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LETTER FROM THE VICE CHAIRMAN
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I am pleased to present the 1998 Annual Report for the Facilitator(R)
Multi-Funded Variable Annuity policies.
This Annual Report contains valuable financial information including year-end
performance data for the underlying portfolios and separate account financial
statements for each of the investment divisions that are available with our
Facilitator(R) Variable Annuity policy.
ECONOMIC ENVIRONMENT YEAR-END REVIEW
The United States economy had another stellar year of rapid growth and low
inflation in 1998, as a sharply deteriorating trade deficit and shrinking
manufacturing sector were more than offset by surging domestic demand. Real
Gross Domestic Product (GDP) rose by an estimated 3.7% near its 1997 performance
and still well above virtually all estimates of the economy's non-inflationary
growth potential. As a result, the unemployment rate continued to decline from
4.7% in December 1997 to 4.3% in December 1998, the lowest rate since 1970.
Nevertheless, inflation remained remarkably subdued during the year, with the
Consumer Price Index (CPI)(1) rising 1.6% over the twelve months ending in
December (vs. 1.7% in 1997 and 3.3% in 1996). The strong dollar, along with
falling prices of oil and other commodity prices, helped keep inflation in check
despite rising wages and strong demand.
Bond yields continued their downward cycle, with treasury yields reaching their
lowest levels since the 1960's. Earlier in the year, the Federal Reserve adopted
a tightening bias due to concerns about an overheating economy and soaring stock
market. Later in 1998, however, with credit and liquidity spreads soaring in
response to plunging oil and other commodity prices, deteriorating economic
conditions in the rest of the world, a Russian debt default, and the bailout of
a heavily leveraged hedge fund, the Federal Reserve lowered interest rates by 75
basis points in three easing moves. This, combined with similar moves by other
central banks around the world, greatly eased the stress in financial markets
and provided some insurance against recession. The positive stock market
response helped encourage consumers to keep spending.
In 1999, growth is expected to finally slow as weakness in manufacturing spreads
to other economic sectors. Inflation is likely to pick up, but only slightly as
the unemployment rate begins to drift upward again and import competition
continues to restrain domestic prices. Bond yields may fall further, and some
additional Federal Reserve easing is likely once there is clear evidence of
slower growth. Later in the year, however, growth is expected to begin
strengthening again in response to Federal Reserve easing and improving
conditions abroad.
For the stock market, 1998 demonstrated overall solid performance combined with
major volatility. The Dow Jones Industrial Average(2) ended the year with a gain
of 18.1%. The S&P 500 Index(3) was up an even stronger 28.6% for an
unprecedented fourth year of increases exceeding 20%. However, the bull market
suffered a severe interruption from mid-July until the end of August, and could
well have been down for the year if not for the timely action of the Federal
Reserve and other central banks. Market conditions for 1999 are likely to be
mixed. Corporate profits are likely to suffer from slower growth and continuing
margin pressures from abroad. Interest rates could well reach a trough during
the year. Uncertainties about the millennium bug may worry investors. On the
positive side, the long-term outlook for the U.S. economy remains extremely
favorable, and prospects for the rest of the world are likely to improve.
VARIABLE ANNUITIES IN GENERAL
The United States variable annuity industry set another record sales year in
1998. Variable annuity sales of $88.1 billion were up 12% versus 1997 results.
Variable annuity industry assets rose 22% to $778.4 billion in 1998.
Variable annuities are viewed as an effective financial vehicle to help
Americans live comfortably during their retirement years. In addition to
providing a choice of investment divisions from an array of cash, bond and
equity sectors covering markets throughout the United States and abroad,
variable annuities offer additional features and benefits including tax
deferral, an income for life, a guaranteed fixed interest account, and a death
benefit provision.
New York Life Insurance and Annuity Corporation (NYLIAC) recorded $1.5 billion
in variable annuity premiums during 1998, representing a 28% increase from 1997
results.
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Thank you for making us "The Company You Keep(R)".
/s/ FREDERICK J. SIEVERT
Frederick J. Sievert
Vice Chairman
New York Life Insurance Company,
parent of New York Life Insurance and Annuity Corporation
(1) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
(2) 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.
(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 product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
2
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MAINSTAY VP SERIES FUND, INC. PORTFOLIOS
MACKAY-SHIELDS FINANCIAL CORPORATION
ADVISER'S REPORT
Market Overview
Given a scenario of floundering Asian economies, a Russian financial crisis
which spread to Latin America, an American President undergoing impeachment, a
third quarter stock market correction, another bombing of Iraq, and finally the
collapse of one of the most respected hedge funds, one would expect investors to
react negatively. Instead, financial markets exhibited for a fourth straight
year unprecedented staying power and resiliency. The Dow Jones Industrial
Average(1) increased 18.13%, the S&P 500(2) (including income) advanced 28.58%
and the NASDAQ Composite(3) rose 39.63%.
However, what the numbers do not reveal is that only a handful of very large
capitalization stocks pushed up the averages, while the majority of smaller
issues trailed badly -- a continuation of the trends of the past three years.
The S&P 500 outshone the Dow Industrials because it includes such companies as
Microsoft, Dell Computer and Intel, the kind of companies that ruled the market.
This is despite the fact that big-stock valuations are at or near record levels
hit last July. In dramatic contrast, small capitalization stocks lost 2.55% as
represented by the Russell 2000(4). Traditional deep value investing also
suffered as these stocks sorely underperformed their large-cap growth peers,
with the lowest price-to-earnings stocks actually showing a loss for the year.
In addition to the large-cap effect, another factor contributed to the market's
rise during 1998. Internet-related companies, such as Amazon.com and eBay, saw
their stock prices more than double as Internet mania took over the investment
scene. The entire technology sector contributed heavily to the market's return
as many investors thought any computer-related business would benefit from the
increase in demand due to the Internet. Other highly performing industries
included entertainment and drug retailers.
There were few good markets on the international front during 1998. Investments
in Europe, where markets were anticipating monetary and economic unity, were for
the most part positive. On the other hand, the Asian financial crisis which
started with the Thai baht's devaluation in 1997, caused devaluation fears
around the world among investors, culminating in Russia's financial fiasco and
subsequently Latin America's. Complacent investors were suddenly and shockingly
confronted with the high degrees of risk they were assuming across emerging
markets. Volatility reached levels seldom experienced this century. The Dow
Jones had ten swings of more than 5% during 1998 -- twice the usual amount. Two
of those occasions were swings of greater than 15%.
Many investors embraced the perceived safety of U.S. Treasury bonds in 1998,
with the 30-year U.S. Treasury bond up 17.1%, more in line with historical stock
returns. For the bond market as a whole, many non-government bond sectors had
high volatility at best, losses at worst. 1998 was the first year since 1990
that safer bonds had higher returns than riskier bonds. In fact, 1998 was the
worst year for most risky bonds since 1990. Escalating concerns regarding
struggling Asian economies and developing problems in Latin America over the
summer caused a "flight to safety" to U.S. Treasuries.
Credited with bringing about stability and putting the stock market back on its
positive trajectory is Federal Reserve Chairman Alan Greenspan who led the move
to lower Federal Funds rates in September, October and November. Once convinced
that the Federal Reserve Board would do anything to prevent a financial
meltdown, many investors poured dollars back into the stock market, pushing
valuations to record high levels. Inflows into stock mutual funds returned to
positive territory after a negative August.
Even though the U.S. economy seems to be on sound footing with an accommodating
Federal Reserve, risks to the financial markets include a continuing malaise in
Southeast Asian and weak Latin American financial markets. Continuing
deflationary trends, not an economic scenario since the 1930s, and corporate
earnings disappointments could derail investor expectations of higher than
historical returns that we have experienced for the past several years.
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Going forward, most economists see a slowly growing economy, continuing mild
inflation and relatively low interest rates. General demographic trends and
macroeconomic themes will continue to support equity investments into 1999.
Technological advances should help productivity and utilization of resources.
Stock market inflows should continue to be bolstered by U.S. baby boomers
properly saving for their retirement needs.
Ravi Akhoury
Chairman and Chief Executive Officer
MacKay-Shields Financial 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.
(2) "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 product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) "NASDAQ Composite Index" is an unmanaged index and is considered generally
representative of the U.S. small capitalization stock market.
(4) The Russell 2000 Growth Index measures the performance of those companies in
the Russell 2000 with higher price-to-book ratios and higher forecasted
earnings growth values. The Index is unmanaged, does not reflect fees or
expenses, and is not available for direct investment.
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NEW YORK LIFE INSURANCE COMPANY
ADVISER'S REPORT
Market Overview
Global events dominated investment market news in 1998. Beginning with the Asian
debt market crisis, followed by the Russian economic meltdown of the summer,
global investment system signals started to flash "caution" to worldwide
investors at an increasing pace. These messages were offset by strong positive
signals from the U.S. economy, and to a lesser extent, from Europe.
Within the U.S., continued economic growth has been driven by strong corporate
competitiveness and robust job growth despite these shocks. A major contributor
to economic health has been the low level of inflation, producing quality
earnings and a stable capital planning platform for corporations. U.S. companies
have used their capital wisely, especially compared to some of the
"capital-burning" practices of certain Asian economies. The emergence of the
Euro as a common currency and prospects for improved economic integration have
provided positive fundamentals for Europe.
As a consequence, 1998 turned in another strong year of investment performance
for both stock and bond investors. Some bond investors were burned by the
emerging market disarray as the market adopted a more restrictive credit risk
stance. However, by and large most bondholders benefited by the decline in
longer term Treasury rates of almost 1% as the Federal Reserve cut rates three
times during the course of the year. Most stock investors fared even better as
the S&P 500(1) returned 28.6%. Despite some deceleration of U.S. corporate
profit growth, the stock market benefited from lower interest rates, record
levels of merger and acquisition activity, and strong inflows from mutual funds
and foreign investors.
Going forward, the fundamentals of low inflation, capital discipline, fiscal and
monetary strength combined with a healthy job market should provide for steady
growth. Offsetting these positive factors are the risk of further global
economic weakness in Japan or emerging market countries, Y2K dislocations or
unanticipated inflationary pressures. On balance, our outlook for 1999 remains
positive.
We see value in the bond sector, especially in the corporate bond market where
credit spreads have widened. We also have a positive outlook for the stock
market, but we anticipate notable disparities in performance by sector, further
accentuating a trend begun in 1998 where strong performance was concentrated in
a limited number of stocks.
The Portfolios we manage performed very well relative to their objectives in
1998. Further discussions by our managers regarding Portfolio performance and
market outlook for their respective sectors follow.
Jean E. Hoysradt
Senior Vice President
in Charge of the Investment Department
New York Life Insurance Company
(1) "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 product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
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MAINSTAY VP CASH MANAGEMENT PORTFOLIO
1998 MARKET RECAP
- - In 1998, the money markets were influenced in various ways by modest
inflation, low unemployment, falling commodity prices, and a budget surplus
that reduced Treasury issuance.
- - During the first half of 1998, the money market yield curve was flat and
exhibited low volatility, while during the second half of the year, volatility
increased dramatically.
- - Financial difficulties in Asia, Russia, and Brazil resulted in a flight to
quality that raised demand for high-quality, highly liquid securities.
- - In the third quarter, problems at a major hedge fund disrupted market
activity, making it difficult for any but the strongest issuers to raise money
in the capital markets.
- - The Federal Reserve Board cut short-term interest rates three times between
September and November in order to restore stability to the markets.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP Cash Management Portfolio
returned 5.18%.
- - Throughout the first half of the year, the Portfolio maintained its investment
days to maturity in a relatively stable range, lengthening days to maturity in
midsummer, when Russian and Latin American difficulties began to affect the
market.
- - Concentration on top-tier securities helped the Portfolio outperform as
spreads widened to near recession levels among second-tier names in the second
half of the year.
- - The Portfolio outperformed the average Lipper(1) Variable Products money
market portfolio, which returned 5.10% for the year-ended 12/31/98.
MANAGEMENT DISCUSSION AND ANALYSIS
Overall, 1998 was a year of extremes in the bond and money markets, causing
investors to reevaluate risk at several levels. The first half of the year saw
the lowest level of volatility in 15 years, while the second half of the year
reflected the highest volatility in 15 years.
A variety of forces fueled the progress of the income markets, including a
budget surplus that reduced Treasury issuance and tightened supply, and a flight
to quality in the third quarter of 1998 that dramatically increased demand for
government bonds. Fueled by financial problems in Asia, Russia, and Latin
America, and the near collapse of one of the world's largest hedge funds,
investors rushed to purchase high-quality, highly liquid issues, which was
generally positive for the money market.
Meanwhile, modest inflation, low unemployment, and a strong U.S. dollar provided
a positive economic backdrop, but earnings disappointments at leading
corporations caused wide swings in the stock market, eroding investor confidence
in the third quarter of 1998. Yield spreads on second-tier money market
instruments widened to near recession levels, while first-tier securities
remained strong on a relative basis. The Federal Reserve moved to stabilize the
situation by reducing interest rates three times in the third and fourth
quarters.
