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NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
MFA SEPARATE ACCOUNTS-I AND II
UNAUDITED SEMI-ANNUAL REPORT
MAINSTAY
VP SERIES FUND, INC. June 30, 1998
This is a Report by the
MainStay VP Series Fund,
Inc. for the general
information of Multi-
Funded Annuity policy-
owners. This Report does
not offer for sale
or solicit orders to
purchase securities.
NEW YORK LIFE INSURANCE [NEW YORK LIFE LOGO]
AND ANNUITY CORPORATION
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TO THE OWNERS OF THE FACILITATOR(R) POLICIES:
I am pleased to present the unaudited Semi-Annual Report for the six month
period ended June 30, 1998. This semi-annual report contains performance
information, financial statements, notes and other pertinent data for each of
the MainStay VP Series Fund, Inc. Portfolios available in The Facilitator(R).
MID-YEAR REVIEW
The United States stock market once again continued its robust pace during the
first half of 1998. The Dow Jones Industrial Average(1) gained another 13.2%,
following a 22.6% gain in 1997, 26% in 1996, and 33.5% in 1995. Growth continued
to exceed expectations, while inflation remained subdued. Real Gross Domestic
Product (GDP) grew at an astounding annual rate of 5.4% in the first quarter, as
the negative effects of the Asian crisis on net exports and industrial
production were more than offset by stellar consumer spending, residential
construction, business capital spending, and a quickened pace of inventory
investment. Growth seems to have been somewhat slower in the second quarter as
the final demand moderated, the trade deficit continued to widen, and the
inventory investment dropped.
Over the rest of the year, the economy is expected to slow to a more sustainable
pace as excess inventory accumulation continues to be pared and weakness from
the trade and manufacturing sectors spreads to the rest of the economy.
Inflation should pick-up only slightly as oil prices stop declining and the
lagged effects of the higher dollar begin to dissipate. The unemployment rate
should begin to rise again as the economy slows, helping to moderate any rise in
inflation. On the positive side, the economic expansion in the United States is
likely to continue with no recession in sight, and interest rates should remain
low.
VARIABLE ANNUITIES IN GENERAL
Variable annuities are viewed as an effective financial vehicle to help
Americans live comfortably during their retirement years. This is evident by the
fact that the United States variable annuity industry set a record in 1997 with
nearly $88 billion in sales, representing more than a 20% increase versus 1996
results. Industry experts expect another stellar year in 1998.
New York Life Insurance and Annuity Corporation (NYLIAC) recorded $1.01 billion
in variable annuity premiums during the first half of 1998, representing a 42%
increase versus the first half of 1997. There are many factors attributing to
NYLIAC's impressive variable annuities sales results including an impressive
equity market, a low interest rate environment, and solid product and marketing
support.
COMMITMENT TO YOUR NEEDS
We thank you for selecting us to be "The Company You Keep(R)," and we look
forward to helping you build a solid foundation for your retirement years.
/s/ FREDERICK J. SIEVERT
Frederick J. Sievert
Vice Chairman
New York Life Insurance Company,
the parent of New York Life Insurance and Annuity Corporation
(1) The Dow Jones Industrial Average is a trademark of, and the property of, Dow
Jones and Co., Inc. The DJIA Index is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but also including
financial, leisure, and other service-oriented firms.
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MAINSTAY VP SERIES FUND, INC. PORTFOLIOS
MACKAY-SHIELDS FINANCIAL CORPORATION
ADVISER'S REPORT
Market Overview
The equity market retreated from its blistering pace in the first quarter to
more modest advances in the second quarter, chiefly as a result of a more
sobering assessment of the Asian economic crisis. Any thoughts that the Asian
crisis would be a short-lived event have been put to rest. The main question now
is how will U.S. corporate profits fare in the second half of the year and in
1999? Most companies will soon report second-quarter earnings and give guidance
on future prospects. One thing is clear: the likely slowing of corporate profits
will be far from uniform. While the basic material, energy and
commodity-technology sectors appear most vulnerable, the consumer and healthcare
sectors continue to show signs of strength.
The second quarter of 1998 saw the market lose the wind at its back, with the
average general U.S. equity mutual fund losing 0.2% to 0.3% according to
Lipper(1) and Morningstar(2) with initial gains followed by losses. The S&P 500
Index(3) (with dividends) returned 3.30%, the Dow Jones Industrial Average(4)
returned 2.1% and NASDAQ(5) posted a 3.2% gain. The stock market has displayed
two characteristics over the past 18 months: a mix of strongly performing
quarters followed by sputtering quarters. The engine of the stock market did not
seem to be able to remain energized for more than three months before it took a
breath. Also, the narrowness of the best-performing part of the market has
remained markedly consistent. Investors fared best in blue chip investments such
as U.S. Treasury bonds and "nifty-fifty" type equity investments such as large
capitalization stocks with prospects of rising earnings. Smaller stocks and
investments in fundamentally cheaper "value" stocks were not rewarded in this
environment. In fact, as stocks got smaller or more value oriented, the
performance got worse for the quarter. As a result, S&P Index funds, emphasizing
the large-cap names that dominate the Index, have outshone active managers. The
only stock funds that outperformed the S&P during the quarter were large-cap
growth funds which returned 5.24%. During the second quarter, large cap blend
funds were up 2.12% and mid-cap growth funds posted a small gain of 0.87%.
The outperformance of the largest names in the S&P 500 is particularly notable
as these companies' earnings as a whole have been shrinking, are influenced by
currency depreciations outside the U.S., and may be greatly affected by the
continuing Asian financial crisis. The recent increase in wages could signal
coming inflation, which has been an insignificant factor for several years.
Fueling the market despite these weaknesses, these companies are also viewed by
investors as "safe havens" with expectations of lower volatility if the market
goes down. Also, because of their liquidity, investors believe large-cap blue
chips will be easier to sell in a market downturn.
On the fixed income side, the safest bonds and the funds that hold them
outperformed the riskier end of the spectrum. According to Lipper, general U.S.
Treasury funds posted a return of 2.92% for the quarter, A-rated corporate bonds
recorded gains of 2.36% for the period and tax-free funds had returns of 1.29%.
Interest rate declines help performance of the bond market because bond prices
rise as interest rates decline. This is in direct contrast to the average
emerging market bond fund which lost 7.7% in the second quarter and junk-bond
funds which gained a paltry 0.29%. This reflects a new cautiousness on the part
of investors, who added $6.2 billion into taxable bond funds in May, versus $3.6
billion in April. Municipal funds listed $2.4 billion in new investments in May,
versus $544 million in April. Foreign buyers continued their love affair with
U.S. bonds, despite the 30-year U.S. Treasury bond's lowest yield in several
years. Adding fuel to the fire, a positive Federal budget picture is sure to
decrease the supply of U.S. Treasuries, as the Government has less debt to
finance going forward.
Internationally, the second quarter was a tale of two markets. Investors in
developed markets fared far better than those who invested in emerging markets.
European markets embracing American production and management efficiencies are
soaring. According to Lipper, funds investing in Europe posted the most positive
results, on average returning 6.30% for the second quarter. On the other hand,
Asia's financial crisis is not over and is
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spilling over into Latin America. The flight to quality and the American markets
have only exacerbated emerging market economic woes.
Looking forward, several factors are lurking which may hurt the robustness of
the U.S. economy. Increasing wages, which constitute two-thirds of the CPI(6),
may ignite inflation if productivity gains do not increase proportionately.
Also, the Asian financial crisis is not over. Many economists who participated
in The Wall Street Journal's latest semi-annual forecasting survey believe that
the brunt of the Asian crisis will hit the U.S. over the next several months,
causing growth to slow and unemployment to increase. However, on the positive
side, many Asian countries are facing the enormity of their respective
economies' problems and are taking steps to solve them. In the meantime, we
continue to enjoy low inflation, stable interest rates and steady growth -- key
ingredients for an ebullient economy.
Ravi Akhoury
Chairman and Chief Executive Officer
MacKay-Shields Financial Corporation
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance.
(2) Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect historic risk-adjusted performance, taking fees and sales charges
into account, and may change monthly. Its ratings of 1 (low) and 5 (high)
stars are based on a fund's three- and five-year average annual returns with
fee adjustments, and a risk factor that reflects fund performance relative
to 3-month Treasury bill monthly returns. The top 10% of funds in a rating
group may receive 5 stars, the next 22.5% receive 4 stars, the middle 35%
receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive
1 star. Portfolios are not rated until they have three years of performance
history.
(3) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The MainStay VP
Series Fund, Inc. is not sponsored, endorsed, sold or promoted by Standard &
Poor's. 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.
(4) The Dow Jones Industrial Average is a trademark of, and the property of, Dow
Jones and Co., Inc. The DJIA Index is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but also including
financial, leisure, and other service-oriented firms.
(5) "NASDAQ Composite Index" is an unmanaged index and is considered to be
generally representative of the U.S. small capitalization stock market.
(6) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
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NEW YORK LIFE INSURANCE COMPANY
ADVISER'S REPORT
Market Overview
The first half of 1998 has resulted in another period of attractive investment
returns for the U.S. financial markets, with particularly strong returns from
the stock market.
The U.S. economy continues to enjoy robust expansion -- with strong growth, low
inflation, a Federal budget surplus and a structurally sound economy. As a
result, the financial health of most U.S. firms remains strong. Overseas,
however, the Asian economy is suffering as many emerging Asian countries are
ravaged by currency devaluations, capital flight and heightened balance of
payment pressures. Near term, the crisis has caused a flight to quality to the
U.S. financial markets, bolstering values here. Longer term, the Asian crisis
will have a negative impact on the worldwide economy, particularly on U.S.
companies in commodity and export related industries.
The stock market has reached historically high price levels in both absolute and
relative terms. While corporate earnings growth has slowed, valuation levels
have increased as interest rates have declined and merger and acquisition
activity has increased.
The bond market produced returns in line with interest income and modest price
appreciation. The modestly lower interest rate environment has caused spreads to
widen on mortgage-backed securities and corporate bonds due to prepayment
concerns and unprecedented new issue supply as corporations sought to lock-in
lower financing costs.
Looking forward for the rest of the year, we anticipate a stable monetary policy
will be maintained by the Federal Reserve Board. A stable interest rate outlook
combined with continued strength in consumer demand, should provide a favorable
environment for the stock and bond markets.
Jean Hoysradt
Senior Vice President
in Charge of the Investment Department
New York Life Insurance Company
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MAINSTAY VP CASH MANAGEMENT PORTFOLIO
MARKET RECAP FOR THE SIX MONTH PERIOD ENDED 6/30/98
- - Domestic bond and money markets were influenced by Asian economic
contractions, a solid U.S. economy, and relatively tame inflation during the
first six months of 1998.
- - During the reporting period, the money market yield curve was flat and
exhibited low volatility.
- - During the first half of the year, the average money market portfolio remained
within a narrow range of 55 to 60 days to maturity.
- - Treasury bills were relatively expensive throughout most of the reporting
period, moving opportunities into other segments of the money market.
PORTFOLIO RECAP FOR THE SIX MONTH PERIOD ENDED 6/30/98
- - The Portfolio stayed within 50 to 60 days to maturity throughout most of the
first six months of 1998.
- - The Portfolio avoided Treasury securities in favor of commercial paper,
floating-rate notes, certificates of deposit, Yankee obligations, and
asset-backed securities.
- - The Portfolio owned only top-tier securities throughout the reporting period.
- - The Portfolio's 2.58% return outperformed the average Lipper(1) money market
portfolio, which returned 2.54% for the six months ended 6/30/98.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
During the first half of 1998, domestic bond and money markets were largely
influenced by world events. Economic contractions in Asian markets, including
Japan, caused difficulties in markets from Latin America to Russia and China.
One positive outcome has been relatively tame inflation, keeping the Federal
Reserve Board from adjusting domestic interest rates. As a result, interest
rates in general have remained within a relatively narrow range.
With a yield curve that was virtually flat, there were few advantages to
changing average maturity. The average money market portfolio stayed within a
range of 55 to 60 days to maturity throughout the first half of the year. With
the flight to quality surrounding the Asian difficulties and reduced federal
issuance, Treasury bills became somewhat expensive, shifting opportunities to
other market sectors.
WHAT ACCOUNTED FOR THE PORTFOLIO'S ABOVE-AVERAGE PERFORMANCE?
