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TABLE OF CONTENTS
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Vice Chairman's Letter.................. 2
Performance Summary..................... 4
MacKay-Shields Financial Corporation
Adviser's Report...................... 6
New York Life Insurance Company
Adviser's Report...................... 8
Portfolio Managers' Comments............ 9
Glossary................................ 44
NYLIAC Variable Annuity Separate Account
I (Non-Qualified Policies)
Statement of Assets and Liabilities..... 48
Statement of Operations................. 50
Statement of Changes in Total Equity.... 52
NYLIAC Variable Annuity Separate Account
II (Tax-Qualified Policies)
Statement of Assets and Liabilities..... 56
Statement of Operations................. 58
Statement of Changes in Total Equity.... 60
NYLIAC Variable Annuity Separate
Accounts I and II
Notes to Financial Statements........... 64
Report of Independent Accountants....... 80
MainStay VP Series Fund, Inc.
Chairman's Letter....................... 82
Capital Appreciation Portfolio.......... 83
Cash Management Portfolio............... 87
Convertible Portfolio................... 91
Government Portfolio.................... 96
High Yield Corporate Bond Portfolio..... 100
International Equity Portfolio.......... 109
Total Return Portfolio.................. 117
Value Portfolio......................... 125
Bond Portfolio.......................... 129
Growth Equity Portfolio................. 133
Indexed Equity Portfolio................ 138
Notes to Financial Statements........... 148
Report of Independent Accountants....... 162
Alger American Small Capitalization
Portfolio............................. A1
Calvert Socially Responsible
Portfolio............................. B1
Fidelity Variable Insurance Products
Fund II Contrafund Portfolio.......... C1
Fidelity Variable Insurance Products
Fund Equity-Income Portfolio.......... D1
Janus Aspen Series Balanced Portfolio
and Janus Aspen Series Worldwide
Growth Portfolio...................... E1
Morgan Stanley Emerging Markets Equity
Portfolio............................. F1
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LETTER FROM THE VICE CHAIRMAN
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TO OUR POLICYOWNERS:
I am pleased to present the Annual Report for the year ended December 31, 1997.
This Annual Report contains current performance information, financial
statements, notes and other pertinent data for the MainStay VP Series Fund, Inc.
Portfolios. Annual reports relating to the Alger American Small Capitalization,
Calvert Socially Responsible, Fidelity VIP II Contrafund(1), Fidelity VIP
Equity-Income(1), Janus Aspen Series Balanced, Janus Aspen Series Worldwide
Growth and Morgan Stanley Emerging Markets Equity Portfolios have also been
attached.
YEAR END REVIEW
The United States stock market delivered an unprecedented third year of gains
exceeding 20%. The remarkable combination of rapid economic growth and slowing
inflation has continued for another year. The Dow Jones Industrial Average(2)
closed the year at 7,908 up 24.9%, following 26.0% in 1996 and 33.5% in 1995.
The Standard & Poor's 500 Composite Stock Price Index(3) showed an even stronger
33.4% return, ending the year at 970.
The unemployment rate declined from 5.3% in 1996 to 4.7%, the lowest rate since
1973 and well below levels previously associated with accelerating inflation.
Despite this, inflation continued to trend downward, with the Consumer Price
Index(4) rising by just 1.7% in 1997. Faster increases in wage rates were
generally offset by slower increases in benefit costs, and rising productivity
held down unit labor costs. The rising dollar was another source of downward
pressure on prices.
In 1998, growth is expected to finally slow from its unsustainable pace without
any Federal Reserve Board tightening as the Asian currency crisis reduces
exports, raises imports, and moderates corporate profitability growth and
capital investment. Inflation should remain contained as the unemployment rate
begins to drift upward again and lower import prices restrain domestic prices as
well. Bond yields could fall further, and the next move by the Federal Reserve
Board may well be an easing of monetary policy.
The bull market for domestic equities has been driven by the continuation of
strong growth, healthy earnings gains, and low inflation. Market conditions for
1998 are likely to be mixed. Increased uncertainty about the impact of the Asian
crisis on individual companies could weigh on the market, and slower growth and
increased pricing competition from abroad could slow earnings.
VARIABLE ANNUITIES IN GENERAL
People are living longer and spending more time in retirement than ever before.
In fact, since the turn of the century, average life expectancy has increased
60%. Many people entering their retirement years can expect to spend fifteen,
twenty, perhaps even thirty years, or more, enjoying the rest of their lives.
Variable annuities can be an effective retirement planning tool because they
offer the benefits of tax deferral(5), option for a lifetime income, a death
benefit and tax-free transfers between investment options and other product
features that set them apart from other taxable investment vehicles. New York
Life Insurance and Annuity Corporation's variable annuities currently offer 18
investment divisions from an array of cash, bond and equity sectors covering the
United States and other international countries. In addition, some of most
well-known portfolio management companies in the world (including
MacKay-Shields, Fidelity Management & Research and Janus Capital Corporation)
are available to help manage your variable annuity assets.
New York Life Insurance and Annuity Corporation received over $1.5 billion in
variable annuity premiums in 1997, a 41% increase over the amount received in
1996. Total United States variable annuity sales reached over $85 billion in
1997, a 23% increase over 1996. Sales of variable annuities are expected to
continue to rise in 1998.
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We thank you for selecting us to be "The Company You Keep(R)," and we look
forward to helping you build a solid foundation for your retirement years.
/s/ FEDERICK J. SIEVERT
Frederick J. Sievert
Vice Chairman
New York Life Insurance Company,
parent of New York Life Insurance and Annuity Corporation
(1) Fidelity VIP and VIP II refer to Variable Insurance Products Fund and
Variable insurance Products Fund II.
(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 & Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The S&P 500 is
an unmanaged index considered generally representative of the U.S. stock
market.
(4) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
(5) Withdrawals are subject to ordinary income tax and, if prior to age 59 1/2,
a 10% IRS penalty.
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NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNTS-I AND II
AVERAGE ANNUAL TOTAL RETURN(+) FOR THE PERIOD ENDING DECEMBER 31, 1997
ASSUMING CONTRACT NOT SURRENDERED*:
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INVESTMENT DIVISIONS INCEPTION DATE 1 YR. 3 YRS. 5 YRS. 10 YRS. SINCE INCEPTION
<S> <C> <C> <C> <C> <C> <C>
Mainstay VP Series Funds:
Capital Appreciation 01/29/93 21.89% 24.18% -- -- 16.85%
Cash Management 01/29/93 3.89% 3.93% -- -- 3.15%
Convertible 10/01/96 13.93% -- -- -- 13.80%
Government 01/29/93 8.06% 7.92% -- -- 4.99%
High Yield Corporate Bond 05/01/95 11.57% -- -- -- 13.64%
International Equity 05/01/95 3.81% -- -- -- 6.80%
Total Return 01/29/93 16.27% 17.67% -- -- 12.11%
Value 05/01/95 21.31% -- -- -- 21.85%
Bond 01/23/84 8.24% 8.38% 5.95% 7.46% 8.66%
Growth Equity 01/23/84 25.12% 25.15% 17.07% 15.12% 12.43%
Indexed Equity 01/29/93 31.12% 28.89% -- -- 18.26%
Alger American Small Capitalization 09/20/88 9.96% 17.21% 11.19% -- 17.67%
Calvert Socially Responsible 09/02/86 18.54% 19.07% 11.44% 10.96% 9.77%
Fidelity VIP II Contrafund 01/03/95 22.55% -- -- -- 26.52%
Fidelity VIP Equity-Income 10/09/86 26.46% 23.90% 18.61% 15.22% 13.03%
Janus Aspen Series Balanced 09/13/93 20.53% 19.41% -- -- 14.79%
Janus Aspen Series Worldwide Growth 09/13/93 20.58% 24.53% -- -- 21.32%
Morgan Stanley Emerging Markets Equity 10/01/96 -0.99% -- -- -- -1.37%
</TABLE>
ASSUMING CONTRACT SURRENDERED**:
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INVESTMENT DIVISIONS INCEPTION DATE 1 YR. 3 YRS. 5 YRS. 10 YRS. SINCE INCEPTION
<S> <C> <C> <C> <C> <C> <C>
Mainstay VP Series Funds:
Capital Appreciation 01/29/93 14.21% 22.31% -- -- 15.90%
Cash Management 01/29/93 -2.65% 1.70% -- -- 2.19%
Convertible 10/01/96 6.76% -- -- -- 8.04%
Government 01/29/93 1.26% 5.60% -- -- 4.02%
High Yield Corporate Bond 05/01/95 4.54% -- -- -- 11.02%
International Equity 05/01/95 -2.73% -- -- -- 4.23%
Total Return 01/29/93 8.95% 15.59% -- -- 11.06%
Value 05/01/95 13.66% -- -- -- 19.53%
Bond 01/23/84 1.42% 6.06% 4.98% 7.46% 8.66%
Growth Equity 01/23/84 17.24% 23.32% 16.15% 15.12% 12.43%
Indexed Equity 01/29/93 22.86% 27.16% -- -- 17.35%
Alger American Small Capitalization 09/20/88 3.03% 15.11% 10.17% -- 17.67%
Calvert Socially Responsible 09/02/86 11.07% 17.03% 10.42% 10.96% 9.77%
Fidelity VIP II Contrafund 01/03/95 14.83% -- -- -- 24.72%
Fidelity VIP Equity-Income 10/09/86 18.50% 22.03% 17.74% 15.22% 13.03%
Janus Aspen Series Balanced 09/13/93 12.94% 17.39% -- -- 13.57%
Janus Aspen Series Worldwide Growth 09/13/93 12.99% 22.67% -- -- 20.26%
Morgan Stanley Emerging Markets Equity 10/01/96 -7.23% -- -- -- -6.37%
</TABLE>
* Assumes no deduction for the contingent deferred sales charges.