HOW DID THE MAINSTAY VP CASH MANAGEMENT PORTFOLIO PERFORM IN THIS MARKET
ENVIRONMENT?
The MainStay VP Cash Management Portfolio outperformed the average Lipper
Variable Products money market portfolio, which returned 5.10% over the one-year
period ending 12/31/98.
WHAT ACCOUNTED FOR THE PORTFOLIO'S ABOVE-AVERAGE PERFORMANCE?
Several factors contributed to the Portfolio's strong performance. In the first
half of the year, a flat yield curve provided few opportunities to add value by
changing days to maturity, so the Portfolio concentrated on securities with
yield-enhancing characteristics, such as domestic and Yankee issues, corporate
and asset-backed commercial paper, and floating-rate notes. Each of these helped
the Portfolio outperform in the first half of the year.
As financial difficulties in Russia and a major hedge fund setback began to rock
the markets, we lengthened the Portfolio's days to maturity, believing that the
Federal Reserve Board would likely adopt an accommodative policy to help
stabilize the situation. From September through November, the Federal Reserve
Board moved to reduce short-term interest rates three times, which had a
positive impact on the Portfolio's performance. When European central banks took
similar action, the Portfolio's positioning was further enhanced.
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DID THE PORTFOLIO OWN ANY SECURITIES IN TROUBLED MARKETS?
No. The Portfolio maintained its high-quality orientation throughout the year,
avoiding emerging market debt and Latin American issues. Instead, it
concentrated entirely on top-tier money market instruments, which means
securities in the highest rating category. It did not own any split-rated issues
or second-tier securities during 1998.
WHAT TYPES OF YANKEE SECURITIES DID THE PORTFOLIO OWN?
The Portfolio invested in Yankee instruments from Canada, Western European
countries, and Australia. Most carried a long-term rating at or above AA.(2) The
Portfolio invested in Yankee banks that are among the largest banks in the world
and have strong franchises in their domestic markets.
DID ANY OF THE PORTFOLIO'S SECURITIES FACE PROBLEMS DURING THE YEAR?
No, they did not. This underscores the value of our decision to stick with the
highest-quality securities. In the second half of the year, spreads on
second-tier issues widened considerably, to near-recession levels. Since the
Portfolio did not own any of these securities, it did not face the negative
impact on performance that came with widening spreads.
WHERE DID THE PORTFOLIO INVEST ITS ASSETS?
Primarily in extremely liquid investments, such as commercial paper and bank
certificates of deposit, and floating-rate notes. The Portfolio did not invest
in more exotic securities such as callable CDs or other issues with imbedded
option features. Instead, the Portfolio stuck with relatively plain conservative
issues.
Regarding asset allocation, the Portfolio concentrated most heavily in
commercial paper and CDs from banks and bank holding companies. The Portfolio
also had a relatively strong weighting in top-tier asset-backed securities,
including asset-backed commercial paper, agency conventional mortgage loans,
trade receivables, and corporate loans. Since these securities offer higher
yields than ordinary commercial paper, they contributed positively to
performance without compromising quality. In selecting asset-backed securities
for the Portfolio, we look for high credit quality, strong cash flows backed by
collateral, and a highly rated credit enhancement.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We expect the Federal Reserve Board to remain on hold for the early part of
1999, but believe they may have a bias toward easing interest rates later in the
year. We will manage the Portfolio's investment days to maturity accordingly.
While we remain optimistic, recent developments illustrate that risk is a major
investor concern and dislocations can easily occur in the money market as a
result of international developments or problems with corporate earnings.
Whatever happens, the Portfolio 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.
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.
Though an investment in a money market portfolio is generally considered to be
protected from market risk, this investment is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Portfolio seeks to preserve the value of your investment, it is
possible to lose money by investing in this Portfolio.
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MAINSTAY VP BOND PORTFOLIO
1998 MARKET RECAP
- - Global events dominated the fixed income markets in 1998. Fixed income
securities with the slightest hint of credit risk experienced spread pressure,
and liquidity became the principal concern of investors.
- - The Federal Reserve Bank eased monetary policy three times during the course
of the year. The Fed took these actions in an effort to provide liquidity to
the market and allay fears regarding a global financial crisis.
- - The market experienced a significant rally for the year. The five-year U.S.
Treasury note declined 116 basis points.
1998 PORTFOLIO RECAP
- - For the year-ended 12/31/98, the Portfolio had a return of 9.12%,
outperforming the average portfolio in its Lipper(1) peer group (Corporate
Debt A Rated), which returned 8.07%.
- - The Portfolio ranked seventh out of 30 funds (top 23.3%) in its Lipper
variable product universe.
- - Market risk was limited by maintaining a relatively neutral duration posture
throughout the year.
- - An average investment portfolio quality of at least AA- was maintained
throughout the year, limiting credit risk.
MANAGEMENT DISCUSSION AND ANALYSIS
Early in 1998, the bond market exhibited surprising stability. This stability
was the result of two opposing forces, severely weakened foreign economies
countered by a domestic economy which continued to exhibit strength. As the year
progressed, a series of global events led to a significant flight to quality
trade. This created a tremendous demand for liquid, high quality securities.
Concerns about defaults in Russia, its contagion effect on other emerging
markets, the continued banking crisis in Japan along with hedge fund
liquidations put enormous downward pressure on risk assets. In late September,
the Federal Reserve Bank initiated a series of interest rate cuts in an effort
to provide calm to the markets. The Federal Reserve actions proved effective, as
risk asset classes regained stability in the fourth quarter.
TO WHAT DO YOU ATTRIBUTE THE PORTFOLIO'S POSITIVE PERFORMANCE?
The conservative nature of the Portfolio aided it greatly in 1998. The
Portfolio's high overall credit quality insulated it from the extreme spread
pressure experienced by portfolios with a higher concentration of risk assets.
The Portfolio had minimal exposure to sectors most adversely affected by the
global financial crisis such as high yield and emerging markets.
WHAT WAS YOUR PRIMARY STRATEGY DURING 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. The
Portfolio's investments credit quality improved from AA- to AA+ during the
course of the year.
WHERE DO YOU PERCEIVE RISK IN THE PORTFOLIO?
If risk asset classes such as emerging market debt and high yield rebound in
1999, our underweighting in these sectors could hamper our performance relative
to our peer group. The Portfolio's investments overall credit quality and
structure continues to be consistent with our long-term conservative approach to
managing the Portfolio. However, if we see value in riskier asset classes during
the course of the year, we will make Portfolio adjustments to take advantage of
these opportunities.
WHAT IS YOUR OUTLOOK FOR THE FIXED INCOME MARKET IN 1999?
The Federal Reserve's interest rate cuts in 1998 have lowered, but not
eliminated, the risk of a pending recession. The robust stock market along with
recent economic strength should keep the Federal Reserve on hold in the early
part of the year. With spreads at historically wide levels, we see an
opportunity in the corporate bond market.
Trepidation about global economies such as Brazil, along with the Y2K issue and
a potential stock market correction, could put the Federal Reserve back in the
easing mode later this year.
Albert R. Corapi, Jr.
Celia M. Holtzberg
Joseph DePasquale
Portfolio Managers
New York Life Insurance Company
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$10,000 INVESTED IN THE
MAINSTAY VP BOND PORTFOLIO ON 1/23/84 VS
MERRILL LYNCH CORPORATE AND GOVERNMENT
MASTER INDEX(2) AND THE CONSUMER PRICE INDEX(3)
[Line Chart]
<TABLE>
<CAPTION>
MERRILL LYNCH CORPORATE
AND GOVERNMENT MASTER
BOND PORTFOLIO INDEX CONSUMER PRICE INDEX
-------------- ----------------------- --------------------
<S> <C> <C> <C>
1/23/84 10000.00 10000.00 10000.00
1984 11028.00 11422.00 10365.00
1985 13370.40 13583.00 10758.90
1986 15532.30 15706.10 10877.20
1987 17637.00 16035.90 11359.10
1988 17390.00 17273.90 11861.10
1989 19396.90 19714.70 12412.70
1990 20948.60 21388.40 13171.10
1991 24390.50 24787.10 13574.10
1992 26373.40 26690.70 13967.80
1993 29380.00 29642.70 14351.90
1994 28384.00 28673.40 14735.10
1995 33581.10 34138.50 15065.20
1996 34269.50 35132.00 15563.80
1997 37576.50 38567.90 15828.40
1998 42243.00 41004.00 16083.00
</TABLE>
<TABLE>
<S> <C>
One Year: 9.12%
Five Years: 6.89%
Ten Years: 8.96%
Since Inception:
(1/23/84) 10.02%
</TABLE>
(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) The Merrill Lynch Corporate and Government Master Index is an unmanaged
index consisting of issues of the U.S. Government and agencies as well as
investment-grade corporate securities. Results assume the reinvestment of
all income and capital gains distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. 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
1998 MARKET RECAP
- - International economic weakness caused U.S. corporate profit growth to
decelerate.
- - Global recession fears prompted three interest rate cuts by the Federal
Reserve.
- - The market saw strong inflows into mutual funds and increased demand for U.S.
equities by foreigners.
- - Record levels of merger and acquisition activity helped boost equity
valuations.
1998 PORTFOLIO RECAP
- - For the year ended 12/31/98, the MainStay VP Growth Equity Portfolio returned
26.59%.
- - The Portfolio outperformed the Lipper(1) Variable Products growth fund average
of 24.94%.
- - The Portfolio benefited from its holdings of technology stocks, which
generated extremely strong returns throughout the year.
- - The Portfolio's health care and consumer holdings also provided substantial
gains in 1998.
MANAGEMENT DISCUSSION AND ANALYSIS
The main issue facing investors in 1998 was the debate over the impact of
economic problems of emerging markets on the U.S. economy and financial markets.
The market's perception of emerging market problems grew from being a non-event
early in the year to a full-scale crisis by the end of the third quarter.
Fortunately, the Federal Reserve and foreign central banks were able to enact a
coordinated round of global interest rate cuts. The easing of money supply
provided liquidity for the financial markets and enabled investor confidence to
return.
The market was also impacted by several favorable liquidity factors in 1998.
Mainly, foreign investment into the U.S. equity market was at record levels as
international investors sought out the world's strongest economy in a time of
global economic uncertainty. In addition, over a billion dollars of merger and
acquisition activity helped enhance equity valuations while shrinking supply.
Finally, individual investor demand remained robust as the public continued to
invest through mutual funds.
Market performance was narrow once again in 1998 as larger capitalization issues
outperformed smaller capitalization issues by a wide margin. While the S&P 500
Index(2) was up 28.6% in 1998, the median stock in the index returned
approximately 7.0%. These figures point to the fact that investors wanted to
place their money in larger issues with consistent earnings growth.
CAN YOU DISCUSS THE MAINSTAY VP GROWTH EQUITY PORTFOLIO'S PERFORMANCE?
For the year-ended 12/31/98, the MainStay VP Growth Equity Portfolio had a total
return of 26.59%. Once again this placed us ahead of the Lipper Variable
Products growth fund average return of 24.94%. This marked the sixth time in the
last seven years that we have outperformed the Lipper Variable Products growth
fund average.
WERE THERE ANY MAJOR EVENTS IN 1998, WHICH CAUGHT YOU BY SURPRISE? HOW DID YOU
REACT?
A major surprise of 1998 was not that the Federal Reserve began lowering
interest rates in October but the aggressiveness they displayed in doing so.
Earlier in the year, there were many conflicting signals on the direction of the
economy. The Federal Reserve chose to retain a neutral posture. However, as it
became clear that emerging market problems were starting to affect the U.S.
economy and financial markets, the Federal Reserve had no other option than to
lower interest rates. Another surprise was the speed in which the equity market
responded to the Federal Reserve's easings. The old saying "Never fight the Fed"
really held in the fourth quarter of 1998.
We responded to the Federal Reserve's action by quickly moving more cash into
the market, although the Portfolio kept a higher position in cash than normal
given our concerns about the tenacity of the market rally. We decided to
increase the Portfolio's technology holdings as they appeared to have the best
relative growth prospects in the market while also focusing on certain companies
such as United States Filter which saw its stock price inordinately hurt by the
third quarter's correction.
WHAT WERE THE PORTFOLIO'S BEST OVERALL PERFORMERS IN 1998?
The Portfolio's best overall performers were mainly technology issues. This
comes as no surprise as this sector was the equity market's performance leader
by a wide margin. In particular, Internet related stocks were the best
performers. America Online was by far the Portfolio's best performing stock of
the year with an astonishing return of 586%. The stock appreciated as many
investors began to believe in the viability of the Internet. Despite the fact
that America Online is one of the few Internet companies with operating profits,
we are
10
<PAGE> 11
somewhat concerned with the valuation of the stock and the Portfolio has taken
some gains as its stock price has moved up. The stock of EMC was another strong
performer with a return of 209% for the year.