In an environment where the yield curve remains steady and relatively flat,
there was little opportunity to add value by extending maturities. We also
believed that Treasury bills were severely overpriced and avoided them in the
Portfolio. Instead, we looked for securities that offered yield advantages
without taking on substantial risk. We focused on domestic and Yankee financial
issues, corporate and asset-backed commercial paper, and floating rate notes.
Each of these sectors contributed to the Portfolio's above-average performance.
DID THE PORTFOLIO OWN ANY ASIAN SECURITIES?
No. We saw the problems in Asia and avoided their securities entirely. We did,
however, invest the Portfolio's assets in a number of international securities,
primarily Yankee issues of banks and insurance companies. In a low interest rate
environment, we felt financial firms would do well -- and their securities
showed strong performance throughout the reporting period. We selected credits
that were rated AA(2) or better, and the Portfolio remained focused on issuers
we felt had minimal Asian exposure.
DID THE PORTFOLIO FACE ANY CURRENCY RISK?
No. Yankee issues are denominated in dollars, so there's no currency risk.
ARE THERE ANY ADVANTAGES TO GLOBAL DIVERSIFICATION?
By diversifying with strong European issuers, we were able to expand the
Portfolio's horizons beyond domestic securities without increasing its risk. We
believe that diversification is an effective way of seeking to manage risk, so
we believe investors may benefit from global diversification, as long as the
quality remains high.
HOW MUCH DID THE PORTFOLIO INVEST IN COMMERCIAL PAPER?
A significant portion of the Portfolio's assets were invested in commercial
paper, including direct issues by corporations -- and asset-backed issues with
high credit quality, strong cash flows backed by collateral and highly rated
credit enhancement. Commercial paper contributed positively to the Portfolio's
performance.
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WERE THERE OTHER SECTORS IN WHICH THE PORTFOLIO INVESTED?
Yes, the Portfolio purchased some one-year floating rate notes that we believed
were inexpensively priced relative to commercial paper. The notes helped the
Portfolio's performance and gave us a good way to manage the Portfolio's average
maturity.
DID THE PORTFOLIO INVEST IN CALLABLE CDS OR OTHER ESOTERIC SECURITIES?
While the Portfolio has utilized those securities in the past, they offered few
advantages to issuers or investors during this relatively calm period in the
money markets. So the Portfolio invested primarily in simpler, "plain vanilla"
securities that offered greater liquidity. That decision was positive for the
Portfolio's overall performance.
HOW DO YOU SEEK TO MANAGE RISK IN THE MAINSTAY VP CASH MANAGEMENT PORTFOLIO?
One way is through careful credit analysis. In addition to seeing what the
rating agencies have to say, we watch the performance of corporate issuers in
the stock market. If their stock falters, we use it as a trigger to sell their
debt securities held in the Portfolio. We believe that the stock market can
discount new information much faster than rating agencies can reflect it.
The Portfolio also focuses on securities in the highest rating categories. The
Portfolio did not invest in second-tier issues and split-rated issues. In fact,
the lowest rating on any security the Portfolio owned was A-1/P-1(3) which is
very high. During the reporting period, the Portfolio only invested in top-tier
securities.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Looking ahead, we believe that Asian turmoil, inflation expectations and
reactions to reduced Treasury financing have been almost fully priced into the
market. So we're taking a relatively neutral stand. While we remain bullish over
the long-term, we believe unusual movements in the yield curve and other minor
market fluctuations may present the most obvious opportunities in the next
couple of months. Whatever happens, we will continue to seek high-quality
securities that may provide a high level of current income consistent with
preservation of capital and liquidity.
Ed Munshower
Claude Athaide
Portfolio Managers
MacKay-Shields Financial Corporation
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) Debt rated AA by Standard & Poor's differs from the highest rated issues
only in small degree.
(3) A Standard & Poor's Corporation Commercial Paper Rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Issues assigned an A-1 designation
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. Moody's Investors Services, Inc. employs an
investment grade to indicate the relative repayment capacity of rated
issuers of commercial paper not having an original maturity in excess of
nine months. Issuers rated P-1 (Prime-1) (or related supporting
institutions) have a superior capacity for repayment of short-term
promissory obligations.
Total returns for the Portfolio 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. These results do not reflect any deduction of sales charges,
mortality and expense charges, contract charges, or administrative charges.
An investment in the Portfolio is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
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MAINSTAY VP BOND PORTFOLIO
MARKET HIGHLIGHTS FOR THE SIX MONTH PERIOD ENDED 6/30/98
- - Global concerns continued to be a dominant influence in the fixed income
markets.
- - The flight to quality trade contributed to the market's rally during the first
half of 1998. The 30-year U.S. Treasury bond yield declined 29 basis points
during the period.
- - The low interest rate environment contributed to prepayment concerns in the
mortgage-backed security sector and significant corporate bond issuance. These
factors caused spread product to widen during the first six months of 1998.
- - The Federal Reserve Board (the "Fed") maintained a stable monetary policy for
the first half of 1998.
PORTFOLIO HIGHLIGHTS FOR THE SIX MONTH PERIOD ENDED 6/30/98
- - For the six months ended June 30, 1998, the MainStay VP Bond Portfolio
returned 4.35%.
- - The Portfolio outperformed the average A rated corporate bond fund in its
Lipper(1) universe by 38 basis points.
- - The Portfolio ranked fourth out of 33 bond funds (top 12.1%) for its Lipper
category.
- - An average portfolio quality of at least AA- was maintained throughout the
first half of 1998, limiting credit risk.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
The year began amid investor concern regarding the Asian crisis and its impact
on the domestic economy. Market sentiment seemed to point toward a neutral to
accommodating Fed, along with declining corporate earnings. As the first quarter
progressed, it became apparent that an Asian induced slowdown would not have its
anticipated near-term effect on the U.S. economy. Statistical reports continued
to show resilient economic growth. The decline in oil prices along with
continued benign inflation numbers allowed the market to rally slightly in the
first quarter. The market continued to rally in the second quarter as
participants renewed their focus on the improving Federal Budget and its impact
on the supply of U.S. Treasury bonds. As the second quarter progressed, fears
about Asia re-emerged with a focus on Japan. These concerns refueled the flight
to quality trade.
TO WHAT DO YOU ATTRIBUTE THE PORTFOLIO'S POSITIVE PERFORMANCE?
The Portfolio limited its exposure to long duration spread assets. These longer
duration assets were the most adversely effected by spread widening in the first
half of 1998. The Portfolio also had a concentration in lower quality investment
grade corporate bonds in the one to five year maturity range. This asset
allocation worked well as these securities outperformed in their sector.
Additionally, our high quality assets benefited from the flight to quality
trade.
WHAT WAS YOUR PRIMARY STRATEGY IN THE FIRST HALF OF 1998?
The Portfolio shifted assets from the corporate and mortgage sectors to the U.S.
Treasury sector. We took these actions to take advantage of the flight to
quality trade and to reduce the Portfolio's credit and call risk.
WHERE DO YOUR PERCEIVE RISK IN THE PORTFOLIO?
The Portfolio's current mortgage-backed security holdings could present
prepayment risk if interest rates continue to trend lower. However, this
prepayment risk is actively managed based on our prevailing interest rate
forecast. The Portfolio's overall credit quality and structure continues to be
consistent with our long-term conservative management approach.
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WHAT IS YOUR OUTLOOK FOR THE FIXED INCOME MARKET IN THE SECOND HALF OF 1998?
We expect continued weakness in the Asian markets and a rise in the dollar to
bring about a decline in U.S. exports and a rise in imports that could dampen
domestic growth over the rest of the year. We believe the Fed will retain its
wait and see attitude toward monetary policy until the full effects of the Asian
crisis unfold. We expect the market to retain its focus on the problems in
Japan. Therefore, we believe U.S. Treasury security price movements should
continue to react to the dollar/yen relationship.
Albert R. Corapi, Jr.
Celia M. Holtzberg
Joseph DePasquale
Portfolio Managers
New York Life Insurance Company
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
Total returns for the Portfolio 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. These results do not reflect any deduction of sales charges,
mortality and expense charges, contract charges, or administrative charges.
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MAINSTAY VP GROWTH EQUITY PORTFOLIO
MARKET HIGHLIGHTS FOR THE SIX MONTH PERIOD ENDED 6/30/98
- - Low inflation and interest rates have enabled the stock markets price/earnings
valuation to expand.
- - Asia's problems have had a limited effect on U.S. corporate earnings.
- - Continued strong inflows into equities continue to boost liquidity and market
performance.
- - Merger and acquisition activity is extremely robust and poised to surpass
1997's record level by a wide margin.
PORTFOLIO HIGHLIGHTS FOR THE SIX MONTH PERIOD ENDED 6/30/98
- - For the six month period ended June 30, 1998, the Portfolio had a return of
16.20%.
- - We increased the Portfolio's exposure in technology stocks which were our best
performers in the first half of the year.
- - The Portfolio's consumer staples holdings, which we continue to overweight,
registered above average gains in the first six months of the year.
- - The Portfolio is in line with the Lipper(1) growth fund average return of
16.23%.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
The U.S. equity market continued to register impressive gains for investors in
the first half of 1998. The majority of the market's gains can be attributed to
investors' increased comfort level with low inflation which has increased equity
valuations. Simply stated, with interest rates at their current low levels, the
attraction of equities remains favorable.
Another ingredient causing the equity markets to move higher has been based on
positive corporate earnings growth. Economic growth should remain positive as
the domestic economy remains strong despite Asia's woes weighing down some
cyclical industries. Actually some industries, such as retailing, are benefiting
from low cost goods from Asia.
The current market environment supports our view of investing primarily in
companies with consistent earnings growth profiles. We believe that companies
which report earnings in line with expectations will receive premium valuations
to the market. We are avoiding industries which are negatively affected by Asia,
as we believe that the economic contraction in that region of the world will
persist longer than the market is currently discounting.
DURING THE REPORTING PERIOD, WHAT WERE THE MOST SIGNIFICANT FACTORS THAT
INFLUENCED THE EQUITY MARKET?
The most significant factor influencing the equity market throughout the first
half of the year was the effect Asia's problems were having on our economy. Most
commodity and export related industries have been adversely affected by the
slackening demand out of Asia and the excess industrial capacity that has been
built up in that region of the world in the last few years. However, most
consumer companies prospered as the domestic economy boomed due to continued low
interest rates and strong wage growth. These factors combined to create an
extremely favorable environment for domestically oriented companies.
HOW WAS THE MAINSTAY VP GROWTH EQUITY PORTFOLIO AFFECTED BY THE SIGNIFICANT
FACTORS JUST MENTIONED? WHAT ACTIONS DID YOU TAKE AND WHAT WAS THE FINAL RESULT?
The MainStay VP Growth Equity Portfolio is currently structured with a growth
stock orientation due to our expectation for moderate overall growth in the
economy. We determined that the more cyclical sectors of the economy would
suffer depressed earnings growth as commodity prices remained under pressure.
Thus, the Portfolio has favored domestic issues with a consistent earnings
growth profile. The results were favorable as the MainStay VP Growth Equity
Portfolio generated a return of 16.20% for the six months ended June 30, 1998.
WHAT WERE THE MOST SIGNIFICANT PURCHASES DURING THE REPORTING PERIOD? WHY DID
YOU MAKE THEM? HOW DID THEY AFFECT THE PORTFOLIO'S PERFORMANCE?
Our best purchases in the first half of the year were Dell Computer (up 94%),
Lucent Technologies (up 78%), EMC (up 67%) and Network Associates (up 31%).
These companies are located in the technology sector and conduct the majority of
their business domestically. Lucent Technologies, EMC and Network Associates
each rely on proprietary products which give them an advantage over their
competition. Dell Computer which
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operates in the highly competitive personal computer market has prospered due to
its low cost distribution model.
WERE THERE ANY SALES DURING THE REPORTING PERIOD? WHY DID YOU MAKE THEM? HOW DID
THE SALES AFFECT PORTFOLIO PERFORMANCE?
The Portfolio sold out of its lodging holdings (Marriott International and
Hilton Hotels) because we felt that this highly cyclical industry had approached
its peak earnings potential. When Computer Associates made a hostile bid for
Computer Sciences earlier in the year we disposed of both stocks. We did not
believe that a combination of these two companies would be beneficial to
shareholders. After we sold both stocks, the merger was dissolved and both
company's stock prices moved upward.
DURING THE REPORTING PERIOD, WHICH SECURITIES CONTRIBUTED MOST POSITIVELY TO THE
PORTFOLIO'S PERFORMANCE? WHAT WAS THEIR RETURN? WHY DID THEY DO SO WELL?
