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December 31, 1996
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1996 New York Life Insurance
and Annuity Corporation
VLI Separate Account
MainStay
VP Series Fund, Inc.
ANNUAL
REPORT
This is a Report by the MainStay VP Series Fund, Inc. for the general
information of Multi-Funded Annuity policyowners. It must be accompanied or
preceded by a current prospectus if it is given to anyone who is not an owner
of a Multi-Funded Annuity policy. This Report does not offer for sale or
solicit orders to purchase securities.
These Annual Reports are submitted for the general information of owners of
Variable Life Insurance Policies (the "Policies") of New York Life Insurance and
Annuity Corporation.
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<TABLE>
<S> <C>
NEW YORK LIFE INSURANCE COMPANY
[LOGO] NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
</TABLE>
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51 Madison Avenue, New York, N.Y. 10010
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To the Owners of NYLIAC Variable Life Policies:
I am pleased to present the Annual Report for NYLIAC Variable Life and
MainStay VP Series Fund, Inc. for the year ended December 31, 1996.
NYLIAC Variable Life offers you life insurance protection and investment
opportunities. All of the MainStay VP Series Fund investment portfolios are
professionally managed and offer a diversified group of funding options.
MacKay-Shields Financial Corporation manages the Cash Management Portfolio and
New York Life Insurance Company manages the Bond and Growth Equity Portfolios.
This past October NYLIAC's Variable Life changed the name of the "MFA
Series Fund Inc.," to "MainStay VP Series Fund, Inc." This is an effort to
support the MainStay name which is currently used for our retail and
institutional funds, which will allow for a more consistent presentation and
increased brand recognition.
The following is a description of the current and anticipated economic
conditions that may affect the performance of the portfolios.
ECONOMIC ENVIRONMENT
Real Gross Domestic Product has increased by about 2.4 percent in 1996,
slightly faster than its non-inflationary potential. The unemployment rate
drifted downward during the year to levels previously associated with
accelerating inflation. But while consumer prices did accelerate, core inflation
(excluding food and energy prices) actually moderated. Faster increases in wage
rates were generally offset by slower increases in benefit costs. Bond yields
rose during the year, but short-term interest rates remained little changed as
the Federal Reserve kept monetary policy on hold.
1997 is likely to show stronger growth than 1996, accompanied by still
lower unemployment rates, higher wage increases, and a gradual rise in core
inflation. Under these conditions, bond yields should continue their upward
trend, and the Federal Reserve is likely to begin raising short-term interest
rates again.
For the stock market, 1996 was another super year, with the Dow Jones
Industrial Average* gaining 26 percent after rising 33.5 percent the year
before. So far, the bull market for equities has been driven by the continuation
of moderate growth, strong earnings gains, and low inflation. Market conditions
are likely to be somewhat less ideal in 1997. As the economic expansion
continues into its seventh year, there are likely to be increasing concerns
about the emergence of late business cycle pressures on profitability. The
longer-term fundamentals remain encouraging, with good prospects for continued
disinflation and expanding global opportunities for highly competitive U.S.
companies.
On the following pages you will find reports from each of the Portfolio
Managers of the MainStay VP Series Fund, Inc. that are available in NYLIAC
Variable Life. We look forward to serving you in the years ahead.
/s/ SEYMOUR STERNBERG
-----------------------------------
SEYMOUR STERNBERG
President
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
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* The Dow Jones Industrial Average is a trademark, and the property of, Dow
Jones and Co., Inc.
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MACKAY-SHIELDS FINANCIAL CORPORATION
ADVISER'S REPORT
1996 was yet another stunning year for the U.S. stock market, continuing to
delight and astound investors, as the economy continued on its modest growth,
low inflation path. The Dow Jones Industrial Average climbed an impressive
28.91% (total return). Added to the 36.75% gain of 1995, the Dow at year end was
towering 68% above its level at the final bell of 1994, having provided a
cumulative two year total return (with income) of 77%, the eighth largest two
year gain in its 100 year history. Meanwhile, the S&P 500* was up 22.96%, and
the NASDAQ**, despite its severe mid-summer drop, still managed a 23.29% rise,
both coming on top of strong gains in 1995. Volatility, however, increased
markedly.
Modest economic growth with low inflation provided the perfect backdrop for
rising stock prices, despite plenty of scares during the year. Business
inventories grew modestly, as companies tried to keep costs in line. Job growth
also slowed, easing fears that rising wages would set off inflation. Although
worries kept surfacing throughout the year that the economy was too weak and
then too strong, its steady path kept the Federal Reserve from having to raise
interest rates. Supply and demand were also driving forces, with the key driver
of demand being cash coming into equity mutual funds. An astonishing $210
billion flowed into stock funds in the first 11 months of the year, almost $100
billion more than a year earlier.
S&P 500 index funds led the parade of strong performance in the fourth
quarter and for the full year. Growth and income funds (which include index
funds in their category) were the most popular in terms of cash flow, and
aggressive growth funds came in second, having taken in more money earlier in
the year. Small stock prices trailed by more than 10 percentage points behind
the big blue chips.
Diversified U.S. stock funds returned an average 19.5%, on top of last
year's return of 31.1%. Little wonder that the individual investor has poured
record sums into stock mutual funds in the past year, boosting the assets of all
mutual funds to $3.5 trillion, or five times the level of a decade ago.
Overseas, the equity markets in Europe were stellar performers (climbing 20%
during 1996, ranging from 52% in Finland to 12% in the U.K., fueled by low
inflation, low interest rates and slow growth), but the world's second largest
market, Japan, slumped noticeably (down 2.6% for the year), offsetting several
impressive advances in smaller markets.
By contrast to the exuberance of the equity markets, 1996 proved to be a
rather mediocre year for bond investors, except in the high yield area, which
continued to excel, especially in lower rated credits. Despite inaction on the
part of the Federal Reserve, who only cut the federal funds rate once by a
quarter point last January 31st, bond prices were anything but stable. Rates
generally rose in the first half of the year, although this trend reversed
itself later in the year. Many believed that rate reductions would be necessary
to head off a recession, and that election year rate-cuts might be in the
offing; instead wage pressures emerged as a new concern and yields climbed into
the summer, before a fall rally brought them back down again. The rally was
fueled by low inflation, steady growth, and a shrinking budget deficit, which
has fallen during the past four years to below 1.5% of the gross domestic
product.
The average bond fund gained 4.7% in 1996, trailing the 4.8% average yield
on money market funds. Consequently, a mere $10.30 billion moved into bond funds
in the 11 months through November 30, paling in comparison to the stock market,
which took in $210 billion. The high yield market once again provided a strong
average double digit return of 13%. Elsewhere, many foreign markets rallied
sharply, with Italy, Spain, and Sweden leading the way. Emerging market bond
funds scored a heady 40.7% return, as bonds from Russia, Ecuador and Poland were
especially ebullient.
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As we enter the new year, the U.S. economic picture remains mixed. Although
personal income growth is moderate, unemployment low, and consumer confidence
high, most retailers were disappointed in the Christmas season, and with the
high level of consumer credit card debt outstanding, it is doubtful that the
consumer can fuel an accelerating economy. An area of great concern to the bond
market is the labor market. With the unemployment rate at 5.4%, any further
tightening could result in an increase in wage pressures. Labor is responsible
for two thirds of the cost of production; thus, the repercussions of wage
increases would be substantial. Increased productivity has in fact absorbed part
of the costs, and some economists argue that the end of the Cold War marked the
beginning of a disinflationary period. Also, importantly, there are many more
technological innovations during peacetime. We are just at the beginning of the
computer revolution, which is a powerful deflationary force. On a shorter term
cyclical basis, it is true that the price of gold, a harbinger of inflation, has
declined markedly over the recent period. Oil prices, on the other hand, have
risen. We will continue to be vigilant for any signs that inflation might rear
its ugly head, as this will be most problematic for both the bond and stock
markets if and when it occurs.
Another key issue facing the financial markets is this year's budget
negotiation between President Clinton and Congress. Foreign investors will also
continue to have a significant influence on the U.S. economy. Weak demand abroad
limited exports in 1996, but we expect some improvement in 1997. The
continuation of a strong dollar would benefit bondholders by giving foreigners
(especially the Japanese) a continued incentive to buy U.S. Treasuries, as well
as making imports cheaper, helping to keep domestic prices low and inflation in
check. Despite growth scares, inflation has remained in the manageable 2.5-3.0%
range, and meaningful price increases seem unlikely in the near future. We plan
to maintain a neutral duration position across our bond portfolios relative to
the market as we wait for a more definitive signal on the economy and inflation.
After such a winning streak in the U.S. stock market, is it possible that
the bulls could continue to keep the bears at bay? What is unmatched is not 1996
performance, which was less than 1995, but rather how strong the market has been
for the last fifteen years. During this stretch, it has risen at a compounded
annual rate of 14.2% a year, breaking the old record of 13.4% set just before
the 1929 crash. One year ago, we observed that the combination of moderate
economic growth, benign inflation and low interest rates should provide a
positive underpinning for stocks, which certainly came to pass. As we enter the
new year, a roughly similar observation can be made, though with less
conviction. The road is narrower, and the risk of being wrong has increased. The
economy could still conceivably overheat, causing higher interest rates and
inflationary fears. And although the consensus assigns a very low probability to
recession, it is not outside of the realm of possibilities. Either outcome would
be problematic for the market. The real fly in the ointment, however, is
corporate profits, a key factor that has supported the bull market run over the
last few years. Recent data from important economic sectors, including retailing
and autos, seem to suggest that U.S. corporate profit growth is likely to show
less uniformity in 1997 than it has in the several preceding years. This implies
that whatever strength the stock market exhibits this year will be somewhat less
broad based than was the case last year.