** The maximum contingent deferred sales charge for each premium payment is 7%,
declining to 0% by the tenth year after the initial premium payment.
Withdrawals may be taxable transactions, and prior to age 59 1/2 may be
subject to a 10% IRS penalty.
+ The values shown are unaudited.
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Past performance is no guarantee of future results. The investment return and
the accumulation value of your policy will fluctuate so that your contract, when
surrendered, may be worth more or less than the original cost. Performance
reflects the percentage change for the period shown with capital gains and
dividends reinvested.
Several Portfolios existed prior to the date they were first offered in the
NYLIAC Variable Annuity Separate Accounts-I and II. For the period from
inception of the MainStay VP and Calvert Socially Responsible Portfolios to the
date those Portfolios were added to the NYLIAC Variable Annuity Separate
Accounts-I and II, performance assumes these variable annuity products were
available, which they were not. For the period from the inception of the Alger
American Small Capitalization, Fidelity VIP II Contrafund, Fidelity VIP Equity-
Income, Janus Aspen Series Balanced, Janus Aspen Series Worldwide Growth and
Morgan Stanley Emerging Markets Equity Portfolios to the date those Portfolios
were offered under NYLIAC Variable Annuity Separate Accounts-I and II on
10/1/96, performance assumes that these variable annuity products were available
and that these Portfolios were offered under these variable annuity products,
which they were not.
Results include an annualized Asset Fee of 1.30% and show the percentage change
for the period with capital gains and dividends reinvested. A policy fee, equal
to the lesser of $30 or 2% of the accumulation value of the policy, is not
included in these charges, but will be deducted each year on the policy
anniversary if the accumulation value is less than $10,000.
NYLIAC has agreed to assume a portion of the expenses of the MainStay VP
Convertible and the MainStay VP International Equity Investment Divisions until
12/31/98. This expense limitation was in effect until 12/31/97 for the MainStay
VP High Yield Corporate Bond, and MainStay VP Value Investment Divisions, and
until 12/31/96 for all other MainStay VP Investment Divisions. In addition,
Janus Capital Corporation has agreed to reduce the advisory fee for the Janus
Aspen Series Balanced and the Janus Aspen Series Worldwide Growth Investment
Divisions and Morgan Stanley Asset Management Inc. has agreed to reduce the
advisory fee and assume certain expenses of the Morgan Stanley Emerging Markets
Equity Investment Division. Had these expenses not been assumed or reduced, the
total returns for these Investment Divisions would have been lower.
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MAINSTAY VP SERIES FUND, INC. PORTFOLIOS
MACKAY-SHIELDS FINANCIAL CORPORATION
ADVISER'S REPORT
Market Overview
What a year: In 1997, the U.S. economy reveled in strong 3.7% growth, mild 2%
inflation, 4.7% unemployment, low interest rates, strong corporate profits, and
a seemingly unstoppable stock market. The year completed an unprecedented three
year run of above twenty percent returns for the stock market, with the Dow
Jones Industrial Average(1) returning 24.91%, the S&P 500(2) returning 33.36%,
and the NASDAQ(3) returning 21.64%. These stellar returns were accompanied by
increased volatility, with the industrial average moving more than 1 percent for
almost one third of all trading sessions in 1997. For the fourth quarter the Dow
Jones Industrial Average lost 0.02%, the S&P 500 eked out a positive return of
2.87% and the NASDAQ lost 6.84% as the technology sector slipped.
Only a few months ago, it looked as if fund managers might do something in 1997
they haven't done since 1993: beat the Standard & Poor's 500-stock index and the
index funds that mimic it. But the October market turmoil and the December
massacre in technology stocks put the Portfolios back behind the index.
Gross Domestic Product(4) increased almost 4 percent last year because of
consumer spending and business outlays for new equipment. As a result, corporate
profits increased and were at their highest level since the 1960s. However, 1997
continued to be a tale of two stock markets, with large stocks contributing most
heavily to the year's return, while smaller stocks trailed substantially. Best
performing industries included securities brokers, broadcasting, savings and
loans, advertising, airlines, home construction, trucking and oil-field
equipment. Worst performing industries included footwear, precious metals, heavy
construction, coal, casinos and health care. The average U.S. equity mutual fund
returned 24.36%, a very strong return when compared to the long-term historical
average of approximately 10%. Investors continued to pour assets into stock
funds, with almost $200 billion being invested through the end of October.
The year was not without weaknesses. Cracks appeared in August, with some
corporations announcing disappointing earnings. Then on October 27, the
industrial average plummeted 554.26 points, or 7.18%, its largest point drop
ever and biggest in percentage terms since 1987's Black Monday. International
investors' mettle was tested as the Southeast Asia "flu", which started with
Thailand floating the baht, soon spread to Malaysia, Philippines, Indonesia and
South Korea. Portfolios investing in Pacific Rim stock markets outside Japan
lost 35.52% in 1997, according to Lipper(5) Analytical Services, Inc. Latin
America and Eastern Europe were impacted as well, and U.S. investors became
jittery as they realized how intertwined the world's economies had become. The
Asian crisis has shifted investors' focus from U.S. economic strengths, to its
weaknesses. However, U.S. economic strength prevailed through the end of 1997.
The bond market ended 1997 on a high note as investors focused on future
prospects for Asian financial stability. Treasury securities have even
outperformed the Dow Jones Industrial Average since the middle of the year.
During the year, despite the surging economy and the lowest unemployment rate of
the last 24 years, which usually translate into higher prices, inflation
remained subdued. Any fears that the Federal Reserve Board would raise
short-term interest rates were put to rest by Asian financial turmoil. Prospects
of cheaper imports because of cheaper foreign currencies, low inflation, and the
higher foreign demand for U.S. Treasuries caused the bond market to rally.
Investors increased their contributions to bond mutual funds, with November
inflows approximately $8 billion versus $3.7 billion for October.
The U.S. dollar strengthened dramatically through 1997, with fundamental support
coming from the surging U.S. economy, high U.S. interest rates (compared with
other countries), low inflation and a high level of confidence in the Federal
Reserve. Foreign demand for U.S. assets drove the dollar to a five-year high
against the yen, eight-year high against the German mark and a four-year high
against the Swiss franc. In the latter part of 1997, foreign buying of U.S.
securities became a flood as the Asian financial crisis boosted the dollar's
image as a "safe haven".
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Going forward, most economists see a slow growing economy, mild inflation and
low interest rates. More specifically, expectations for the stock market are
more muted with projections of 8% to 10% appreciation, which is more in line
with historical norms. Risks to this rosy picture include a continuing slide of
Southeast Asian financial markets impacting world economic growth, and even
possibly deflation, not an economic scenario since the 1930s. On the other hand,
a faster than expected recovery of the Asia markets could place more focus on
our domestic marketplace and could lead to inflationary concerns heating up.
General demographic trends and macroeconomic themes will continue into 1998.
Companies will continue to globalize, and competition will make price hikes
untenable. Productivity should continue to increase through technology advances
and improved utilization of resources. Baby boomers should continue to pour
money in the market for their retirement.
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" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(3) "NASDAQ Composite Index" is an unmanaged index and is considered to be
generally representative of the U.S. small capitalization stock market.
(4) The Gross Domestic Product (GDP) is 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.
(5) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
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NEW YORK LIFE INSURANCE COMPANY
ADVISER'S REPORT
1997 In Review and 1998 Outlook
The U.S. financial markets produced another year of stellar performance in 1997.
The economy was strong, with Gross Domestic Product(1) growing at a 4.3%
annualized pace in the fourth quarter. Corporate profits enjoyed continued
strength and inflationary pressures remained subdued, with inflation running at
1.7% during the year. These positive factors led to outstanding stock market
performance, with the S&P 500 Index(2) up by 33.4%, and to strong bond market
results with the Salomon Bond Investment Grade Index(3) up by 9.6%.
Nevertheless, during the year, the tone of the financial markets changed and
became more volatile. Due to relatively high valuations, the stock market was
unforgiving of negative earnings surprises, and certain industry group sectors,
such as technology, fell in and out of favor. Volatility in the bond market
increased several times during the year as strong economic growth and employment
statistics led to fears of increasing inflation.
This environment changed radically as the Asian debt crisis began to unfold in
the fourth quarter. The inability of several Asian countries to keep their
currencies pegged to the dollar, combined with massive borrowing, has reduced
the growth outlook for the worldwide economy. Near term, foreign investors have
been attracted to the U.S. as a safe haven. Longer term, U.S. corporate earnings
are bound to suffer. While certain sectors such as retail, soft goods and
personal computers may benefit from a lower cost of goods, the reduced demand
from the Asian economies combined with intensified pricing pressures in other
economic sectors, may prove more powerful.
Our outlook is positive for interest rates, since the inflationary pressures
associated with rapid domestic economic growth should be offset by intensified
price pressure from abroad. We do see the possibility that the Asian crisis may
mask underlying inflationary trends in the U.S. economy.
Implications for the stock market are somewhat negative, as corporate pricing
and earnings power may be damaged. Thus we are somewhat subdued going into 1998.
We believe that sectors benefiting from lower interest rates such as financials,
and from significant product innovation and industry consolidation, such as
pharmaceutical companies, will provide opportunities for investment.
Jean E. Hoysradt
Senior Vice President
in Charge of the Investment Department
New York Life Insurance Company
(1) The Gross Domestic Product (GDP) is 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.