Cisco Systems stock continued to display strong gains in 1998 with a return of
149%. The company continues to be a preeminent provider of networking and
communications equipment.
WHAT WERE THE PORTFOLIO'S WORST OVERALL PERFORMERS IN 1998?
The Portfolio's worst performing stocks were its holdings of Halliburton and
Schlumberger which were both down approximately 41% for the year. Both companies
are involved in the oil drilling and equipment industry, which has fallen on
tough times of late with the severe downturn seen in energy prices.
Unfortunately, we underestimated the effect that falling energy prices would
have on these stocks. Currently, we view each of these stocks as value holdings
while we await a turnaround in the energy sector. Another stock that negatively
impacted the Portfolio was Equifax, which decreased 11%. The company, a provider
of credit information, pre-announced an earnings disappointment in late
December, which caused a steep decline in the price of the stock. The adverse
reaction was a result of operating problems in the company's European operations
which interrupted the company's record of consistent earnings growth.
CAN YOU GO OVER SOME OF THE BEST DECISIONS YOU MADE?
The best decision we made was to keep the Portfolio with a growth stock
orientation, which proved most beneficial as growth stocks continued to
outperform value stocks by a wide margin. We also let the Portfolio's cash
position build up during the summer correction, which helped offset some
potential losses. In particular, we were timely in lowering the Portfolio's
exposure to the financial sector at that time. Another decision which proved
beneficial was increasing the Portfolio's technology exposure in late November.
This was a timely call as this sector surged in the month of December. The
Portfolio's three new holdings that month, Sun Microsytems, Texas Instruments
and Hewlett-Packard were positive contributors to year-end results.
WHAT WERE SOME OF THE WORST DECISIONS YOU MADE?
Probably one of the worst decisions was not having a higher weighting in
technology holdings. While the Portfolio was moderately overweighted in
technology throughout the year, it would have benefited to a greater extent with
a higher weighting. In addition, the Portfolio's investment position in the
energy sector, while underweighted, was too high. In particular, the Portfolio's
oil service positions were especially weak performers. While the Portfolio's
holdings in this sector did not perform up to our expectations, the relative
performance was exacerbated by the extremely strong performance of the equity
market in the fourth quarter.
WERE YOU SIGNIFICANTLY OVERWEIGHTED OR UNDERWEIGHTED IN ANY SECTORS?
The Portfolio does not significantly overweight or underweight any major market
sectors as we manage the Portfolio as a relatively sector balanced portfolio. We
keep the Portfolio's sector weightings between 0.5 times and 1.5 times the
appropriate S&P 500 sector weighting. The Portfolio's sector weightings have
been an important component in its excellent performance. These weightings are
determined from our global outlook on the macroeconomic environment.
WHAT IS YOUR STRATEGIC OUTLOOK GOING FORWARD?
We remain somewhat optimistic on the equity market, but with some reservations.
Our optimism is based primarily on our positive outlook for low inflation and
interest rates. However, corporate earnings growth should be restrained in the
5-7% range. In such an environment, we expect traditional growth stocks to
continue to lead the market.
Our positive stance on the market could be seriously tested by the potential
problems resulting from the Y2K or millenium bug, which could seriously impact
our economy if remediations are not completed by year-end. We will closely
monitor the progress of the government and business community in regard to their
Y2K compliance.
James Agostisi
Patricia Rossi
Portfolio Managers
New York Life Insurance Company
11
<PAGE> 12
$10,000 INVESTED IN THE
MAINSTAY VP GROWTH EQUITY PORTFOLIO
ON 1/23/84 VS S&P 500 AND
THE CONSUMER PRICE INDEX(3)
[LINE CHART]
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO S&P 500 CONSUMER PRICE INDEX
----------------------- ------- --------------------
<S> <C> <C> <C>
1/23/84 10000.00 10000.00 10000.00
1984 9824.00 10755.00 10365.00
1985 12162.10 14199.80 10758.90
1986 12648.60 16833.90 10877.20
1987 13035.60 17712.60 11359.10
1988 14791.50 20691.90 11861.10
1989 18632.90 27216.00 12412.70
1990 17535.40 26350.60 13171.10
1991 23472.90 34405.90 13574.10
1992 26423.50 37051.80 13967.80
1993 30046.10 40753.20 14351.90
1994 30406.70 41278.90 14735.10
1995 39273.30 56791.50 15065.20
1996 48895.20 69829.60 15563.80
1997 61975.00 93111.00 15828.40
1998 78454.00 119723.00 16083.00
</TABLE>
<TABLE>
<S> <C>
One Year: 26.59%
Five Years: 21.16%
Ten Years: 18.16%
Since Inception:
(1/23/84) 14.78%
</TABLE>
(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) "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 product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not reflective 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.
12
<PAGE> 13
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.
BULL MARKET/BEAR MARKET: 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.
CALL RISK: A bondholder's risk that the bond may be redeemed by the issuer
prior to maturity.
CAPITALIZATION: The amount of outstanding equity and debt a company has issued.
Companies may vary greatly in the amount of equity capital they have raised, and
their capitalization may change with new issues or stock repurchases.
CASH FLOW: The amount of income or earnings available to cover outstanding
liabilities and other obligations, including debt service.
COMMODITIES: Bulk goods, such as grains, precious metals, industrial metals,
and foods traded on a commodities exchange.
CREDIT RISK: The risk that the issuer of a security may go into bankruptcy or
default on payments, causing the investor to lose all or part of the investment.
DEVALUATION: A lowering of the value of a country's currency relative to gold
and/or the currencies of other nations. Devaluation can also result from a rise
in the value of other currencies relative to the currency of a particular
country.
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.
EARNINGS PER SHARE: The portion of a company's profit allocated to each share
of outstanding common stock.
EMERGING MARKETS: Countries with smaller or more recently established capital
markets.
FEDERAL RESERVE BOARD: The seven member governing board of the Federal Reserve
System, which is the central bank of the United States. The Board sets policies
on reserve requirements, bank regulations, sets the discount rate, tightens or
loosens the availability of credit in the economy and regulates the purchase of
securities on margin.
FIRST-TIER/SECOND-TIER: Money market instruments in the highest rating category
by two or more major rating agencies are called first-tier or top-tier
securities, while securities in the second-highest rating category by two or
more major rating agencies are referred to as second-tier securities.
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.
HEDGE FUND: A private investment partnership or off-shore investment
corporation that may take both long and short positions, use leverage and
derivative securities, and invest across many markets. Hedge funds may use
high-risk or speculative investment strategies and move billions of dollars in
and out of the markets quickly.
INFLATION/DEFLATION: Inflation is an increase in the cost of goods and services
over time. As prices rise, the purchasing power of the dollar declines.
Deflation is a reduction in the cost of goods over time. When deflation occurs,
the purchasing power of the dollar increases.
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.
13
<PAGE> 14
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 engage in mergers and acquisitions often pay shareholders a premium, or an
amount over the current share price, to complete the transaction quickly and
under favorable terms.
PRICE-TO-EARNINGS RATIO: The price of a stock divided by its earnings per
share.
RECESSION: A downturn in economic activity, typically defined by at least two
consecutive quarters of decline in a country's gross domestic product.
SUPPLY AND DEMAND: In the bond market, supply is influenced by the amount of
new securities issued and the amount of bonds investors wish to sell. Demand
reflects the amount of bonds investors wish to buy, which may decrease when
other markets offer greater opportunities.
In the stock market, an oversupply of a product or service can reduce demand and
lower stock prices. When demand increases relative to supply, stock prices may
recover.
TIGHTEN/EASE: When the Federal Reserve Board moves to raise interest rates, it
is said to be "tightening" or making borrowing more expensive. When it moves to
lower rates, it is said to be "easing" or making borrowing more affordable.
TOTAL RETURN: The performance of an investment with all income and capital
gains reinvested.
VOLATILITY: Fluctuations in the price of securities or markets, up or down,
over a short period of time.
WEIGHTING: The proportion of a portfolio allocated to a specific security,
market sector or country, i.e., a portfolio is said to be overweighed 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.
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.
YIELD SPREAD: The difference in yield between securities in different market
sectors, such as government and mortgage-backed securities -- or between
different securities in a single sector, such as 2- and 30-year Treasuries or
PRIME-1 and PRIME-2 rated commercial paper.
Y2K: A reference to the Year 2000.
14
<PAGE> 15
NYLIAC MFA SEPARATE ACCOUNT-I
TAX-QUALIFIED POLICIES
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<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............ $122,483,942 $214,355,903 $ 31,254,831 $ 52,974,920 $ 4,416,677 $ 6,687,629
LIABILITIES:
Liability to New York Life Insurance
and Annuity Corporation for
mortality and expense risk
charges............................. 401,740 972,199 96,113 234,324 13,925 28,290
------------ ------------ ------------ ------------ ------------ ------------
Total equity...................... $122,082,202 $213,383,704 $ 31,158,718 $ 52,740,596 $ 4,402,752 $ 6,659,339
============ ============ ============ ============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units
outstanding: 1,933,808; 3,643,423;
931,798; 1,700,099; 211,707;
345,170, respectively............. $122,082,202 $213,383,704 $ 31,158,718 $ 52,740,596 $ 4,402,752 $ 6,659,339
============ ============ ============ ============ ============ ============
Variable accumulation unit value.... $ 63.13 $ 58.57 $ 33.44 $ 31.02 $ 20.80 $ 19.29
============ ============ ============ ============ ============ ============
Identified Cost of Investment........... $ 92,259,039 $157,084,526 $ 31,256,758 $ 51,422,131 $ 4,416,645 $ 6,687,598
============ ============ ============ ============ ============ ============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<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....................... $ 894,167 $ 1,562,249 $ 1,634,385 $ 2,757,329 $ 234,618 $ 344,988
Mortality and expense risk charges.... (1,460,503) (3,510,922) (398,446) (960,075) (57,254) (118,097)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)...... (566,336) (1,948,673) 1,235,939 1,797,254 177,364 226,891
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of investments..... 20,959,131 30,743,835 7,905,044 10,446,433 1,981,587 2,056,000
Cost of investments sold.............. (14,600,914) (17,733,882) (7,666,341) (9,305,325) (1,981,584) (2,056,085)
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss)
on investments.................. 6,358,217 13,009,953 238,703 1,141,108 3 (85)
Realized gain distribution received... 9,090,185 15,881,971 802,262 1,353,476 -- --
Change in unrealized appreciation
(depreciation) on investments....... 11,324,734 17,478,811 108,930 (453,461) 27 126
------------ ------------ ------------ ------------ ------------ ------------
Net gain on investments........... 26,773,136 46,370,735 1,149,895 2,041,123 30 41
------------ ------------ ------------ ------------ ------------ ------------
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate
Account............................. (70,695) (170,653) (5,876) (14,113) (549) (1,129)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in total equity
resulting from operations....... $ 26,136,105 $ 44,251,409 $ 2,379,958 $ 3,824,264 $ 176,845 $ 225,803
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 16
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1998
and 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).................... $ (566,336) $ (564,116) $ (1,948,673) $ (1,931,412)
Net realized gain (loss) on investments......... 6,358,217 4,215,822 13,009,953 8,950,270
Realized gain distribution received............. 9,090,185 14,771,244 15,881,971 25,537,359
Change in unrealized appreciation (depreciation)
on investments................................ 11,324,734 5,780,475 17,478,811 8,692,840
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by
Separate Account.............................. (70,695) (51,898) (170,653) (126,748)
------------ ------------ ------------ ------------
Net increase in total equity resulting
from operations............................. 26,136,105 24,151,527 44,251,409 41,122,309
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.................. 867,915 754,147 3,915,025 4,629,389
Policyowners' surrenders........................ (17,529,095) (11,263,827) (31,093,451) (27,429,297)
Policyowners' annuity and death benefits........ (328,002) (1,293,819) (909,451) (1,085,309)
Net transfers from (to) Fixed Account........... 636,061 504,772 887,298 1,204,503
Transfers between Investment Divisions.......... (1,288,107) 466,315 210,211 1,492,856
------------ ------------ ------------ ------------
Net contributions and withdrawals............. (17,641,228) (10,832,412) (26,990,368) (21,187,858)
------------ ------------ ------------ ------------
Increase (decrease) in total equity......... 8,494,877 13,319,115 17,261,041 19,934,451
TOTAL EQUITY:
Beginning of year............................... 113,587,325 100,268,210 196,122,663 176,188,212
------------ ------------ ------------ ------------
End of year..................................... $122,082,202 $113,587,325 $213,383,704 $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> 17
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> <C>
$ 1,235,939 $ 1,689,631 $ 1,797,254 $ 2,598,722 $ 177,364 $ 228,081 $ 226,891 $ 287,523
238,703 193,056 1,141,108 968,705 3 (112) (85) (239)
802,262 95,013 1,353,476 163,372 -- -- -- --
108,930 766,951 (453,461) 705,665 27 184 126 342