The real fear on Wall Street, however, is whether the great surge of money
into equity mutual funds will recede, leaving the market in shambles. Regardless
of whether the market corrects, continues to climb, or simply returns to more
historical norms on the plus side (single digits), we are of the firm opinion
that active management will have the potential to add significant value as
volatility continues to be a way of life. The strongest positive force on a
secular basis, of course, continues to be the demographics of the baby boomers,
who may just continue to pour money into the stock market through taxable mutual
funds and variable products as well as 401(k) plans, in an attempt to catch up
for lost time in saving for retirement. Whatever 1997 brings, our equity
approaches in growth and value will continue to focus upon a disciplined stock
selection process,
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diversification, and risk management, which we believe will serve our
shareholders in any conceivable market scenario.
Ravi Akhoury
Chairman and Chief Executive Officer
MacKay-Shields Financial Corporation
*"Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard & Poor's
Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of all
income and capital gains distributions.
**"NASDAQ Composite Index" is an unmanaged index and is considered to be
generally representative of the U.S. small capitalization stock market.
4
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NEW YORK LIFE INSURANCE COMPANY
ADVISER'S REPORT
During 1996 investment performance for most portfolios was strong, but
clearly the star performance was turned in by the stock market--with the S&P
500* producing an annual return of 22.96%. This result was facilitated by
continued profit growth and low levels of inflation. The economy entered its
seventh year of expansion at a relatively modest pace of growth of 2.3%. Thus
the stock market was able to generate two back-to-back years of especially
strong investor returns. The bond market produced acceptable but not
overwhelming returns as interest rates increased over the first half of the year
and declined over the second half.
We do not believe the business cycle is dead. The outlook for the stock and
bond markets will depend upon both fundamental economic factors as well as
technical factors associated with worldwide capital flows. During 1996, the U.S.
dollar appreciated relative to most major currencies--attracting overseas bond
investors. Economic growth in the U.S. has been stronger than most other
economically advanced nations and has supported even higher growth in the
developing Asian and Latin American economies--many of which peg their
currencies to the dollar. We anticipate that the European economies, and
possibly even the Japanese economy, will enjoy improved growth going forward.
Domestically, we see the likelihood of somewhat stronger growth as well. These
factors will likely lead to higher interest rates and a cyclical upward creep in
inflation.
This outlook suggests that corporate profits have room to grow, but that
rising interest rates will produce pressure on stock market valuations of
corporate earnings. Ultimately, a potential economic downturn in the out years
will produce pressure on the market's earnings expectations. That said, we will
continue to manage our stock portfolios from a fundamental perspective based
upon our outlook for growth in earnings of the companies we follow. Industries
for which we presently have a favorable view include energy, technology and
health care. We will be managing our bond portfolios cautiously based upon our
expectation of higher rates and potential outflows of international capital over
the course of the next year.
A more detailed description of our investment results and forward
strategies is found in the portfolio manager reviews that follow.
Jean Hoysradt
Senior Vice President in Charge of
the Investment Department
New York Life Insurance Company
*"Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard & Poor's
Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of all
income and capital gains distributions.
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MAINSTAY VP
CASH MANAGEMENT PORTFOLIO
The MainStay VP Cash Management Portfolio had a return of 4.95% for the
twelve months ended December 31, 1996, exceeding the average Lipper* money
market fund return of 4.81%, and ranking the Portfolio 57th out of 104 funds.
The objective of this Portfolio is to provide a level of income consistent
with preservation of capital. During 1996, we managed this Portfolio using our
conservative approach which kept the average days to maturity in a narrow range
of 33 to 63 days, shifting at opportune times in order to maximize yield. The
year was interesting in that the money market asset class outperformed all other
domestic investment grade bond asset classes. We achieved our competitive
performance while maintaining our low risk profile.
Looking ahead, we plan to stick to our conservative but innovative
strategy, and we believe that we can continue to meet the objectives of our most
conservative investors.
Ravi Akhoury
Chairman and Chief Executive Officer
Frank Salem
Jessica Terc
Portfolio Managers
MacKay-Shields Financial Corporation
*Lipper Analytical Services, Inc., is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges. The
Lipper Variable Insurance Products Performance Analysis Service (L-VIPPAS) ranks
the portfolios that invest in the separate accounts of insurance companies.
There can be no assurance that the Portfolio will be able to maintain a
stable net asset value of $1.00 per share nor is the value of the Portfolio's
shares insured or guaranteed by the U.S. Government.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns shown indicate past
performance and are not indicative of future results. Investment return and
principal value will fluctuate so that shares, upon redemption, may be worth
more or less than their original cost.
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MAINSTAY VP
BOND PORTFOLIO
For the twelve months ended December 31, 1996, the Bond Portfolio
registered a return of 2.05%.
1996 proved to be a very difficult year for bond market investors after
1995's stellar performance. The ten year U.S. Treasury yield rose by 114 basis
points by mid-year, and ended the year 85 basis points higher after a rally in
the fourth quarter.
We began 1996 with many positive expectations priced into the fixed income
market. Investors expected moderate economic growth, an accommodating Federal
Reserve Bank and progress toward a balanced budget in Washington, D.C. During
the course of the year this positive sentiment reversed itself as employment
growth fueled concerns of a stronger economy and a restrictive Federal Reserve
Bank. The lack of progress in budget negotiations early in the year and a
warning to the financial markets by Fed Chairman Greenspan late in the year put
added pressure on the market.
During the course of the year the Bond Portfolio's performance was
restricted by weightings along the yield curve, especially an overweighing in
more current long duration U.S. Treasuries which underperformed.
Looking ahead, we expect to see stronger economic growth by the spring of
1997. We will adjust the Portfolio accordingly, seeking to outperform the
market.
Albert R. Corapi, Jr.
Portfolio Manager
New York Life Insurance Company
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns shown indicate past
performance and are not indicative of future results. Investment return and
principal value will fluctuate so that shares, upon redemption, may be worth
more or less than their original cost.
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MAINSTAY VP
GROWTH EQUITY PORTFOLIO
The Growth Equity Portfolio registered a superb return of 24.50% for the
twelve months ended December 31, 1996, far exceeding the Lipper Growth Fund
Average return of 19.81%* and the S&P 500** return of 22.96%. This marks the
fourth time in the last five years that the Growth Equity Portfolio has
outperformed its peers in the Lipper Growth Fund Average.
Our returns benefitted from exceptional sector selection combined with
strategic stock selection in 1996. First half performance was supported by our
overweighted position in consumer cyclicals such as Price/Costco, Inc. and
Federated Department Stores, Inc. in the retail industry and Marriott
International, Inc. and ITT Corp. in the lodging industry. Second half
performance was led primarily by the energy and financial sectors. Financial
issues such as Chase Manhattan Corp., Allstate Corp. and Republic New York Corp.
appreciated in excess of the market as interest rates began to fall. Energy
stocks such as Halliburton Co., Schlumberger Ltd., and Smith International, Inc.
also provided excellent returns as energy prices increased throughout the second
half of the year. In addition, our timely positioning into and out of smaller
capitalization issues such as Computer Horizons Corp. in the second quarter
enhanced performance.
A key factor in the equity market's strong 1996 performance has been the
low rate of inflation in the economy which has enabled interest rates to remain
favorable and in turn enhance equity valuations. Another factor which supported
stocks in 1996 was the continuation of corporate earnings growth. Record levels
of equity mutual fund inflows and the large volume of mergers and acquisitions
activity combined to create a powerful supply/demand environment for stocks.
As we approach 1997, our outlook on the market remains positive, primarily
due to our expectation that continued low inflation will yield a favorable
interest rate environment. Our main concern is decelerating corporate earnings
growth as we enter the seventh year of the current business expansion. In
particular, we see an over extended consumer starting to constrain his spending
and rebuild his balance sheet as evidenced by the recent decrease in consumer
spending figures. Consequently, we believe that outperformance in the coming
year will be highly dependent upon strategic stock selection.
Our strategy for the year ahead entails focusing on sectors in which
earnings growth should remain strong, which includes financials, energy, health
care and selective technology issues. We intend to underweight the more cyclical
areas of the market such as basic materials and consumer cyclicals.
We will continue to employ our successful strategy of investing in quality
growth stocks which sell at reasonable valuations. Within these parameters, we
are always searching for companies with underappreciated assets which should
provide a catalyst for earnings growth in the future.
James Agostisi
Patricia Rossi
Portfolio Managers
New York Life Insurance Company
*Lipper Analytical Services, Inc., is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges. The
Lipper Variable Insurance Products Performance Analysis Service (L-VIPPAS) ranks
the portfolios that invest in the separate accounts of insurance companies.
**"Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard & Poor's
Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of all
income and capital gains distributions.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns shown indicate past
performance and are not indicative of future results. Investment return and
principal value will fluctuate so that shares, upon redemption, may be worth
more or less than their original cost.