America Online was the Portfolio's best performer in the first half of the year
with a return of 132.3%. The company continued to exhibit strong revenue
generation and operating performance with its online services. In addition,
speculation that a large communication or media company would merge with America
Online caused the valuation of the stock to appreciate. Cisco Systems was also a
strong performer in the first half of the year with a return of 65.1%. Cisco
Systems is the premier company in the dynamic networking and telecommunications
equipment industries. We believe the company and the industry will continue to
benefit as the explosive growth of the internet creates strong demand for their
products. Worldcom had a return of 60.1% in the first half of the year as the
stock rebounded from a sell-off late last year after it announced a merger with
MCI. As the year progressed, the market began to more fully appreciate the
growth potential of the telecommunications giant.
DURING THE REPORTING PERIOD, WHICH SECURITIES IN THE PORTFOLIO WERE THE WORST
PERFORMERS? WHAT WAS THEIR RETURN? WHAT WERE THE REASONS FOR THEIR
UNDERPERFORMANCE? DO WE STILL OWN THE SECURITIES? WHY?
Our worst performing stocks in the first half of the year were Cendant (down
40%) and Sunbeam (down 74%). Cendant's problems were the result of some
accounting irregularities in one of the company's subsidiaries. We continue to
hold the stock because we believe that these problems were an isolated incident
and that the market overreacted to this situation. The company acted quickly to
reassure the investment community that the accounting problems were being
resolved and the overall growth prospects of the company remain strong. We are
closely monitoring the situation and will sell our holdings if the company
discloses any more irregularities. Sunbeam's problems were of a similar nature
as the company appears to have overstated earnings during the last few quarters.
We have sold that stock because we believe that the company has a long road to
travel as it repairs its image to both its customers and investors.
WHAT WERE THE BEST AND WORST DECISIONS YOU MADE FOR THE PORTFOLIO DURING THE
REPORTING PERIOD? WHY DID YOU MAKE THEM AND HOW DID THEY AFFECT THE PORTFOLIO?
The best decision the Portfolio made in the quarter was increasing our weighting
in technology stocks as this group was the best performing market sector in the
first half. In particular, our concentration in the software and services side
of technology was very important as they outperformed the more commodity
oriented companies. The worst decision the Portfolio made was not underweighting
our energy holdings to a greater extent. Unfortunately, we underestimated the
impact Asia was going to have on the overall demand for oil.
IN WHAT SECTORS WAS THE PORTFOLIO OVERWEIGHTED OR UNDERWEIGHTED DURING THE
PERIOD? WHY? HOW DID THIS AFFECT PERFORMANCE? HOW IS THE PORTFOLIO CURRENTLY
POSITIONED?
The Portfolio is currently overweighted in technology and consumer staples. Our
overweighting in technology is focused in the less cyclical software and
computer services sector which is benefiting from the increased spending by
corporations on year 2000 computer compliance. The Portfolio's technology
holdings outperformed the market by a wide margin in the first half of the year.
The Portfolio's consumer staples holdings exceeded the market due primarily to
our media holdings. The Portfolio is currently underweighted in basic materials,
energy and capital goods. Our underweighting of basic materials and energy was
timely as both sectors underperformed the market in the first half of the year.
10
<PAGE> 13
WHAT IS YOUR OUTLOOK GOING FORWARD? WHAT SECURITIES/SECTORS ARE YOU FOCUSING ON?
Our outlook going forward could be best described as cautiously optimistic. With
inflation and interest rates remaining subdued and corporate earnings growth
continuing, we believe that the stock market can progress upward. Our main
concern is focused on corporate earnings, as Asia's woes will probably have a
longer tail duration than the market is currently discounting. Thus, we will
continue to position the Portfolio in domestically oriented companies in sectors
such as financials, consumer staples and technology.
James Agostisi
Patricia Rossi
Portfolio Managers
New York Life Insurance Company
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
Total returns for the Portfolio 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. These results do not reflect any deduction of sales charges,
mortality and expense charges, contract charges, or administrative charges.
11
<PAGE> 14
GLOSSARY
ASSET-BACKED SECURITIES: Securities backed by loan paper, receivables, or an
anticipated income stream from the sale of merchandise or services. The
securities are generally originated by banks, credit card companies, or other
providers of credit and often "enhanced" by a bank letter of credit or by
insurance from an institution other than the issuer.
AVERAGE MATURITY: Maturity is the termination date of an obligation or the
length of time an income security is required to pay interest. Average maturity
reflects the average of the maturities of all fixed-income securities in a
portfolio.
BULLISH/BEARISH: A bull market occurs when security prices are rising; a bear
market occurs when security prices decline. A bullish attitude therefore
suggests a positive outlook, while a bearish attitude represents a negative view
of the market or the opportunities it may present.
CYCLICALS (CYCLICAL STOCK): A security or stock that tends to rise quickly with
economic upturns and fall quickly when the economy slows. Noncyclical
industries, such as food, insurance, and pharmaceuticals, are likely to have
more consistent performance regardless of economic changes.
DURATION: A measure of price sensitivity, which adjusts for the time value of
the payments investors will receive and which takes into account interest
payments as well as principal payments. Duration is a better gauge of
interest-rate sensitivity than average maturity alone.
FLIGHT TO QUALITY: When investors in general move to improve the quality or
liquidity of the securities they own, because of economic, industry, market or
credit concerns that suggest lower quality securities or those that are less
liquid are likely to be more vulnerable to negative market events.
GROSS DOMESTIC PRODUCT (GDP): The total value of goods and services produced in
the U.S. economy over a particular period of time, usually one year. The GDP
growth rate measures strictly domestic output and is a primary indicator of the
status of the economy.
INFLATION: An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
LIQUIDITY: Securities are said to be liquid when they can be easily bought or
sold in large volume without substantially affecting their price. Some
securities, such as private placements or stocks that have few shares
outstanding are considered illiquid either because there are few market
participants interested in buying or selling the securities or because purchases
and sales may cause wide price swings.
MERGERS AND ACQUISITIONS: A merger is a combination of two companies. An
acquisition is the purchase of a company, division, or business unit. Companies
that are the subject of a merger or acquisition often pay shareholders a
premium, or an amount over the current share price, to complete the transaction
quickly and under favorable terms.
MORTGAGE-BACKED SECURITIES: Securities representing interests in "pools" of
mortgages in which principal and interest payments by the holders of underlying
fixed- or adjustable-rate mortgages are, in effect, "passed through" to
investors (net of fees paid to the issuer or guarantor of the securities).
SPLIT ISSUES (SPLIT-RATED ISSUES): Securities rated top tier by one credit
rating agency and second tier by another.
WEIGHTING: The proportion of a portfolio allocated to a specific security,
market sector or country, i.e., a portfolio is said to be overweighted in a
sector or country when that portion of the portfolio is greater than the
sector's general relationship to the market as a whole or the country's total
equities relative to the international equity markets as a whole.
12
<PAGE> 15
YANKEE ISSUES: Dollar-denominated income securities issued in the United States
by foreign banks and corporations, usually when conditions in the U.S. are more
favorable than in other markets, including the issuer's domestic market
overseas.
YIELD: The income per share (or current value of a security) paid to investors
over a specified period of time as a percentage of the cost of the security.
Mutual fund yields are expressed as a percentage of the fund's current price per
share.
YIELD CURVE: When interest rates available from various short-, intermediate-,
and long-term securities are plotted on a graph, the resulting line is known as
a yield curve.
13
<PAGE> 16
(THIS PAGE INTENTIONALLY LEFT BLANK)
14
<PAGE> 17
NYLIAC MFA SEPARATE ACCOUNT-I
TAX-QUALIFIED POLICIES
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
--------------------------- --------------------------- ---------------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in MainStay VP Series Fund,
Inc., at net asset value (Identified
Cost: $89,487,029; $147,971,374;
$30,503,400; $50,533,814;
$4,467,689; $6,640,470,
respectively)....................... $123,334,041 $210,618,080 $ 31,643,067 $ 54,342,959 $ 4,467,726 $ 6,640,493
LIABILITIES:
Liability for mortality and expense
risk charges........................ 394,972 945,279 102,953 244,914 14,281 29,878
------------ ------------ ------------ ------------ ------------ ------------
Total equity...................... $122,939,069 $209,672,801 $ 31,540,114 $ 54,098,045 $ 4,453,445 $ 6,610,615
============ ============ ============ ============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units
outstanding: 2,108,247; 3,866,051;
980,099; 1,807,510; 218,214;
348,277, respectively............. $122,939,069 $209,672,801 $ 31,540,114 $ 54,098,045 $ 4,453,445 $ 6,610,615
============ ============ ============ ============ ============ ============
Variable accumulation unit value.... $ 58.31 $ 54.23 $ 32.18 $ 29.93 $ 20.41 $ 18.98
============ ============ ============ ============ ============ ============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
--------------------------- --------------------------- ---------------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income....................... $ -- $ -- $ -- $ -- $ 123,462 $ 182,775
Mortality and expense risk charges.... (744,892) (1,786,658) (204,056) (487,664) (29,603) (61,549)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)...... (744,892) (1,786,658) (204,056) (487,664) 93,859 121,226
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of investments..... 9,684,394 17,308,004 4,129,749 6,449,888 1,203,054 1,413,348
Cost of investments sold.............. (6,652,689) (9,332,724) (3,978,866) (5,856,022) (1,203,060) (1,413,428)
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss)
on investments.................. 3,031,705 7,975,280 150,883 593,866 (6) (80)
Change in unrealized appreciation
on investments...................... 14,946,843 22,854,140 1,250,524 1,802,895 32 118
------------ ------------ ------------ ------------ ------------ ------------
Net gain on investments........... 17,978,548 30,829,420 1,401,407 2,396,761 26 38
------------ ------------ ------------ ------------ ------------ ------------
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate
Account............................. (37,802) (90,846) (3,009) (7,183) (285) (588)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in total equity
resulting from operations....... $ 17,195,854 $ 28,951,916 $ 1,194,342 $ 1,901,914 $ 93,600 $ 120,676
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 18
STATEMENT OF CHANGES IN TOTAL EQUITY
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENT DIVISIONS
------------------------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income (loss).................... $ (744,892) $ (564,116) $ (1,786,658) $ (1,931,412)
Net realized gain (loss) on investments......... 3,031,705 4,215,822 7,975,280 8,950,270
Realized gain distribution received............. -- 14,771,244 -- 25,537,359
Change in unrealized appreciation on
investments................................... 14,946,843 5,780,475 22,854,140 8,692,840
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by
Separate Account.............................. (37,802) (51,898) (90,846) (126,748)
------------ ------------ ------------ ------------
Net increase in total equity resulting
from operations............................. 17,195,854 24,151,527 28,951,916 41,122,309
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.................. 492,440 754,147 2,387,406 4,629,389
Policyowners' surrenders........................ (9,412,927) (11,263,827) (18,707,662) (27,429,297)
Policyowners' annuity and death benefits........ (104,926) (1,293,819) (619,606) (1,085,309)
Net transfers from (to) Fixed Account........... 705,079 504,772 892,688 1,204,503
Transfers between Investment Divisions.......... 476,224 466,315 645,396 1,492,856
------------ ------------ ------------ ------------
Net contributions and withdrawals............. (7,844,110) (10,832,412) (15,401,778) (21,187,858)
------------ ------------ ------------ ------------