(5,876) (6,734) (14,113) (16,251) (549) (391) (1,129) (1,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,379,958 2,737,917 3,824,264 4,420,213 176,845 227,762 225,803 286,626
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
380,797 149,719 1,248,734 1,770,297 22,211 53,680 256,021 335,693
(6,440,695) (4,949,859) (9,697,341) (10,332,134) (1,384,586) (1,892,719) (1,679,773) (2,748,767)
(97,091) (262,993) (254,292) (511,771) 1,261 (15,502) (68,684) (72,602)
117,867 (13,052) 129,666 (186,189) (5,137) (212,192) 1,871 (76,561)
997,456 (868,097) (565,295) (2,077,747) 276,610 407,401 357,038 585,963
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(5,041,666) (5,944,282) (9,138,528) (11,337,544) (1,089,641) (1,659,332) (1,133,527) (1,976,274)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,661,708) (3,206,365) (5,314,264) (6,917,331) (912,796) (1,431,570) (907,724) (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
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 31,158,718 $ 33,820,426 $ 52,740,596 $ 58,054,860 $ 4,402,752 $ 5,315,548 $ 6,659,339 $ 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> 18
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<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............................... $149,190,568 $ 19,251,450 $ 44,482,903 $ 5,532,735 $ 6,377,846 $ 856,228
LIABILITIES:
Liability to New York Life Insurance
and Annuity Corporation for
mortality and expense risk
charges............................. 483,514 87,245 141,467 24,168 19,890 3,344
------------ ------------ ------------ ------------ ------------ ------------
Total equity...................... $148,707,054 $ 19,164,205 $ 44,341,436 $ 5,508,567 $ 6,357,956 $ 852,884
============ ============ ============ ============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units
outstanding: 2,355,547; 327,219;
1,321,028; 177,293; 305,721;
44,207, respectively.............. $148,707,054 $ 19,164,205 $ 44,341,436 $ 5,508,567 $ 6,357,956 $ 852,884
============ ============ ============ ============ ============ ============
Variable accumulation
unit value........................ $ 63.13 $ 58.57 $ 33.57 $ 31.07 $ 20.80 $ 19.29
============ ============ ============ ============ ============ ============
Identified Cost of Investment........... $112,825,145 $ 14,601,743 $ 44,532,714 $ 5,468,593 $ 6,377,794 $ 856,226
============ ============ ============ ============ ============ ============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<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....................... $ 1,086,899 $ 140,042 $ 2,312,094 $ 287,274 $ 327,897 $ 37,952
Mortality and expense risk charges.... (1,737,232) (313,787) (570,421) (98,795) (80,029) (12,993)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)...... (650,333) (173,745) 1,741,673 188,479 247,868 24,959
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of investments..... 19,129,549 2,903,786 8,322,044 1,017,783 2,489,402 412,858
Cost of investments sold.............. (13,735,713) (1,854,558) (8,185,830) (890,941) (2,489,385) (412,855)
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain on
investments..................... 5,393,836 1,049,228 136,214 126,842 17 3
Realized gain distributions
received............................ 11,049,518 1,423,685 1,134,926 141,013 -- --
Change in unrealized appreciation
(depreciation) on investments....... 15,285,530 1,681,228 394,096 (61,254) 23 1
------------ ------------ ------------ ------------ ------------ ------------
Net gain on investments........... 31,728,884 4,154,141 1,665,236 206,601 40 4
------------ ------------ ------------ ------------ ------------ ------------
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate
Account............................. (83,962) (15,209) (8,365) (1,451) (758) (121)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in total equity
resulting from operations....... $ 30,994,589 $ 3,965,187 $ 3,398,544 $ 393,629 $ 247,150 $ 24,842
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 19
NYLIAC MFA SEPARATE ACCOUNT-II
NON-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
19
<PAGE> 20
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1998
and 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)........................ $ (650,333) $ (632,338) $ (173,745) $ (166,662)
Net realized gain (loss) on investments............. 5,393,836 3,780,534 1,049,228 672,393
Realized gain distribution received................. 11,049,518 17,319,759 1,423,685 2,253,166
Change in unrealized appreciation (depreciation) on
investments....................................... 15,285,530 7,321,265 1,681,228 835,447
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account.................................. (83,962) (59,410) (15,209) (11,378)
------------ ------------ ------------ ------------
Net increase in total equity resulting from
operations...................................... 30,994,589 27,729,810 3,965,187 3,582,966
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...................... 13,517 698,016 219,509 265,718
Policyowners' surrenders............................ (14,197,642) (9,979,186) (1,843,270) (1,552,399)
Policyowners' annuity and death benefits............ (1,742,537) (1,846,691) (239,308) (201,003)
Net transfers from (to) Fixed Account............... 1,087,585 1,261,793 (34,395) 41,777
Transfers between Investment Divisions.............. (644,487) 558,642 (213,208) 236,080
------------ ------------ ------------ ------------
Net contributions and withdrawals................. (15,483,564) (9,307,426) (2,110,672) (1,209,827)
------------ ------------ ------------ ------------
Increase (decrease) in total equity............. 15,511,025 18,422,384 1,854,515 2,373,139
TOTAL EQUITY:
Beginning of year..................................... 133,196,029 114,773,645 17,309,690 14,936,551
------------ ------------ ------------ ------------
End of year........................................... $148,707,054 $133,196,029 $ 19,164,205 $ 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> 21
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> <C>
$ 1,741,673 $ 2,364,287 $ 188,479 $ 264,234 $ 247,868 $ 282,567 $ 24,959 $ 28,141
136,214 363,480 126,842 90,798 17 (40) 3 (17)
1,134,926 133,101 141,013 16,538 -- -- -- --
394,096 995,883 (61,254) 73,994 23 129 1 27
(8,365) (9,453) (1,451) (1,640) (758) (466) (121) (99)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,398,544 3,847,298 393,629 443,924 247,150 282,190 24,842 28,052
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(83,812) 195,193 82,767 104,100 24,345 (11,970) 14,107 22,330
(6,156,145) (6,748,806) (730,095) (808,651) (998,881) (1,228,154) (147,788) (118,945)
(600,364) (1,409,901) (132,284) (109,111) (53,573) (31,260) (120) (1,760)
281,773 57,010 4,704 (17,535) 12,618 (43,738) 1,306 (4,291)
328,723 (810,766) 9,933 (129,141) 314,490 276,812 202,684 (106,939)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(6,229,825) (8,717,270) (764,975) (960,338) (701,001) (1,038,310) 70,189 (209,605)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,831,281) (4,869,972) (371,346) (516,414) (453,851) (756,120) 95,031 (181,553)
47,172,717 52,042,689 5,879,913 6,396,327 6,811,807 7,567,927 757,853 939,406
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 44,341,436 $ 47,172,717 $ 5,508,567 $ 5,879,913 $ 6,357,956 $ 6,811,807 $ 852,884 $ 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> 22
NOTES TO FINANCIAL STATEMENTS
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> 23
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 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........................... 5,187 9,077 2,363 4,005 4,417 6,688
Identified cost*........................... $ 92,259 $157,085 $31,257 $51,422 $ 4,417 $ 6,688
SEPARATE ACCOUNT-II (NON-QUALIFIED
POLICIES)
Number of shares........................... 6,318 815 3,363 418 6,378 856
Identified cost*........................... $112,825 $14,602 $44,533 $ 5,469 $ 6,378 $ 856
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Transactions in MainStay VP Series Fund, Inc. shares for the year ended
December 31, 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.................................. $11,808 $17,608 $ 4,882 $ 4,415 $ 1,065 $ 1,141
Proceeds from sales........................ 20,959 30,744 7,905 10,446 1,982 2,056
SEPARATE ACCOUNT-II (NON-QUALIFIED
POLICIES)
Purchases.................................. $14,019 $ 2,037 $ 4,947 $ 578 $ 2,033 $ 508
Proceeds from sales........................ 19,130 2,904 8,322 1,018 2,489 413
</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> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 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>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals).... $ 1,386 $(1,623) $ 230 $ 5,108 $ (745) $ 618
Accumulated net investment income (loss)..... 1,824 (3,318) 27,931 42,436 5,178 6,093
Accumulated net realized gain (loss) on
investments and realized gain distributions
received................................... 88,971 161,864 3,167 3,982 (1) (1)
Unrealized appreciation (depreciation) on
investments................................ 30,225 57,271 (2) 1,553 -- --
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account............... (324) (810) (167) (338) (29) (51)
-------- -------- -------- -------- -------- --------
Net amount applicable to Policyowners........ $122,082 $213,384 $31,159 $52,741 $ 4,403 $ 6,659
======== ======== ======== ======== ======== ========
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals).... $14,527 $ 451 $ 947 $ (20) $ 209 $ 101
Accumulated net investment income (loss)..... 1,763 (270) 39,435 4,842 6,187 762
Accumulated net realized gain (loss) on
investments and realized gain distributions
received................................... 96,415 14,404 4,286 670 (1) --
Unrealized appreciation (depreciation) on
investments................................ 36,365 4,650 (50) 64 -- --
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account............... (363) (71) (277) (47) (37) (10)
-------- -------- -------- -------- -------- --------
Net amount applicable to Policyowners........ $148,707 $19,164 $44,341 $ 5,509 $ 6,358 $ 853
======== ======== ======== ======== ======== ========
</TABLE>
24
<PAGE> 25
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (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............................ 15 17 76 112
Units redeemed on surrenders................................ (316) (270) (611) (663)
Units redeemed on annuity and death benefits................ (3) (6) (8) (6)
Units issued (redeemed) on net transfers from (to)
Fixed Account............................................. 12 11 17 27
Units issued (redeemed) on transfers between
Investment Divisions...................................... (23) 11 3 35
----- ----- ----- -----
Net decrease............................................ (315) (237) (523) (495)
Units outstanding, beginning of year........................ 2,249 2,486 4,166 4,661
----- ----- ----- -----
Units outstanding, end of year.............................. 1,934 2,249 3,643 4,166
===== ===== ===== =====
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Units issued (redeemed) on premium payments................. 1 16 4 6
Units redeemed on surrenders................................ (258) (233) (38) (38)
Units redeemed on annuity and death benefits................ (30) (28) (2) (2)
Units issued (redeemed) on net transfers from (to)
Fixed Account............................................. 19 28 (1) 1
Units issued (redeemed) on transfers between
Investment Divisions...................................... (14) 11 (4) 6
----- ----- ----- -----
Net increase (decrease)................................. (282) (206) (41) (27)
Units outstanding, beginning of year........................ 2,638 2,844 368 395
----- ----- ----- -----
Units outstanding, end of year.............................. 2,356 2,638 327 368
===== ===== ===== =====
</TABLE>
26
<PAGE> 27
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> <C>
12 5 42 65 1 3 14 18
(202) (170) (331) (390) (68) (96) (90) (151)
(1) (6) (3) (5) -- (1) (2) (3)
4 (1) 4 (7) -- (11) -- (4)
29 (30) (19) (76) 13 21 18 32
----- ----- ----- ----- ----- ----- ----- -----
(158) (202) (307) (413) (54) (84) (60) (108)
1,090 1,292 2,007 2,420 266 350 405 513
----- ----- ----- ----- ----- ----- ----- -----
932 1,090 1,700 2,007 212 266 345 405
===== ===== ===== ===== ===== ===== ===== =====
(2) 7 3 4 1 (1) 1 1
(192) (248) (27) (31) (48) (63) (9) (6)
(18) (29) (2) (2) (3) (1) -- --
9 2 -- (1) 1 (2) -- --
10 (27) -- (5) 15 14 11 (6)
----- ----- ----- ----- ----- ----- ----- -----
(193) (295) (26) (35) (34) (53) 3 (11)
1,514 1,809 203 238 340 393 41 52
----- ----- ----- ----- ----- ----- ----- -----
1,321 1,514 177 203 306 340 44 41
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (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 year) with
respect to each Investment Division of Separate Account-I and Separate
Account-II:
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
COMMON STOCK INVESTMENT DIVISIONS 1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................... $50.50 $40.34 $32.81 $25.72 $25.73
Net investment income (loss)................................ (0.27) (0.24) (0.12) -- 0.03
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 12.90 10.40 7.65 7.09 (0.04)
------ ------ ------ ------ ------
Unit value, end of year..................................... $63.13 $50.50 $40.34 $32.81 $25.72
====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................... $50.50 $40.34 $32.81 $25.72 $25.73
Net investment income (loss)................................ (0.26) (0.23) (0.12) -- 0.03
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 12.89 10.39 7.65 7.09 (0.04)
------ ------ ------ ------ ------
Unit value, end of year..................................... $63.13 $50.50 $40.34 $32.81 $25.72
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................... $47.08 $37.80 $30.90 $24.34 $24.48
Net investment loss......................................... (0.50) (0.44) (0.29) (0.14) (0.09)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 11.99 9.72 7.19 6.70 (0.05)
------ ------ ------ ------ ------
Unit value, end of year..................................... $58.57 $47.08 $37.80 $30.90 $24.34
====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................... $47.08 $37.80 $30.90 $24.34 $24.48
Net investment loss......................................... (0.50) (0.43) (0.29) (0.14) (0.09)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 11.99 9.71 7.19 6.70 (0.05)
------ ------ ------ ------ ------
Unit value, end of year..................................... $58.57 $47.08 $37.80 $30.90 $24.34
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each year.