(2) "Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(3) The Salomon Brothers Broad Investment Grade Bond Index is
capitalization-weighted and contains about 5,500 individually priced fixed
income securities, which include "investment grade" corporate bonds
including U.S. dollar-denominated securities of foreign issuers (rated BBB
by Standard & Poor's or Baa by Moody's, or better), U.S. Treasury/agency
issues, and mortgage pass-through (mortgage-backed) securities, and other
securities.
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MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO
1997 MARKET HIGHLIGHTS
- - Following the Federal Reserve Board's rate hike in March, low inflation and
declining domestic interest rates generally helped the equity markets.
- - The Asian financial crisis precipitated a flight to quality which proved
beneficial for some of the largest capitalization issues and stocks with
dependable earnings.
- - Over the course of the year, stock market volatility increased substantially,
creating both opportunities and pitfalls.
- - Despite gains earlier in the year, energy and energy services stocks were hurt
in the fourth quarter by declining oil prices.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Capital Appreciation Portfolio
returned 23.49%.
- - The Portfolio outperformed the average Lipper(1) capital appreciation fund for
the year.
- - The Portfolio benefited from an overweighted position in financial services,
which performed well through most of the year and provided substantial
returns.
- - Several of the Portfolio's technology holdings suffered from setbacks in Asian
economies, while domestic retail companies appeared to benefit.
- - The Portfolio benefited from the flight to quality with several defensive
names that performed well for investors.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Early in 1997, signs of rapid growth led the Federal Reserve Board to raise
interest rates by 25 basis points in late March. Throughout the rest of the
year, however, the growth rate was more moderate and inflation remained at low
levels, which was generally positive for the stock market and particularly good
for the financial industry.
Volatility increased as the year progressed, with the Dow Jones Industrial
Average(2) dropping 554.26 points or 7.18% on October 27, 1997, then recording
its largest single-day gain in history the next day. In the third and fourth
quarters, weakening currencies and other financial problems in Asian markets
took a severe toll on many technology stocks, stimulating increased interest in
purely domestic issues or high-quality defensive names with dependable earnings,
including health care and pharmaceutical stocks.
Declining oil prices hurt energy-related stocks late in the year, despite their
earlier gains. Overall, however, the stock market had another outstanding year,
with the S&P 500(3) Index up more than 33%.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO DO IN
1997?
For the year ended 12/31/97, the MainStay VP Capital Appreciation Portfolio
returned 23.49%. That placed the Portfolio ahead of the average Lipper capital
appreciation fund, which returned 21.45%.
WHICH AREAS CONTRIBUTED MOST SIGNIFICANTLY TO THE PORTFOLIO'S PERFORMANCE?
One of our best decisions during the year was to keep the Portfolio overweighted
in the financial sector. Although this sector had a sudden and severe setback
when the Federal Reserve Board moved to raise short-term interest rates at the
end of the first quarter, we felt the individual stocks the Portfolio held were
strong, and many were stellar performers for the year, particularly as long-term
interest rates declined in the third and fourth quarters.
CAN YOU GIVE US SOME EXAMPLES OF FINANCIAL STOCKS THAT DID WELL?
Sure. Travelers Group was up 79% and had a major impact on the Portfolio.
SunAmerica was up 45% for the year and American International Group rose 51%.
Although each stock had a different weighting, all of them were strong
contributors to the Portfolio's overall performance. Norwest, which we purchased
in July was up 27% by the end of the year, which was an impressive gain in a
short period.
WHY DID FINANCIAL STOCKS DO SO WELL?
Lower interest rates are generally good for financial issues. In addition, when
investors started to look at the companies in terms of portfolio fundamentals,
rather than just where rates were going, the group had very attractive
price-to-earnings ratios and growth rates. Generally, we look for dependable
companies -- so when the Asian difficulties caused a flight to quality, the
Portfolio's financial stocks provided strong returns. One
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negative performer was Green Tree Financial, which was down 31% for the year,
after questionable accounting practices caught up with the company as rates
declined.
HOW WAS THE PORTFOLIO AFFECTED BY THE FALLOUT IN ASIA?
In a variety of ways. Technology stocks, many of which have close ties with
Asian markets, were hit relatively hard. Since many investors were heavily
weighted in technology, they needed to find alternatives, and they turned to
high-quality, dependable stocks, such as pharmaceuticals and strong health care
companies, solid domestic financial issues, and other large capitalization
names.
HOW HARD WAS THE PORTFOLIO HIT IN THE TECHNOLOGY AREA?
Negative investor psychology led us to sell a number of names that had formerly
looked attractive. Since the market was relatively forgiving of bigger names, we
continued to hold Oracle, but it lost 22% for the year and we may trim the
Portfolio's position in the future. Intel, which had previously been a strong
performer, returned just 7% in a market that was up 33%, so we reduced the
Portfolio's position. When we saw declining interest in commodity-type
technology names, we also sold Seagate Technology, a disk drive manufacturer,
and Lam Research, a company that makes chip-testing equipment. Given the further
declines these stocks experienced, the decision to sell was a positive step in
containing risk. We also held 3Com, a networking company that had problems
integrating its acquisitions. The stock was down 52% for the year and had the
worst overall impact on the Portfolio of any of its holdings. Of course, not all
technology stocks were negative stories. Computer Associates International,
which was up 60% for the year, was one of the Portfolio's largest holdings, and
was among the leading contributors to the Portfolio's performance. Also, two
other software companies, Microsoft and Compuware, contributed positively to the
Portfolio's performance.
HOW WAS THE PORTFOLIO AFFECTED BY THE VOLATILITY OF THE STOCK MARKET IN 1997?
We held a number of defensive names that benefited from the market's volatility.
Merck was a major new purchase, with relatively steady earnings-per-share
growth. We bought the stock in the second quarter and it did very well. Other
defensive names, like Johnson & Johnson, Lilly (Eli), and Schering-Plough also
helped us weather the market volatility, as investors sought out stocks that had
a more dependable growth profile.
WITH OIL PRICES DECLINING LATE IN THE YEAR, HOW WAS THE PORTFOLIO AFFECTED?
The impact was generally negative. Diamond Offshore Drilling, Halliburton, and
ENSCO International are offshore drilling and oil services companies we bought
during the year. All three declined in price after purchase and hurt the
Portfolio's overall performance. We've continued to hold the stocks, however,
because they appear to have strong, assured earnings for 1998. Of course, we'll
reevaluate that decision as things progress. Basically, though, we believe that
buying energy stocks late in the cycle was one of our weaker decisions during
1997.
BESIDES TECHNOLOGY STOCKS, DID YOU HAVE OTHER MAJOR SALES DURING THE YEAR?
Yes. We sold Amgen, a leading biotechnology stock, because its portfolio
fundamentals weakened. Earnings-per-share slowed and the sale was basically
neutral for the Portfolio. But we're glad we left the stock. Black & Decker
appeared to be an attractive buy, but just a few weeks later, its earnings
estimates were reduced and we sold the stock, which had a negative impact on
performance. NIKE, on the other hand, was a stock we sold based on reduced
earnings and weaker portfolio fundamentals. But given the performance after the
sale, we believe it was a good move for the Portfolio. We also sold Triton
Energy, an "opportunistic" stock with oil reserves in Columbia and natural gas
holdings in Thailand. Needless to say, when Thailand's economy weakened, that
project went on hold. We sold the stock at a loss, but protected investors from
even bigger losses as the stock continued to decline.
WERE THERE OTHER SIGNIFICANT SALES?
Yes. We saw medical costs rising out of control for Humana. A new president
stepped in and tried to turn things around, but we later sold the stock. That
turned out to be a wise decision given the stock's subsequent performance.
Although we didn't sell Aetna until recently, it was also an underperformer,
losing 65% for the year, for much the same reasons that impacted Humana.
Columbia/HCA Healthcare got embroiled in a federal investigation, which made it
impossible to base decisions on the portfolio fundamentals. So we sold the stock
around where we purchased it, with a neutral impact for the Portfolio.
IT SOUNDS LIKE IT WAS A YEAR OF UPS AND DOWNS.
Yes it was. That's why we use a bottom-up approach, evaluating securities on
their individual merits, seeking stocks with strong growth potential. But as you
can see, shifting economic, market, and industry factors can have
10
<PAGE> 11
a dramatic impact, even on stocks with strong portfolio fundamentals. This year
Tyco International, a diversified industrial company that exceeded earnings
expectations, was one of the Portfolio's strongest performers as investors
looked for quality, dependability, and strength. On the other hand, Danka
Business Systems, which distributes copiers and fax machines, suffered a setback
integrating a recent acquisition and earnings visibility disappeared. The stock
was down 62% for the year, which had a negative impact on performance.
HOW IS THE PORTFOLIO CURRENTLY WEIGHTED?
As we mentioned earlier, the Portfolio is overweighted in financials, which was
positive for performance. The Portfolio remains slightly overweighted in
technology, which hurt the Portfolio in 1997. It's currently underweighted in
energy, which helped performance, and underweighted in utilities, which was
essentially neutral. Being underweighted in consumer staples and communications
also hurt the Portfolio, particularly with the strength of large-capitalization
stocks like AT&T. Being underweighted in capital goods helped the Portfolio and
being somewhat underweighted in basic materials was good for the Portfolio on a
relative basis.
WHAT DO YOU FORESEE FOR 1998?
We believe the catalysts that moved the market in 1997 are still in place.
Moderate growth, low inflation, and low interest rates are likely to continue,
and will support the long-term case for a bull market. Nevertheless, the market
is much more cautious, and for good reason. Chances are, the Asian situation may
slow economic growth in the United States and demand for exports may decline.