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STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISION DIVISION DIVISION
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<S> <C> <C> <C>
ASSETS:
Investment in MainStay VP Series Fund, Inc., at net asset
value
(Identified Cost: $23,072,724; $8,792,989; $1,675,713,
respectively).............................................. $25,833,077 $8,523,992 $1,675,656
LIABILITIES:
Liability for mortality and expense risk charges............. 23,241 7,626 1,405
----------- ----------- -----------
Total equity............................................. $25,809,836 $8,516,366 $1,674,251
=========== =========== ===========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners....................................... $25,809,836 $8,516,366 $1,674,251
=========== =========== ===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISION DIVISION DIVISION
--------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income.............................................. $ 220,614 $ 542,138 $ 79,615
Mortality and expense risk charges........................... (83,314) (29,437) (5,685)
----------- ----------- -----------
Net investment income.................................... 137,300 512,701 73,930
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REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments............................ 2,026,718 816,586 458,859
Cost of investments sold..................................... (1,630,725) (813,849) (458,887)
----------- ----------- -----------
Net realized gain (loss) on investments.................. 395,993 2,737 (28)
Realized gain distribution received.......................... 3,192,366 -- --
Change in unrealized appreciation (depreciation) on
investments................................................ 1,389,110 (374,919) 21
----------- ----------- -----------
Net gain (loss) on investments........................... 4,977,469 (372,182) (7)
----------- ----------- -----------
Increase (decrease) attributable to funds of New York Life
Insurance and Annuity Corporation retained by Separate
Account.................................................... (2,086) (126) 74
----------- ----------- -----------
Net increase in total equity resulting from operations... $5,112,683 $ 140,393 $ 73,997
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</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
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NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VLI SEPARATE ACCOUNT
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STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1996
and December 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISION INVESTMENT DIVISION INVESTMENT DIVISION
-------------------------- -------------------------- --------------------------
1996 1995 1996 1995 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income................ $ 137,300 $ 180,113 $ 512,701 $ 505,142 $ 73,930 $ 83,580
Net realized gain (loss) on
investments........................ 395,993 62,745 2,737 31,268 (28) (13)
Realized gain distribution
received........................... 3,192,366 1,757,048 -- -- -- --
Change in unrealized appreciation
(depreciation) on investments...... 1,389,110 2,981,655 (374,919) 812,180 21 (10)
Increase (decrease) attributable to
funds of New York Life Insurance
and Annuity Corporation retained
by Separate Account................ (2,086) (3,041) (126) (713) 74 (57)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in total
equity resulting from
operations....................... 5,112,683 4,978,520 140,393 1,347,877 73,997 83,500
----------- ----------- ----------- ----------- ----------- -----------
Contributions and withdrawals:
Policyowners' premium payments....... 2,298,926 2,306,809 1,025,979 1,044,206 320,328 295,148
Cost of insurance.................... (807,956) (797,564) (334,494) (369,180) (47,262) (63,450)
Policyowners' surrenders............. (2,306,030) (2,077,221) (976,667) (1,044,372) (187,191) (171,408)
(Withdrawals), net of repayments, due
to policy loans.................... (270,862) (255,571) (32,115) 65,647 (4,041) (11,918)
Policyowners' death benefits......... (42,685) (48,519) (15,047) (17,733) (2,877) (14,765)
Transfers between Investment
Divisions.......................... 78,850 63,007 60,956 3,579 (138,536) (66,579)
----------- ----------- ----------- ----------- ----------- -----------
Net contributions and
withdrawals...................... (1,049,757) (809,059) (271,388) (317,853) (59,579) (32,972)
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in total
equity......................... 4,062,926 4,169,461 (130,995) 1,030,024 14,418 50,528
TOTAL EQUITY:
Beginning of year.................... 21,746,910 17,577,449 8,647,361 7,617,337 1,659,833 1,609,305
----------- ----------- ----------- ----------- ----------- -----------
End of year.......................... $25,809,836 $21,746,910 $ 8,516,366 $ 8,647,361 $ 1,674,251 $ 1,659,833
=========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
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NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VLI SEPARATE ACCOUNT
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NOTES TO FINANCIAL STATEMENTS
NOTE 1--Organization and Accounting Policies:
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New York Life Insurance and Annuity Corporation VLI Separate Account ("VLI
Separate Account") was established on May 27, 1983, under Delaware law by
New York Life Insurance and Annuity Corporation, a wholly-owned subsidiary
of New York Life Insurance Company. This account was established to receive
and invest premium payments under variable life insurance policies issued by New
York Life Insurance and Annuity Corporation. Effective July 1, 1988, sales of
such policies were discontinued.
The VLI Separate Account is registered under the Investment Company Act of
1940, as amended, as a unit investment trust. The assets of VLI Separate Account
are invested in shares of the MainStay VP Series Fund, Inc. (formerly, "New York
Life MFA Series Fund, Inc."), a diversified open-end management investment
company, and are clearly identified and distinguished from the other assets and
liabilities of New York Life Insurance and Annuity Corporation.
There are three Investment Divisions within the VLI Separate Account: the
Common Stock Investment Division which invests in the Growth Equity Portfolio,
the Bond Investment Division which invests in the Bond Portfolio, and the Money
Market Investment Division which invests in the Cash Management Portfolio.
Premium payments received are allocated to the Investment Divisions of the VLI
Separate Account according to Policyowner instructions.
No Federal income tax is payable on investment income or capital gains of the
VLI Separate Account under current Federal income tax law.
Security Valuation--The investment in the MainStay VP Series Fund, Inc. is
valued at the net asset value of shares of the respective fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding portfolios.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
- --------------------------------------------------------------------------------
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1996, the investment in the MainStay VP Series Fund, Inc. by
the respective Investment Divisions of the VLI Separate Account is as
follows:
<TABLE>
<CAPTION>
GROWTH EQUITY CASH MANAGEMENT
PORTFOLIO BOND PORTFOLIO PORTFOLIO
------------------- ------------------- -------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISION INVESTMENT DIVISION INVESTMENT DIVISION
--------------------------------------------------------------
<S> <C> <C> <C>
Number of shares................................. 1,387 665 1,676
Identified cost*................................. $23,073 $ 8,793 $ 1,676
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Transactions in MainStay VP Series Fund, Inc. shares for the year ended
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY CASH MANAGEMENT
PORTFOLIO BOND PORTFOLIO PORTFOLIO
------------------- ------------------- -------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISION INVESTMENT DIVISION INVESTMENT DIVISION
--------------------------------------------------------------
<S> <C> <C> <C>
Purchases........................................ $ 4,308 $ 1,058 $ 473
Proceeds from sales.............................. 2,027 817 459
</TABLE>
14
<PAGE> 16
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VLI SEPARATE ACCOUNT
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
VLI Separate Account is charged for the mortality and expense risks assumed
by New York Life Insurance and Annuity Corporation. These charges are made
daily at an annual rate of 0.35% of the daily net asset value of each
Investment Division. New York Life Insurance and Annuity Corporation may
increase these charges in the future up to a maximum annual rate of 0.50%. The
amount of these charges retained by the Investment Divisions represents funds of
New York Life Insurance and Annuity Corporation. Accordingly, New York Life
Insurance and Annuity Corporation participates in the results of each Investment
Division ratably with the Policyowners.
- --------------------------------------------------------------------------------
NOTE 4--Distribution of Net Income:
- --------------------------------------------------------------------------------
VLI Separate Account does not expect to declare dividends to Policyowners
from accumulated net income and realized gains. The income and gains are
distributed to Policyowners as part of withdrawals of amounts (in the form
of death benefits, policy loans, or transfers) in excess of the net premium
payments.
- --------------------------------------------------------------------------------
NOTE 5-- Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1996, the cost to Policyowners with adjustments for net
investment income, market appreciation (depreciation) and deduction for
expenses is as follows:
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISION DIVISION DIVISION
--------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners (net of withdrawals)..................... $ 27,655 $ 14,324 $ 3,286
Sales charges................................................. (12,893) (6,455) (1,559)
Cost of insurance............................................. (9,019) (4,622) (1,152)
Accumulated net investment income............................. 2,000 5,167 1,102
Accumulated net realized gain on investments and realized gain
distributions received...................................... 15,321 378 --
Unrealized appreciation (depreciation) on investments......... 2,760 (269) --
Decrease attributable to funds of New York Life Insurance and
Annuity Corporation retained by Separate Account............ (14) (7) (3)
------------ ------------ ------------
Net amount applicable to Policyowners......................... $ 25,810 $ 8,516 $ 1,674
=============== =============== ===============
</TABLE>
15
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance and
Annuity Corporation and the VLI Policyowners:
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in total equity present fairly,
in all material respects, the financial position of the New York Life Insurance
and Annuity Corporation VLI Separate Account (comprised of the Common Stock
Investment Division, the Bond Investment Division and the Money Market
Investment Division) at December 31, 1996, the results of its operations for the
year then ended, and the changes in its total equity for each of the two years
in the period then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of investments at
December 31, 1996, with the MainStay VP Series Fund, Inc., provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997
16
<PAGE> 18
(THIS PAGE INTENTIONALLY LEFT BLANK)
17
<PAGE> 19
MAINSTAY VP SERIES FUND, INC.
- --------------------------------------------------------------------------------
To Policyowners:
The assets of NYLIAC Variable Universal Life Separate Account I, NYLIAC
Variable Annuity Separate Account I, NYLIAC Variable Annuity Separate Account
II, NYLIAC LifeStages(SM) Separate Account, New York Life Insurance and Annuity
Corporation MFA Separate Account I, New York Life Insurance and Annuity
Corporation MFA Separate Account II and New York Life Insurance and Annuity
Corporation VLI Separate Account are invested in shares of MainStay VP Series
Fund, Inc. (formerly New York Life MFA Series Fund, Inc.). In addition, the
assets of NYLIAC Variable Annuity Separate Account I, NYLIAC Variable Annuity
Separate Account II, NYLIAC Variable Universal Life Separate Account I and
NYLIAC LifeStages(SM) Separate Account may be invested in Acacia Capital
Corporation, the Alger American Fund, Fidelity Variable Insurance Products Fund,
Fidelity Variable Insurance Products Fund II, the Janus Aspen Series, and the
Morgan Stanley Universal Funds Inc., which are not affiliated with MainStay VP
Series Fund, Inc. or NYLIAC and any of its subsidiaries.