Increase (decrease) in total equity......... 9,351,744 13,319,115 13,550,138 19,934,451
TOTAL EQUITY:
Beginning of period............................. 113,587,325 100,268,210 196,122,663 176,188,212
------------ ------------ ------------ ------------
End of period................................... $122,939,069 $113,587,325 $209,672,801 $196,122,663
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 19
NYLIAC MFA SEPARATE ACCOUNT-I
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS
----------------------------------------------------- -----------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES POLICIES POLICIES
------------------------- ------------------------- ------------------------- -------------------------
1998 1997 1998 1997 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (204,056) $ 1,689,631 $ (487,664) $ 2,598,722 $ 93,859 $ 228,081 $ 121,226 $ 287,523
150,883 193,056 593,866 968,705 (6) (112) (80) (239)
-- 95,013 -- 163,372 -- -- -- --
1,250,524 766,951 1,802,895 705,665 32 184 118 342
(3,009) (6,734) (7,183) (16,251) (285) (391) (588) (1,000)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,194,342 2,737,917 1,901,914 4,420,213 93,600 227,762 120,676 286,626
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
103,550 149,719 785,436 1,770,297 9,139 53,680 154,122 335,693
(3,273,172) (4,949,859) (6,114,502) (10,332,134) (757,538) (1,892,719) (1,076,022) (2,748,767)
(54,436) (262,993) (130,586) (511,771) (45,518) (15,502) (30,273) (72,602)
64,445 (13,052) 120,559 (186,189) (4,229) (212,192) (315) (76,561)
(315,041) (868,097) (519,636) (2,077,747) (157,557) 407,401 (124,636) 585,963
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(3,474,654) (5,944,282) (5,858,729) (11,337,544) (955,703) (1,659,332) (1,077,124) (1,976,274)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(2,280,312) (3,206,365) (3,956,815) (6,917,331) (862,103) (1,431,570) (956,448) (1,689,648)
33,820,426 37,026,791 58,054,860 64,972,191 5,315,548 6,747,118 7,567,063 9,256,711
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$31,540,114 $33,820,426 $54,098,045 $58,054,860 $ 4,453,445 $ 5,315,548 $ 6,610,615 $ 7,567,063
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
--------------------------- --------------------------- ---------------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in MainStay VP
Series Fund, Inc., at net asset
value (Identified Cost: $107,187,780;
$13,682,015; $43,824,485;
$5,279,796; $6,467,562; $801,428,
respectively)....................... $146,953,886 $ 18,838,673 $ 45,313,802 $ 5,586,010 $ 6,467,625 $ 801,435
LIABILITIES:
Liability for mortality and
expense risk charges................ 467,918 84,514 145,081 25,250 19,972 3,109
------------ ------------ ------------ ------------ ------------ ------------
Total equity...................... $146,485,968 $ 18,754,159 $ 45,168,721 $ 5,560,760 $ 6,447,653 $ 798,326
============ ============ ============ ============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units
outstanding: 2,512,042; 345,798;
1,398,313; 185,506; 315,926;
42,060, respectively.............. $146,485,968 $ 18,754,159 $ 45,168,721 $ 5,560,760 $ 6,447,653 $ 798,326
============ ============ ============ ============ ============ ============
Variable accumulation
unit value........................ $ 58.31 $ 54.23 $ 32.30 $ 29.98 $ 20.41 $ 18.98
============ ============ ============ ============ ============ ============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
--------------------------- --------------------------- ---------------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income....................... $ -- $ -- $ -- $ -- $ 166,964 $ 18,823
Mortality and expense risk charges.... (877,657) (159,257) (286,751) (50,111) (40,009) (6,339)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)...... (877,657) (159,257) (286,751) (50,111) 126,955 12,484
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of investments..... 8,780,051 1,437,029 4,357,910 609,044 1,002,983 124,046
Cost of investments sold.............. (6,370,562) (876,694) (4,319,986) (543,927) (1,002,984) (124,046)
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss)
on investments.................. 2,409,489 560,335 37,924 65,117 (1) --
Change in unrealized appreciation
on investments...................... 18,686,214 2,188,178 1,933,224 180,818 34 4
------------ ------------ ------------ ------------ ------------ ------------
Net gain on investments........... 21,095,703 2,748,513 1,971,148 245,935 33 4
------------ ------------ ------------ ------------ ------------ ------------
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate
Account............................. (44,366) (8,076) (4,220) (736) (377) (59)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in total equity
resulting from operations....... $ 20,173,680 $ 2,581,180 $ 1,680,177 $ 195,088 $ 126,611 $ 12,429
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 21
NYLIAC MFA SEPARATE ACCOUNT-II
NON-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
19
<PAGE> 22
STATEMENT OF CHANGES IN TOTAL EQUITY
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENT DIVISIONS
------------------------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income (loss)........................ $ (877,657) $ (632,338) $ (159,257) $ (166,662)
Net realized gain (loss) on investments............. 2,409,489 3,780,534 560,335 672,393
Realized gain distribution received................. -- 17,319,759 -- 2,253,166
Change in unrealized appreciation on investments.... 18,686,214 7,321,265 2,188,178 835,447
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account.................................. (44,366) (59,410) (8,076) (11,378)
------------ ------------ ------------ ------------
Net increase in total equity resulting from
operations...................................... 20,173,680 27,729,810 2,581,180 3,582,966
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...................... 176,488 698,016 93,536 265,718
Policyowners' surrenders............................ (7,725,190) (9,979,186) (1,084,343) (1,552,399)
Policyowners' annuity and death benefits............ (538,256) (1,846,691) (113,693) (201,003)
Net transfers from (to) Fixed Account............... 1,103,136 1,261,793 24,726 41,777
Transfers between Investment Divisions.............. 100,081 558,642 (56,937) 236,080
------------ ------------ ------------ ------------
Net contributions and withdrawals................. (6,883,741) (9,307,426) (1,136,711) (1,209,827)
------------ ------------ ------------ ------------
Increase (decrease) in total equity............. 13,289,939 18,422,384 1,444,469 2,373,139
TOTAL EQUITY:
Beginning of period................................... 133,196,029 114,773,645 17,309,690 14,936,551
------------ ------------ ------------ ------------
End of period......................................... $146,485,968 $133,196,029 $ 18,754,159 $ 17,309,690
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 23
NYLIAC MFA SEPARATE ACCOUNT-II
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------------------------------------------- ---------------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES POLICIES POLICIES
--------------------------- --------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (286,751) $ 2,364,287 $ (50,111) $ 264,234 $ 126,955 $ 282,567 $ 12,484 $ 28,141
37,924 363,480 65,117 90,798 (1) (40) -- (17)
-- 133,101 -- 16,538 -- -- -- --
1,933,224 995,883 180,818 73,994 34 129 4 27
(4,220) (9,453) (736) (1,640) (377) (466) (59) (99)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,680,177 3,847,298 195,088 443,924 126,611 282,190 12,429 28,052
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
103,567 195,193 34,312 104,100 14,347 (11,970) 8,049 22,330
(3,655,107) (6,748,806) (399,697) (808,651) (462,582) (1,228,154) (96,440) (118,945)
(328,694) (1,409,901) (105,296) (109,111) (53,617) (31,260) -- (1,760)
294,494 57,010 14,401 (17,535) 13,700 (43,738) 1,306 (4,291)
(98,433) (810,766) (57,961) (129,141) (2,613) 276,812 115,129 (106,939)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(3,684,173) (8,717,270) (514,241) (960,338) (490,765) (1,038,310) 28,044 (209,605)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,003,996) (4,869,972) (319,153) (516,414) (364,154) (756,120) 40,473 (181,553)
47,172,717 52,042,689 5,879,913 6,396,327 6,811,807 7,567,927 757,853 939,406
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 45,168,721 $ 47,172,717 $ 5,560,760 $ 5,879,913 $ 6,447,653 $ 6,811,807 $ 798,326 $ 757,853
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
NYLIAC MFA Separate Account-I ("Separate Account-I") and NYLIAC MFA Separate
Account-II ("Separate Account-II") were 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. These accounts were
established to receive and invest net premium payments under Qualified
Multi-Funded Retirement Annuity Policies ("Separate Account-I") and Non-
Qualified Multi-Funded Retirement Annuity Policies ("Separate Account-II")
issued by New York Life Insurance and Annuity Corporation.
Separate Account-I and Separate Account-II are registered under the Investment
Company Act of 1940, as amended, as unit investment trusts. The assets of
Separate Account-I and Separate Account-II are invested exclusively in shares of
the MainStay VP 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. Effective
December 19, 1994, sales of all such Policies were discontinued.
There are six Investment Divisions within both Separate Account-I and Separate
Account-II, three of which invest Single Premium Policy net premium payments and
three of which invest Flexible Premium Policy net premium payments. The Common
Stock Investment Divisions invest in the Growth Equity Portfolio, the Bond
Investment Divisions invest in the Bond Portfolio, and the Money Market
Investment Divisions invest in the Cash Management Portfolio. Net premium
payments received are allocated to the Investment Divisions of Separate
Account-I or Separate Account-II according to Policyowner instructions. In
addition, the Policyowner has the option to transfer amounts between the
Investment Divisions of Separate Account-I and Separate Account-II and the Fixed
Account of New York Life Insurance and Annuity Corporation.
No Federal income tax is payable on investment income or capital gains of
Separate Account-I or Separate Account-II 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 portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
22
<PAGE> 25
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At June 30, 1998, the investment in the MainStay VP Series Fund, Inc. by the
respective Investment Divisions of Separate Account-I and Separate
Account-II is as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY CASH MANAGEMENT
PORTFOLIO BOND PORTFOLIO PORTFOLIO
---------------------- ---------------------- ----------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Number of shares........................... 5,226 8,924 2,307 3,962 4,468 6,640
Identified cost*........................... $89,487 $147,971 $30,503 $50,534 $ 4,468 $ 6,640
SEPARATE ACCOUNT-II (NON-QUALIFIED
POLICIES)
Number of shares........................... 6,227 798 3,304 407 6,468 801
Identified cost*........................... $107,188 $13,682 $43,824 $ 5,280 $ 6,468 $ 801
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Transactions in MainStay VP Series Fund, Inc. shares for the six months ended
June 30, 1998, were as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY CASH MANAGEMENT
PORTFOLIO BOND PORTFOLIO PORTFOLIO
---------------------- ---------------------- ----------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Purchases.................................. $ 1,088 $ 94 $ 441 $ 77 $ 337 $ 451
Proceeds from sales........................ 9,684 17,308 4,130 6,450 1,203 1,413
SEPARATE ACCOUNT-II (NON-QUALIFIED
POLICIES)
Purchases.................................. $ 1,016 $ 140 $ 373 $ 43 $ 637 $ 164
Proceeds from sales........................ 8,780 1,437 4,358 609 1,003 124
</TABLE>
- --------------------------------------------------------------------------------
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
Separate Account-I and Separate Account-II are charged for administrative
services provided for Flexible Premium Policies, and Single and Flexible
Premium Policies are 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 1.25% of the daily net asset value for Single Premium
Policies and 1.75% of the daily net asset value for Flexible Premium Policies of
each Investment Division. The amounts of these charges retained in the
Investment Divisions represent funds of New York Life Insurance and Annuity
Corporation. Accordingly, New York Life Insurance and Annuity Corporation
participates in the results of each Investment Division ratably with the
Policyowners.
- --------------------------------------------------------------------------------
NOTE 4--Distribution of Net Income:
- --------------------------------------------------------------------------------
Separate Account-I and Separate Account-II do not expect to declare dividends
to Policyowners from accumulated net investment income and realized gains.
The income and gains are distributed to Policyowners as part of withdrawals
of amounts (in the form of surrenders, death benefits, transfers, or annuity
payments) in excess of the net premium payments.
