -----
Net periodic pension cost ............................................. $ (39) $ (17) $ (45)
===== ===== =====
</TABLE>
The calculation of net periodic pension cost under FAS 87 resulted in a
credit to the Statement of Operations for the years ended December 31, 1995,
1994 and 1993.
Assumptions in developing net periodic pension cost for 1995, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate .......................................................... 8.45%* 6.90% 7.75%
Average rate of increase in compensation levels--employees ............. 7.39% 7.41% 7.47%
Average rate of increase in compensation levels--agents ................ 7.83% 7.98% 8.04%
Expected long-term rate of return on assets ............................ 9.75% 10.00% 10.00%
</TABLE>
* For the employees plan, the rate was 7.80% for May 1 - December 31.
38
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
The Company's funding policy is to contribute annually to each plan the
maximum amount deductible for federal income tax purposes, but not less than the
minimum amount needed to comply with the requirements of the Employee Retirement
Income Security Act of 1974 (ERISA). No contribution was made to either the
employees' or agents' qualified pension plans in 1995, 1994 or 1993 as the plans
were subject to the full funding limitation under the Internal Revenue Code.
Defined Contribution Plans
The Company's defined contribution plans provide retirement benefits for
substantially all employees and agents. Contributions by the Company are based
on a specified percentage of the participants' compensation as determined
annually by the Board of Directors. Contributions were $14,000,000 for 1995 and
1994, respectively, and $13,000,000 for 1993.
Other Postretirement Benefits
In 1993, the Company changed its method of accounting for the costs of its
retirees benefit plans to the accrual method, and elected to amortize its
transition obligation for retirees and vested employees and agents (including
dependents) over twenty years. The unamortized transition obligation was
$194,000,000, $205,000,000 and $216,000,000 at December 31, 1995, 1994 and 1993,
respectively. The initial transition obligation was $228,000,000 determined as
of January 1, 1993.
The components of net periodic postretirement benefit cost for 1995, 1994
and 1993 are as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Amortization of transition obligation .................................... $ 11 $ 11 $ 11
Service cost--benefits earned during the year ............................ 10 13 11
Interest cost on expected postretirement benefit obligations ............. 30 29 35
Amortization and deferral of net gains ................................... 5 (4) --
Less: Return on plan assets .............................................. (30) (16) (18)
---- ---- ----
Net periodic postretirement benefit cost ............................... $ 26 $ 33 $ 39
==== ==== ====
</TABLE>
It has generally been the Company's policy to prefund postretirement
benefits to the extent allowable for federal income tax purposes. Prefunding
contributions made prior to 1993 are currently being held as reserves under
group contracts for Employee and Agent benefit plans. Beginning in 1993, the
Company contributed to newly formed Voluntary Employees' Beneficiary Association
(VEBA) trusts which will be used to partially fund postretirement benefits other
than pensions. Prefunding contributions totaling $22,000,000, $25,000,000 and
$34,000,000 were made in 1995, 1994 and 1993, respectively, to the VEBA trusts.
The fair values of the plan assets at December 31, 1995, 1994 and 1993 were
$302,000,000, $269,000,000 and $248,000,000, respectively. At December 31, 1995,
1994 and 1993 the unfunded postretirement benefit obligation for retirees and
other fully eligible or vested plan participants was $164,000,000, $95,000,000
and $177,000,000, respectively. At December 31, 1995, 1994 and 1993, the
estimated liability of the benefit obligation for active non-vested participants
was $351,000,000, $209,000,000 and $354,000,000, respectively.
39
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
Assumptions in developing the accumulated postretirement benefit obligation
for December 31, 1995, 1994 and 1993 respectively, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Health care trend rates:
--medical ............................ 10% graded to 6% 13% graded to 6% 14% graded to 6%
over 8 years over 7 years over 4 years
--dental ............................. 10% graded to 6% 8% graded to 6% 9% graded to 6%
over 8 years over 2 years over 3 years
Discount Rate ......................... 6.55% 8.55% 7.00%
Expected long term rate of
return on assets:
--Employees .......................... 8.00% 8.00% 8.81%
--Agents ............................. 8.00% 8.00% 8.53%
</TABLE>
The medical care and dental cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing these assumed trend
rates by one percentage point in each year would increase the postretirement
benefit obligation as of December 31, 1995, 1994 and 1993 by $42,000,000,
$29,000,000 and $39,000,000, respectively, and the estimated eligibility cost
and interest cost components of net periodic postretirement benefit cost by
$5,000,000 for 1995 and $4,000,000 for 1994 and 1993, respectively.