At the Annual Meeting of the Board of Directors of the Fund held on
February 22, 1996, executive officers of the Fund were elected. On December 30,
1996, a dividend distribution was paid to NYLIAC Variable Universal Life
Separate Account I, NYLIAC Variable Annuity Separate Account I, NYLIAC Variable
Annuity Separate Account II, NYLIAC LifeStages(SM) Separate Account, New York
Life Insurance and Annuity Corporation MFA Separate Account I, New York Life
Insurance and Annuity Corporation MFA Separate Account II and New York Life
Insurance and Annuity Corporation VLI Separate Account as the sole shareholders
of record of MainStay VP Series Fund, Inc.
/s/ Richard M. Kernan Jr.
----------------------------------
Chairman of the Board
and Chief Executive Officer
MAINSTAY VP SERIES FUND, INC.
18
<PAGE> 20
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.2%)+
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------
<S> <C> <C>
BANK NOTES (6.3%)
American Express Centurion Bank
5.57%, due 9/12/97 (b)(c)........ $1,000,000 $ 999,927
Bank of America-Illinois
5.82%, due 3/24/97 (c)........... 1,500,000 1,500,000
Boatmens Credit Card Bank
5.54%, due 8/8/97 (b)(c)......... 3,000,000 2,999,656
First National Bank of Maryland
5.13%, due 2/26/97 (c)........... 1,000,000 1,000,037
PNC Bank N.A.-Pittsburgh,
Pennsylvania
5.25%, due 2/6/97 (b)(c)......... 1,000,000 999,938
------------
7,499,558
------------
CERTIFICATES OF DEPOSIT (10.2%)
Deutsche Bank
5.85%, due 11/19/97
(call date 2/19/97) (c).......... 5,000,000 5,000,000
Industrial Bank of Japan
5.61%, due 1/7/97 (c)............ 2,000,000 2,000,003
Sanwa Bank Ltd.
5.56%, due 2/11/97 (c)........... 1,000,000 1,000,011
5.85%, due 1/17/97 (c)........... 4,000,000 4,000,089
------------
12,000,103
------------
COMMERCIAL PAPER (74.2%)
Alfa Corp.
5.75%, due 1/29/97............... 4,400,000 4,380,322
Astro Capital Corp.
5.48%, due 1/6/97 (a)............ 1,500,000 1,498,858
Banca CRT Financial Corp.
5.35%, due 1/14/97............... 2,000,000 1,996,136
5.35%, due 1/15/97............... 1,500,000 1,496,879
5.35%, due 1/21/97............... 1,000,000 997,028
5.40%, due 2/18/97............... 500,000 496,400
5.50%, due 1/14/97............... 170,000 169,662
Bex America Finance Inc.
5.32%, due 2/3/97................ 1,700,000 1,691,710
Caisse Centrale des Banques
Populaires
5.33%, due 1/10/97 (a)........... 4,100,000 4,094,537
Cariplo Finance Inc.
5.45%, due 1/24/97............... 400,000 398,607
China International Marine
Containers (Group) Ltd.
5.57%, due 1/9/97................ 2,500,000 2,496,906
Compagnie Bancaire USA Finance
Corp.
5.33%, due 1/10/97............... 4,700,000 4,693,737
Credito Italiano (DE) Inc.
5.39%, due 4/15/97............... 2,000,000 1,968,858
Galicia Funding Corp.
5.59%, due 3/5/97 (a)............ 2,500,000 2,475,544
Goldman, Sachs & Co.
5.45%, due 1/8/97................ 1,450,000 1,448,463
6.50%, due 1/2/97................ 3,725,000 3,724,327
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Gotham Funding Corp.
5.40%, due 1/9/97 (a)............ $5,500,000 $ 5,493,400
International Securitization Corp.
5.35%, due 1/15/97 (a)........... 3,000,000 2,993,758
Kamehameha Schools-Bishop Estate
5.38%, due 1/15/97 (a)........... 1,000,000 997,908
Kingdom of Sweden
5.65%, due 2/4/97................ 1,105,000 1,099,104
Minmetals Capital & Securities
Inc.
5.39%, due 4/3/97................ 3,000,000 2,958,677
Mitsui & Co. (USA) Inc.
6.00%, due 1/10/97............... 2,500,000 2,496,250
National Fleet Funding Corp.
5.37%, due 1/15/97............... 4,000,000 3,991,647
Nationwide Building Society
5.32%, due 2/24/97............... 2,500,000 2,480,050
5.33%, due 2/24/97............... 1,400,000 1,388,807
Nebraska Higher Education Loan
Program Inc.
5.45%, due 1/13/97............... 1,157,000 1,154,898
Petroleo Brasileiro S.A.-Petrobras
5.42%, due 1/14/97............... 2,000,000 1,996,086
Premium Funding Inc., Series E
5.50%, due 1/13/97 (a)........... 2,150,000 2,146,058
San Paolo U.S. Financial Co.
5.41%, due 2/4/97................ 1,100,000 1,094,380
5.42%, due 3/19/97............... 1,500,000 1,482,611
Sheffield Receivables Corp.
6.50%, due 1/2/97................ 3,000,000 2,999,458
Societe Generale (Canada)
5.40%, due 1/31/97............... 1,800,000 1,791,900
SRD Finance Inc.
5.50%, due 1/23/97............... 3,000,000 2,989,917
Svenska Handelsbanken Inc.
5.45%, due 2/20/97............... 2,000,000 1,984,861
Union Bank of Switzerland
5.90%, due 1/7/97................ 6,000,000 5,994,100
Wood Street Funding Corp.
5.35%, due 1/6/97 (a)............ 2,800,000 2,797,919
Xerox Corp.
6.75%, due 1/2/97................ 3,400,000 3,399,362
------------
87,759,125
------------
FEDERAL AGENCY (2.1%)
Federal Home Loan Bank
5.84%, due 11/24/97 (c).......... 2,500,000 2,500,000
------------
MEDIUM-TERM NOTES (7.4%)
Abbey National Treasury Services
PLC
5.05%, due 3/3/97 (c)............ 3,300,000 3,299,408
Bankers Trust Corp.-New York
5.74%, due 2/14/97 (b)(c)........ 1,500,000 1,500,000
Ford Motor Credit Corp.
5.81%, due 1/5/97 (b)(c)......... 1,000,000 1,000,023
Huntington Bancshares
5.70%, due 3/14/97 (c)........... 1,000,000 1,000,050
</TABLE>
- ------------
+ Percentages indicated are based on Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 21
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
MEDIUM-TERM NOTES (Continued)
Sony Capital Corp.
5.47%, due 8/29/97 (a)(b)(c)..... $2,000,000 $ 2,000,000
------------
8,799,481
------------
Total Short-Term Investments
(Amortized Cost $118,558,267)(d). 100.2% 118,558,267
Liabilities in Excess of
Cash and Other Assets............ (0.2) (211,345)
------------
Net Assets........................ 100.0% $118,346,922
============
</TABLE>
- ------------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1996.
(c) Coupon interest bearing security.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
The table below sets forth the diversification of Cash Management Portfolio
investments by industry.
SHORT-TERM
INVESTMENTS
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
------------------------
<S> <C> <C>
Banks #..................... $ 80,501,362 68.0%
Brokerage................... 5,172,791 4.4
Computers & Office
Equipment................. 3,399,362 2.9
Conglomerates............... 4,496,250 3.8
Consumer Financial
Services.................. 4,991,670 4.2
Education................... 997,908 0.9
Federal Agency.............. 2,500,000 2.1
Finance..................... 15,399,820 13.0
Foreign Government.......... 1,099,104 0.9
------------ ---------
118,558,267 100.2
Liabilities in Excess of
Cash and Other Assets..... (211,345) (0.2)
------------ ---------
Net Assets.................. $118,346,922 100.0%
=========== =========
</TABLE>
- ------------
+ Percentages indicated are based on Fund net assets.
# The Fund will invest more than 25% of the market value of its total assets in
the securities of banks and bank holding companies, including certificates of
deposit, bankers' acceptances and securities guaranteed by banks and bank
holding companies.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 22
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(amortized cost $118,558,267)........ $118,558,267
Cash................................... 21,589
Interest receivable.................... 367,285
Other assets........................... 268
------------
Total assets..................... 118,947,409
------------
LIABILITIES:
Payables:
Adviser.............................. 23,240
NYLIAC............................... 18,338
Administrator........................ 9,296
Custodian............................ 3,029
Directors............................ 45
Accrued expenses....................... 44,793
Dividend payable....................... 501,746
------------
Total liabilities................ 600,487
------------
Net assets applicable to outstanding
shares............................... $118,346,922
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 200 million shares
authorized........................... $ 1,183,498
Additional paid-in capital............. 117,165,490
Accumulated net realized loss on
investments.......................... (2,066)
------------
Net assets applicable to outstanding
shares............................... $118,346,922
============
Shares of capital stock outstanding.... 118,349,803
============
Net asset value per share
outstanding.......................... $ 1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 5,319,060
------------
Expenses:
Advisory............................. 240,234
Administration....................... 192,187
Shareholder communication............ 63,697
Recordkeeping........................ 61,266
Professional......................... 31,563
Custodian............................ 20,981
Directors............................ 4,640
Miscellaneous........................ 4,067
------------
Total expenses before
reimbursement.................. 618,635
Expense reimbursement from
Administrator........................ (22,854)
------------
Net expenses..................... 595,781
------------
Net investment income.................. 4,723,279
------------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments....... (733)
------------
Net increase in net assets resulting
from operations...................... $ 4,722,546
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 23
CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................. $ 4,723,279 $ 3,649,839
Net realized loss on investments.................................................. (733) (949)
------------ ------------
Net increase in net assets resulting from operations.............................. 4,722,546 3,648,890
------------ ------------
Dividends to shareholders:
From net investment income........................................................ (4,723,279) (3,649,839)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 237,101,140 128,846,016
Net asset value of shares issued to shareholders in reinvestment of dividends..... 4,585,514 3,587,829
------------ ------------
241,686,654 132,433,845
Cost of shares redeemed........................................................... (211,178,343) (115,709,733)
------------ ------------
Increase in net assets derived from capital share transactions.................. 30,508,311 16,724,112
------------ ------------
Net increase in net assets...................................................... 30,507,578 16,723,163
NET ASSETS:
Beginning of year................................................................... 87,839,344 71,116,181
------------ ------------
End of year......................................................................... $118,346,922 $ 87,839,344
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (A)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1995 1994 1993
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------
Net investment income................................... 0.05 0.05 0.04 0.02
------------ ------------ ------------ ------------
Less dividends:
From net investment income............................ (0.05) (0.05) (0.04) (0.02)
------------ ------------ ------------ ------------
Net asset value at end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =============
Total investment return (b)............................. 4.95% 5.59% 3.82% 2.40%
Ratios (to average net assets)/Supplemental Data:
Net investment income................................. 4.92% 5.44% 3.97% 2.65% +
Net expenses.......................................... 0.62% 0.62% 0.62% 0.62% +
Expenses (before reimbursement)....................... 0.64% 0.94% 0.89% 1.10% +
Net assets at end of period (in 000's).................. $ 118,347 $ 87,839 $ 71,116 $ 26,733
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE> 24
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
LONG-TERM BONDS (94.9%)+
CORPORATE BONDS (44.8%)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
AUTO PARTS/EQUIPMENT (2.2%)
Borg-Warner Automotive, Inc.