28
<PAGE> 29
NYLIAC MFA SEPARATE ACCOUNTS-I AND -II
TAX-QUALIFIED AND NON-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
BOND INVESTMENT DIVISIONS 1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................... $31.03 $28.66 $28.44 $24.34 $25.51
Net investment income....................................... 1.25 1.42 1.29 1.30 1.22
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.16 0.95 (1.07) 2.80 (2.39)
------ ------ ------ ------ ------
Unit value, end of year..................................... $33.44 $31.03 $28.66 $28.44 $24.34
====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................... $31.15 $28.76 $28.54 $24.43 $25.60
Net investment income....................................... 1.23 1.42 1.30 1.31 1.19
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.19 0.97 (1.08) 2.80 (2.36)
------ ------ ------ ------ ------
Unit value, end of year..................................... $33.57 $31.15 $28.76 $28.54 $24.43
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................... $28.93 $26.85 $26.78 $23.03 $24.26
Net investment income....................................... 0.98 1.18 1.14 1.16 1.11
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.11 0.90 (1.07) 2.59 (2.34)
------ ------ ------ ------ ------
Unit value, end of year..................................... $31.02 $28.93 $26.85 $26.78 $23.03
====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................... $28.98 $26.89 $26.82 $23.07 $24.30
Net investment income....................................... 1.00 1.20 1.13 1.15 1.10
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.09 0.89 (1.06) 2.60 (2.33)
------ ------ ------ ------ ------
Unit value, end of year..................................... $31.07 $28.98 $26.89 $26.82 $23.07
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each year.
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
MONEY MARKET INVESTMENT DIVISIONS 1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................... $20.02 $19.26 $18.57 $17.81 $17.36
Net investment income....................................... 0.78 0.76 0.69 0.76 0.45
------ ------ ------ ------ ------
Unit value, end of year..................................... $20.80 $20.02 $19.26 $18.57 $17.81
====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................... $20.02 $19.26 $18.57 $17.81 $17.36
Net investment income....................................... 0.78 0.76 0.69 0.76 0.45
------ ------ ------ ------ ------
Unit value, end of year..................................... $20.80 $20.02 $19.26 $18.57 $17.81
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT-I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................... $18.66 $18.05 $17.48 $16.85 $16.51
Net investment income....................................... 0.63 0.61 0.57 0.63 0.34
------ ------ ------ ------ ------
Unit value, end of year..................................... $19.29 $18.66 $18.05 $17.48 $16.85
====== ====== ====== ====== ======
SEPARATE ACCOUNT-II (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................... $18.66 $18.05 $17.48 $16.85 $16.51
Net investment income....................................... 0.63 0.61 0.57 0.63 0.34
------ ------ ------ ------ ------
Unit value, end of year..................................... $19.29 $18.66 $18.05 $17.48 $16.85
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each year.
30
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance and
Annuity Corporation and the MFA Policyowners:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations, of changes in total equity and the selected
per unit data present fairly, in all material respects, the financial position
of the Single and Flexible Premium Policies Common Stock, the Single and
Flexible Premium Policies Bond, and the Single and Flexible Premium Policies
Money Market Investment Divisions (constituting the New York Life Insurance and
Annuity Corporation MFA Separate Account-I and the New York Life Insurance and
Annuity Corporation MFA Separate Account-II) at December 31, 1998, and the
results of each of their operations, the changes in each of their total equity,
and the selected per unit data for each of the periods presented in conformity
with generally accepted accounting principles. These financial statements and
the selected per unit data (herein referred to as the "financial statements")
are the responsibility of management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1998 with the
MainStay VP Series Fund, Inc., provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
31
<PAGE> 32
- --------------------------------------------------------------------------------
To Policyowners:
The assets of NYLIAC Variable Annuity Separate Account-I, NYLIAC Variable
Annuity Separate Account-II, NYLIAC Variable Annuity Separate Account-III,
NYLIAC Variable Universal Life Separate Account-I, NYLIAC Corporate Sponsored
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. In addition, the assets of NYLIAC Variable Annuity Separate
Account-I, NYLIAC Variable Annuity Separate Account-II, NYLIAC Variable Annuity
Separate Account-III, NYLIAC Variable Universal Life Separate Account-I and
NYLIAC Corporate Sponsored Variable Universal Life Separate Account-I may be
invested in shares of the Calvert Variable Series, Inc., the Alger American
Fund, Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance
Products Fund II, the Janus Aspen Series, MFS Variable Insurance Trust, Morgan
Stanley Dean Witter Universal Funds, Inc., T. Rowe Price Equity Series, Inc.,
and 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 17,
1998, executive officers of the Fund were elected. On December 29, 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 Variable Universal Life Separate Account-I, NYLIAC Corporate
Sponsored 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.
/s/ RICHARD M. KERNAN JR.
Chairman of the Board
and Chief Executive Officer
MAINSTAY VP SERIES FUND, INC.
32
<PAGE> 33
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.0%)+
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
ASSET-BACKED SECURITY (1.3%)
Bishop's Gate Residential
Mortgage Trust
Series 1998-2A Class A1
5.75%, due 11/22/99 (b)(c)(d).... $3,000,000 $ 3,000,000
------------
CERTIFICATES OF DEPOSIT (13.8%)
ABN AMRO New York
5.75%, due 3/31/99 (d)........... 2,000,000 2,002,008
Bayerische Hypo-und Vereinsbank AG
5.55%, due 1/4/99 (d)............ 2,000,000 2,000,010
Bayerische Landesbank Girozentrale
5.09%, due 3/23/99 (c)(d)........ 3,000,000 2,999,483
Bayerische Landesbank New York
5.41%, due 5/10/99 (c)(d)........ 2,000,000 1,999,473
Deutsche Bank New York
5.52%, due 1/14/99 (d)........... 3,000,000 2,999,713
5.67%, due 1/8/99 (d)............ 2,000,000 1,999,986
Dresdner Bank AG
5.15%, due 3/29/99 (d)........... 3,000,000 2,999,806
ING Bank N.V.
5.14%, due 3/15/99 (d)........... 2,000,000 1,999,962
Rabobank Nederland N.V. New York
4.83%, due 10/6/99 (d)........... 2,000,000 1,999,990
5.64%, due 7/30/99 (d)........... 2,000,000 2,006,312
5.71%, due 4/16/99 (d)........... 3,000,000 3,003,768
Societe Generale New York
5.68%, due 3/22/99 (d)........... 3,000,000 3,000,232
Svenska Handelsbanken Inc.
5.78%, due 5/28/99 (d)........... 3,000,000 3,002,308
------------
32,013,051
------------
COMMERCIAL PAPER (77.9%)
Abbey National North America
5.15%, due 1/6/99................ 2,000,000 1,998,569
5.20%, due 1/6/99................ 2,000,000 1,998,556
Alliance & Leicester PLC
5.28%, due 3/8/99 (b)............ 2,000,000 1,980,640
5.33%, due 3/8/99 (b)............ 2,000,000 1,980,457
Allianz of America Finance Corp.
5.10%, due 3/24/99 (b)........... 2,000,000 1,976,767
5.17%, due 2/19/99 (b)........... 1,735,000 1,722,791
Allomon Funding Corp.
5.35%, due 1/7/99 (b)............ 2,000,000 1,998,217
5.45%, due 1/4/99 (b)............ 2,000,000 1,999,092
5.45%, due 1/11/99 (b)........... 2,065,000 2,061,874
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
American Express Credit Corp.
4.80%, due 2/26/99............... $2,000,000 $ 1,985,067
5.18%, due 3/12/99............... 2,000,000 1,979,856
5.25%, due 2/10/99............... 2,000,000 1,988,333
American General Finance Corp.
5.23%, due 2/1/99................ 2,000,000 1,990,993
ANZ (Delaware) Inc.
5.06%, due 3/12/99............... 2,000,000 1,980,342
Banca CRT Financial Corp.
5.12%, due 3/30/99............... 2,000,000 1,974,969
5.15%, due 4/1/99................ 3,000,000 2,961,375
5.35%, due 3/3/99................ 1,599,000 1,584,505
5.45%, due 1/20/99............... 2,500,000 2,492,809
5.53%, due 2/10/99............... 1,700,000 1,689,555
Bayerische Hypo-und Vereinsbank AG
4.77%, due 6/30/99............... 2,000,000 1,952,300
BCI Funding Corp.
5.09%, due 3/8/99................ 2,000,000 1,981,337
5.12%, due 2/17/99............... 2,500,000 2,483,289
5.23%, due 1/6/99................ 2,000,000 1,998,547
5.25%, due 2/9/99................ 2,000,000 1,988,625
BellSouth Telecommunications Inc.
5.05%, due 2/18/99............... 1,000,000 993,267
5.07%, due 2/5/99................ 1,850,000 1,840,881
BTR Dunlop Finance Inc.
4.80%, due 6/10/99 (b)........... 2,000,000 1,957,333
4.88%, due 6/10/99 (b)........... 2,000,000 1,956,622
Caisse Centrale Desjardins du
Quebec
5.00%, due 4/1/99................ 2,000,000 1,975,000
5.10%, due 1/26/99............... 3,000,000 2,989,375
Commerzbank U.S. Finance Inc.
5.02%, due 3/2/99................ 2,000,000 1,983,267
Cregem North America Inc.
4.82%, due 4/6/99................ 1,000,000 987,281
5.00%, due 4/6/99................ 2,000,000 1,973,611
5.49%, due 1/5/99................ 4,000,000 3,997,560
Deutsche Bank Financial Inc.
5.22%, due 1/5/99................ 2,000,000 1,998,840
Ford Motor Credit Co.
5.08%, due 1/29/99............... 2,000,000 1,992,098
5.15%, due 2/19/99............... 1,600,000 1,588,784
5.16%, due 2/5/99................ 1,600,000 1,591,973
5.25%, due 1/8/99................ 1,800,000 1,798,162
5.31%, due 1/11/99............... 2,000,000 1,997,050
</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> 34
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Formosa Plastics Corp. U.S.A.
4.95%, due 6/14/99............... $1,500,000 $ 1,466,175
5.15%, due 2/9/99................ 2,000,000 1,988,842
Franklin Resources Inc.
5.12%, due 3/11/99 (b)........... 1,800,000 1,782,336
5.22%, due 2/16/99 (b)........... 1,000,000 993,330
General Electric Capital Corp.
4.85%, due 7/28/99............... 2,000,000 1,943,955
5.07%, due 2/12/99............... 2,000,000 1,988,170
5.16%, due 3/9/99................ 2,000,000 1,980,793
5.30%, due 1/20/99............... 2,000,000 1,994,405
5.49%, due 1/29/99............... 2,400,000 2,389,752
Generale Bank Inc.
4.85%, due 6/15/99............... 2,000,000 1,955,542
Goldman Sachs Group L.P. (The)
4.95%, due 5/27/99............... 1,300,000 1,273,902
5.18%, due 2/23/99............... 2,000,000 1,984,748
5.38%, due 1/7/99................ 2,000,000 1,998,207
ING America Insurance Holdings
Inc.
5.25%, due 2/3/99................ 2,300,000 2,288,931
KFW International Finance Inc.
4.90%, due 5/28/99............... 2,000,000 1,959,983
Lloyds Bank PLC
4.85%, due 6/3/99................ 4,000,000 3,917,550
Merrill Lynch & Co. Inc.
5.08%, due 2/11/99............... 2,000,000 1,988,429
5.12%, due 2/5/99................ 2,000,000 1,990,044
Morgan (J.P.) & Co. Inc.
5.05%, due 3/25/99............... 1,750,000 1,729,625
5.06%, due 1/27/99............... 2,100,000 2,092,326
Morgan Stanley Dean Witter
Discover & Co.
5.13%, due 1/12/99............... 2,000,000 1,996,865
5.15%, due 1/21/99............... 2,000,000 1,994,278
5.15%, due 2/4/99................ 2,000,000 1,990,272
5.26%, due 3/12/99............... 1,350,000 1,336,192
National Rural Utilities
Cooperative Finance Corp.
4.85%, due 4/27/99............... 2,000,000 1,968,744
5.02%, due 3/19/99............... 2,000,000 1,978,526
Norwest Corp.
4.95%, due 2/3/99................ 2,000,000 1,990,925
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Prudential Finance (Jersey) Ltd.