NOTE 11--Derivative Financial Instruments and Risk Management
The Company uses derivative financial instruments to manage interest rate,
currency and market risk. These derivative financial instruments include foreign
exchange forward contracts, interest rate floors, and interest rate and
commodity swaps. The Company does not engage in derivative financial instrument
transactions for the purpose of trading.
Notional or contractual amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts exchanged between the parties engaged in the transaction.
The amounts exchanged are determined by reference to the notional amounts and
other terms of the derivative financial instruments which relate to interest
rates, exchange rates, or other financial indices.
Interest Rate Risk Management
The Company enters into various types of interest rate contracts primarily
to minimize exposure of specific assets held by the Company to fluctuations in
interest rates.
The following table summarizes the notional amounts and credit exposures of
interest rate related derivative transactions (in millions):
1995 1994
---------------- ------------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
-------- -------- -------- --------
Interest Rate Swaps ....................... $376 $ 19 $349 $ 2
Options Purchased ......................... 50 12 436 4
Floors Purchased .......................... 450 11 450 --
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 notional amount. Swap
contracts outstanding at December 31, 1995 are between four months and eight
years, eleven months in maturity. At December 31, 1994 such contracts were
between one year, four months and nine years, eleven months in maturity. The
Company does not act as an intermediary or broker in interest rate swaps.
40
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
The following table shows the type of swaps used by the Company and the
weighted average interest rates. Average variable rates are based on the rates
which determined the last payment received or paid on each contract; those rates
may change significantly, affecting future cash flows.
1995 1994
---- ----
Receive--fixed swaps--Notional amount (in millions) ...... $ 289 $ 262
Average receive rate ................................... 7.62% 7.72%
Average pay rate ....................................... 6.01% 5.75%
Pay--fixed swaps--Notional amount (in millions) .......... $ 87 $ 87
Average pay rate ....................................... 6.52% 6.52%
Average receive rate ................................... 5.92% 4.84%
During the term of the swap, net settlement amounts are recorded as
investment income or expense when earned. Fair values of interest rate swaps at
December 31, 1995 and 1994 were $19,000,000 and $(3,000,000), respectively,
based on quoted market prices.
Interest rate options grant the purchaser, for a premium payment, the right
to either purchase from or sell to the writer of the option, a specified
financial instrument on agreed terms. The Company currently owns one such
instrument which has an unexpired term of three years. In June 1995, the Company
exercised a call option of Coca Cola debt warrants purchased in 1992 and
received zero coupon notes with a par value of $232,000,000 due June 20, 2020.
Interest rate floor agreements entitle the Company 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, 1995 and 1994, unamortized premiums on interest rate
options and floors amounted to $7,000,000 and $12,000,000, respectively. Fair
values of such agreements at December 31, 1995 and 1994 were $24,000,000 and
$1,000,000, respectively, based on quoted market prices.
The Company 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.
The Company deals with highly rated counterparties and does not expect the
counterparties to fail to meet their obligations. The Company 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. The Company uses master netting agreements
and adjusts transaction levels, when appropriate, to minimize risk.
Foreign Exchange Risk Management
The Company enters into foreign exchange forward contracts and foreign
currency swaps primarily as a portfolio hedge against foreign currency
fluctuations. The purpose of the Company's foreign currency hedging activities
is to protect it from the risk that eventual dollar net cash inflows from the
eventual sale of a foreign currency denominated investment will be adversely
affected by changes in exchange rates.
The Company's foreign exchange forward contracts involve the exchange of
two currencies at a specified future date and at a specified price. The average
term of the contracts is three to six months.