7.00%, due 11/1/06.............. $ 5,000,000 $ 4,981,250
------------
BANKS (8.1%)
BankAmerica Corp.
7.75%, due 7/15/02.............. 4,000,000 4,185,000
First Union Corp.
9.45%, due 6/15/99.............. 5,000,000 5,350,000
Golden West Financial Corp.
10.25%, due 12/1/00............. 1,000,000 1,123,750
National Westminster
Bancorp, Inc.
9.375%, due 11/15/03 (c)........ 2,000,000 2,292,500
Republic New York Corp.
7.75%, due 5/15/09.............. 5,000,000 5,281,250
------------
18,232,500
------------
CONGLOMERATES--
DIVERSIFIED (1.0%)
Harcourt General, Inc.
9.50%, due 3/15/00.............. 2,000,000 2,162,500
------------
CONTAINERS (1.7%)
Federal Paper Board Co., Inc.
10.00%, due 4/15/11............. 3,100,000 3,847,875
------------
DATA PROCESSING (1.3%)
International Business
Machines Corp.
6.375%, due 6/15/00............. 3,000,000 2,992,500
------------
DIVERSIFIED UTILITIES (6.0%)
Consumers Power Co.
7.375%, due 9/15/23............. 7,000,000 6,623,750
Long Island Lighting Co.
8.75%, due 2/15/97 (a).......... 2,000,000 2,005,000
Niagara Mohawk Power Corp.
7.375%, due 8/1/03.............. 2,000,000 1,877,500
Public Service Co. of Colorado
6.00%, due 1/1/01............... 3,000,000 2,955,000
------------
13,461,250
------------
FINANCE (11.9%)
American General Finance Corp.
7.00%, due 10/1/97 (a).......... 7,000,000 7,059,780
Chrysler Financial Corp.
5.875%, due 2/7/01.............. 5,000,000 4,868,750
Ford Motor Credit Co.
7.00%, due 9/25/01.............. 5,000,000 5,081,250
PRINCIPAL
AMOUNT VALUE
---------------------------
<CAPTION>
<S> <C> <C>
FINANCE (Continued)
General Motors Acceptance Corp.
5.625%, due 2/15/01............. $ 6,000,000 $ 5,797,500
9.625%, due 12/15/01............ 1,000,000 1,122,500
Mellon Financial Co.
7.625%, due 11/15/99............ 3,000,000 3,108,750
------------
27,038,530
------------
FOOD (0.5%)
ConAgra, Inc.
9.875%, due 11/15/05............ 1,000,000 1,183,750
------------
LEISURE/AMUSEMENT (2.6%)
Walt Disney Co. (The)
6.75%, due 3/30/06.............. 6,000,000 5,955,000
------------
PAPER/PRODUCTS (2.2%)
Champion International Corp.
9.875%, due 6/1/00.............. 4,500,000 4,944,375
------------
RETAIL STORES (5.4%)
Price/Costco, Inc.
7.125%, due 6/15/05............. 5,000,000 5,000,000
Sears Roebuck & Co.
8.45%, due 11/1/98.............. 7,000,000 7,262,500
------------
12,262,500
------------
TELECOMMUNICATION
SERVICES (1.9%)
British Telecommunications PLC
9.375%, due 2/15/99 (c)......... 4,200,000 4,457,250
------------
Total Corporate Bonds
(Cost $98,630,193).............. 101,519,280
------------
U.S. GOVERNMENT & FEDERAL
AGENCIES (50.1%)
FEDERAL HOME LOAN
MORTGAGE CORPORATION (4.4%)
6.655%, due 5/20/99............. 10,000,000 10,007,000
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (6.7%)
4.95%, due 9/30/98.............. 10,000,000 9,827,600
8.70%, due 6/10/99.............. 5,000,000 5,291,300
------------
15,118,900
------------
</TABLE>
- ------------
+ Percentages indicated are based on Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE> 25
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
UNITED STATES TREASURY
BONDS (17.0%)
6.75%, due 8/15/26.............. $32,000,000 $ 32,264,000
10.75%, due 5/15/03............. 5,000,000 6,154,650
------------
38,418,650
------------
UNITED STATES TREASURY
NOTES (22.0%)
6.25%, due 2/15/03.............. 20,000,000 19,985,800
6.50%, due 10/15/06............. 5,000,000 5,025,000
7.125%, due 2/29/00............. 5,000,000 5,146,050
8.50%, due 11/15/00............. 18,200,000 19,657,274
------------
49,814,124
------------
Total U.S. Government &
Federal Agencies
(Cost $112,723,469)............. 113,358,674
------------
Total Long-Term Bonds
(Cost $211,353,662)............. 214,877,954
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (3.6%)
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
COMMERCIAL PAPER (3.6%)
Associates Corp. of North America
5.23%, due on demand (b)........ 145,000 145,000
Duracell, Inc.
6.75%, due 1/2/97............... 5,115,000 5,114,041
General Electric Capital Corp.
5.90%, due 1/3/97............... 2,920,000 2,919,043
------------
Total Short-Term Investments
(Cost $8,178,084)............... 8,178,084
------------
Total Investments
(Cost $219,531,746) (d)......... $ 98.5% $223,056,038(e)
Cash and Other Assets,
Less Liabilities................ 1.5 3,318,848
----------- ------------
Net Assets....................... 100.0% $226,374,886
=========== ============
</TABLE>
- ------------
(a) Long-term securities maturing within the subsequent twelve month period.
(b) Adjustable rate. Rate shown is the rate in effect at December 31, 1996.
(c) Yankee bonds.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At December 31, 1996 net unrealized appreciation was $3,524,292, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $4,789,524 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,265,232.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE> 26
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $219,531,746)....... $223,056,038
Cash................................... 4,111
Receivables:
Interest............................. 3,702,071
Fund shares sold..................... 99,148
Other assets........................... 670
------------
Total assets..................... 226,862,038
------------
LIABILITIES:
Payables:
Fund shares redeemed................. 201,787
Adviser.............................. 143,053
Administrator........................ 38,459
Directors............................ 98
Accrued expenses....................... 103,755
------------
Total liabilities................ 487,152
------------
Net assets applicable to outstanding
shares............................... $226,374,886
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 176,481
Additional paid-in capital............. 224,460,425
Accumulated net realized loss on
investments.......................... (1,786,312)
Net unrealized appreciation on
investments.......................... 3,524,292
------------
Net assets applicable to outstanding
shares............................... $226,374,886
============
Shares of capital stock outstanding.... 17,648,142
============
Net asset value per share
outstanding.......................... $ 12.83
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 15,704,812
------------
Expenses:
Advisory............................. 569,711
Administration....................... 455,769
Recordkeeping........................ 127,739
Shareholder communication............ 93,055
Professional......................... 52,075
Directors............................ 11,273
Portfolio pricing.................... 6,069
Miscellaneous........................ 6,161
------------
Total expenses................... 1,321,852
------------
Net investment income.................. 14,382,960
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments....... 961,896
Net change in unrealized appreciation
on investments....................... (10,866,414)
------------
Net realized and unrealized loss on
investments.......................... (9,904,518)
------------
Net increase in net assets resulting
from operations...................... $ 4,478,442
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
25
<PAGE> 27
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................................................. $ 14,382,960 $ 14,495,255
Net realized gain on investments.................................................. 961,896 4,716,932
Net change in unrealized appreciation (depreciation) on investments............... (10,866,414) 17,768,492
------------ ------------
Net increase in net assets resulting from operations.............................. 4,478,442 36,980,679
------------ ------------
Dividends to shareholders:
From net investment income........................................................ (14,405,743) (14,491,993)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 25,643,335 22,956,887
Net asset value of shares issued to shareholders in reinvestment of dividends..... 14,405,743 14,491,993
------------ ------------
40,049,078 37,448,880
Cost of shares redeemed........................................................... (38,777,335) (31,593,131)
------------ ------------
Increase in net assets derived from capital share transactions.................. 1,271,743 5,855,749
------------ ------------
Net increase (decrease) in net assets........................................... (8,655,558) 28,344,435
NET ASSETS:
Beginning of year................................................................... 235,030,444 206,686,009
------------ ------------
End of year......................................................................... $226,374,886 $235,030,444
=========== ===========
Accumulated undistributed net investment income..................................... $ -- $ 3,457
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.87 0.88 0.88 0.95 0.92
Net realized and unrealized gain (loss) on
investments............................... (0.59) 1.33 (1.34) 0.53 0.13
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 0.28 2.21 (0.46) 1.48 1.05
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment income................ (0.87) (0.88) (0.88) (0.96) (0.91)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91
=========== =========== =========== =========== ===========
Total investment return..................... 2.05% 18.31% (3.39%) 11.40% 8.26%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 6.31% 6.55% 6.53% 6.79% 7.54%
Net expenses.............................. 0.58% 0.62% 0.62%# 0.27%# 0.25%
Expenses (before reimbursement)........... 0.58% 0.91% 0.67%# 0.27%# 0.25%
Portfolio turnover rate..................... 103% 81% 88% 41% 10%
Net assets at end of year (in 000's)........ $ 226,375 $ 235,030 $ 206,686 $ 228,683 $ 203,947
</TABLE>
- ------------
# At the MainStay VP Series Fund, Inc.'s shareholders meeting on December 14,
1993, the shareholders voted to have the Bond Portfolio assume certain
administrative and operating expenses of the Fund previously borne by New
York Life.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
26
<PAGE> 28
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (94.5%)+
SHARES VALUE
--------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (6.0%)
Boeing Co. ....................... 60,000 $ 6,382,500
Coltec Industries Inc. (a)........ 370,000 6,983,750
Lockheed Martin Corp. ............ 61,200 5,599,800
Loral Space &
Communications Ltd. (a).......... 258,500 4,749,937
Northrop Grumman Corp. ........... 80,000 6,620,000
UNC Inc. (a)...................... 300,000 3,600,000
------------
33,935,987
------------
APPAREL MANUFACTURERS (1.0%)
Fruit of the Loom, Inc. Class A
(a).............................. 150,000 5,681,250
------------
BANKS (5.7%)
AmSouth Bancorp. ................. 62,400 3,018,600
Bank of New York Co., Inc.