5.18%, due 2/11/99............... $2,000,000 $ 1,988,201
5.25%, due 1/8/99................ 2,000,000 1,997,958
Prudential Funding Corp.
5.06%, due 3/11/99............... 2,000,000 1,980,603
5.12%, due 1/13/99............... 2,000,000 1,996,587
5.23%, due 2/11/99............... 2,000,000 1,988,087
Receivables Capital Corp.
5.30%, due 2/4/99 (b)............ 1,800,000 1,790,990
5.31%, due 1/11/99 (b)........... 2,000,000 1,997,050
5.38%, due 1/14/99 (b)........... 1,400,000 1,397,280
5.40%, due 1/29/99 (b)........... 2,000,000 1,991,600
Salomon Smith Barney Holdings Inc.
5.12%, due 1/25/99............... 2,000,000 1,993,173
5.15%, due 2/16/99............... 2,100,000 2,086,181
5.23%, due 1/19/99............... 1,025,000 1,022,320
5.42%, due 1/11/99............... 2,000,000 1,996,989
San Paolo U.S. Financial Co.
5.06%, due 1/20/99............... 2,000,000 1,994,659
5.19%, due 2/19/99............... 2,000,000 1,985,872
Societe Generale North America
Inc.
5.00%, due 5/3/99................ 2,000,000 1,966,111
Svenska Handelsbanken Inc.
5.05%, due 3/15/99............... 2,000,000 1,979,519
UBS Finance (Delaware) Inc.
4.98%, due 4/19/99............... 2,000,000 1,970,120
5.12%, due 2/12/99............... 2,000,000 1,988,062
5.22%, due 1/5/99................ 2,000,000 1,998,840
UNIfunding Inc.
5.08%, due 2/19/99............... 2,000,000 1,986,171
5.19%, due 3/9/99................ 2,000,000 1,980,681
5.21%, due 3/9/99................ 1,050,000 1,039,819
Wood Street Funding Corp.
5.27%, due 1/29/99............... 2,000,000 1,991,802
5.37%, due 1/26/99............... 2,000,000 1,992,542
------------
180,434,033
------------
MEDIUM-TERM NOTES (7.0%)
First Union Corp.
5.61%, due 7/1/99 (c)(d)......... 2,000,000 2,000,251
Goldman Sachs Group L.P.
5.63%, due 3/26/99 (c)(d)........ 2,500,000 2,500,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
34
<PAGE> 35
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------
<S> <C> <C>
MEDIUM-TERM NOTES (Continued)
International Business Machines
Corp.
5.14%, due 4/1/99 (c)(d)......... $3,000,000 $ 2,999,489
Merrill Lynch & Co. Inc.
Series B
5.20%, due 3/17/99 (c)(d)........ 3,600,000 3,600,377
National Rural Utilities
Cooperative Finance Corp.
5.17%, due 9/21/99 (c)(d)........ 2,000,000 2,000,000
Norwest Corp.
5.27%, due 2/24/99 (c)(d)........ 3,000,000 3,000,504
------------
16,100,621
------------
Total Short-Term Investments
(Amortized Cost $231,547,705)
(e).............................. 100.0% 231,547,705
Cash and Other Assets,
Less Liabilities................. 0.0(a) 4,335
---------- ------------
Net Assets........................ 100.0% $231,552,040
========== ============
</TABLE>
- ------------
(a) Less than one tenth of a percent.
(b) May be sold to institutional investors only.
(c) Floating rate. Rate shown is the rate in effect at December 31, 1998.
(d) Coupon interest bearing security.
(e) 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>
Auto Finance................ $ 8,968,068 3.9%
Banks #..................... 107,215,048 46.3
Brokerage................... 35,533,911 15.3
Computers & Office Equipment 2,999,489 1.3
Consumer Financial
Services.................. 5,953,256 2.6
Finance..................... 47,203,077 20.4
Industrial.................. 3,913,956 1.7
Insurance................... 7,979,482 3.4
Residential Mortgage
Loans..................... 3,000,000 1.3
Telecommunication
Services.................. 2,834,148 1.2
Utilities................... 5,947,270 2.6
------------ --------
231,547,705 100.0
Cash and Other Assets,
Less Liabilities.......... 4,335 0.0*
------------ --------
Net Assets.................. $231,552,040 100.0%
============ ========
</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.
* Less than one tenth of a percent.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
35
<PAGE> 36
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(amortized cost $231,547,705).......... $231,547,705
Cash..................................... 113,361
Interest receivable...................... 950,884
------------
Total assets..................... 232,611,950
------------
LIABILITIES:
Payables:
Adviser................................ 47,164
Administrator.......................... 37,731
Custodian.............................. 8,248
Directors.............................. 83
Accrued expenses......................... 63,799
Dividend payable......................... 902,885
------------
Total liabilities................ 1,059,910
------------
Net assets applicable to outstanding
shares................................. $231,552,040
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 600 million shares authorized... $ 2,315,534
Additional paid-in capital............... 229,236,365
Accumulated undistributed net realized
gain on investments.................... 141
------------
Net assets applicable to outstanding
shares................................. $231,552,040
============
Shares of capital stock outstanding...... 231,553,423
============
Net asset value per share outstanding.... $ 1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 9,987,094
------------
Expenses:
Advisory............................... 446,059
Administration......................... 356,847
Shareholder communication.............. 72,293
Professional........................... 41,458
Custodian.............................. 24,237
Directors.............................. 10,380
Miscellaneous.......................... 16,971
------------
Total expenses................... 968,245
------------
Net investment income.................... 9,018,849
------------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments......... 2,765
------------
Net increase in net assets resulting from
operations............................. $ 9,021,614
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
36
<PAGE> 37
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 9,018,849 $ 6,478,968
Net realized gain on investments.......................... 2,765 1,549
------------- -------------
Net increase in net assets resulting from operations...... 9,021,614 6,480,517
------------- -------------
Dividends and distributions to shareholders:
From net investment income................................ (9,018,849) (6,478,968)
From net realized gain on investments..................... (2,107) --
------------- -------------
Total dividends and distributions to shareholders....... (9,020,956) (6,478,968)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares.......................... 485,909,046 285,479,612
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 8,752,871 6,345,913
------------- -------------
494,661,917 291,825,525
Cost of shares redeemed................................... (403,892,045) (269,392,486)
------------- -------------
Increase in net assets derived from capital share
transactions............................................ 90,769,872 22,433,039
------------- -------------
Net increase in net assets.................................. 90,770,530 22,434,588
NET ASSETS:
Beginning of year........................................... 140,781,510 118,346,922
------------- -------------
End of year................................................. $ 231,552,040 $ 140,781,510
============= =============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Net investment income.......................... 0.05 0.05 0.05 0.05 0.04
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment income................... (0.05) (0.05) (0.05) (0.05) (0.04)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total investment return........................ 5.18% 5.25% 4.95% 5.59% 3.82%
Ratios (to average net assets)/Supplemental
Data:
Net investment income........................ 5.05% 5.13% 4.92% 5.44% 3.97%
Net expenses................................. 0.54% 0.54% 0.62% 0.62% 0.62%
Expenses (before reimbursement).............. 0.54% 0.54% 0.64% 0.94% 0.89%
Net assets at end of year (in 000's)........... $ 231,552 $ 140,782 $ 118,347 $ 87,839 $ 71,116
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
37
<PAGE> 38
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM BONDS (95.8%)+
CORPORATE BONDS (50.1%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AUTO PARTS & EQUIPMENT (1.9%)
Borg-Warner Automotive, Inc.
7.00%, due 11/1/06.............. $ 5,000,000 $ 5,206,250
------------
BANKS (4.0%)
BankAmerica Corp.
7.75%, due 7/15/02.............. 4,000,000 4,270,000
Golden West Financial Corp.
10.25%, due 12/1/00............. 1,000,000 1,086,250
Republic New York Corp.
7.75%, due 5/15/09.............. 5,000,000 5,675,000
------------
11,031,250
------------
CHEMICALS (1.1%)
Praxair, Inc.
6.15%, due 4/15/03.............. 3,000,000 2,996,250
------------
CONGLOMERATES--DIVERSIFIED (0.7%)
Harcourt General, Inc.
9.50%, due 3/15/00.............. 2,000,000 2,082,500
------------
DIVERSIFIED UTILITIES (2.9%)
New Century Energies, Inc.
6.00%, due 1/1/01............... 3,000,000 3,033,750
Niagara Mohawk Power Corp.
7.125%, due 7/1/01.............. 5,000,000 5,068,750
------------
8,102,500
------------
DRUGS--GENERIC & OVER THE COUNTER
(1.8%)
Merck & Co., Inc.
5.95%, due 12/1/28.............. 5,000,000 5,025,000
------------
ELECTRIC UTILITIES (3.8%)
Cleveland Electric Illuminating
Co.
7.88%, due 11/1/17.............. 5,000,000 5,287,500
Commonwealth Edison
6.95%, due 7/15/18.............. 5,000,000 5,256,250
------------
10,543,750
------------
ELECTRONICS/ELECTRIC (3.3%)
Raytheon Co.
5.95%, due 3/15/01.............. 5,000,000 5,031,250
6.75%, due 3/15/18.............. 4,000,000 4,105,000
------------
9,136,250
------------
FINANCE (11.5%)
Chrysler Financial Corp.
5.875%, due 2/7/01.............. 5,000,000 5,056,250
General Motors Acceptance Corp.
5.625%, due 2/15/01............. 6,000,000 6,015,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FINANCE (Continued)
Household Finance Corp.
6.50%, due 11/15/08............. $ 5,000,000 $ 5,200,000
John Deere Capital Corp.
5.35%, due 10/23/01............. 5,000,000 4,981,250
Mellon Financial Co.
7.625%, due 11/15/99 (a)........ 3,000,000 3,064,065
Norwest Financial, Inc.
6.85%, due 7/15/09.............. 7,000,000 7,586,250
------------
31,902,815
------------
GAS UTILITIES (2.9%)
KN Energy, Inc.
6.45%, due 3/1/03............... 5,000,000 5,006,250
Williams Companies, Inc.
6.125%, due 2/1/01.............. 3,000,000 3,003,750
------------
8,010,000
------------
OIL & GAS (1.6%)
Oryx Energy Co.
9.50%, due 11/1/99 (a).......... 4,235,000 4,346,169
------------
PAPER/PRODUCTS (1.7%)
Champion International Corp.
9.875%, due 6/1/00.............. 4,500,000 4,741,875
------------
POLLUTION CONTROL (1.5%)
USA Waste Services, Inc.
7.00%, due 10/1/04.............. 4,000,000 4,195,000
------------
RAILROADS (4.7%)
CSX Corp.
7.05%, due 5/1/02............... 7,000,000 7,262,500
Norfolk Southern Corp.
7.80%, due 5/15/27.............. 5,000,000 5,825,000
------------
13,087,500
------------
RETAIL STORES (1.8%)
Penney (J.C.) Co., Inc.
6.95%, due 4/1/00............... 5,000,000 5,112,500
------------
TELECOMMUNICATIONS (4.9%)
Sprint Capital Corp.
6.875%, due 11/15/28............ 8,000,000 8,360,000
Worldcom, Inc.
6.40%, due 8/15/05.............. 5,000,000 5,187,500
------------
13,547,500
------------
Total Corporate Bonds
(Cost $134,974,420)............. 139,067,109
------------
</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.
38
<PAGE> 39
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (42.0%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL HOME LOAN BANK (1.8%)
5.625%, due 3/19/01............. $ 5,000,000 $ 5,081,925
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (2.6%)
5.91%, due 8/25/03.............. 7,000,000 7,065,751
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
(MORTGAGE PASS-THROUGH
SECURITIES) (10.9%)
6.00%, due 12/1/27.............. 3,652,705 3,607,046
6.50%, due 11/1/09.............. 5,714,809 5,825,534
6.50%, due 10/1/27.............. 4,935,162 4,970,636
7.00%, due 2/1/27............... 8,373,203 8,564,221
8.00%, due 5/1/25............... 6,992,541 7,265,691
------------
30,233,128
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITY) (1.0%)
9.00%, due 4/15/26.............. 2,647,940 2,827,504
------------
UNITED STATES TREASURY BONDS
(7.6%)
5.50%, due 8/15/28.............. 8,000,000 8,379,984
6.125%, due 11/15/27............ 7,000,000 7,835,590
7.125%, due 2/15/23............. 4,000,000 4,921,388
------------
21,136,962
------------
UNITED STATES TREASURY NOTES
(18.1%)
5.50%, due 3/31/03.............. 14,000,000 14,415,772
6.125%, due 8/15/07............. 5,000,000 5,470,550
6.25%, due 8/31/02.............. 13,000,000 13,672,386
6.50%, due 8/15/05.............. 15,000,000 16,491,405
------------
50,050,113
------------
Total U.S. Government &
Federal Agencies
(Cost $113,363,063)............. 116,395,383
------------
YANKEE BONDS (3.7%)
COMMERCIAL PRINTING (1.9%)
Quebecor Printing Capital Corp.