While that may be negative for corporate earnings, it may have a beneficial
impact on inflation. If foreign influence on domestic stocks is stronger than we
anticipate, however, the bull market may well be challenged. Nevertheless, we
will continue to seek to identify stocks that offer long-term growth potential,
with dividend income, if any, as an incidental consideration.
Edmund Spelman
Rudy Carryl
Portfolio Managers
MacKay-Shields Financial Corporation
$10,000 INVESTED IN THE
MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO
ON 1/29/93 VS S&P 500 AND
THE CONSUMER PRICE INDEX(4)
<TABLE>
<S> <C>
One Year: 23.49%
Three Years: 25.80%
Since Inception:
(1/29/93) 18.38%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL CONSUMER
APPRECIATION PRICE
PORTFOLIO S&P 500 INDEX
<S> <C> <C> <C>
1/29/93 10000 10000 10000
12/31/93 12054 11007 10275
12/31/94 11526.03 11148.99 10549.34
12/31/95 15650.05 15338.78 10785.65
12/31/96 18584.43 18857.5 11142.65
12/31/97 22949.92 25148.36 11332.08
</TABLE>
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(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" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(4) 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 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. Please refer to page 4 for returns reflective of these
charges.
11
<PAGE> 12
MAINSTAY VP CASH MANAGEMENT PORTFOLIO
1997 MARKET HIGHLIGHTS
- - Strong economic growth led to a Federal Reserve Board (the "Fed") move to
raise interest rates 25 basis points at the end of March, but with the crisis
in Asia, expectations for growth slowing in the U.S. and inflation under
control, the Fed took no further action.
- - Throughout the year, the short-term markets were primarily driven by
investor's expectations for interest rates and inflation.
- - Longer-maturity money market securities provided higher yields than
short-dated issues throughout most of the year.
- - Volatility was minimal throughout the year, but upsets in Asian markets in the
third and fourth quarters of 1997 caused a flight to high-quality securities.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Cash Management Portfolio
returned 5.25%.
- - The Portfolio benefited from a short average maturity in the first quarter and
a neutral to long average maturity throughout the rest of the year.
- - The Portfolio outperformed the average Lipper(1) money market fund for the
year ended 12/31/97 as well as for the 3-year and since-inception periods.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Perhaps the single most important influence on the MainStay VP Cash Management
Portfolio in 1997 was investor expectations about the direction of interest
rates and inflation. Seeking to slow rapid economic growth and ward off
inflation, the Fed moved to raise interest rates 25 basis points at the end of
March. While market participants speculated on whether the Fed would tighten
again, no other moves materialized throughout the year. As a result, portfolios
with a short average maturity in the first quarter and a longer average maturity
thereafter were in the best position to benefit from interest rate
opportunities.
In the third and fourth quarters, financial markets throughout Asia experienced
severe setbacks, catching many investors off guard. The resulting flight to
quality increased demand for top-tier securities.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP CASH MANAGEMENT PORTFOLIO DO IN
1997?
For the six-month, 1-year, and since-inception periods, the Portfolio
outperformed the average Lipper money market fund.
HOW DID THE PORTFOLIO MANAGE TO DO SO WELL?
We used a variety of tools to accomplish our objective. Of course, one of the
most important determinants of performance in the MainStay VP Cash Management
Portfolio is average maturity. In the first quarter, we saw no yield advantage
to lengthening the Portfolio's maturity and stayed relatively short. That proved
beneficial when the Fed moved to raise interest rates in March. After that, we
lengthened our average maturity and kept it neutral to long throughout the rest
of the year.
WHY DID YOU LENGTHEN MATURITIES?
Despite widespread speculation about whether the Fed would tighten interest
rates again, we kept our eye on the economic data and saw no conclusive evidence
that they would have to take additional action. We kept the Portfolio longer
than what we took to be the average number of days to maturity in our peer
group.
HOW MUCH LONGER DID YOU GO?
Once again, it varied. Rates were not absolutely stable, so our days to maturity
varied. While the average portfolio may have varied from 40 to 60 days to
maturity, we tended to hold in a range from 40 to 75 days. At times, we believe
we were up to 15 days longer than the average fund, which, as it happens, was
always positive for our performance.
HOW DID YOU SEEK TO ENHANCE YIELDS THROUGHOUT THE YEAR?
During the first half of 1997, we used our extensive research to seek out
securities with features that could offer potential yield advantages. We found
asset-backed securities, callable certificates of deposit ("CDs"), and Yankee
issues attractive. Later in the year, we reduced our positions in most of these
areas.
12
<PAGE> 13
WHY DID YOU CUT BACK?
They simply became less attractive. Callable CDs became less popular as the
market became more volatile and issuance declined, so in the second and third
quarters we simply let our issues mature. We've continued to invest in some
top-tier asset-backed securities, which may offer yield opportunities and are
often backed by a letter of credit from a leading bank. We continue to hold a
number of Yankee issues, which are dollar denominated securities issued in the
United States by foreign banks and corporations.
DOES THE PORTFOLIO HOLD ONLY DOMESTIC SECURITIES?
No. The Portfolio has a global exposure, including European, South American, and
Mexican issuers backed by European banks. We're focusing on top-tier credits and
dollar denominated issues. We didn't own anything in Thailand, Malaysia, or
Indonesia. We don't take any currency risk in the Portfolio. Though the
Portfolio is allowed to hold some split issues and second-tier credits, the
Portfolio is currently invested only in top-tier securities.
HOW DO INVESTORS BENEFIT FROM GLOBAL DIVERSIFICATION?
We seek broad diversification within the range of issues and maturities that are
available to us. Using top-tier securities from around the world helps reduce
our exposure to the risks of any single issuer or market. At the same time, it
helps us pursue higher yields among securities with top quality and a high
degree of liquidity.
WHAT DO YOU ANTICIPATE IN 1998?
Given the dynamics of the Asian crisis, consensus on Fed policy changes rapidly.
However, we believe U.S. monetary policy will focus on the U.S. economy, not on
the bailing out of Asia. We believe the Portfolio is well positioned with a
broad spectrum of maturities, a broad range of issuers, and a relatively long
average maturity that will benefit investors if rates continue to decline.
Whatever happens, we'll continue to focus on high quality, as we seek as high a
level of current income as is consistent with the preservation of capital and
liquidity.
Edward Munshower
Jessica Terc
Portfolio Managers
MacKay-Shields Financial Corporation
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
Total returns shown indicate past performance and are not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than their original cost. These
results do not reflect any deduction of sales charges, mortality and expense
charges, contract charges, or administrative charges. Please refer to page 4 for
returns reflective of these charges.
An investment in the Portfolio is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
13
<PAGE> 14
MAINSTAY VP CONVERTIBLE PORTFOLIO
1997 MARKET HIGHLIGHTS
- - Overall, the U.S. economy continued to benefit from low inflation, moderate
growth, and declining interest rates.
- - Difficulties in Southeast Asian markets increased volatility and risk in the
stock and convertible markets in the third and fourth quarters of the year.
- - Oil and gold prices declined substantially and some other commodities were
negatively impacted by the troubles in Asian markets.
- - The stock market focused primarily on the large-capitalization issues, making
security selection among smaller issues a key performance determinant.
- - Throughout the year, demand for convertibles far outstripped supply, and
bullish market sentiment led many investors to focus on profit opportunities
resulting from volatility rather than basic fundamentals and credit analysis.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Convertible Portfolio returned
15.43%.
- - The Portfolio underperformed the average Lipper(1) convertible securities
fund, which returned 17.61% for the year ended 12/31/97.
- - The Portfolio's risk-averse approach negatively impacted performance in a
market where many investors were willing to accept higher levels of risk for
higher returns.
- - Individual security selection and fundamental analysis helped the Portfolio
identify many positive situations and profit opportunities.
- - Gold and energy holdings hurt performance as the prices of commodities
declined.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Despite high volatility and extreme investor uncertainty, 1997 was a very
positive year for the convertible market as a whole. The stock market's gains
were dominated by the largest-capitalization issues, sometimes known as the
"nifty fifty." Smaller-capitalization stocks had widely divergent performance,
emphasizing the need for careful and sound security selection.
Demand for convertibles far outstripped the supply in the first half of 1997,
and in the second half of the year, many market participants used volatility to
their advantage by buying convertibles and short selling stocks to profit from
wide market swings. This created an artificial demand for convertibles, as Asian
financial difficulties shifted the fundamental outlook for many companies. The
market's preoccupation with profit led to less attention to basic fundamentals
and credit concerns, but resulted in high total returns for the convertible
market as a whole.
The strength of the U.S. dollar and financial problems in Asia had a telling
effect on many commodity based companies. Gold prices declined substantially,
taking a heavy toll on companies engaged in mining precious metals. Declining
oil prices had a negative impact on drilling, oil services, and energy
companies.
Despite early concerns that inflation would rise and the Federal Reserve Board
would take action to contain it, inflation and interest rates both declined over
the course of the year, causing a rally in bonds and helping stimulate positive
performance among stocks and convertible securities.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP CONVERTIBLE PORTFOLIO DO IN 1997?
The MainStay VP Convertible Portfolio returned 15.43% for the year ended
12/31/97. The MainStay VP Convertible Portfolio underperformed the average
Lipper convertible securities fund, which returned 17.61% for the year ended
12/31/97.
WHY DID THE PORTFOLIO UNDERPERFORM ITS PEERS?
The market was artificially inflated by strong demand and meager supply
throughout the year, particularly during the first half of 1997. In the second
half of the year, much of the demand resulted from investors seeking to profit
from the overall volatility of the market rather than the fundamental
characteristics of the securities they owned.