23
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 5-- Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At June 30, 1998, the cost to Policyowners for accumulation units
outstanding, with adjustments for net investment income, market appreciation
(depreciation) and deduction for expenses is as follows:
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals).... $11,184 $ 9,964 $ 1,797 $ 8,387 $ (612) $ 676
Accumulated net investment income (loss)..... 1,645 (3,156) 26,491 40,151 5,094 5,987
Accumulated net realized gain (loss)
on investments and realized gain
distributions received..................... 76,554 140,948 2,276 2,082 (1) (1)
Unrealized appreciation (depreciation)
on investments............................. 33,847 62,647 1,140 3,809 -- --
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account............... (291) (730) (164) (331) (28) (51)
--------- --------- -------- -------- -------- --------
Net amount applicable to Policyowners........ $122,939 $209,673 $31,540 $54,098 $ 4,453 $ 6,611
========= ========= ======== ======== ======== ========
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals).... $23,127 $ 1,426 $ 3,493 $ 231 $ 420 $ 59
Accumulated net investment income (loss)..... 1,536 (256) 37,407 4,603 6,066 749
Accumulated net realized gain (loss)
on investments and realized gain
distributions received..................... 82,381 12,491 3,053 467 (1) --
Unrealized appreciation on investments....... 39,766 5,157 1,489 306 -- --
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account............... (324) (64) (273) (46) (37) (10)
--------- -------- -------- -------- -------- --------
Net amount applicable to Policyowners........ $146,486 $18,754 $45,169 $ 5,561 $ 6,448 $ 798
========= ======== ======== ======== ======== ========
</TABLE>
24
<PAGE> 27
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
25
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units were as follows:
<TABLE>
<CAPTION>
COMMON STOCK INVESTMENT DIVISIONS
-----------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES
----------------------- -----------------------
1998 1997 1998 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Units issued on premium payments............................ 9 17 46 112
Units redeemed on surrenders................................ (172) (270) (370) (663)
Units redeemed on annuity and death benefits................ -- (6) (5) (6)
Units issued (redeemed) on net transfers from (to)
Fixed Account............................................. 13 11 17 27
Units issued (redeemed) on transfers between
Investment Divisions...................................... 9 11 12 35
----- ----- ----- -----
Net decrease............................................ (141) (237) (300) (495)
Units outstanding, beginning of period...................... 2,249 2,486 4,166 4,661
----- ----- ----- -----
Units outstanding, end of period............................ 2,108 2,249 3,866 4,166
===== ===== ===== =====
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Units issued on premium payments............................ 2 16 2 6
Units redeemed on surrenders................................ (140) (233) (22) (38)
Units redeemed on annuity and death benefits................ (10) (28) (1) (2)
Units issued (redeemed) on net transfers from (to)
Fixed Account............................................. 20 28 -- 1
Units issued (redeemed) on transfers between
Investment Divisions...................................... 2 11 (1) 6
----- ----- ----- -----
Net increase (decrease)................................. (126) (206) (22) (27)
Units outstanding, beginning of period...................... 2,638 2,844 368 395
----- ----- ----- -----
Units outstanding, end of period............................ 2,512 2,638 346 368
===== ===== ===== =====
</TABLE>
26
<PAGE> 29
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND INVESTMENT DIVISIONS MONEY MARKET INVESTMENT DIVISIONS
----------------------------------------- -----------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES POLICIES POLICIES
------------------- ------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
4 5 28 65 -- 3 9 18
(106) (170) (211) (390) (38) (96) (59) (151)
-- (6) (2) (5) (2) (1) -- (3)
2 (1) 4 (7) -- (11) -- (4)
(10) (30) (18) (76) (8) 21 (7) 32
----- ----- ----- ----- ----- ----- ----- -----
(110) (202) (199) (413) (48) (84) (57) (108)
1,090 1,292 2,007 2,420 266 350 405 513
----- ----- ----- ----- ----- ----- ----- -----
980 1,090 1,808 2,007 218 266 348 405
===== ===== ===== ===== ===== ===== ===== =====
4 7 2 4 1 (1) -- 1
(116) (248) (15) (31) (23) (63) (5) (6)
(10) (29) (2) (2) (3) (1) -- --
9 2 -- (1) 1 (2) -- --
(3) (27) (2) (5) -- 14 6 (6)
----- ----- ----- ----- ----- ----- ----- -----
(116) (295) (17) (35) (24) (53) 1 (11)
1,514 1,809 203 238 340 393 41 52
----- ----- ----- ----- ----- ----- ----- -----
1,398 1,514 186 203 316 340 42 41
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
27
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and
capital changes (for an accumulation unit outstanding throughout each
period) with respect to each Investment Division of Separate Account-I and
Separate Account-II:
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
COMMON STOCK INVESTMENT DIVISIONS 1998 1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of period..................... $50.50 $40.34 $32.81 $25.72 $25.73 $22.90
Net investment income (loss)........................ (0.34) (0.24) (0.12) -- 0.03 0.06
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 8.15 10.40 7.65 7.09 (0.04) 2.77
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $58.31 $50.50 $40.34 $32.81 $25.72 $25.73
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of period..................... $50.50 $40.34 $32.81 $25.72 $25.73 $22.90
Net investment income (loss)........................ (0.34) (0.23) (0.12) -- 0.03 0.07
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 8.15 10.39 7.65 7.09 (0.04) 2.76
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $58.31 $50.50 $40.34 $32.81 $25.72 $25.73
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of period..................... $47.08 $37.80 $30.90 $24.34 $24.48 $21.90
Net investment loss................................. (0.44) (0.44) (0.29) (0.14) (0.09) (0.06)
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 7.59 9.72 7.19 6.70 (0.05) 2.64
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $54.23 $47.08 $37.80 $30.90 $24.34 $24.48
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of period..................... $47.08 $37.80 $30.90 $24.34 $24.48 $21.90
Net investment loss................................. (0.44) (0.43) (0.29) (0.14) (0.09) (0.06)
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 7.59 9.71 7.19 6.70 (0.05) 2.64
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $54.23 $47.08 $37.80 $30.90 $24.34 $24.48
====== ====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each period.
28
<PAGE> 31
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SINGLE PREMIUM POLICIES
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
BOND INVESTMENT DIVISIONS 1998 1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of period..................... $31.03 $28.66 $28.44 $24.34 $25.51 $23.19
Net investment income (loss)........................ (0.20) 1.42 1.29 1.30 1.22 1.39
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 1.35 0.95 (1.07) 2.80 (2.39) 0.93
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $32.18 $31.03 $28.66 $28.44 $24.34 $25.51
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of period..................... $31.15 $28.76 $28.54 $24.43 $25.60 $23.28
Net investment income (loss)........................ (0.20) 1.42 1.30 1.31 1.19 1.44
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 1.35 0.97 (1.08) 2.80 (2.36) 0.88
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $32.30 $31.15 $28.76 $28.54 $24.43 $25.60
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of period..................... $28.93 $26.85 $26.78 $23.03 $24.26 $22.17
Net investment income (loss)........................ (0.26) 1.18 1.14 1.16 1.11 1.20
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 1.26 0.90 (1.07) 2.59 (2.34) 0.89
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $29.93 $28.93 $26.85 $26.78 $23.03 $24.26
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of period..................... $28.98 $26.89 $26.82 $23.07 $24.30 $22.20
Net investment income (loss)........................ (0.26) 1.20 1.13 1.15 1.10 1.13
Net realized and unrealized gains (losses) on
security transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 1.26 0.89 (1.06) 2.60 (2.33) 0.97
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $29.98 $28.98 $26.89 $26.82 $23.07 $24.30
====== ====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each period.
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
MONEY MARKET INVESTMENT DIVISIONS 1998 1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of period..................... $20.02 $19.26 $18.57 $17.81 $17.36 $17.07
Net investment income............................... 0.39 0.76 0.69 0.76 0.45 0.29
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $20.41 $20.02 $19.26 $18.57 $17.81 $17.36
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of period..................... $20.02 $19.26 $18.57 $17.81 $17.36 $17.07
Net investment income............................... 0.39 0.76 0.69 0.76 0.45 0.29
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $20.41 $20.02 $19.26 $18.57 $17.81 $17.36
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of period..................... $18.66 $18.05 $17.48 $16.85 $16.51 $16.32
Net investment income............................... 0.32 0.61 0.57 0.63 0.34 0.19
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $18.98 $18.66 $18.05 $17.48 $16.85 $16.51
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of period..................... $18.66 $18.05 $17.48 $16.85 $16.51 $16.32
Net investment income............................... 0.31 0.61 0.57 0.63 0.34 0.19
Net realized and unrealized gains on security
transactions and realized capital gain
distributions received (includes the effect of
capital share transactions)....................... 0.01 -- -- -- -- --
------ ------ ------ ------ ------ ------
Unit value, end of period........................... $18.98 $18.66 $18.05 $17.48 $16.85 $16.51
====== ====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each period.
30
<PAGE> 33
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
31
<PAGE> 34
- --------------------------------------------------------------------------------
To Policyowners:
The assets of NYLIAC Variable Annuity Separate Account-I, NYLIAC Variable
Annuity Separate Account-II, NYLIAC Variable Annuity Separate Account-III
(formerly NYLIAC LifeStages(SM) Separate Account), NYLIAC Corporate Sponsored
Variable Universal Life Separate Account-I, NYLIAC Variable Universal Life
Separate Account-I, 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 Annuity Separate Account-III, NYLIAC Corporate Sponsored Variable
Universal Life Separate Account-I, and NYLIAC Variable Universal Life Separate
Account-I may be invested in the Calvert Variable Series Inc. (formerly "Acacia
Capital Corporation"), the Alger American Fund, Fidelity Variable Insurance
Products Fund, Fidelity Variable Insurance Products Fund II, the Janus Aspen
Series, the Morgan Stanley Universal Funds Inc., the MFS Variable Insurance
Trust, the T. Rowe Price Equity Series, Inc. and the Van Eck Worldwide Insurance
Trust 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 November 11,
1997, executive officers of the Fund were elected. On May 20, 1998, a dividend
distribution was paid to NYLIAC Variable Annuity Separate Account-I, NYLIAC
Variable Annuity Separate Account-II, NYLIAC Variable Annuity Separate
Account-III, NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I, NYLIAC Variable Universal Life Separate Account-I, 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.
The financial information included herein as of June 30, 1998, and for the
period then ended, is taken from the records of the Fund without examination by
independent accountants who do not express an opinion thereon.
/s/ RICHARD M. KERNAN JR.
Chairman of the Board
and Chief Executive Officer
MAINSTAY VP SERIES FUND, INC.
32
<PAGE> 35
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.3%)+
PRINCIPAL AMORTIZED
AMOUNT COST
-------------------------
<S> <C> <C>
ASSET-BACKED SECURITY (1.2%)
Green Tree Financial Corp.
Series 98-2 Class A1
5.67%, due 4/1/99 (c)............ $2,374,817 $ 2,374,817
------------
BANK NOTE (1.4%)
Morgan Guaranty Trust Co.
5.93%, due 8/31/98 (c)........... 2,600,000 2,600,751
------------
CERTIFICATES OF DEPOSIT (2.6%)
Bayerische Landesbank Girozentrale
5.53%, due 3/23/99 (b)(c)........ 3,000,000 2,998,308
Bayerische Vereinsbank AG
5.81%, due 9/4/98 (b)(c)......... 2,000,000 2,000,000
------------
4,998,308
------------
COMMERCIAL PAPER (88.2%)
Abbey National North America
5.52%, due 7/2/98................ 3,500,000 3,499,463
American General Corp.
5.51%, due 8/25/98............... 4,000,000 3,966,328
Banca CRT Financial Corp.
5.54%, due 9/1/98................ 4,000,000 3,961,836
5.55%, due 8/28/98............... 4,150,000 4,112,892
Banco Bradesco S.A., Grand Cayman
Series A
5.54%, due 11/19/98.............. 5,315,000 5,199,673
Banco Santander Puerto Rico
5.50%, due 7/13/98............... 1,575,000 1,572,112
5.62%, due 7/27/98............... 2,195,000 2,186,091
BankAmerica Corp.
5.33%, due 10/5/98............... 2,500,000 2,464,467
BIL North America Inc.
5.55%, due 7/10/98............... 4,000,000 3,994,450
BTR Dunlop Finance Inc.
5.40%, due 7/8/98 (a)............ 4,000,000 3,995,800
Caisse Centrale des Banques
Populaires International Inc.
5.52%, due 8/18/98 (a)........... 3,500,000 3,474,240
Caisse Centrale Desjardins du
Quebec
5.49%, due 7/8/98................ 3,000,000 2,996,797
Credit Suisse First Boston
5.51%, due 9/10/98 (a)........... 3,480,000 3,442,183
Deutsche Bank Financial Inc.
5.49%, due 7/6/98................ 3,500,000 3,497,331
Ford Motor Credit Co.
5.53%, due 7/10/98............... 4,580,000 4,573,668
5.57%, due 7/10/98............... 2,400,000 2,396,658
Formosa Plastics Corp. U.S.A.
5.55%, due 7/6/98................ 3,000,000 2,997,687
5.58%, due 7/8/98................ 4,850,000 4,844,738
Franklin Resources Inc.
5.48%, due 7/6/98 (a)............ 3,000,000 2,997,717
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
General Electric Capital Corp.
5.36%, due 7/28/98............... $2,000,000 $ 1,991,960
5.41%, due 10/15/98.............. 2,450,000 2,410,973
5.50%, due 10/21/98.............. 3,000,000 2,948,667
Goldman Sachs Group L.P. (The)
5.53%, due 8/26/98............... 4,000,000 3,965,591
ING America Insurance Holdings
Inc.
5.54%, due 7/21/98............... 4,000,000 3,987,689
KFW International Finance Inc.
5.53%, due 7/15/98............... 4,120,000 4,111,140
5.65%, due 7/13/98............... 4,000,000 3,992,467
Lloyds Bank PLC
5.50%, due 8/26/98............... 3,500,000 3,470,055
Merrill Lynch & Co. Inc.
5.50%, due 10/30/98.............. 4,000,000 3,926,056
Minmetals Capital & Securities
Inc.
5.39%, due 8/24/98............... 5,000,000 4,959,575
Morgan Stanley, Dean Witter,
Discover & Co.