(The)............................ 150,000 5,062,500
Bankers Trust New York Corp. ..... 75,000 6,468,750
Chase Manhattan Corp. ............ 93,600 8,353,800
Commerce Bancshares, Inc. ........ 78,277 3,620,311
Morgan (J. P.) & Co. Inc. ........ 60,000 5,857,500
------------
32,381,461
------------
BEVERAGES (1.0%)
Anheuser-Busch Cos., Inc. ........ 137,000 5,480,000
------------
BUILDING & MAINTENANCE (0.5%)
ADT Ltd. (a)...................... 125,000 2,859,375
------------
BUILDING PRODUCTS (1.0%)
Sherwin-Williams Co. (The)........ 100,000 5,600,000
------------
BUSINESS SERVICES (0.6%)
AccuStaff, Inc. (a)............... 150,000 3,168,750
------------
CHEMICALS (2.2%)
Praxair, Inc. .................... 100,000 4,612,500
Sealed Air Corp. (a).............. 182,500 7,596,562
------------
12,209,062
------------
COMMERCIAL SERVICES (0.9%)
Service Corp. International....... 190,000 5,320,000
------------
COMMUNICATIONS (1.9%)
Andrew Corp. (a).................. 45,000 2,387,812
Northern Telecom Ltd. ............ 77,500 4,795,313
Teleport Communications
Group Inc. Class A (a)........... 123,500 3,766,750
------------
10,949,875
------------
COMPUTERS & BUSINESS
EQUIPMENT (7.7%)
Computer Associates International,
Inc. ............................ 125,000 6,218,750
Electronic Data Systems Corp. .... 100,000 4,325,000
First Data Corp. ................. 150,060 5,477,190
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
COMPUTERS & BUSINESS
EQUIPMENT (Continued)
FIserv, Inc. (a).................. 111,000 $ 4,079,250
Informix Corp. (a)................ 100,000 2,037,500
Intel Corp. ...................... 50,000 6,546,875
Microsoft Corp. (a)............... 40,000 3,305,000
Oracle Corp. (a).................. 110,000 4,592,500
Sungard Data Systems Inc. (a)..... 125,000 4,937,500
Zebra Technologies Corp. Class A
(a).............................. 75,000 1,753,125
------------
43,272,690
------------
DRUGS (4.6%)
American Home Products Corp. ..... 70,000 4,103,750
Amgen Inc. (a).................... 50,000 2,718,750
Genzyme Corp. (a)................. 120,000 2,610,000
Johnson & Johnson................. 60,000 2,985,000
Lilly (Eli) & Co. ................ 50,000 3,650,000
Pfizer Inc. ...................... 50,000 4,143,750
Warner-Lambert Co. ............... 80,000 6,000,000
------------
26,211,250
------------
ELECTRICAL (3.8%)
Emerson Electric Co. ............. 70,000 6,772,500
General Electric Co. ............. 100,000 9,887,500
Mark IV Industries, Inc. ......... 223,758 5,062,525
------------
21,722,525
------------
ELECTRONICS (2.7%)
Computer Products Inc. (a)........ 150,000 2,925,000
LSI Logic Corp. (a)............... 100,000 2,675,000
Teradyne, Inc. (a)................ 129,800 3,163,875
Texas Instruments, Inc. .......... 100,000 6,375,000
------------
15,138,875
------------
FINANCE (4.2%)
Federal Home Loan Mortgage
Corp. ........................... 40,000 4,405,000
Federal National Mortgage
Association...................... 160,000 5,960,000
Great Western Financial Corp. .... 175,000 5,075,000
Republic New York Corp. .......... 100,000 8,162,500
------------
23,602,500
------------
FOODS (3.2%)
Chiquita Brands International,
Inc. ............................ 168,000 2,142,000
Dole Food Co., Inc. .............. 145,000 4,911,875
Sara Lee Corp. ................... 144,000 5,364,000
Sysco Corp. ...................... 180,000 5,872,500
------------
18,290,375
------------
HEAVY INDUSTRIAL (0.4%)
U.S. Filter Corp. (a)............. 75,000 2,381,250
------------
HOSPITAL & MEDICAL SERVICES (5.4%)
Guidant Corp. .................... 110,000 6,270,000
HEALTHSOUTH Corp. (a)............. 70,100 2,707,613
Medtronic, Inc. .................. 70,000 4,760,000
</TABLE>
- ------------
+ Percentages indicated are based on Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
27
<PAGE> 29
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
--------------------------
<S> <C> <C>
HOSPITAL & MEDICAL SERVICES
(Continued)
NABI Inc. (a)..................... 245,000 $ 2,143,750
Orthodontic Centers
of America Inc. (a).............. 150,000 2,400,000
Quorum Health Group, Inc. (a)..... 100,000 2,975,000
Sybron International Corp. (a).... 165,000 5,445,000
U.S. Surgical Corp. .............. 99,600 3,921,750
------------
30,623,113
------------
HOUSEHOLD PRODUCTS (2.1%)
Colgate-Palmolive Co. ............ 65,000 5,996,250
Procter & Gamble Co. ............. 54,700 5,880,250
------------
11,876,500
------------
INSURANCE-PROPERTY & CASUALTY
(4.3%)
Allstate Corp. ................... 120,000 6,945,000
American International Group,
Inc. ............................ 70,000 7,577,500
Chubb Corp. ...................... 60,400 3,246,500
General Re Corp. ................. 40,000 6,310,000
------------
24,079,000
------------
LEISURE/AMUSEMENT (1.2%)
Harrah's Entertainment, Inc.
(a).............................. 82,000 1,629,750
International Game Technology..... 286,000 5,219,500
------------
6,849,250
------------
LODGING & RESTAURANTS (1.4%)
Landry's Seafood Restaurants, Inc.
(a).............................. 50,000 1,068,750
Marriott International, Inc. ..... 125,000 6,906,250
------------
7,975,000
------------
MACHINERY/CAPITAL GOODS (0.9%)
AGCO Corp. ....................... 169,800 4,860,525
------------
MANUFACTURING (1.3%)
AlliedSignal Inc. ................ 111,000 7,437,000
------------
MEDIA & INFORMATION
SERVICES (2.7%)
Cognizant Corp. .................. 175,000 5,775,000
Heritage Media Corp. (a).......... 260,000 2,925,000
Time Warner Inc. ................. 175,000 6,562,500
------------
15,262,500
------------
METALS (0.5%)
Titanium Metals Corp. (a)......... 80,000 2,630,000
------------
OIL & ENERGY SERVICES (10.9%)
Apache Corp. ..................... 160,000 5,660,000
Aquila Gas Pipeline Corp. ........ 107,800 1,711,325
Burlington Resources, Inc. ....... 100,000 5,037,500
Consolidated Natural Gas Co. ..... 85,000 4,696,250
Global Marine, Inc. (a)........... 200,000 4,125,000
Halliburton Co. .................. 85,000 5,121,250
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
OIL & ENERGY SERVICES (Continued)
Mobil Corp. ...................... 40,000 $ 4,890,000
Quaker State Corp. ............... 333,000 4,703,625
Schlumberger Ltd. ................ 60,000 5,992,500
Smith International, Inc. (a)..... 150,000 6,731,250
Tidewater Inc. ................... 125,000 5,656,250
Triton Energy Ltd. Class A (a).... 100,000 4,850,000
Union Pacific Resources Group,
Inc. ............................ 63,520 1,857,960
XCL Ltd. (a)...................... 1,316,800 246,900
------------
61,279,810
------------
PACKAGING (1.1%)
Crown Cork & Seal Co., Inc. ...... 110,000 5,981,250
------------
PAPER & FOREST PRODUCTS (1.9%)
Georgia-Pacific Corp. ............ 25,000 1,800,000
International Paper Co. .......... 62,600 2,527,475
Kimberly-Clark Corp. ............. 70,000 6,667,500
------------
10,994,975
------------
POLLUTION CONTROL (0.5%)
Philip Environmental, Inc. (a).... 200,000 2,900,000
------------
REAL ESTATE (2.3%)
Chelsea GCA Realty, Inc. ......... 96,300 3,334,388
First Industrial Realty Trust,
Inc. ............................ 175,000 5,315,625
Liberty Property Trust............ 166,500 4,287,375
------------
12,937,388
------------
RETAIL TRADE & MERCHANDISING
(6.7%)
American Stores Co. .............. 124,800 5,101,200
Consolidated Stores Corp. (a)..... 156,250 5,019,531
CVS Corp. ........................ 150,000 6,206,250
Kroger Co. (a).................... 148,000 6,882,000
Price/Costco, Inc. (a)............ 250,000 6,281,250
Smart & Final Inc. ............... 163,000 3,524,875
Wal-Mart Stores, Inc. ............ 200,000 4,575,000
------------
37,590,106
------------
TELECOMMUNICATIONS (0.3%)
ADC Telecommunications Inc. (a)... 50,000 1,556,250
------------
TRANSPORTATION (2.0%)
AMR Corp. (a)..................... 60,000 5,287,500
Union Pacific Corp. .............. 100,000 6,012,500
------------
11,300,000
------------
UTILITIES-ELECTRIC (0.8%)
CMS Energy Corp. ................. 135,000 4,539,375
------------
WASTE DISPOSAL (0.8%)
Republic Industries Inc. (a)...... 150,000 4,678,125
------------
Total Common Stocks
(Cost $426,782,343).............. 533,555,392
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
28
<PAGE> 30
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (5.6%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
COMMERCIAL PAPER (5.6%)
AlliedSignal Inc.