As relatively conservative, risk-averse managers, we follow a strict investment
process that requires fundamental analysis and focuses on both the risk and
return sides of the investment equation. We chose not to participate in many of
the convertibles that proved to be strong performers during the year because
they offered insufficient
14
<PAGE> 15
downside protection for investors. In a year when the stock market rose over
33%, many convertibles tended to perform like equities. But generally when
securities reach that point, our investment disciplines tell us to reduce or
close out the Portfolio's position. In that way, we seek to provide a measure of
downside protection if the market should swing in the opposite direction.
Unfortunately, it also meant that the Portfolio missed some opportunities on the
upside.
With a strong U.S. dollar, we felt that multinational companies would feel the
impact sooner than they did. So the Portfolio stayed largely with domestic
holdings and missed some of the increases in multinational names. In addition,
when Asian problems developed in the third and fourth quarters of 1997, we felt
that energy would be relatively insulated from those problems. Unfortunately,
with warm weather, oil prices declined to less than $18 a barrel. Together,
these factors had a negative impact on the Portfolio's relative performance.
WHAT DO YOU LOOK FOR IN CONVERTIBLE SECURITIES?
Our approach starts with the underlying common stock and the fundamental forces
that could affect its price. Then we look for convertibles that will allow us to
participate in 50% to 75% of the upside potential of the stock, but only 30% to
50% of the downside.
IS THERE A GOOD EXAMPLE OF HOW YOUR PROCESS WORKED?
Unisys is a holding that did very well. The Portfolio held Unisys convertible
and Unisys stock during the year. As the company underwent positive management
changes, its stock price increased about 150%. The convertible was called
through stock appreciation, and the stock received is currently the Portfolio's
largest equity holding. In this case, it was our decision not to sell that
benefited the Portfolio and we believe Unisys is well positioned for strong
performance in 1998.
WERE ALL OF YOUR DECISIONS SO POSITIVE?
We wish they had been. We bought convertibles from Coeur d'Alene Mines, a gold
and silver mining company, in October. The securities had a 7.25% coupon and a
8-year maturity and were attractively priced when we bought them. Given the
heavy toll gold stocks had already taken, we thought there was strong upside
potential, particularly since the company is half in silver, which has a wide
variety of industrial uses. Unfortunately, as the Asian crisis unfolded, gold
stocks continued to tumble and the Portfolio lost about 24% on its Coeur d'Alene
Mines investment. Nevertheless, we remain bullish on silver and believe that
when the market recognizes that Coeur d'Alene Mines is also a silver company, it
may lead the pack when precious metals recover.
WHAT ELSE DID YOU BUY FOR THE PORTFOLIO DURING THE YEAR?
The Boston Chicken zero-coupon bond didn't do so well. Although the market may
expect a default, we see the company as a potential acquisition candidate with a
strong brand franchise. We also liked the fact that management is now working to
rectify difficulties and improve the company's fundamentals. The Portfolio
bought the bond at 22 and 28 cents on the dollar, and it declined to 15 cents on
the dollar. Although we recognize significant downside risk here, we also feel
there's strong upside potential if the company is acquired or turns itself
around.
WERE THERE OTHER SECURITIES YOU BOUGHT AND SOLD?
Yes. We bought Med Partners, which organizes physicians in bargaining with HMOs,
but the company received a bid from PhyCor, which was negatively viewed by the
market. We evaluated the risks and potential rewards of the deal and felt that
the Portfolio would be better off in PhyCor than Med Partners. So we sold the
Portfolio's position in Med Partners and purchased PhyCor. Basically, if the
Portfolio held Med Partners, we felt the Portfolio would have 50% downside risk
with only 15% upside potential. With PhyCor calling the shots in the merger, we
felt there would be more upside potential with considerably lower downside risk.
At the end of the year, it looked as though the market shared our expectations.
WERE THERE OTHER SMART DECISIONS YOU MADE FOR THE PORTFOLIO IN 1997?
Putting money into utilities was an intelligent move, although our timing may
have been a little early, given the decline in oil prices in the fourth quarter.
We saw convertibles and high yield securities getting overpriced, while
utilities looked very attractive. They had price-to-earnings ratios about half
the market level and were paying sizeable dividends. So we increased the
Portfolio to an overweighted position there.
15
<PAGE> 16
WHERE WAS THE PORTFOLIO OVER- OR UNDERWEIGHTED?
At year-end, the Portfolio was overweighted in energy and slightly overweighted
in technology. It was underweighted in media, which is a large portion of the
market, but we perceive the valuations and risks to be much too high. The
Portfolio was underweighted in international securities and at year-end held
nothing in any of the Southeast Asian emerging markets.
WHAT IS THE QUALITY RATING OF THE PORTFOLIO?
At year end, the Portfolio's overall quality was BB+, which is relatively high
quality given the overall makeup of the convertible market. Of course, the
Portfolio holds securities across a wide range of quality ratings.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We believe that despite low oil prices, valuations are currently attractive
among energy stocks and we may seek out selected opportunities among utilities
with strong fundamentals. Whatever develops in the convertible market, we will
continue to view protection of principal as a key concern as we seek capital
appreciation along with current income.
Denis Laplaige
Neil Feinberg
Thomas Wynn
Portfolio Managers
MacKay-Shields Financial Corporation
$10,000 INVESTED IN THE
MAINSTAY VP CONVERTIBLE PORTFOLIO ON
10/1/96 VS S&P 500(2) AND
THE CONSUMER PRICE INDEX(3)
<TABLE>
<S> <C>
One Year: 15.43%
Since Inception:
(10/1/96) 15.61%
</TABLE>
<TABLE>
<CAPTION>
CONSUMER
CONVERTIBLE PRICE
PORTFOLIO S&P 500 INDEX
<S> <C> <C> <C>
10/1/96 10000.00 10000.00 10000.00
1996 10389.00 10833.00 10082.00
1997 11992.00 14447.00 10222.00
</TABLE>
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(2) "Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(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 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. Please refer to page 4 for returns reflective of these
charges.
Certain of the Portfolio's investments have speculative characteristics.
16
<PAGE> 17
MAINSTAY VP GOVERNMENT PORTFOLIO
1997 MARKET HIGHLIGHTS
- - Interest rates remained relatively stable during the first half of 1997,
despite a Federal Reserve Board move to raise interest rates 25 basis points
at the end of March.
- - In the second half of the year, declining budget deficits, low inflation and
expectations of a slowing economy caused interest rates to decline and bond
prices to rally.
- - The yield curve flattened in the second half of 1997, as foreign central banks
sold short-term Treasuries to raise cash to defend their currencies while
long-term government securities outperformed on expectations of reduced
inflation and slower economic growth.
- - Fiscal problems in Asia caused investors to refocus on the risk components of
income securities and led to a flight to quality, which helped the rally in
long-term bonds.
- - The reduction in the United States budget deficit led many investors to
rethink the supply and demand dynamics of the government securities markets.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Government Portfolio returned
9.48%.
- - The Portfolio outperformed the average Lipper(1) general U.S. government fund.
- - The Portfolio benefited from being neutral on duration during the first half
of the year and longer on duration during the second half of 1997.
- - The Portfolio benefited from shifting opportunities among older and newer
Treasury issues and a movement out of mortgage-related issues into government
and agency securities.
- - Asset-backed securities accounted for as much as 16.3% of the Portfolio in the
first half of the year. The position was profitably reduced early in the
second half of the year to 10% in anticipation of increased volatility and
prepayment concerns.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
During the first half of the year, bonds traded in a relatively narrow range,
despite the Federal Reserve Board's move to raise interest rates 25 basis points
at the end of March. Opportunities among Treasury securities were limited,
shifting the market's focus toward yield-enhancing securities, such as
mortgage-backed and asset-backed securities and collateralized mortgage
obligations.
In the second half of the year, declining inflation, lower budget deficits, and
expectation of a slowing economy led to a bond price rally as yields declined.
At the same time, however, declining yields raised the specter of prepayments in
mortgage-backed and asset-backed securities, making these sectors less
attractive to investors.
Problems in the economies of several Asian nations led both domestic and foreign
investors to pursue higher quality securities. This, combined with expectations
of slower growth due to the Asian influence on the economy and the removed fear
of a Federal Reserve Board tightening, contributed to a rally in long-term
government bonds. In addition, the decline in the U.S. budget deficit has
reduced the amount of bonds the government will need to issue, shifting supply
and demand dynamics in the government market.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP GOVERNMENT PORTFOLIO DO IN 1997?
For the one-year period ended December 31, 1997, the Portfolio returned 9.48%.
Relative to all Lipper U.S. government bond funds, the Portfolio ranked in the
top quartile for 1997.
HOW DID YOU MANAGE THE PORTFOLIO'S DURATION OVER THE COURSE OF THE YEAR?
As portfolio managers, we adapted our approach to the market environment. In the
first half of the year, there were few opportunities to benefit from the yield
curve or duration plays, so the Portfolio maintained a relatively neutral
duration. In the second half of the year, we saw the yield curve flatten
substantially, with short-term rates under pressure from selling by foreign
central banks and expectations of the Federal Reserve Board tightening interest
rates. With expectations of slower economic growth and low inflation, we
lengthened the Portfolio's duration to about 9 years. This strategy proved
successful, particularly when the problems developed in Asia and investors
sought a safe haven in high-quality, long-term bonds.
WHICH TYPES OF SECURITIES DID YOU EMPHASIZE IN THE PORTFOLIO?
Once again, we had to adapt to changing market conditions. In the first half of
the year, there were very few opportunities to increase value with government
securities, so we moved the Portfolio out of Treasuries and increased its
positions among yield-enhancing bonds, including mortgage-backed securities,
asset-backed bonds,
17
<PAGE> 18
and unleveraged collateralized mortgage obligations or CMOs. When opportunities
arose, we took some profits for the Portfolio in the CMOs, and also invested
some of the Portfolio's assets in low-balanced mortgage loans.