5.54%, due 7/17/98............... 4,000,000 3,990,151
5.61%, due 7/28/98 (b)(c)........ 3,000,000 3,000,000
National Rural Utilities
Cooperative Finance Corp.
5.53%, due 7/30/98............... 4,900,000 4,878,172
Pemex Capital Inc.
5.53%, due 7/17/98............... 3,500,000 3,491,398
Prudential Finance (Jersey) Ltd.
5.49%, due 7/7/98................ 3,500,000 3,496,797
5.54%, due 7/6/98................ 4,050,000 4,046,884
Prudential Funding Corp.
5.51%, due 9/4/98................ 4,000,000 3,960,206
5.52%, due 11/16/98.............. 4,000,000 3,915,360
Salomon Smith Barney Holdings Inc.
5.53%, due 8/12/98............... 3,825,000 3,800,322
5.54%, due 8/7/98................ 2,135,000 2,122,843
San Paolo U.S. Financial Co.
5.37%, due 7/21/98............... 1,900,000 1,894,332
6.20%, due 7/1/98................ 6,295,000 6,295,000
Songs Fuel Co.
5.40%, due 8/10/98............... 4,152,000 4,127,088
Svenska Handelsbanken Inc.
5.48%, due 7/9/98................ 3,400,000 3,395,859
5.49%, due 7/14/98............... 3,500,000 3,493,061
Transportadora de Gas del Sur S.A.
5.50%, due 7/21/98............... 2,000,000 1,993,889
5.60%, due 9/24/98............... 1,500,000 1,480,167
UNIfunding Inc.
5.50%, due 8/4/98................ 4,000,000 3,979,222
Wood Street Funding Corp.
5.55%, due 9/17/98 (a)........... 2,400,000 2,371,140
------------
167,670,195
------------
CORPORATE NOTE (0.8%)
American General Finance Corp.
8.50%, due 8/15/98 (c)........... 1,500,000 1,504,580
------------
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
33
<PAGE> 36
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
-------------------------
<S> <C> <C>
MEDIUM-TERM NOTES (6.1%)
Goldman Sachs Group L.P. (The)
5.69%, due 3/26/99 (a)(b)(c)..... $2,500,000 $ 2,500,000
International Business Machines
Corp.
5.52%, due 4/1/99 (b)(c)......... 3,000,000 2,998,446
Merrill Lynch & Co. Inc. Series B
5.67%, due 3/17/99 (b)(c)........ 3,600,000 3,601,300
New England Education Loan
Marketing Corp.
5.86%, due 7/17/98 (b)(c)........ 2,500,000 2,500,140
------------
11,599,886
------------
Total Short-Term Investments
(Amortized Cost $190,748,537)
(d).............................. 100.3% 190,748,537
Liabilities in Excess of
Cash and Other Assets............ (0.3) (599,519)
---------- ------------
Net Assets........................ 100.0% $190,149,018
========== ============
</TABLE>
- ------------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at June 30, 1998.
(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.
INDUSTRY
DIVERSIFICATION
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
-------------------------
<S> <C> <C>
Banks #..................... $ 88,401,246 46.5%
Brokerage................... 35,009,870 18.4
Computers & Office
Equipment................. 2,998,446 1.6
Conglomerates............... 4,402,933 2.3
Consumer Financial
Services.................. 6,970,326 3.6
Finance..................... 33,631,622 17.7
Insurance................... 7,954,017 4.2
Real Estate................. 2,374,817 1.2
Utilities................... 4,878,172 2.6
Utilities-Gas............... 4,127,088 2.2
----------- --------
190,748,537 100.3
Liabilities in Excess of
Cash and Other Assets..... (599,519) (0.3)
----------- --------
Net Assets.................. $190,149,018 100.0%
============ ========
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
# The Portfolio 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.
34
<PAGE> 37
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1998 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(amortized cost $190,748,537).......... $190,748,537
Cash..................................... 3,316
Interest receivable...................... 315,780
------------
Total assets..................... 191,067,633
------------
LIABILITIES:
Payables:
Adviser................................ 35,851
Administrator.......................... 28,681
Custodian.............................. 6,740
Directors.............................. 37
Accrued expenses......................... 64,377
Dividend payable......................... 782,929
------------
Total liabilities................ 918,615
------------
Net assets applicable to outstanding
shares................................. $190,149,018
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 600 million shares authorized... $ 1,901,503
Additional paid-in capital............... 188,247,369
Accumulated undistributed net realized
gain on investments.................... 146
------------
Net assets applicable to outstanding
shares................................. $190,149,018
============
Shares of capital stock outstanding...... 190,150,293
============
Net asset value per share outstanding.... $ 1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 4,266,767
------------
Expenses:
Advisory............................... 187,538
Administration......................... 150,030
Shareholder communication.............. 26,265
Professional........................... 18,108
Custodian.............................. 9,602
Directors.............................. 4,646
Miscellaneous.......................... 7,345
------------
Total expenses................... 403,534
------------
Net investment income.................... 3,863,233
------------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments......... 663
------------
Net increase in net assets resulting from
operations............................. $ 3,863,896
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
35
<PAGE> 38
CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 3,863,233 $ 6,478,968
Net realized gain on investments.......................... 663 1,549
------------- -------------
Net increase in net assets resulting from operations...... 3,863,896 6,480,517
------------- -------------
Dividends to shareholders:
From net investment income................................ (3,863,233) (6,478,968)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares.......................... 230,735,537 285,479,612
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 3,715,104 6,345,913
------------- -------------
234,450,641 291,825,525
Cost of shares redeemed................................... (185,083,796) (269,392,486)
------------- -------------
Increase in net assets derived from capital share
transactions............................................ 49,366,845 22,433,039
------------- -------------
Net increase in net assets.................................. 49,367,508 22,434,588
NET ASSETS:
Beginning of period......................................... 140,781,510 118,346,922
------------- -------------
End of period............................................... $ 190,149,018 $ 140,781,510
============= =============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
SIX MONTHS 1993 (a)
ENDED THROUGH
JUNE 30, YEAR ENDED DECEMBER 31 DECEMBER 31,
1998* 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------ ------------
Net investment income.......... 0.05 0.05 0.05 0.05 0.04 0.02
------------ ------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment income... (0.05) (0.05) (0.05) (0.05) (0.04) (0.02)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============ ============
Total investment return (b).... 2.58% 5.25% 4.95% 5.59% 3.82% 2.40%
Ratios (to average net assets)/
Supplemental Data:
Net investment income........ 5.15%+ 5.13% 4.92% 5.44% 3.97% 2.65%+
Net expenses................. 0.54%+ 0.54% 0.62% 0.62% 0.62% 0.62%+
Expenses (before
reimbursement)............. 0.54%+ 0.54% 0.64% 0.94% 0.89% 1.10%+
Net assets at end of period
(in 000's)................... $ 190,149 $ 140,782 $ 118,347 $ 87,839 $ 71,116 $ 26,733
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
36
<PAGE> 39
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
LONG-TERM BONDS (96.2%)+
CORPORATE BONDS (50.6%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
AUTO PARTS/EQUIPMENT (2.1%)
Borg-Warner Automotive, Inc.
7.00%, due 11/1/06.............. $ 5,000,000 $ 5,212,500
------------
BANKS (6.7%)
BankAmerica Corp.
7.75%, due 7/15/02.............. 4,000,000 4,240,000
First Union Capital Corp.
7.935%, due 1/15/27............. 5,000,000 5,400,000
Golden West Financial Corp.
10.25%, due 12/1/00............. 1,000,000 1,093,750
Republic New York Corp.
7.75%, due 5/15/09.............. 5,000,000 5,568,750
------------
16,302,500
------------
CHEMICALS (1.2%)
Praxair, Inc.
6.15%, due 4/15/03.............. 3,000,000 2,992,500
------------
CONGLOMERATES--DIVERSIFIED (0.8%)
Harcourt General, Inc.
9.50%, due 3/15/00.............. 2,000,000 2,110,000
------------
DIVERSIFIED UTILITIES (3.3%)
Niagara Mohawk Power Corp.
7.125%, due 7/1/01.............. 5,000,000 5,012,500
Public Service Co. of Colorado
6.00%, due 1/1/01............... 3,000,000 3,011,250
------------
8,023,750
------------
ELECTRIC UTILITIES (2.2%)
Cleveland Electric Illuminating
Co.
7.88%, due 11/1/17.............. 5,000,000 5,412,500
------------
ELECTRONICS (3.7%)
Raytheon Co.
5.95%, due 3/15/01.............. 5,000,000 4,993,750
6.75%, due 3/15/18.............. 4,000,000 4,100,000
------------
9,093,750
------------
FINANCE (11.3%)
Chrysler Financial Corp.
5.875%, due 2/7/01.............. 5,000,000 4,993,750
Fleet Financial Group
6.875%, due 1/15/28............. 6,000,000 6,187,500
General Motors Acceptance Corp.
5.625%, due 2/15/01............. 6,000,000 5,962,500
Mellon Financial Co.
7.625%, due 11/15/99............ 3,000,000 3,068,610
Norwest Financial, Inc.
6.85%, due 7/15/09.............. 7,000,000 7,332,500
------------
27,544,860
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
GAS UTILITIES (3.3%)
KN Energy, Inc.
6.45%, due 3/1/03............... $ 5,000,000 $ 5,037,500
Williams Companies, Inc.
6.125%, due 2/1/01.............. 3,000,000 3,003,750
------------
8,041,250
------------
OIL & GAS (1.8%)
Oryx Energy Co.
9.50%, due 11/1/99.............. 4,235,000 4,388,519
------------
PAPER PRODUCTS (3.0%)
Champion International Corp.
7.15%, due 12/15/27............. 2,500,000 2,537,500
9.875%, due 6/1/00.............. 4,500,000 4,809,375
------------
7,346,875
------------
POLLUTION CONTROL (1.7%)
USA Waste Services, Inc.
7.00%, due 10/1/04.............. 4,000,000 4,155,000
------------
RAILROADS (2.4%)
Norfolk Southern Corp.
7.80%, due 5/15/27.............. 5,000,000 5,787,500
------------
RETAIL STORES (7.1%)
Penney (J.C.) Co., Inc.
6.95%, due 4/1/00............... 5,000,000 5,087,500
Price/Costco, Inc.
7.125%, due 6/15/05............. 5,000,000 5,300,000
Sears Roebuck & Co.
8.45%, due 11/1/98 (a).......... 7,000,000 7,052,640
------------
17,440,140
------------
Total Corporate Bonds (Cost
$119,462,209)................... 123,851,644
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (40.5%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (12.2%)
6.00%, due 12/1/27.............. 3,934,008 3,829,512
6.50%, due 11/1/09.............. 6,440,339 6,510,783
7.00%, due 2/1/27............... 9,663,379 9,814,370
8.00%, due 5/1/25............... 9,373,938 9,745,971
------------
29,900,636
------------
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
37
<PAGE> 40
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITY) (1.5%)
9.00%, due 4/15/26.............. $ 3,342,590 $ 3,590,153
------------
UNITED STATES TREASURY BONDS
(6.3%)
6.125%, due 11/15/27............ 10,000,000 10,715,100
7.125%, due 2/15/23............. 4,000,000 4,728,640
------------
15,443,740
------------
UNITED STATES TREASURY NOTES
(20.5%)
5.375%, due 1/31/00............. 5,000,000 4,988,100
5.50%, due 3/31 - 5/31/03....... 19,000,000 18,980,590
5.625%, due 5/15/08............. 5,000,000 5,066,400
6.125%, due 8/15/07............. 5,000,000 5,200,100
6.50%, due 8/15/05.............. 15,000,000 15,818,250
------------
50,053,440
------------
Total U.S. Government & Federal
Agencies (Cost $97,348,986)..... 98,987,969
------------
YANKEE BONDS (5.1%)
BANKS (0.8%)
Banco Nacional de Comercio
Exterior
7.50%, due 7/1/00............... 2,000,000 1,995,000
------------
COMMERCIAL PRINTING (2.2%)
Quebecor Printing Capital Corp.
7.25%, due 1/15/07.............. 5,000,000 5,243,750
------------
CRUDE PETROLEUM & NATURAL GAS
(2.1%)
Gulf Canada Resources Ltd.