6.10%, due 1/3/97................ $7,000,000 $ 6,997,628
Aluminum Co. of America
5.45%, due 1/8/97................ 4,190,000 4,185,560
American Greetings Corp.
5.75%, due 1/2/97................ 3,985,000 3,984,363
Associates Corp. of North America
5.23%, due on demand (b)......... 160,000 160,000
Donnelley (R.R.) & Sons Co.
6.95%, due 1/2/97................ 6,000,000 5,998,842
General Electric Capital Corp.
5.90%, due 1/3/97................ 2,295,000 2,294,248
Potomac Electric Power Co.
6.00%, due 1/8/97................ 8,000,000 7,990,666
------------
Total Short-Term Investments
(Cost $31,611,307)............... 31,611,307
------------
Total Investments
(Cost $458,393,650) (c).......... 100.1% 565,166,699(d)
Liabilities In Excess of
Cash and Other Assets............ (0.1) (481,288)
---------- ------------
Net Assets........................ 100.0% $564,685,411
========== ============
</TABLE>
- ------------
(a) Non-income producing securities.
(b) Adjustable Rate. Rate shown is the rate in effect at December 31, 1996.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At December 31, 1996 net unrealized appreciation was $106,773,049, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $116,308,390 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $9,535,341.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
29
<PAGE> 31
GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $458,393,650)....... $565,166,699
Receivables:
Dividends and interest............... 723,274
Fund shares sold..................... 718,170
Investment securities sold........... 702,352
Other assets........................... 1,355
------------
Total assets..................... 567,311,850
------------
LIABILITIES:
Payables:
Investment securities purchased...... 1,854,625
Adviser.............................. 346,063
Fund shares redeemed................. 175,927
Administrator........................ 47,571
NYLIAC............................... 47,571
Custodian............................ 3,622
Directors............................ 228
Accrued expenses....................... 150,832
------------
Total liabilities................ 2,626,439
------------
Net assets applicable to outstanding
shares............................... $564,685,411
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 303,080
Additional paid-in capital............. 457,458,315
Accumulated undistributed net realized
gain on investments.................. 150,967
Net unrealized appreciation on
investments.......................... 106,773,049
------------
Net assets applicable to outstanding
shares............................... $564,685,411
===========
Shares of capital stock outstanding.... 30,308,004
===========
Net asset value per share
outstanding.......................... $ 18.63
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 6,340,368
Interest............................. 1,309,742
------------
Total income..................... 7,650,110
------------
Expenses:
Advisory............................. 1,233,329
Administration....................... 986,663
Recordkeeping........................ 283,024
Shareholder communication............ 211,872
Professional......................... 88,421
Directors............................ 23,546
Miscellaneous........................ 12,482
------------
Total expenses................... 2,839,337
------------
Net investment income.................. 4,810,773
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments....... 69,850,131
Net change in unrealized appreciation
on investments....................... 32,938,177
------------
Net realized and unrealized gain on
investments.......................... 102,788,308
------------
Net increase in net assets resulting
from operations...................... $107,599,081
===========
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $4,231.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
30
<PAGE> 32
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................. $ 4,810,773 $ 4,885,469
Net realized gain on investments.................................................. 69,850,131 34,444,510
Net change in unrealized appreciation on investments.............................. 32,938,177 56,914,338
------------ ------------
Net increase in net assets resulting from operations.............................. 107,599,081 96,244,317
------------ ------------
Dividends and distributions to shareholders:
From net investment income........................................................ (4,810,773) (4,897,272)
From net realized gain on investments............................................. (69,699,164) (34,471,675)
------------ ------------
Total dividends and distributions to shareholders............................. (74,509,937) (39,368,947)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 74,877,524 35,852,696
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions.................................................................... 74,509,937 39,368,947
------------ ------------
149,387,461 75,221,643
Cost of shares redeemed........................................................... (45,298,015) (34,751,127)
------------ ------------
Increase in net assets derived from capital share transactions.................. 104,089,446 40,470,516
------------ ------------
Net increase in net assets...................................................... 137,178,590 97,345,886
NET ASSETS:
Beginning of year................................................................... 427,506,821 330,160,935
------------ ------------
End of year......................................................................... $564,685,411 $427,506,821
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.18 0.22 0.22 0.24 0.22
Net realized and unrealized gain (loss) on
investments............................... 4.06 4.06 (0.03) 1.88 1.72
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 4.24 4.28 0.19 2.12 1.94
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income................ (0.18) (0.22) (0.22) (0.25) (0.22)
From net realized gain on investments..... (2.65) (1.53) (0.92) (1.76) (1.76)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions........... (2.83) (1.75) (1.14) (2.01) (1.98)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53
=========== =========== =========== =========== ===========
Total investment return..................... 24.50% 29.16% 1.20% 13.71% 12.42%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 0.98% 1.29% 1.41% 1.42% 1.50%
Net expenses.............................. 0.58% 0.62% 0.62%# 0.27%# 0.27%
Expenses (before reimbursement)........... 0.58% 0.91% 0.65%# 0.27%# 0.27%
Portfolio turnover rate..................... 104% 104% 108% 121% 82%
Average commission rate paid................ $ 0.0595 (a) (a) (a) (a)
Net assets at end of year (in 000's)........ $ 564,685 $ 427,507 $ 330,161 $ 319,196 $ 272,834
</TABLE>
- ------------
(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
# At the MainStay VP Series Fund, Inc.'s shareholders meeting on December 14,
1993, the shareholders voted to have the Growth Equity Portfolio assume
certain administrative and operating expenses of the Fund previously borne
by New York Life.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Organization and Business:
- --------------------------------------------------------------------------------
MainStay VP Series Fund, Inc. (formerly New York Life MFA Series Fund, Inc.)
(the "Company") was incorporated under Maryland law on June 3, 1983. The
Company is registered under the Investment Company Act of 1940, as amended,
("Investment Company Act") as an open-end diversified management investment
company. Cash Management Portfolio, which commenced operations on January 29,
1993 and Bond and Growth Equity Portfolios, which commenced operations on
January 23, 1984, (the "Funds") are separate portfolios of the Company. Shares
of the Funds are currently offered only to New York Life Insurance and Annuity
Corporation ("NYLIAC"), a wholly owned subsidiary of New York Life Insurance
Company ("New York Life"). NYLIAC allocates shares of the Funds to, among
others, New York Life Insurance and Annuity Corporation's MFA Separate Account
I, MFA Separate Account II and VLI Separate Account ("Separate Accounts",
collectively). The MFA Separate Accounts are used to fund multi-funded
retirement annuity policies and the VLI Separate Account is used to fund
variable life insurance policies issued by NYLIAC.
The investment objectives for each of the Portfolios of the Company are as
follows:
Cash Management: to seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity.
Bond: to seek the highest income over the long term consistent with
preservation of principal.
Growth Equity: to seek long-term growth of capital with income as a
secondary consideration.
- --------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies followed by the
Company:
(A)
VALUATION OF FUND SHARES. The net asset value per share of each Fund is
calculated on every day the New York Stock Exchange is open for trading, except
the day after Thanksgiving and Christmas Eve. Net asset value per share is
calculated as of the regular close of the New York Stock Exchange (normally 4:00
P.M., Eastern time) for each Fund by dividing the current market value
(amortized cost, in the case of Cash Management Portfolio) of the Fund's total
assets, less liabilities, by the total number of outstanding shares of that
Fund.
(B)
SECURITIES VALUATION. Portfolio securities of Cash Management Portfolio are
valued at amortized cost, which approximates market value. This method involves
initially valuing an instrument at its cost and thereafter amortizing the
premium or accreting the discount to income over the life of the security.