41
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
The table below summarizes, by major currency, the contractual amounts of
the Company's foreign exchange forward contracts. The amounts represent the U.S.
dollar equivalent of commitments to buy and sell foreign currencies, translated
at December 31, 1995 and 1994 rates (in millions):
1995 1994
--------------- ----------------
Buy Sell Buy Sell
---- ---- ---- ----
German Deutsche Marks .............. $ 81 $228 $ 35 $134
Japanese Yen ....................... 9 83 2 63
British Pounds ..................... 29 66 1 49
Other .............................. 45 249 14 165
---- ---- ---- ----
$164 $626 $ 52 $411
==== ==== ==== ====
Fair values of foreign exchange forward contracts at December 31, 1995
and 1994 were $(3,000,000) and $2,000,000, respectively, based on current market
rates.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties, which could result in an unhedged position.
The Company deals with highly rated, investment grade counterparties and does
not expect the counterparties to fail to meet their obligations under the
contracts. For contracts with counterparties where no master netting arrangement
exists in the event of default on the part of the counterparty, credit exposure
is defined as the fair value of contracts in a gain position at the reporting
date. Credit exposure to counterparties where a master netting arrangement is in
place in the event of default, is defined as the net fair value, if positive, of
all outstanding contracts with each counterparty. The credit exposure of the
Company's foreign exchange forward contracts at December 31, 1995 and 1994 was
$3,000,000 and $4,000,000, respectively.
Commodity Management
At December 31, 1995, the Company has a $14,000,000 notional gold swap to
hedge variable interest payments on a gold denominated Eurobond. The bond pays
interest in U.S. dollars based upon the prevailing price of gold. Under the
terms of the agreement, the Company pays to the counterparty the variable
interest payments on the bond in exchange for a fixed payment in U.S. dollars at
8.46%. The counterparty is highly rated and the Company does not expect the
counterparty to fail to meet its obligation.
NOTE 12--Commitments and Contingencies
Support Agreement
In 1995, the Company entered into a support agreement with a newly formed
subsidiary, New York Life Capital Corp. ("Capital Corp."), whereby the Company
agreed to maintain Capital Corp.'s tangible net worth at $1.00 or more.
The Company and Capital Corp. have entered into a commercial credit
facility that permits the Company and/or Capital Corp. to borrow up to
$500,000,000 (no such borrowings were made in 1995). Under the facility, the
Company has agreed to maintain surplus plus AVR of $3,800,000,000.
Litigation
The New York State Supreme Court on January 31, 1996 approved the
settlement of a consolidated nationwide class action lawsuit alleging certain
sales practice claims against the Company and NYLIAC. In entering into the
settlement, the Company specifically denied any wrongdoing. The class consists
of approximately three million policyowners who purchased whole life or
universal life policies from January 1, 1982 through December 31, 1994. Appeals
from the order may be filed within the prescribed statutory period. Under the
terms of the settlement, the class members receive benefits intended to address
the issues presented in the case or an opportunity to redress individual
42
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
claims in an alternative dispute resolution process. The settlement (including
awards made in the alternative dispute resolution process), will not have a
material adverse effect upon the Company's financial position, and the Company
believes that, after consideration of the provisions made in its financial
statements, the settlement will not have a material adverse effect on operating
results. The Company, its affiliates and its agents have been released from
liability to class members for transactions during the class period relating to
the sales practice claims in the lawsuits.
There are also: (1) actions in various jurisdictions by individual
policyowners who excluded themselves from the settlement of the nationwide class
action; and (2) in one jurisdiction two purported class actions claiming to
include numerous policyowners, many of whom excluded themselves from the
settlement of the nationwide class action. Most of these actions seek
substantial or unspecified compensatory and punitive damages.
The Company is also a defendant in other individual and alleged class
actions arising from its insurance, investment, and retail securities
operations, including individual and purported class actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. The Company is also from time to time
involved as a party in various governmental, administrative and investigative
proceedings and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above and other actions pending against the Company cannot be
predicted. The Company nevertheless believes that the ultimate outcome of all
pending litigation should not have a material adverse effect on the Company'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 the Company's operating results for a given
year. The Company has recorded after-tax provisions of $45,000,000 and
$30,000,000 in 1995 and 1994, respectively, with respect to the above matters.
(See also Note 3, Common and Preferred Stocks, for provisions made in connection
with the potential discontinuance of NYLIFE Inc.'s proprietary partnership
operations.)