7.25%, due 1/15/07.............. 5,000,000 5,268,750
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CRUDE PETROLEUM &
NATURAL GAS (1.8%)
Gulf Canada Resources Ltd.
9.00%, due 8/15/99 (a).......... $ 5,000,000 $ 5,050,000
------------
Total Yankee Bonds
(Cost $10,051,581).............. 10,318,750
------------
Total Long-Term Bonds
(Cost $258,389,064)............. 265,781,242
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (2.7%)
<S> <C> <C>
COMMERCIAL PAPER (2.7%)
Associates Corp. of North America
4.708%, due on demand (b)....... 3,167,000 3,167,000
Avnet, Inc.
5.55%, due 1/22/99.............. 500,000 498,380
Ford Motor Credit Corp.
4.93%, due 1/7/99............... 2,570,000 2,567,888
Fortune Brands, Inc.
5.65%, due 1/11/99.............. 240,000 239,623
South Carolina Electric & Gas
5.40%, due 2/11/99.............. 1,000,000 993,846
------------
Total Short-Term Investments
(Cost $7,466,737)............... 7,466,737
------------
Total Investments
(Cost $265,855,801) (c)......... 98.5% 273,247,979(d)
Cash and Other Assets,
Less Liabilities................ 1.5 4,144,252
---------- ------------
Net Assets....................... 100.0% $277,392,231
========== ============
</TABLE>
- ------------
(a) Long-term security maturing within the subsequent twelve month period.
(b) Adjustable rate. Rate shown is the rate in effect at
December 31, 1998.
(c) The cost for Federal income tax purposes is $265,956,706.
(d) At December 31, 1998 net unrealized appreciation was $7,291,273, 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 $7,597,149 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $305,876.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
39
<PAGE> 40
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $265,855,801)......... $273,247,979
Cash..................................... 1,501
Receivables:
Interest............................... 4,456,469
Fund shares sold....................... 117,338
------------
Total assets..................... 277,823,287
------------
LIABILITIES:
Payables:
Adviser................................ 169,874
Fund shares redeemed................... 146,548
Administrator.......................... 46,515
Shareholder communication.............. 34,782
Directors.............................. 104
Accrued expenses......................... 33,233
------------
Total liabilities................ 431,056
------------
Net assets applicable to outstanding
shares................................. $277,392,231
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 209,694
Additional paid-in capital............... 269,782,716
Accumulated undistributed net investment
income................................. 7,643
Net unrealized appreciation on
investments............................ 7,392,178
------------
Net assets applicable to outstanding
shares................................. $277,392,231
============
Shares of capital stock outstanding...... 20,969,392
============
Net asset value per share outstanding.... $ 13.23
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 15,813,057
------------
Expenses:
Advisory............................... 619,671
Administration......................... 495,736
Shareholder communication.............. 95,418
Professional........................... 48,701
Directors.............................. 14,365
Portfolio pricing...................... 6,730
Miscellaneous.......................... 17,209
------------
Total expenses................... 1,297,830
------------
Net investment income.................... 14,515,227
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 6,948,226
Net change in unrealized appreciation on
investments............................ 19,352
------------
Net realized and unrealized gain on
investments............................ 6,967,578
------------
Net increase in net assets resulting from
operations............................. $ 21,482,805
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
40
<PAGE> 41
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 14,515,227 $ 14,358,879
Net realized gain on investments.......................... 6,948,226 2,351,172
Net change in unrealized appreciation on investments...... 19,352 3,848,534
------------ ------------
Net increase in net assets resulting from operations...... 21,482,805 20,558,585
------------ ------------
Dividends and distributions to shareholders:
From net investment income................................ (14,391,518) (14,330,709)
From net realized gain on investments..................... (7,064,292) (640,312)
------------ ------------
Total dividends and distributions to shareholders....... (21,455,810) (14,971,021)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 63,383,438 21,412,921
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 21,455,810 14,971,021
------------ ------------
84,839,248 36,383,942
Cost of shares redeemed................................... (36,423,049) (39,397,355)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions...................................... 48,416,199 (3,013,413)
------------ ------------
Net increase in net assets.................................. 48,443,194 2,574,151
NET ASSETS:
Beginning of year........................................... 228,949,037 226,374,886
------------ ------------
End of year................................................. $277,392,231 $228,949,037
============ ============
Accumulated undistributed net investment income at end of
year...................................................... $ 7,643 $ --
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 13.14 $ 12.83 $ 13.42 $ 12.09 $ 13.43
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.74 0.88 0.87 0.88 0.88
Net realized and unrealized gain (loss) on
investments............................... 0.46 0.35 (0.59) 1.33 (1.34)
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 1.20 1.23 0.28 2.21 (0.46)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income................ (0.74) (0.88) (0.87) (0.88) (0.88)
From net realized gain
on investments.......................... (0.37) (0.04) -- -- --
------------ ------------ ------------ ------------ ------------
Total dividends and distributions........... (1.11) (0.92) (0.87) (0.88) (0.88)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 13.23 $ 13.14 $ 12.83 $ 13.42 $ 12.09
============ ============ ============ ============ ============
Total investment return..................... 9.12% 9.65% 2.05% 18.31% (3.39%)
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 5.86% 6.42% 6.31% 6.55% 6.53%
Net expenses.............................. 0.52% 0.50% 0.58% 0.62% 0.62%
Expenses (before reimbursement)........... 0.52% 0.50% 0.58% 0.91% 0.67%
Portfolio turnover rate..................... 206% 187% 103% 81% 88%
Net assets at end of year (in 000's)........ $ 277,392 $ 228,949 $ 226,375 $ 235,030 $ 206,686
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
41
<PAGE> 42
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (92.2%)+
SHARES VALUE
-----------------------
<S> <C> <C>
BANKS--MAJOR REGIONAL (2.1%)
Bank of New York Co., Inc.
(The)........................... 300,000 $ 12,075,000
Fleet Financial Group, Inc. ..... 192,600 8,606,813
------------
20,681,813
------------
BANKS--MONEY CENTER (1.9%)
BankAmerica Corp. ............... 160,000 9,620,000
First Union Corp. ............... 150,000 9,121,875
------------
18,741,875
------------
BEVERAGES--ALCOHOLIC (1.0%)
Anheuser-Busch Cos., Inc. ....... 160,000 10,500,000
------------
BIOTECHNOLOGY (1.8%)
Centocor, Inc. (a)............... 171,100 7,720,888
Genzyme Corp. (a)................ 200,000 9,950,000
------------
17,670,888
------------
BROADCAST/MEDIA (6.1%)
Capstar Broadcasting Corp. Class
A (a)........................... 475,000 10,865,625
Clear Channel Communications,
Inc. (a)........................ 150,000 8,175,000
Comcast Corp. Special Class A.... 300,000 17,606,250
MediaOne Group Inc. (a).......... 230,000 10,810,000
News Corp. Ltd. (The) ADR (b).... 310,000 8,195,625
USA Networks, Inc. (a)........... 147,000 4,869,375
------------
60,521,875
------------
CHEMICALS (0.4%)
IMC Global Inc. ................. 172,500 3,687,188
------------
COMMUNICATIONS--EQUIPMENT
MANUFACTURERS (5.8%)
ADC Telecommunications, Inc.
(a)............................. 280,000 9,730,000
Ascend Communications, Inc.
(a)............................. 180,000 11,835,000
Cisco Systems, Inc. (a).......... 180,000 16,706,250
Northern Telecom Ltd............. 225,000 11,278,125
Tellabs, Inc. (a)................ 125,000 8,570,313
------------
58,119,688
------------
COMPUTER SOFTWARE & SERVICES
(7.4%)
America Online Inc. (a).......... 160,000 23,160,000
Ceridian Corp. (a)............... 140,000 9,773,750
Equifax Inc. .................... 210,000 7,179,375
Microsoft Corp. (a).............. 100,000 13,868,750
Network Associates, Inc. (a)..... 117,000 7,751,250
SunGard Data Systems Inc. (a).... 300,000 11,906,250
------------
73,639,375
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
COMPUTER SYSTEMS (4.9%)
Comdisco Inc. ................... 600,000 $ 10,125,000
Dell Computer Corp. (a).......... 120,000 8,782,500
EMC Corp. (a).................... 150,000 12,750,000
Hewlett-Packard Co............... 120,000 8,197,500
Sun Microsystems, Inc. (a)....... 100,000 8,562,500
------------
48,417,500
------------
ELECTRIC POWER COMPANIES (0.7%)
CMS Energy Corp. ................ 135,000 6,539,063
------------
ELECTRICAL EQUIPMENT (2.3%)
Checkpoint Systems, Inc. (a)..... 214,400 2,653,200
General Electric Co.............. 200,000 20,412,500
------------
23,065,700
------------
ELECTRONICS--SEMICONDUCTORS
(1.5%)
Motorola, Inc. .................. 110,000 6,716,875
Texas Instruments Inc. .......... 100,000 8,556,250
------------
15,273,125
------------
ENTERTAINMENT (1.2%)
Time Warner Inc. ................ 200,000 12,412,500
------------
FINANCIAL--MISCELLANEOUS (4.5%)
American General Corp. .......... 120,000 9,360,000
Associates First Capital Corp.
Class A......................... 260,000 11,017,500
Fannie Mae....................... 160,000 11,840,000
Freddie Mac...................... 200,000 12,887,500
------------
45,105,000
------------
FOOD (0.8%)
Hershey Foods Corp. ............. 126,700 7,879,156
------------
FOOD & HEALTH CARE DISTRIBUTORS
(2.0%)
Cardinal Health, Inc. ........... 135,000 10,243,125
SYSCO Corp. ..................... 360,000 9,877,500
------------
20,120,625
------------
HEALTH CARE--DIVERSIFIED (5.6%)
Abbott Laboratories.............. 225,000 11,025,000
American Home Products Corp. .... 200,000 11,262,500
Bristol-Myers Squibb Co.......... 95,000 12,712,187
Johnson & Johnson................ 120,000 10,065,000
Warner-Lambert Co................ 150,000 11,278,125
------------
56,342,812
------------
</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.
42
<PAGE> 43
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
HEALTH CARE--DRUGS (5.7%)
Glaxo Wellcome PLC ADR (b)....... 150,000 $ 10,425,000
Lilly (Eli) & Co................. 160,000 14,220,000
Pharmacia & Upjohn, Inc. ........ 200,000 11,325,000
Schering-Plough Corp............. 180,000 9,945,000
SmithKline Beecham PLC ADR (b)... 157,300 10,932,350
------------
56,847,350
------------
HEALTH CARE--MEDICAL PRODUCTS
(2.9%)
Biomet, Inc. .................... 150,000 6,037,500
Elan Corp. PLC ADR (a)(b)........ 146,900 10,218,731
Medtronic, Inc. ................. 175,000 12,993,750
------------
29,249,981
------------
HEAVY DUTY TRUCKS & PARTS (0.6%)
Dana Corp. ...................... 148,000 6,049,500
------------
INSURANCE--LIFE (1.1%)
Provident Cos., Inc. ............ 260,000 10,790,000
------------
INSURANCE--PROPERTY & CASUALTY
(1.9%)
Allstate Corp. (The)............. 250,000 9,656,250
EXCEL Ltd........................ 119,600 8,970,000
------------
18,626,250
------------
MANUFACTURING--DIVERSIFIED (1.5%)
Tyco International Ltd........... 200,000 15,087,500
------------
MANUFACTURING--MISCELLANEOUS
(0.9%)
United States Filter Corp. (a)... 400,000 9,150,000
------------
NATURAL GAS DISTRIBUTORS &
PIPELINES (0.8%)
Enron Corp. ..................... 135,000 7,703,437
------------
OIL & GAS--EQUIPMENT & SERVICES
(1.1%)
Halliburton Co................... 200,000 5,925,000
Schlumberger Ltd................. 100,000 4,612,500
------------
10,537,500
------------
OIL--INTEGRATED DOMESTIC (0.8%)
USX-Marathon Group............... 250,000 7,531,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
OIL--INTEGRATED INTERNATIONAL
(2.5%)
Amoco Corp. ..................... 175,000 $ 10,565,625
Mobil Corp. ..................... 80,000 6,970,000
Texaco Inc. ..................... 133,100 7,037,662
------------
24,573,287
------------
PAPER & FOREST PRODUCTS (0.6%)
Boise Cascade Corp. ............. 195,000 6,045,000
------------
PUBLISHING (1.1%)
McGraw-Hill Cos., Inc. (The)..... 107,000 10,900,625
------------
REAL ESTATE INVESTMENT/
MANAGEMENT (1.5%)
Chelsea GCA Realty, Inc. ........ 96,300 3,430,688
First Industrial Realty Trust,
Inc. ........................... 175,000 4,692,187
Healthcare Realty Trust, Inc. ... 125,000 2,789,063
Liberty Property Trust........... 166,500 4,100,062
------------
15,012,000
------------
RETAIL STORES--DRUGS (1.1%)
Rite Aid Corp. .................. 225,000 11,151,563
------------
RETAIL STORES--FOOD (3.1%)
Kroger Co. (The) (a)............. 270,000 16,335,000
Safeway Inc. (a)................. 220,000 13,406,250
Smart & Final Inc. .............. 163,000 1,568,875
------------
31,310,125
------------
RETAIL STORES--GENERAL
MERCHANDISE (1.4%)
Wal-Mart Stores, Inc. ........... 170,000 13,844,375
------------
RETAIL STORES--SPECIALTY (1.4%)
Costco Cos., Inc. (a)............ 200,000 14,437,500
------------
SPECIALIZED SERVICES (3.5%)
Fiserv, Inc. (a)................. 200,000 10,287,500
Service Corp. International...... 250,000 9,515,625
ServiceMaster Co. (The).......... 375,000 8,273,438
Sodexho Marriott Services Inc.