Securities of each of the other Funds are stated at value determined (a) by
appraising common and preferred stocks which are traded on the New York Stock
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities not quoted on
the NASDAQ system and securities listed or traded on certain foreign exchanges
whose operations
32
<PAGE> 34
MAINSTAY VP SERIES FUND, INC.
are similar to the U.S. over-the-counter market, at prices supplied by the
pricing agent or brokers selected by the Adviser if these prices are deemed to
be representative of market values at the regular close of business of the New
York Stock Exchange, (e) by appraising debt securities at prices supplied by a
pricing agent selected by the Adviser, whose prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those prices
are deemed by the Adviser to be representative of market values at the regular
close of business of the New York Stock Exchange, (f) by appraising options and
futures contracts at the last sale price on the market where such options or
futures contracts are principally traded, and (g) by appraising all other
securities and other assets, including debt securities for which prices are
supplied by a pricing agent but are not deemed by the Adviser to be
representative of market values, but excluding money market instruments with a
remaining maturity of sixty days or less and including restricted securities and
securities for which no market quotations are available, at fair value in
accordance with procedures approved by the Directors. 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
the difference between market value on the 61st day prior to maturity and value
on maturity date if their original term to maturity at purchase exceeded 60
days.
Events affecting the values of certain portfolio securities that occur
between the close of trading on the principal market for such securities
(foreign exchanges and over-the-counter markets) and the regular close of the
New York Stock Exchange will not be reflected in the Funds' calculations of net
asset values unless the Adviser believes that the particular event would
materially affect net asset value, in which case an adjustment would be made.
(C)
REPURCHASE AGREEMENTS. At the time the Funds enter into a repurchase agreement,
the value of the underlying security, including accrued interest, will be equal
to or exceed the value of the repurchase agreement and, in the case of
repurchase agreements exceeding one day, the value of the underlying security,
including accrued interest, is required during the term of the agreement to be
equal to or exceed the value of the repurchase agreement. The underlying
securities for all repurchase agreements are held in a segregated account of the
respective Funds' custodian. In the case of repurchase agreements exceeding one
day, the market value of the underlying securities are monitored by the Adviser
by pricing them daily. (Also see Note 5).
(D)
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Company records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage backed securities. Dividend
income is recognized on the ex-dividend date and interest income is accrued
daily except when collection is not expected. Discounts on securities purchased
for all Funds are accreted on the constant yield method over the life of the
respective securities or, if applicable, over the period to the first date of
call.
(E)
FEDERAL INCOME TAXES. Each of the Funds is treated as a separate entity for
Federal income tax purposes. The Company's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of the taxable income to the shareholders of
each Fund within the allowable time limits. Therefore, no Federal income tax
provision is required.
Investment income received by a Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
(F)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. For Cash Management Portfolio, dividends are
declared daily and paid monthly. Each of the other Funds intends to declare and
pay, as a dividend, substantially all of their net investment income and net
realized gains no less frequently than once a year.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
33
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(G)
EXPENSES. Expenses with respect to the Company are allocated to the individual
Funds in proportion to the net assets of the respective Funds when the expenses
are incurred except where allocations of direct expenses can otherwise fairly be
made.
(H)
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
NOTE 3--Fees and Related Party Policies:
- --------------------------------------------------------------------------------
(A)
INVESTMENT ADVISORY AND ADMINISTRATION FEES. MacKay-Shields Financial
Corporation ("MacKay-Shields") acts as investment adviser to Cash Management
Portfolio under an Investment Advisory Agreement. MacKay-Shields is a
registered investment adviser, a wholly-owned subsidiary of NYLIFE Inc. and an
indirect wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"). New York Life acts as investment adviser to Bond and Growth Equity
Portfolios under an Investment Advisory agreement.
NYLIAC is Administrator for the Company.
The Company, on behalf of each Fund, pays the Advisers and Administrator a
monthly fee for the services performed and the facilities furnished at an
approximate annual rate of the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
ADVISER ADMINISTRATOR
------ -----------
<S> <C> <C>
Cash Management Portfolio............................................................. .25% .20%
Bond Portfolio........................................................................ .25% .20%
Growth Equity Portfolio............................................................... .25% .20%
</TABLE>
The Administrator has voluntarily agreed to assume the Funds' operating
expenses through December 31, 1996, which on an annualized basis exceed the
percentages indicated below.
<TABLE>
<S> <C>
Cash Management Portfolio............................................................................ .62%
Bond Portfolio....................................................................................... .62%
Growth Equity Portfolio.............................................................................. .62%
</TABLE>
In connection with such expense limitation, the Administrator assumed
certain of the expenses of the Funds for the year ended December 31, 1996 as
shown on the Statement of Operations.
(B)
DIRECTORS FEES. Directors, other than those affiliated with New York Life,
MacKay-Shields, Monitor, NYLIFE Distributors or NYLIFE Securities, are paid an
annual fee of $16,000 and $750 for each Board meeting attended plus
reimbursement for travel and out-of-pocket expenses. The Company allocates this
expense in proportion to the net assets of the respective Funds.
34
<PAGE> 36
MAINSTAY VP SERIES FUND, INC.
(C)
RECORDKEEPING FEES. NYLIAC provides recordkeeping services for Cash Management,
Bond and Growth Equity Portfolios. For the four months ended April 30, 1996, the
Portfolios paid recordkeeping fees as follows:
<TABLE>
<S> <C>
Cash Management Portfolio............................................................................. $ 26,485
Bond Portfolio........................................................................................ 150,388
Growth Equity Portfolio............................................................................... 333,437
</TABLE>
Effective May 1, 1996, NYLIAC assumed responsibility for the payment of such
fees.
(D)
OTHER. Fees for the cost of legal services provided to the Company by the Office
of General Counsel of New York Life are charged to the Funds. For the year ended
December 31, 1996, these fees were as follows:
<TABLE>
<S> <C>
Cash Management Portfolio.............................................................................. $ 2,674
Bond Portfolio......................................................................................... 6,582
Growth Equity Portfolio................................................................................ 13,339
</TABLE>
- --------------------------------------------------------------------------------
NOTE 4--Federal Income Tax:
- --------------------------------------------------------------------------------
At December 31, 1996, for Federal income tax purposes, capital loss
carryforwards, as shown in the table below, are available to the extent
provided by regulations to offset future realized gains of each respective
Portfolio through the years indicated. To the extent that these loss
carryforwards are used to offset future capital gains, it is probable that the
capital gains so offset will not be distributed to shareholders.
<TABLE>
<CAPTION>
CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S)
---------------- -------------
<S> <C> <C>
Cash Management Portfolio........................................................ 2003 $ 1
2004 1
------
$ 2
======
Bond Portfolio................................................................... 2002 $1,786
======
</TABLE>
Bond Portfolio utilized $961,896 of capital loss carryforwards during the
current year.
- --------------------------------------------------------------------------------
NOTE 5--Financial Investments:
- --------------------------------------------------------------------------------
Each Portfolio may enter into repurchase agreements to earn income. In the
event of the bankruptcy of the seller or the failure of the seller to
repurchase the securities as agreed, a Portfolio could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement.
35
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Redemption by NYLIAC of Initial Investment:
- --------------------------------------------------------------------------------
On February 21, 1995, NYLIAC redeemed all of its initial investment in Cash
Management Portfolio. In connection with the redemption of the initial
shares, NYLIAC reimbursed the Portfolio $28,042, which represented the
unamortized deferred organization expense of the Portfolio on the date of
the redemption.
- --------------------------------------------------------------------------------
NOTE 7--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the year ended December 31, 1996, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were as follows:
<TABLE>
<CAPTION>
BOND GROWTH EQUITY
PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES
---------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities............................................. $155,916 $ 145,208 $ -- $ --
All others............................................................. 64,716 70,944 509,811 490,842
---------------------------------------------------
Total.................................................................. $220,632 $ 216,152 $509,811 $ 490,842
===================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE 8--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in capital shares throughout each year ended December 31, 1996
and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
CASH MANAGEMENT BOND GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............................................. 237,105 128,846 1,940 1,732 3,863 2,118
Shares issued in reinvestment of dividends and
distributions.......................................... 4,586 3,588 1,117 1,080 3,968 2,286
----------------------------------------------------------------
241,691 132,434 3,057 2,812 7,831 4,404
Shares redeemed.......................................... 211,181 115,710 2,923 2,397 2,346 2,060
----------------------------------------------------------------
Net increase............................................. 30,510 16,724 134 415 5,485 2,344
================================================================
</TABLE>
36
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
MainStay VP Series Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios 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 Cash Management Portfolio, Bond
Portfolio and Growth Equity Portfolio (three of the eleven portfolios
constituting MainStay VP Series Fund, Inc., formerly New York Life MFA Series
Fund, Inc., hereafter referred to as the "Fund") at December 31, 1996, and the
results of each of their operations for the year then ended, and the changes in
each of their net assets and the financial highlights for each of the periods
indicated, 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, 1996 by correspondence with the custodians and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997
37
<PAGE> 39
(THIS PAGE INTENTIONALLY LEFT BLANK)
38
<PAGE> 40
MAINSTAY VP SERIES FUND, INC.
OFFICERS AND DIRECTORS
Richard M. Kernan, Jr., Chairman,
Chief Executive Officer and Director
Anne F. Pollack, President,
Chief Administrative Officer and Director
Michael J. Drabb, Director
Jill Feinberg, Director
Daniel Herrick, Director
Robert D. Rock, Director and Vice President
Roman L. Weil, Director
Anthony W. Polis, Treasurer
A. Thomas Smith III, Secretary
Marc J. Chalfin, Controller
INVESTMENT ADVISERS
MacKay-Shields Financial Corporation
New York Life Insurance Company
ADMINISTRATOR
New York Life Insurance and Annuity Corporation
CUSTODIANS
The Bank of New York
The Chase Manhattan Bank, N.A. (formerly Chemical Bank)
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
LEGAL COUNSEL
Jorden Burt Berenson & Johnson LLP
39
<PAGE> 41
[NEW YORK LIFE LOGO] NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
51 MADISON AVENUE
NEW YORK, NY 10010
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