Loaned Securities and Repurchase Agreements
The Company participates in a securities lending program for the purpose of
enhancing income on securities held. At December 31, 1995 and 1994,
$3,606,000,000 and $3,118,000,000, respectively, of the Company's bonds and
stocks were on loan to others, but were fully collateralized in an account held
in trust for the Company. Such assets reflect the extent of the Company's
involvement in securities lending, not the Company's risk of loss.
The Company also enters into agreements to sell and repurchase securities
for the purpose of enhancing income on securities held. Under these agreements,
the Company obtains the use of funds from a broker for approximately one month.
The liability reported in the Statement of Financial Position at December 31,
1995 of $480,000,000 ($497,000,000 at December 31, 1994) is considered to be
fair value. The investments acquired with the funds received from the securities
sold are primarily included in short-term investments.
Lease Commitments
A summary of the approximate future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year at December 31, 1995, is as follows (in millions):
Year Real Property Equipment Total
- ---- ------------- --------- -----
1996 ................................... $ 60 $22 $ 82
1997 ................................... 51 3 54
1998 ................................... 42 1 43
1999 ................................... 34 -- 34
2000 ................................... 26 -- 26
Over five years ........................ 135 -- 135
---- --- ----
Total ................................ $348 $26 $374
==== === ====
43
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1995 and 1994
NOTE 13--Subsequent Events
On January 1, 1996, the Company merged its group life and health insurance
indemnity operations with Sanus Corp. Health Systems (an indirect HMO
subsidiary), to form an integrated health care subsidiary, NYLCare Health Plans
Inc. ("NYLCare"). NYLCare will offer a full spectrum of health care products
(managed indemnity and HMO) as well as ancillary coverages including life and
disability.
As part of the formation of NYLCare, on January 1, 1996 the stock of New
York Life and Health Insurance Company ("NYLHIC"), a direct, wholly owned
subsidiary of the Company, was transferred from the Company to NYLCare and a
substantial portion of the Company's indemnity operations were reinsured with
NYLHIC via a modified coinsurance agreement. NYLHIC will directly underwrite the
reinsured contracts upon renewal, after approval is obtained from the various
state insurance departments and policyholders. New indemnity business will be
written directly by NYLHIC once policy forms are approved by the state insurance
departments. Had the reinsurance agreement been in effect during 1995, net
premiums written by the Company would have been $551,000,000 less than reported.
44
<PAGE>
February 16, 1996
To the Board of Directors and Policyowners of
New York Life Insurance Company
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying statement of financial position and the
related statements of operations, of changes in surplus and of cash flows
present fairly, in all material respects, the financial position of New York
Life Insurance Company at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles
(practices prescribed or permitted by insurance regulatory authorities). These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional financial information of
New York Life Insurance Company as of and for the year ended December 31, 1995
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
45
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 3,423
<INVESTMENTS-AT-VALUE> 4,401
<RECEIVABLES> 8
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,416
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99
<TOTAL-LIABILITIES> 99
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,766
<SHARES-COMMON-STOCK> 717
<SHARES-COMMON-PRIOR> 1,440
<ACCUMULATED-NII-CURRENT> 78
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 495
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 978
<NET-ASSETS> 4,317
<DIVIDEND-INCOME> 150
<INTEREST-INCOME> 41
<OTHER-INCOME> 0
<EXPENSES-NET> 113
<NET-INVESTMENT-INCOME> 78
<REALIZED-GAINS-CURRENT> 1,401
<APPREC-INCREASE-CURRENT> 543
<NET-CHANGE-FROM-OPS> 2,022
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (49)
<DISTRIBUTIONS-OF-GAINS> (1,181)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5
<NUMBER-OF-SHARES-REDEEMED> (927)
<SHARES-REINVESTED> 199
<NET-CHANGE-IN-ASSETS> (4,756)
<ACCUMULATED-NII-PRIOR> 116
<ACCUMULATED-GAINS-PRIOR> 1,112
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 113
<AVERAGE-NET-ASSETS> 8,871
<PER-SHARE-NAV-BEGIN> 6.30
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.43
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (1.79)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.02
<EXPENSE-RATIO> .01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