WHAT ARE LOW-BALANCED LOANS?
They're securities backed by smaller nonconforming, limited-documentation
mortgages to self-employed individuals. The focus is on individuals with
impeccable credit credentials and the securities carry high AAA credit ratings.
Since the borrowers generally pay about 100 basis points over standard mortgages
to get the loans, we found them very attractive for the Portfolio. While more
investors are now beginning to see the opportunities in these securities, we
were among the early investors and did well with them.
WERE THERE OTHER SECURITIES THAT ATTRACTED YOUR ATTENTION THROUGH THE FIRST HALF
OF THE YEAR?
Yes. The Portfolio invested in AAA rated manufactured housing loans and home
equity loans of similar quality. Both were positive contributors to the
Portfolio's performance.
HOW DID THINGS CHANGE IN THE SECOND HALF OF THE YEAR?
Over the course of the fourth quarter of 1997, yields declined 48 basis points
for the 30-year Treasury bond and 10 basis points for 2-year Treasuries. Since
bond prices rise when yields decline, this was positive for the Portfolio's
overall performance, particularly since the Portfolio was invested in
longer-duration bonds. In fact, the last four months of the year generated all
of the increase in price and over 50% of the total return in the market for
income securities. While the economic and inflation picture remained relatively
positive, problems in Asia caused a flight to quality, which created heavy
demand among government securities and helped contribute to declining yields.
HOW DID THE BOND RALLY AFFECT RISK IN THE MARKET FOR INCOME SECURITIES?
With yields going lower, prepayment risk increased. So we decided to trim our
holdings among mortgage-backed and asset-backed securities. The Portfolio
maintained small positions in commercial mortgages and CMOs, where prepayment
risk is lower. These sales benefited the Portfolio, as mortgage-backed
securities underperformed over the second half of the year. Toward the end of
the year, we increased the Portfolio's mortgage holdings slightly with
discounted mortgages, which we felt would not be affected as much should
interest rates continue to decline.
WHERE DID YOU PUT THE MONEY YOU RAISED SELLING MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES?
Primarily into Treasury securities. In the second half of the year, we were able
to capitalize on several technical opportunities to switch between newer and
older government issues and back again, based on shifting supply and demand
characteristics in the market and capturing incremental gains with each move.
The positive impact on overall performance was further enhanced by the
Portfolio's longer duration strategy.
WERE THERE OTHER SECURITIES THAT YOU BOUGHT IN THE SECOND HALF OF THE YEAR?
We also purchased some agency securities for the Portfolio. In October, rising
credit concerns caused yield spreads on all non-Treasury credits to widen out
about 15 basis points. At that time, we saw opportunities in short agency
securities. We also increased the Portfolio's position in Fannie Mae paper,
which offered attractive characteristics with limited prepayment concerns. Both
have performed in line with our expectations, contributing positively to the
Portfolio's performance.
HAS THE MAINSTAY VP GOVERNMENT PORTFOLIO MAINTAINED ITS HIGH QUALITY RATING?
Yes it has. The MainStay VP Government Portfolio holds securities which are
agency rated(2), which is better than AAA. The Portfolio seeks to take advantage
of opportunities as they arise, but as managers, we try not to stretch for yield
by compromising the quality of the Portfolio's investments.
DO YOU HAVE ANY REGRETS REGARDING 1997?
Not really. We believe we acted prudently throughout the year, adjusting the
Portfolio's holdings to reflect the shifting opportunities that arose throughout
the year. Of course, there may have been some opportunities we missed, but
overall, we believe mortgages were the best place to be in the first half of the
year, and Treasuries were best in the second half of the year -- since that's
where the Portfolio was primarily invested, we have no particular regrets.
18
<PAGE> 19
WHAT DO YOU SEE ON THE HORIZON?
Going forward, we believe the economy may slow, at least for the first six
months of 1998 reflecting the Asian crisis' impact on our economy. Reductions in
the budget deficit will reduce the need for Treasury financing and unless demand
slackens, the reduced supply should have a positive effect on Treasuries. We
also believe that stability on the inflation front will generally be good for
the bond market. However, we cannot become complacent. With unemployment at such
low levels, there remains the possibility that wage hikes could create
inflationary pressure. So we're keeping our eyes open and carefully monitoring
market developments.
DO YOU THINK THE SOUTHEAST ASIAN SITUATION WILL HAVE A MAJOR EFFECT ON THE
MARKETS?
It definitely has had an impact so far. It has caused many investors to rethink
their positions on risk. The coming months will tell how severe the fallout will
be for international markets and the U.S. economy. But so far, the flight to
quality has had a positive impact on portfolios like ours, which are currently
positioned with high quality bonds and a longer duration. Regardless of how
things develop on the international front, we will continue to seek securities
that offer a high level of current income, consistent with safety of principal.
Ravi Akhoury
Edward Munshower
Portfolio Managers
MacKay-Shields Financial Corporation
$10,000 INVESTED IN THE
MAINSTAY VP GOVERNMENT PORTFOLIO ON
1/29/93 VS LEHMAN BROTHERS GOVERNMENT
INDEX(3) AND THE CONSUMER PRICE INDEX(4)
<TABLE>
<S> <C>
One Year: 9.48%
Three Years: 9.33%
Since Inception:
(1/29/93) 6.37%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
BROTHERS CONSUMER
GOVERNMENT GOVERNMENT PRICE
PORTFOLIO INDEX INDEX
<S> <C> <C> <C>
1/29/93 10000 10000 10000
12/31/93 10563 10914 10275
12/31/94 10368.64 10546.2 10549.34
12/31/95 12102.28 12480.37 10785.65
12/31/96 12378.21 12826.08 11142.65
12/31/97 13551.66 14056.1 11332.08
</TABLE>
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(2) Agency rating is above AAA. Currently, debt rated AAA has the highest rating
assigned by Standard & Poor's. These ratings are based solely on the
creditworthiness of the bonds in the portfolio and are not meant to
represent the stability or safety of the Portfolio.
(3) The Lehman Brothers Government Index is an unmanaged index comprised of U.S.
Government and agency issues as well as investment grade fixed rate debt
securities. Results assume the reinvestment of all incomes and capital gains
distributions.
(4) 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 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. Please refer to page 4 for returns reflective of these
charges.
19
<PAGE> 20
MAINSTAY VP HIGH YIELD CORPORATE BOND PORTFOLIO
1997 MARKET HIGHLIGHTS
- - After interest rates rose slightly at the end of March, moderate economic
growth and reduced inflation concerns caused rates to decline throughout the
rest of the year.
- - Yield spreads of high yield bonds relative to U.S. Treasuries remained at
historically low levels throughout most of the year.
- - Problems in Southeast Asia in the second half of the year, resulted in a
flight to quality both in the high grade and high yield sectors.
- - Significant inflows of foreign capital, strong new issuance, and historically
low default levels artificially bolstered the price of high yield securities.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP High Yield Corporate Bond
Portfolio returned 13.03%.
- - The Portfolio underperformed the average Lipper(1) high current yield fund,
which returned 13.41% for the year ended 12/31/97.
- - Among high yield issuers, the Portfolio emphasized higher-quality credits over
middle- and lower-quality issues.
- - The Portfolio emphasized short-duration through the first three quarters of
the year, but began to lengthen duration during the fourth quarter.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
At the end of March 1997, concerns about inflation and the rate of economic
growth led the Federal Reserve Board to raise interest rates by 25 basis points.
As the year progressed, economic growth slowed to more moderate levels and
inflation remained under control, causing interest rates to steadily decline.
As currency problems and financial difficulties emerged in Southeast Asia,
inflation concerns evaporated and the possibility of deflation swept across the
investment horizon. The market reacted to the Asian turmoil with a flight to
quality that boosted bond prices and generally reduced yields. In the high yield
market, upper-tier securities substantially outperformed the middle- and
lower-tiers, and investors avoided emerging market debt, regardless of
underlying fundamentals.
With the U.S. dollar strong throughout the year, foreign capital flowed into
domestic securities, including the high yield bond market. Strong new issuance
and historically low default levels helped to attract investors and bolster
prices, often to artificially high levels. As a result, new issues tended to be
overpriced, and fair values tended to be more evident in the secondary market.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP HIGH YIELD CORPORATE BOND PORTFOLIO
DO IN 1997?
The MainStay VP High Yield Corporate Bond Portfolio returned 13.03% for the year
ended 12/31/97. The Portfolio underperformed the average Lipper high current
yield fund, which returned 13.41% for the year.
WHAT FACTORS CAUSED THE PORTFOLIO TO UNDERPERFORM ITS PEERS?
There were three basic themes that affected our relative results. First, over
the course of the year, yield spreads tightened, reducing the Portfolio's
incentive to seek yield at the expense of quality. As we continued to emphasize
higher credit quality within the high yield universe, we reduced the Portfolio's
potential to outperform more aggressive funds. Second, as a defensive measure,
we emphasized shorter-duration credits during the first three quarters of the
year, which had a negative impact on performance. In the fourth quarter, we
lengthened our duration, which had a positive effect. But given the continuing
decline in interest rates, the move was somewhat late. Third, we were somewhat
early in increasing the Portfolio's emerging market exposure when those markets
corrected. While we still believe in the fundamental value of the Portfolio's
emerging market holdings, the market has largely ignored fundamentals in its
subsequent flight to quality.
DID THE PORTFOLIO HAVE ASIAN HOLDINGS THAT WERE PARTICULARLY HARD HIT?