9.00%, due 8/15/99.............. 5,000,000 5,137,500
------------
Total Yankee Bonds (Cost
$12,103,601).................... 12,376,250
------------
Total Long-Term Bonds (Cost
$228,914,796)................... 235,215,863
------------
<CAPTION>
SHORT-TERM INVESTMENTS (2.6%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
COMMERCIAL PAPER (2.6%)
Associates Corp. of North America
5.50%, due on demand (b)........ $ 5,565,000 $ 5,565,000
Principal Mutual Life
5.850%, due 7/7/98.............. 765,000 764,254
------------
Total Commercial Paper (Cost
$6,329,254)..................... 6,329,254
------------
FEDERAL AGENCY (0.0%) (c)
Federal National Mortgage
Association Discount
5.50%, due 7/20/98.............. 52,000 51,849
------------
Total Federal Agency (Cost
$51,849)........................ 51,849
------------
Total Short-Term Investments
(Cost $6,381,103)............... 6,381,103
------------
Total Investments (Cost
$235,295,899) (d)............... 98.8% 241,596,966(e)
Cash and Other Assets, Less
Liabilities..................... 1.2 2,835,631
---------- ----------
Net Assets....................... 100.0% $244,432,597
=========== ============
</TABLE>
- ------------
(a) Long-term security maturing within the subsequent twelve month period.
(b) Adjustable rate. Rate shown is the rate in effect at June 30, 1998.
(c) Less than one tenth of a percent.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At June 30, 1998 net unrealized appreciation was $6,301,067, 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 $6,359,490 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $58,423.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
38
<PAGE> 41
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1998 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $235,295,899)......... $241,596,966
Cash..................................... 2,788
Receivables:
Investment securities sold............. 29,749,078
Interest............................... 3,834,484
Fund shares sold....................... 352,991
------------
Total assets..................... 275,536,307
------------
LIABILITIES:
Payables:
Investment securities purchased........ 30,697,468
Adviser................................ 148,639
Fund shares redeemed................... 124,526
Administrator.......................... 39,882
Directors.............................. 68
Accrued expenses......................... 93,127
------------
Total liabilities................ 31,103,710
------------
Net assets applicable to outstanding
shares................................. $244,432,597
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 178,218
Additional paid-in capital............... 226,843,558
Accumulated undistributed net investment
income................................. 7,132,900
Accumulated undistributed net realized
gain on investments.................... 3,976,854
Net unrealized appreciation on
investments............................ 6,301,067
------------
Net assets applicable to outstanding
shares................................. $244,432,597
============
Shares of capital stock outstanding...... 17,821,774
============
Net asset value per share outstanding.... $ 13.72
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 7,742,148
------------
Expenses:
Advisory............................... 292,210
Administration......................... 233,768
Shareholder communication.............. 42,945
Professional........................... 22,281
Directors.............................. 7,219
Portfolio pricing...................... 3,059
Miscellaneous.......................... 7,766
------------
Total expenses................... 609,248
------------
Net investment income.................... 7,132,900
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments......... 3,976,854
Net change in unrealized appreciation on
investments............................ (1,071,759)
------------
Net realized and unrealized gain on
investments............................ 2,905,095
------------
Net increase in net assets resulting from
operations............................. $ 10,037,995
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
39
<PAGE> 42
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 7,132,900 $ 14,358,879
Net realized gain on investments.......................... 3,976,854 2,351,172
Net change in unrealized appreciation on investments...... (1,071,759) 3,848,534
------------ ------------
Net increase in net assets resulting from operations...... 10,037,995 20,558,585
------------ ------------
Dividends and distributions to shareholders:
From net investment income................................ -- (14,330,709)
From net realized gain on investments..................... -- (640,312)
------------ ------------
Total dividends and distributions to shareholders....... -- (14,971,021)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 24,599,643 21,412,921
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. -- 14,971,021
------------ ------------
24,599,643 36,383,942
Cost of shares redeemed................................... (19,154,078) (39,397,355)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions...................................... 5,445,565 (3,013,413)
------------ ------------
Net increase in net assets.................................. 15,483,560 2,574,151
NET ASSETS:
Beginning of period......................................... 228,949,037 226,374,886
------------ ------------
End of period............................................... $244,432,597 $228,949,037
============ ============
Accumulated undistributed net investment income at end of
period.................................................... $ 7,132,900 $ --
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31
1998* 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period................... $ 13.14 $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91
------------ ------------ ------------ ------------ ------------ ------------
Net investment income......... 0.40 0.88 0.87 0.88 0.88 0.95
Net realized and unrealized
gain (loss) on
investments................. 0.18 0.35 (0.59) 1.33 (1.34) 0.53
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations.................. 0.58 1.23 0.28 2.21 (0.46) 1.48
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
From net investment
income.................... -- (0.88) (0.87) (0.88) (0.88) (0.96)
From net realized gain
on investments............ -- (0.04) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions............... -- (0.92) (0.87) (0.88) (0.88) (0.96)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at end of
period...................... $ 13.72 $ 13.14 $ 12.83 $ 13.42 $ 12.09 $ 13.43
============ ============ ============ ============ ============ ============
Total investment return (a)... 4.35% 9.65% 2.05% 18.31% (3.39%) 11.40%
Ratios (to average net
assets)/ Supplemental Data:
Net investment income....... 6.10%+ 6.42% 6.31% 6.55% 6.53% 6.79%
Net expenses................ 0.52%+ 0.50% 0.58% 0.62% 0.62%# 0.27%#
Expenses (before
reimbursement)............ 0.52%+ 0.50% 0.58% 0.91% 0.67%# 0.27%#
Portfolio turnover rate....... 125% 187% 103% 81% 88% 41%
Net assets at end of period
(in 000's).................. $ 244,433 $ 228,949 $ 226,375 $ 235,030 $ 206,686 $ 228,683
</TABLE>
- ------------
(a) Total return is not annualized.
# 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.
+ Annualized.
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
40
<PAGE> 43
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (95.4%)+
SHARES VALUE
--------------------------
<S> <C> <C>
ADVERTISING (0.6%)
Young & Rubicam Inc. (a)......... 175,000 $ 5,600,000
------------
AEROSPACE/DEFENSE (1.5%)
Coltec Industries Inc. (a)....... 200,000 3,975,000
Raytheon Co. Class A............. 175,000 10,084,375
------------
14,059,375
------------
BANKS (8.6%)
Bank of New York Co., Inc.
(The)........................... 150,000 9,103,125
BankBoston Corp. ................ 200,000 11,125,000
Chase Manhattan Bank (The)....... 140,000 10,570,000
First Union Corp. ............... 150,000 8,737,500
Fleet Financial Group, Inc. ..... 96,300 8,041,050
NationsBank Corp. ............... 160,000 12,240,000
Norwest Corp. ................... 250,000 9,343,750
Republic New York Corp. ......... 150,000 9,440,625
------------
78,601,050
------------
BUSINESS SERVICES (3.1%)
Ceridian Corp. (a)............... 140,000 8,225,000
Comdisco Inc. ................... 600,000 11,400,000
Keane, Inc. (a).................. 150,000 8,400,000
MicroStrategy Inc. (a)........... 10,000 282,500
------------
28,307,500
------------
CAPITAL GOODS (0.3%)
Checkpoint Systems, Inc. (a)..... 214,400 3,028,400
------------
CHEMICALS (1.1%)
Monsanto Co. .................... 175,000 9,778,125
------------
COMMERCIAL SERVICES (3.7%)
Cendant Corp. (a)................ 300,000 6,262,500
Equifax Inc. .................... 190,000 6,899,375
Service Corp. International...... 250,000 10,718,750
ServiceMaster Co. (The).......... 250,000 9,515,625
------------
33,396,250
------------
COMMUNICATIONS (2.3%)
Lucent Technologies Inc. ........ 140,000 11,646,250
Tellabs Inc. (a)................. 125,000 8,953,125
------------
20,599,375
------------
COMPUTERS & BUSINESS EQUIPMENT
(8.4%)
Ascend Communications, Inc.
(a)............................. 150,000 7,434,375
Cisco Systems, Inc. (a).......... 150,000 13,809,375
Compuware Corp. (a).............. 200,000 10,225,000
Dell Computer Corp. (a).......... 100,000 9,281,250
EMC Corp. (a).................... 200,000 8,962,500
Fiserv, Inc. (a)................. 232,500 9,873,996
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
COMPUTERS & BUSINESS EQUIPMENT
(Continued)
Network Associates, Inc. (a)..... 117,000 $ 5,601,375
SunGard Data Systems Inc. (a).... 300,000 11,512,500
------------
76,700,371
------------
CONGLOMERATES (1.4%)
Tyco International Ltd. ......... 200,000 12,600,000
------------
DRUGS (8.7%)
American Home Products Corp. .... 200,000 10,350,000
Bristol-Myers Squibb Co. ........ 95,000 10,919,063
Elan Corp. PLC ADR (a)(b)........ 146,900 9,447,506
Genzyme Corp. (a)................ 125,000 3,195,312
Glaxo Wellcome PLC ADR (b)....... 100,000 5,981,250
Johnson & Johnson................ 120,000 8,850,000
Lilly (Eli) & Co. ............... 160,000 10,570,000
SmithKline Beecham PLC ADR (b)... 157,300 9,516,650
Warner-Lambert Co. .............. 150,000 10,406,250
------------
79,236,031
------------
ELECTRICAL (2.0%)
General Electric Co. ............ 200,000 18,200,000
------------
FINANCE (4.5%)
American Express Co. ............ 90,000 10,260,000
American General Corp. .......... 120,000 8,542,500
Associates First Capital Corp.
Class A......................... 39,312 3,022,110
Fannie Mae....................... 160,000 9,720,000
Freddie Mac...................... 200,000 9,412,500
------------
40,957,110
------------
FOODS (3.7%)
Aurora Foods Inc. (a)............ 238,000 5,027,750
Bestfoods........................ 160,000 9,290,000
Hershey Foods Corp. ............. 126,700 8,742,300
International Home Foods, Inc.
(a)............................. 196,800 4,477,200
Sara Lee Corp. .................. 360,000 6,544,688
------------
34,081,938
------------
HOSPITAL & MEDICAL SERVICES
(3.4%)
Cardinal Health, Inc. ........... 100,000 9,375,000
McKesson Corp. .................. 123,500 10,034,375
Medtronic, Inc. ................. 175,000 11,156,250
------------
30,565,625
------------
HOUSEHOLD PRODUCTS (3.0%)
Gillette Co. (The)............... 150,000 8,503,125
Newell Co. ...................... 195,000 9,713,437
Procter & Gamble Co. (The)....... 100,000 9,106,250
------------
27,322,812
------------
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
41
<PAGE> 44
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
--------------------------
<S> <C> <C>
INSURANCE--PROPERTY & CASUALTY
(4.9%)
Allstate Corp. (The)............. 100,000 $ 9,156,250
Conseco, Inc. ................... 175,000 8,181,250
EXEL Ltd. ....................... 119,600 9,306,375
Provident Cos., Inc.............. 260,000 8,970,000
Travelers Group Inc. ............ 154,500 9,366,563
------------
44,980,438
------------
INTERNET SOFTWARE (2.1%)
America Online, Inc. (a)......... 125,000 13,250,000
EarthLink Network, Inc. (a)...... 80,000 6,140,000
------------
19,390,000
------------
LEISURE/AMUSEMENT (0.9%)
Premier Parks Inc. .............. 129,600 8,586,000
------------
LODGING & RESTAURANTS (1.1%)
Sodexho Marriott Services Inc.