(a)............................. 27,500 761,406
Young & Rubicam Inc. (a)......... 175,000 5,665,625
------------
34,503,594
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
43
<PAGE> 44
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
TELECOMMUNICATIONS--
LONG DISTANCE (4.7%)
Global Crossing Ltd. (a)......... 200,000 $ 9,025,000
MCI WorldCom, Inc. (a)........... 205,000 14,708,750
Qwest Communications
International Inc. (a).......... 250,000 12,500,000
Sprint Corp. (FON Group)......... 110,000 9,253,750
Sprint Corp. (PCS Group) (a)..... 55,000 1,271,875
------------
46,759,375
------------
TELEPHONE (3.5%)
ALLTEL Corp. .................... 175,000 10,467,187
Ameritech Corp. ................. 206,000 13,055,250
Bell Atlantic Corp. ............. 200,000 11,362,500
------------
34,884,937
------------
WASTE DISPOSAL (0.5%)
Republic Services, Inc. Class A
(a)............................. 273,500 5,042,656
------------
Total Common Stocks
(Cost $635,443,357)............. 918,755,988
------------
SHORT-TERM
INVESTMENTS (7.9%)
PRINCIPAL
AMOUNT VALUE
-----------------------
COMMERCIAL PAPER (7.9%)
Albertson's Inc.
5.40%, due 1/22/99.............. $ 4,220,000 $ 4,206,703
Alliance Capital Management L.P.
4.90%, due 1/26/99.............. 5,245,000 5,227,150
Associates Corp. of North America
4.71%, due on demand (c)........ 24,400,000 24,400,000
Banca Carito Financial Corp.
5.50%, due 1/19/99.............. 285,000 284,213
Bay State Gas Co.
5.60%, due 1/26/99.............. 6,765,000 6,738,655
Bayerische Vereinsbank AG
7.00%, due 1/5/99............... 10,000,000 9,992,209
Cleco Corp.
5.30%, due 1/19/99.............. 8,000,000 7,978,794
Fortune Brands Inc.
5.65%, due 1/11/99.............. 160,000 159,748
Northern Illinois Gas Co.
5.90%, due 1/8/99............... 3,500,000 3,495,982
South Carolina Electric & Gas Co.
5.40%, due 2/11/99.............. 6,198,000 6,159,859
Wisconsin Gas Co.
5.00%, due 1/29/99.............. 5,000,000 4,980,550
Xerox Credit Corp.
5.25%, due 1/14/99.............. 5,000,000 4,990,489
------------
Total Short-Term Investments
(Cost $78,614,352).............. 78,614,352
------------
Total Investments
(Cost $714,057,709) (d)......... 100.1% 997,370,340(e)
Liabilities In Excess of
Cash and Other Assets........... (0.1) (633,900)
---------- ------------
Net Assets....................... 100.0% $996,736,440
========== ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR-American Depository Receipt.
(c) Adjustable rate. Rate shown is the rate in effect at December 31, 1998.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At December 31, 1998 net unrealized appreciation was $283,312,631, 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 $295,976,840 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $12,664,209.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
44
<PAGE> 45
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $714,057,709)......... $997,370,340
Cash..................................... 2,883
Receivables:
Dividends and interest................. 699,907
Fund shares sold....................... 565,941
------------
Total assets..................... 998,639,071
------------
LIABILITIES:
Payables:
Investment securities purchased........ 612,584
Adviser................................ 559,757
Fund shares redeemed................... 404,010
Administrator.......................... 159,854
Shareholder communication.............. 121,817
Directors.............................. 354
Accrued expenses......................... 44,255
------------
Total liabilities................ 1,902,631
------------
Net assets applicable to outstanding
shares................................. $996,736,440
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 422,073
Additional paid-in capital............... 713,001,736
Net unrealized appreciation on
investments............................ 283,312,631
------------
Net assets applicable to outstanding
shares................................. $996,736,440
============
Shares of capital stock outstanding...... 42,207,295
============
Net asset value per share outstanding.... $ 23.62
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 8,831,999
Interest............................... 2,849,861
------------
Total income..................... 11,681,860
------------
Expenses:
Advisory............................... 2,153,029
Administration......................... 1,722,424
Shareholder communication.............. 358,786
Professional........................... 90,664
Directors.............................. 49,927
Miscellaneous.......................... 47,698
------------
Total expenses................... 4,422,528
------------
Net investment income.................... 7,259,332
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 73,678,921
Net change in unrealized appreciation on
investments............................ 123,768,075
------------
Net realized and unrealized gain on
investments............................ 197,446,996
------------
Net increase in net assets resulting from
operations............................. $204,706,328
============
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $26,963.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
45
<PAGE> 46
GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 7,259,332 $ 5,317,657
Net realized gain on investments.......................... 73,678,921 97,560,028
Net change in unrealized appreciation on investments...... 123,768,075 52,771,507
------------- -------------
Net increase in net assets resulting from operations...... 204,706,328 155,649,192
------------- -------------
Dividends and distributions to shareholders:
From net investment income................................ (7,247,513) (5,271,609)
From net realized gain on investments..................... (73,678,921) (98,150,349)
------------- -------------
Total dividends and distributions to shareholders....... (80,926,434) (103,421,958)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares.......................... 121,819,072 99,117,945
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 80,926,434 103,421,958
------------- -------------
202,745,506 202,539,903
Cost of shares redeemed................................... (88,843,247) (60,398,261)
------------- -------------
Increase in net assets derived from capital share
transactions............................................ 113,902,259 142,141,642
------------- -------------
Net increase in net assets.................................. 237,682,153 194,368,876
NET ASSETS:
Beginning of year........................................... 759,054,287 564,685,411
------------- -------------
End of year................................................. $ 996,736,440 $ 759,054,287
============= =============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year..... $ 20.31 $ 18.63 $ 17.22 $ 14.69 $ 15.64
------------- ------------- ------------- ------------- -------------
Net investment income.................... 0.19 0.16 0.18 0.22 0.22
Net realized and unrealized gain (loss)
on investments......................... 5.21 4.74 4.06 4.06 (0.03)
------------- ------------- ------------- ------------- -------------
Total from investment operations......... 5.40 4.90 4.24 4.28 0.19
------------- ------------- ------------- ------------- -------------
Less dividends and distributions:
From net investment income............. (0.19) (0.16) (0.18) (0.22) (0.22)
From net realized gain
on investments....................... (1.90) (3.06) (2.65) (1.53) (0.92)
------------- ------------- ------------- ------------- -------------
Total dividends and distributions........ (2.09) (3.22) (2.83) (1.75) (1.14)
------------- ------------- ------------- ------------- -------------
Net asset value at end of year........... $ 23.62 $ 20.31 $ 18.63 $ 17.22 $ 14.69
============= ============= ============= ============= =============
Total investment return.................. 26.59% 26.75% 24.50% 29.16% 1.20%
Ratios (to average net
assets)/Supplemental Data:
Net investment income.................. 0.84% 0.80% 0.98% 1.29% 1.41%
Net expenses........................... 0.51% 0.50% 0.58% 0.62% 0.62%
Expenses (before reimbursement)........ 0.51% 0.50% 0.58% 0.91% 0.65%
Portfolio turnover rate.................. 69% 103% 104% 104% 108%
Net assets at end of year (in 000's)..... $ 996,736 $ 759,054 $ 564,685 $ 427,507 $ 330,161
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
46
<PAGE> 47
MAINSTAY VP SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Business:
- --------------------------------------------------------------------------------
MainStay VP Series Fund, Inc. (the "Fund") was incorporated under Maryland law
on June 3, 1983. The Fund 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 "Portfolios"; each separately a
"Portfolio") are separate Portfolios of the Fund. Shares of the Portfolios 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 Portfolios 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 Fund 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
Fund:
(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 (see Note 3) if these prices are deemed to be
representative of market values at the regular close of business of
47
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the 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 Fund 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 Fund'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.
These "book/tax differences" are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their Federal tax basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for Federal tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains.
48
<PAGE> 49
MAINSTAY VP SERIES FUND, INC.
(F)
STATEMENT OF POSITION 93-2. The following table discloses the current year
reclassifications between accumulated undistributed net investment income (loss)
and accumulated undistributed net realized gain (loss) on investments and
paid-in capital arising from permanent differences; net assets are not affected.
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED UNDISTRIBUTED
UNDISTRIBUTED NET REALIZED ADDITIONAL
NET INVESTMENT GAIN (LOSS) PAID-IN
INCOME (LOSS) ON INVESTMENTS CAPITAL
-------------- -------------- ----------
<S> <C> <C> <C>
Bond Portfolio.............................................. $(116,066) $116,066 $ 0
Growth Equity Portfolio..................................... (11,819) 0 11,819
</TABLE>
The reclassifications for the Portfolios are primarily due to investments in
real estate investment trusts and paydown gain (loss).
(G)
EXPENSES. Expenses with respect to the Fund 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.
(H)
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
NOTE 3--Fees and Related Party Policies:
- --------------------------------------------------------------------------------
(A)
INVESTMENT ADVISORY AND ADMINISTRATION FEES. MacKay-Shields Financial
Corporation ("MacKay-Shields") acts as investment adviser to Cash Management
Portfolio under an Investment Advisory Agreement. MacKay-Shields is a
registered investment adviser, a wholly-owned subsidiary of NYLIFE Inc. and an
indirect wholly-owned subsidiary of New York Life. New York Life acts as
investment adviser to Bond and Growth Equity Portfolios under an Investment
Advisory Agreement.
NYLIAC is Administrator for the Fund.
The Fund, 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>
49
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 Fund 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 Fund by the Office of
General Counsel of New York Life are charged to the Portfolios. For the year
ended December 31, 1998, these fees in the following amounts, were included in
Professional fees shown on the Statement of Operations:
<TABLE>
<S> <C>
Cash Management Portfolio................................... $ 7,147
Bond Portfolio.............................................. 10,035
Growth Equity Portfolio..................................... 34,851
</TABLE>
- --------------------------------------------------------------------------------
NOTE 4--Federal Income Tax:
- --------------------------------------------------------------------------------
Cash Management utilized $460 of capital loss carryforwards during the current
year.
- --------------------------------------------------------------------------------
NOTE 5--Line of Credit:
- --------------------------------------------------------------------------------
Bond and Growth Equity Portfolios maintain a line of credit of $375,000,000
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.
The Portfolios pay a commitment fee, at an annual rate of 0.06% of the average
commitment amount, regardless of usage. Such commitment fees are allocated
amongst the Portfolios based upon net assets. Interest on any such borrowings
is charged based upon the Federal Funds Advances rate. There were no borrowings
on this line of credit at December 31, 1998.
50
<PAGE> 51
MAINSTAY VP SERIES FUND, INC.
NOTE 6--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the year ended December 31, 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.................................. $248,870 $195,508 $ -- $ --
All others.................................................. 288,019 292,604 555,638 556,285
---------------------------------------------
Total....................................................... $536,889 $488,112 $555,638 $556,285
=============================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE 7--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in capital shares throughout each year ended December 31, 1998 and
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.......................................... 485,911 285,484 4,582 1,611 5,372 4,700
Shares issued in reinvestment of
dividends and distributions........................ 8,753 6,346 1,627 1,140 3,440 5,219
--------------------------------------------------------------
494,664 291,830 6,209 2,751 8,812 9,919
Shares redeemed...................................... (403,894) (269,397) (2,659) (2,980) (3,977) (2,855)
--------------------------------------------------------------
Net increase (decrease).............................. 90,770 22,433 3,550 (229) 4,835 7,064
==============================================================
</TABLE>
51
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
MainStay VP Series Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Cash Management Portfolio, Bond
Portfolio and Growth Equity Portfolio (three of the fifteen portfolios
constituting MainStay VP Series Fund, Inc., hereafter referred to as the "Fund")
at December 31, 1998, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodians and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 26, 1999
52
<PAGE> 53
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
<PAGE> 54
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