In all of our emerging market debt, we had already decided to focus only on
premier companies, which generally would be positive for the Portfolio. However,
one issue that has had very poor performance is First Pacific Capital, a
conglomerate with premier Asian holdings, excellent fundamentals, a liquid
balance sheet, and promising prospects. Despite these strengths, the price of
the bonds continued to decline through the end of the year. The Portfolio
continues to hold First Pacific Capital and we believe it may perform well when
the Asian situation begins to calm down.
20
<PAGE> 21
HAVE YOU MADE DEFENSIVE MOVES FOR THE PORTFOLIO?
Yes. We moved the Portfolio toward higher-quality credits within the high yield
sector as spreads between high yield and high grade securities became extremely
narrow. In seeking to extend duration without taking on additional risk, we
purchased a 1.6% position in Treasury notes.
WERE THERE POSITIVE THEMES DURING 1997?
Before answering that, it's important to note that we're primarily "bottom-up"
investors. Unlike "top-down" investors, we don't look for general investment
themes and then try to find securities that fit them. Instead, we select
securities based on their individual merits. We look at the company's debt
coverage, free cash flow, management, and overall business prospects, and select
individual situations that we believe will provide more than adequate
compensation for any risks the Portfolio must assume.
With that said, we did see some positive trends unfold as a result of our
selection process. For example, in selecting securities, we often consider the
possibility of tenders or offers to buy back debt that doesn't carry call
provisions. In a declining rate environment, companies often have an incentive
to repurchase their debt if they feel that refinancing would be advantageous.
Our ability to identify companies likely to refinance noncallable bonds has
unfolded as a positive theme in 1997.
WHAT WERE SOME OF THE PORTFOLIO'S SIGNIFICANT PURCHASES DURING THE YEAR?
In the first half of the year, we had success with TCI Satellite Entertainment.
When the bonds originally came to market, we believed they were overpriced. When
they reached a substantial discount, we bought them for the Portfolio in the
secondary market. Although it was a lower-tier credit, we felt the potential
rewards outweighed the risks, and the transactions were positive for the
Portfolio.
USN Communications was one of the Portfolio's largest purchases in 1997, and
allowed the Portfolio to participate in the emerging local telephone provider
market. We liked the company's management and business strategy and believed
their bonds were attractively priced. The purchase had a positive impact on
performance.
We also bought Pegasus Shipping Hellas first mortgage notes secured by Panamax
oil tankers that concentrate on North American trade for the Portfolio. The
company has a very strong cash flow, enough to retire three-quarters of the
company's debt in five years. The price and yield were attractive, the assets
were solid, and the notes performed well for the Portfolio.
WHAT EXACTLY DO YOU LOOK FOR IN A BOND?
While situations vary, we generally look for a substantial yield advantage,
strong liquidity, and free cash flow or asset coverage that's at least one and a
half times the debt we're buying, preferably two times. A company that can
afford to reduce its debt is much more appealing to us than one that needs every
dime it raises. Since we believe we're in the later stages of the credit cycle,
we also want companies that will continue to be able to generate predictable and
dependable cash flow even if the economy should take a major downturn.
We also look for opportunities. When the market doesn't perceive the full
potential of a company or security, we believe we can make sound investments for
the Portfolio at attractive prices. An excellent example might be ICN
Pharmaceuticals. In the early 1990s, the company was highly leveraged, but since
then, it has significantly reduced its debt levels. We think of the company as a
strong BB credit that may advance to investment grade. But because of the
company's checkered past, its bonds were priced like a weak BB credit. We made a
sizeable purchase of ICN Pharmaceutical bonds and they have performed well for
the Portfolio and may do even better if the company is upgraded.
WHAT SORT OF SITUATIONS MAY PROMPT YOU TO SELL?
There are a variety of reasons why we may sell bonds. If an entire market
shifts, as occurred in Southeast Asia, that may prompt us to sell. International
Semi-Technology Microelectronics was a company we felt would be very vulnerable
during the Asian difficulties. The Portfolio owned about $6 million of their
bonds at one point, and we sold all of them in what we felt was a reasonable
price range. By year end, the bonds were trading at nearly half the price at
which we sold them, so the decision was positive for the Portfolio in terms of
risk management.
In other cases, such as Spanish Broadcasting System and Casino America, bonds
may simply rise to the price target we've set and we'll sell or reduce the
Portfolio's position to take profits and look for other opportunities with more
price potential.
In other cases, a company-specific event can prompt a sale. United International
Holdings Australia/Pacific is an international cable company that benefited by
selling a relatively minor asset for a huge price. That resulted in a
21
<PAGE> 22
tremendous boost for the bonds, and we sold some of the Portfolio's holdings at
a substantial gain. In fact, United International Holdings Australia/Pacific was
one of the strongest performers in the Portfolio for the year.
WHICH OTHER NAMES WERE STRONG PERFORMERS?
Kabelmedia Holdings was very strong. The company benefited from consolidation in
international media and provided outstanding returns. With the growing
competition in local area telephone service, USN Communications used its
positioning in that market to good advantage, and the bonds made a substantial
contribution to the Portfolio's performance. FRI-MRD was a new purchase in 1997
that had a solid business plan, executed it well, and the market rewarded its
efforts.
WHICH OF THE PORTFOLIO'S HOLDINGS DID POORLY?
Alliance Entertainment was a troubled company we believed could benefit from a
strong business partner. When no partner emerged, however, the company went
bankrupt. While bondholders may have claims to the company assets, the holding
was a negative performer for the Portfolio. Cityscape Financial was an overly
aggressive subprime mortgage lender that faced prepayment problems in a
declining rate environment. We felt that we had bought Cityscape Financial bonds
at a low price, but as rates continued to decline, the company continued to face
difficulties. While we remain cautiously optimistic, the holding had a negative
impact on performance in 1997.
WHAT DO THOSE EXAMPLES SAY ABOUT THE HIGH YIELD MARKET?
They support what we've been saying for some time that there are different tiers
in the high yield market and they offer different risk/reward characteristics.
We've generally reduced our holding in the bottom-tier, simply because the risks
have become greater and the reward potential seems inadequate to justify the
risks. While the Portfolio has occasionally had success with bottom-tier
securities, in 1997 we concentrated more heavily in the upper-tier, where there
are stronger companies with more cash flow to cover difficulties, should they
occur. As the Asian meltdown clearly shows, difficulties can arise suddenly and
unexpectedly. If and when that happens, we'd prefer to see the Portfolio
invested in relatively strong credits that will get stronger rather than weak
ones that will get weaker.
HOW WAS THE PORTFOLIO WEIGHTED RELATIVE TO THE HIGH YIELD MARKET IN GENERAL AT
YEAR END?
In the high yield market, media and telecommunications companies account for a
high percentage of issues. While the Portfolio holds quite a few of the names in
these areas, at year end, it was about market weighted in telecommunications and
slightly overweighted in media. With good results from casinos such as Casino
America and President Riverboat Casinos, all of which contributed positively to
performance in 1997, the Portfolio was overweighted in casinos at year end. It
was also overweighted in industrials, with names such as Thermadyne Holdings and
Easco, each of which contributed positively to performance.
We saw little value in energy and the Portfolio was significantly underweighted
there at year end. We believe this was a positive decision since energy has
generally underperformed, particularly with mild weather and declining oil
prices. Although the Portfolio held some positive results in the paper industry
in the first half of the year, with names like Stone Container and Gaylord
Container, at year end the Portfolio was underweighted in the paper industry.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We continue to believe that quality will be very important. Despite relatively
low default levels overall, we're seeing more defaults in the bottom-tier of the
high yield market and less value in the middle- and lower-tiers. While we
continue to see promise in the emerging markets, we believe it may take some
time for the investment world to refocus on fundamentals there. We remain
relatively defensive, looking for companies that can generate predictable cash
flow, even in an economic downturn. Of course, we will continue to pursue
maximum current income and capital appreciation opportunities in accordance with
the Portfolio's objective.
Denis Laplaige
Steven Tananbaum
Portfolio Managers
MacKay-Shields Financial Corporation
22
<PAGE> 23
$10,000 INVESTED IN THE MAINSTAY VP
HIGH YIELD CORPORATE BOND PORTFOLIO ON
5/1/95 VS THE CONSUMER PRICE INDEX(2)
AND THE FIRST BOSTON HIGH YIELD INDEX(3)
<TABLE>
<S> <C>
One Year: 13.03%
Since Inception:
(5/1/95) 15.13%
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD CONSUMER FIRST BOSTON
CORPORATE BOND PRICE HIGH YIELD
PORTFOLIO INDEX INDEX
<S> <C> <C> <C>
5/1/95 10000 10000 10000
12/31/95 11006 10102 10968
12/31/96 12894.63 10436.38 12329
12/31/97 14574.8 10613.79 13885
</TABLE>
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(2) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
(3) The benchmark against which the MainStay VP High Yield Corporate Bond
Portfolio, going forward, will measure its performance against is the First
Boston High Yield Index. This index better reflects the holdings of the
Portfolio, and the Adviser believes that it is, therefore, a better
performance benchmark. The index is a market-weighted index that includes
publicly traded bonds rated below BBB by Standard & Poor's and Baa by
Moody's. The index assumes reinvestment of all distributions and interest
payments and does not take into account brokerage fees or taxes. Securities
in the Portfolio will not precisely match those in the index, and so,
performance of the Portfolio will differ.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns shown indicate past
performance and are not indicative of future results. Investment return and
principal value will fluctuate so that shares, upon redemption, may be worth
more or less than their original cost. These results do not reflect any
deduction of sales charges, mortality and expense charges, contract charges, or
administrative charges. Please refer to page 4 for returns reflective of these
charges.