(a)............................. 27,500 797,500
SYSCO Corp. ..................... 360,000 9,225,000
------------
10,022,500
------------
MANUFACTURING (0.9%)
Dana Corp. ...................... 148,000 7,918,000
------------
MEDIA & INFORMATION SERVICES
(7.6%)
Capstar Broadcasting Corp. Class
A (a)........................... 375,000 9,421,875
CBS Corp. (a).................... 280,000 8,890,000
Clear Channel Communications,
Inc. (a)........................ 75,000 8,184,375
Comcast Corp. Special Class A.... 300,000 12,178,140
MediaOne Group Inc. (a).......... 230,000 10,105,625
News Corp. Ltd. (The) ADR (b).... 310,000 9,958,750
Viacom Inc. Class B (a).......... 180,000 10,485,000
------------
69,223,765
------------
MEDICAL (0.7%)
Centocor, Inc. (a)............... 171,100 6,202,375
------------
METALS (0.2%)
Ispat International NV-NY (a).... 120,000 2,250,000
------------
NETWORKING PRODUCTS (0.6%)
Xylan Corp. (a).................. 175,000 5,217,187
------------
OIL & ENERGY
SERVICES (5.2%)
Burlington Resources Inc. ....... 140,000 6,028,750
Enron Corp. ..................... 85,000 4,595,313
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
OIL & ENERGY
SERVICES (Continued)
Halliburton Co. ................. 200,000 $ 8,912,500
Mobil Corp. ..................... 80,000 6,130,000
Schlumberger Ltd. ............... 100,000 6,831,250
Texaco Inc. ..................... 133,100 7,944,406
USX-Marathon Group............... 200,000 6,862,500
XCL Ltd. (a)..................... 10,786 41,796
------------
47,346,515
------------
PAPER & FOREST PRODUCTS (1.6%)
Boise Cascade Corp. ............. 175,000 5,731,250
Fort James Corp. ................ 204,800 9,113,600
------------
14,844,850
------------
REAL ESTATE (1.9%)
Chelsea GCA Realty, Inc. ........ 96,300 3,852,000
First Industrial Realty Trust,
Inc. ........................... 175,000 5,556,250
Healthcare Realty Trust, Inc. ... 125,000 3,406,250
Liberty Property Trust........... 166,500 4,256,156
------------
17,070,656
------------
RETAIL TRADE & MERCHANDISING
(4.9%)
American Stores Co. ............. 302,000 7,304,625
Costco Cos., Inc. (a)............ 200,000 12,612,500
Kroger Co. (The) (a)............. 270,000 11,576,250
Smart & Final Inc. .............. 163,000 2,791,375
Wal-Mart Stores, Inc. ........... 170,000 10,327,500
------------
44,612,250
------------
SCHOOLS (0.5%)
Sylvan Learning Systems, Inc.
(a)............................. 150,000 4,912,500
------------
TELECOMMUNICATIONS (2.1%)
Bell Atlantic Corp. ............. 200,000 9,125,000
Teleport Communications Group
Inc. Class A (a)................ 184,500 10,009,125
US West Communications Group..... 6,281 295,221
------------
19,429,346
------------
TRANSPORTATION (1.1%)
Carnival Corp. .................. 250,000 9,906,250
------------
UTILITIES--ELECTRIC (0.7%)
CMS Energy Corp. ................ 135,000 5,940,000
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
42
<PAGE> 45
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
--------------------------
<S> <C> <C>
UTILITIES--TELEPHONE (2.1%)
Ameritech Corp................... 206,000 $ 9,244,250
WorldCom, Inc. (a)............... 205,000 9,929,688
------------
19,173,938
------------
Total Common Stocks
(Cost $638,663,085)............. 870,060,532
------------
SHORT-TERM
INVESTMENTS (5.6%)
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER (5.6%)
Associates Corp. of North America
5.50%, due on demand (c)........ $13,010,000 13,010,000
Du Pont (E.I.) De Nemours & Co.
Inc. 5.55%, due 7/10/98......... 563,000 562,219
Principal Mutual Life Insurance
Co. 5.85%, due 7/7/98........... 7,205,000 7,197,975
Repsol International Finance B.V.
5.62%, due 7/2/98............... 6,000,000 5,999,063
San Paolo US Financial Co. 6.30%,
due 7/1/98...................... 10,000,000 10,000,000
Xerox Capital (Europe) PLC 6.30%,
due 7/1/98...................... 14,525,000 14,525,000
------------
Total Short-Term Investments
(Cost $51,294,257).............. 51,294,257
------------
Total Investments
(Cost $689,957,342) (d)......... 101.0% 921,354,789(e)
Liabilities In Excess of
Cash and Other Assets........... (1.0) (9,017,583)
----------- ------------
Net Assets....................... 100.0% $912,337,206
=========== ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Adjustable rate. Rate shown is the rate in effect at June 30, 1998.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At June 30, 1998 net unrealized appreciation was $231,397,447, 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 $239,508,617 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $8,111,170.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
43
<PAGE> 46
GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1998 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $689,957,342)......... $921,354,789
Cash..................................... 11,447
Receivables:
Investment securities sold............. 24,056,481
Dividends and interest................. 987,839
Fund shares sold....................... 713,569
------------
Total assets..................... 947,124,125
------------
LIABILITIES:
Payables:
Investment securities purchased........ 33,515,958
Adviser................................ 547,600
Fund shares redeemed................... 306,735
Administrator.......................... 144,033
Directors.............................. 194
Accrued expenses......................... 272,399
------------
Total liabilities................ 34,786,919
------------
Net assets applicable to outstanding
shares................................. $912,337,206
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 386,572
Additional paid-in capital............... 628,538,539
Accumulated undistributed net investment
income................................. 3,408,239
Accumulated undistributed net realized
gain on investments.................... 48,606,409
Net unrealized appreciation on
investments............................ 231,397,447
------------
Net assets applicable to outstanding
shares................................. $912,337,206
============
Shares of capital stock outstanding...... 38,657,179
============
Net asset value per share outstanding.... $ 23.60
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 4,389,145
Interest............................... 1,137,204
------------
Total income..................... 5,526,349
------------
Expenses:
Advisory............................... 1,039,714
Administration......................... 831,771
Shareholder communication.............. 158,188
Professional........................... 40,617
Directors.............................. 25,453
Miscellaneous.......................... 22,367
------------
Total expenses................... 2,118,110
------------
Net investment income.................... 3,408,239
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 48,606,409
Net change in unrealized appreciation on
investments............................ 71,852,891
------------
Net realized and unrealized gain on
investments............................ 120,459,300
------------
Net increase in net assets resulting from
operations............................. $123,867,539
============
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $13,875.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
44
<PAGE> 47
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 3,408,239 $ 5,317,657
Net realized gain on investments.......................... 48,606,409 97,560,028
Net change in unrealized appreciation on investments...... 71,852,891 52,771,507
------------- -------------
Net increase in net assets resulting from operations...... 123,867,539 155,649,192
------------- -------------
Dividends and distributions to shareholders:
From net investment income................................ -- (5,271,609)
From net realized gain on investments..................... -- (98,150,349)
------------- -------------
Total dividends and distributions to shareholders....... -- (103,421,958)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares.......................... 70,031,144 99,117,945
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. -- 103,421,958
------------- -------------
70,031,144 202,539,903
Cost of shares redeemed................................... (40,615,764) (60,398,261)
------------- -------------
Increase in net assets derived from capital share
transactions............................................ 29,415,380 142,141,642
------------- -------------
Net increase in net assets.................................. 153,282,919 194,368,876
NET ASSETS:
Beginning of period......................................... 759,054,287 564,685,411
------------- -------------
End of period............................................... $ 912,337,206 $ 759,054,287
============= =============
Accumulated undistributed net investment income at end of
period.................................................... $ 3,408,239 $ --
============= =============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31
1998* 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period................... $ 20.31 $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53
------------ ------------ ------------ ------------ ------------ ------------
Net investment income......... 0.09 0.16 0.18 0.22 0.22 0.24
Net realized and unrealized
gain (loss) on
investments................. 3.20 4.74 4.06 4.06 (0.03) 1.88
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations.................. 3.29 4.90 4.24 4.28 0.19 2.12
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
From net investment
income.................... -- (0.16) (0.18) (0.22) (0.22) (0.25)
From net realized gain
on investments............ -- (3.06) (2.65) (1.53) (0.92) (1.76)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions............... -- (3.22) (2.83) (1.75) (1.14) (2.01)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at end of
period...................... $ 23.60 $ 20.31 $ 18.63 $ 17.22 $ 14.69 $ 15.64
============ ============ ============ ============ ============ ============
Total investment return (a)... 16.20% 26.75% 24.50% 29.16% 1.20% 13.71%
Ratios (to average net
assets)/ Supplemental Data:
Net investment income....... 0.82%+ 0.80% 0.98% 1.29% 1.41% 1.42%
Net expenses................ 0.51%+ 0.50% 0.58% 0.62% 0.62%# 0.27%#
Expenses (before
reimbursement)............ 0.51%+ 0.50% 0.58% 0.91% 0.65%# 0.27%#
Portfolio turnover rate....... 37% 103% 104% 104% 108% 121%
Net assets at end of period
(in 000's).................. $ 912,337 $ 759,054 $ 564,685 $ 427,507 $ 330,161 $ 319,196
</TABLE>
- ------------
(a) Total return is not annualized.
# 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.
+ Annualized.
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
45
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-- Organization and Business:
- --------------------------------------------------------------------------------
MainStay VP 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"; each separately a
"Portfolio") 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 (collectively "Separate Accounts"). 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 Portfolio is
calculated on each day the New York Stock Exchange (the "Exchange") is open for
trading as of the close of regular trading on the Exchange. The net asset value
per share is calculated for each Portfolio by dividing the current market value
(amortized cost, in the case of Cash Management Portfolio) of the Portfolio's
total assets, less liabilities, by the total number of outstanding shares of
that Portfolio.
(B)
SECURITIES VALUATION. Portfolio securities of Cash Management Portfolio are
valued at amortized cost, which approximates market value. The amortized cost
method involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of the difference
between such cost and the value on maturity date.
Securities of each of the other Portfolios are stated at value determined (a) by
appraising common and preferred stocks which are traded on the 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 National Association of Securities Dealers NASDAQ system and securities
listed or traded on certain foreign exchanges whose operations 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
46
<PAGE> 49
MAINSTAY VP SERIES FUND, INC.
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 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 Exchange
will not be reflected in the Portfolios' 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)
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 related and other
asset-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 Portfolios are accreted on the
constant yield method over the life of the respective securities or, if
applicable, over the period to the first call date. Premiums on securities
purchased are not amortized for any Portfolio except Cash Management Portfolio
which amortizes the premium on the constant yield method over the life of the
respective securities.
(D)
FEDERAL INCOME TAXES. Each of the Portfolios 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 Portfolio within the allowable time limits. Therefore, no Federal income
tax provision is required.
Investment income received by a Portfolio from foreign sources may be subject to
foreign income taxes withheld at the source.
(E)
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 Portfolios 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.
(F)
EXPENSES. Expenses with respect to the Company are allocated to the individual
Portfolios in proportion to the net assets of the respective Portfolios when the
expenses are incurred except when direct allocations of expenses can be made.
47
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(G)
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. 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 Portfolio, 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 Portfolio as
follows:
<TABLE>
<CAPTION>
ADVISER ADMINISTRATOR
------ -----------
<S> <C> <C>
Cash Management Portfolio................................... 0.25% 0.20%
Bond Portfolio.............................................. 0.25% 0.20%
Growth Equity Portfolio..................................... 0.25% 0.20%
</TABLE>
(B)
DIRECTORS FEES. Directors, other than those affiliated with New York Life,
MacKay-Shields or NYLIFE Distributors, are paid an annual fee of $35,000 and
$1,500 for each Board meeting and each Committee 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 Portfolios.
(C)
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 Portfolios. For the six
month period ended June 30, 1998, these fees were as follows:
<TABLE>
<S> <C>
Cash Management Portfolio................................... $ 3,529
Bond Portfolio.............................................. 5,512
Growth Equity Portfolio..................................... 19,361
</TABLE>
- --------------------------------------------------------------------------------
NOTE 4--Line of Credit:
- --------------------------------------------------------------------------------
Cash Management Portfolio maintains a line of credit with The Bank of New York
in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. There was no
outstanding balance on this line of credit at June 30, 1998.
48
<PAGE> 51
MAINSTAY VP SERIES FUND, INC.
NOTE 5--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the six month period ended June 30, 1998, 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.................................. $141,533 $103,787 $ -- $ --
All others.................................................. 157,004 178,168 324,393 296,747
------------------------------------------
Total....................................................... $298,537 $281,955 $324,393 $296,747
==========================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE 6--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in capital shares for the six month period ended June 30, 1998
and the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CASH MANAGEMENT BOND GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.......................................... 230,737 285,484 1,830 1,611 3,121 4,700
Shares issued in reinvestment of
dividends and distributions........................ 3,715 6,346 -- 1,140 -- 5,219
---------------------------------------------------------------
234,452 291,830 1,830 2,751 3,121 9,919
Shares redeemed...................................... (185,085) (269,397) (1,427) (2,980) (1,836) (2,855)
---------------------------------------------------------------
Net increase (decrease).............................. 49,367 22,433 403 (229) 1,285 7,064
===============================================================
</TABLE>
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50
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MAINSTAY VP SERIES FUND, INC.
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51
<PAGE> 54
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52
<PAGE> 55
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
John Weisser, Director
Anthony W. Polis, Treasurer
Sara L. Badler, Secretary
Richard D. Levy, 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.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
The financial information included herein is taken from the records of the Funds
without examination by the Funds' independent accountants, who do not express an
opinion thereon.
<PAGE> 56
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NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
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