Certain of the Portfolio's investments have speculative characteristics.
23
<PAGE> 24
MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO
1997 MARKET HIGHLIGHTS
- - In the first quarter, the Federal Reserve Board's move to raise interest rates
in the United States impacted international markets until investors refocused
on local growth prospects and foreign markets rebounded in the second quarter
of 1997.
- - Continued movement toward European Monetary Union, including fiscal reforms
and corporate restructurings, improved the general financial backdrop for
European markets.
- - In the second half of the year, the Southeast Asian financial markets suffered
severe setbacks that affected currencies, real estate, and equities and led to
problems in the banking and securities industries.
- - Analysts around the world reacted with lower earnings estimates and a more
pessimistic investment outlook for Asian as well as other world markets.
- - In the fourth quarter, these factors caused the Morgan Stanley Capital
International ("MSCI") EAFE(1) Index to decline, leaving the Index up 1.78%
for the year.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP International Equity Portfolio
returned 5.17%.
- - Starting in the first half of 1997, the Portfolio overweighted European
investments and decreased Southeast Asian holdings, which helped when Asian
markets began to experience financial difficulties.
- - Although the Portfolio managers had been bullish on Hong Kong in the first
half of the year, continuing negative signals led them to eliminate all
exposure to Southeast Asian markets and substantially reduce the Portfolio's
Japanese exposure in the fourth quarter.
- - Throughout the year, and particularly in the fourth quarter, the Portfolio
increased its exposure in Switzerland, Belgium, the United Kingdom, and
Portugal, which proved beneficial for the Portfolio's performance.
- - Sensing the dollar's strength, the Portfolio managers used substantial
currency hedges throughout most of the year to protect investors from losing
money when local returns were translated into U.S. dollars.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
The international equity markets were influenced by a number of important
factors throughout 1997. In the first quarter, a Federal Reserve Board move to
raise interest rates had a negative impact on investor psychology around the
globe. However, the mood became more positive in the second quarter of the year
as investors focused on positive local-market fundamentals, European Monetary
Union, and other positive factors.
By the end of the first half of the year, weaknesses had begun to emerge in
certain Southeast Asian markets, and by October, several Asian economies were
experiencing severe difficulties. Currencies, real estate, and stocks were
affected -- and as the value of loan collateral dropped, banks and other
financial institutions came under pressure. Corporate earnings estimates
underwent radical revisions and several Asian markets experienced extreme
volatility and major setbacks. Problems spilled over into Australia, where
declining demand for basic commodities led to negative market returns.
Europe, on the other hand, had a strong year. Continuing efforts to work towards
the European Monetary Union kept interest rates and inflation at relatively low
levels and strengthened many European economies. With borders becoming less of a
business barrier, major companies began to look for international partners,
increasing merger and acquisition activity. Portugal entered the MSCI EAFE
Index, attracting international investors, while declining bond yields and
increased availability of mutual funds increased the country's domestic equity
participation. Overall, Portuguese stocks outperformed all other major world
markets in local currency terms. Throughout the year, a strong U.S. dollar posed
additional risks for international investors without sufficient currency
hedging.
HOW DID THE MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO DO IN THIS ENVIRONMENT?
For the year ended 12/31/97, the MainStay VP International Equity Portfolio
provided a total return of 5.17%. The Portfolio's results were in line with the
average Lipper(2) international fund, which returned 5.17% for the same period.
In 1997, the Portfolio outperformed the MSCI EAFE Index of 1.78%.
WHAT STRATEGIES DO YOU FEEL WORKED WELL FOR THE PORTFOLIO DURING THE YEAR?
Certainly, our decision to reduce the Portfolio's exposure in Southeast Asian
markets and Japan was positive for the Portfolio, as was our decision to invest
most of the proceeds from those sales in Europe. There, we invested primarily in
Switzerland, Belgium, the United Kingdom, and Portugal, all of which were
positive performers and contributed significantly to the Portfolio's positive
returns.
24
<PAGE> 25
CAN YOU TELL US ABOUT THE PORTFOLIO'S INVESTMENTS PRIOR TO THE FALLOUT IN
SOUTHEAST ASIA?
Early in the year, we believed Europe would offer strong investment
opportunities. We were overweighted in France, which suffered a bit after its
elections -- and underweighted in Japan, which had shown continuing weakness
over time. Throughout the first half of the year, we continued to reduce the
Portfolio's Japanese exposure and core European holdings to increase
diversification across other European markets. We also detected problems in
Malaysia, where slowing technology, rising interest rates, and property
speculation had severely weakened the market's portfolio fundamentals. We left
Malaysia in the second quarter, which was clearly a smart move, given subsequent
developments in Southeast Asia.
WHICH EUROPEAN MARKETS PROVIDED THE BEST PERFORMANCE IN 1997?
Portugal was by far the Portfolio's strongest performing market, both in local
currency and U.S. dollar terms. Portugal benefited from strong fiscal
consolidation and from bringing inflation and the country's deficit under
control. The country has lower unemployment, higher savings rates, and higher
wages, which are all part of its efforts to meet the criteria for European
Monetary Union. Since the country was added to the MSCI EAFE Index this year,
many international investors poured money into Portuguese stocks. But the
country also benefited from domestic investors, who saw declining bond yields
and the increased availability of mutual fund shares as a reason to invest in
equities. Recognizing these trends, over the course of the year, we increased
the Portfolio's Portuguese position from zero to 1.3% of the Portfolio.
WHAT ABOUT SWITZERLAND?
The Portfolio was invested in Switzerland as part of its European
diversification strategy. The Swiss market benefited from world-class companies,
low interest rates, good monetary conditions, and a number of profitable mergers
and acquisitions. We had good success with names like Novartis, a pharmaceutical
giant that resulted from a merger between Sandoz and Ciba Geigy -- and from a
pending financial merger between Schweizerische Bankverein and UBS -- Union Bank
of Switzerland, both of which had been important holdings for the Portfolio.
WHAT ATTRACTED YOU TO BELGIUM?
Again, our primary decision was to diversify the Portfolio's European holdings.
We invested in Belgium in the first half of the year, then pared back the
Portfolio's holdings when rates started to rise. Later, as problems started to
develop in Asia, however, it became clear that rates wouldn't continue to climb,
so Belgium again looked attractive. This market is another one that's benefiting
from restructuring, low interest rates, improving retail performance, and
positive economic indicators. The Portfolio was invested heavily in Belgium in
the fourth quarter, increasing its position to about 3% of the Portfolio.
CAN YOU MENTION SOME COMPANIES THAT DID WELL IN BELGIUM?
Belgium has a number of utilities and financial firms. In the utilities, we
liked Reunies Electrobel and Tractebel. In the financial services area, we
invested in Generale de Banque and Fortis.
YOU ALSO MENTIONED THE U.K. WHAT HAPPENED THERE?
The U.K. keeps booming and we increased the Portfolio's exposure as we saw
increasing investor interest in the British market. Although earlier in the year
we thought interest rates might continue to rise, during the Asian difficulties
we felt the time was right to add to the Portfolio's positions. During the year
unemployment was at its lowest level since 1980, and investors poured money into
British mutual funds, which helped keep the stock market strong. The
demutualization of building societies (which are somewhat similar to the former
Savings & Loans in the U.S.), also increased investor wealth and helped the
market.
One of the Portfolio's strong performers in the U.K. was Vodafone Group whose
mobile telephone operations seem to be taking off with higher subscriber rates
than analysts predicted. The company has about a 33% market share and has done
quite well for the Portfolio.
WERE THERE EUROPEAN COUNTRIES THAT DIDN'T DO AS WELL?
The Portfolio was overweighted in Austria, which wasn't as strong a performer as
most other European countries. Fortunately, the Portfolio was invested in some
of the market's better performers, such as Verbund -- which is the shortened
name for Verbundgesellschaft-Oesterreichische Elektrizitatswirtschafts Class A.
While that may be hard to say, the company is easy to like. It's an electrical
and gas utility that's benefiting from privatization and European Monetary
Union, and was up about 50% in the fourth quarter alone.
25
<PAGE> 26
OBVIOUSLY, THE BIG STORY FOR THE YEAR WAS THE ASIAN CRISIS. HOW DID YOU HANDLE
IT?
We think we did relatively well, given the depth of the market difficulties. As
I mentioned, we sold the Portfolio's Malaysian holdings early, which was a big
plus for the Portfolio. We also eliminated the Portfolio's exposure to Singapore
before the October declines. Although some of the sales weren't profitable, they
were clearly wise. Fortunately, the Portfolio didn't have any holdings in
Thailand, Korea, Indonesia, or other emerging markets in Southeast Asia -- which
was a decided plus for the Portfolio's investors.
WHY WASN'T THE PORTFOLIO INVESTED IN THOSE MARKETS?
We are basically risk-averse managers. While emerging markets may look terrific
when they're rising, the pain they may cause when they fall just isn't MainStay
VP's management style. So while other Portfolios may have had substantial
exposure to these markets, the MainStay VP International Equity Portfolio was
invested in the more solid and established markets, which we felt would offer
investors greater strength and stability. As the situation developed, however,
even these markets had severe setbacks.
WHAT HAPPENED IN THE MORE DEVELOPED ASIAN MARKETS?
By far, the largest Asian market is Japan. We trimmed the Portfolio's position
substantially during the year, based on the impact of an increasing sales tax
and other signs of weakness. We invested most of the proceeds in Europe, which
was positive for the Portfolio's performance.
Among Japanese companies, there were strong performers and weak ones.
Fortunately, we seek diversified exposure across well-established companies and
try to avoid taking on high-risk investments. As a result, certain of the
Portfolio's multinational Japanese names, such as Toyota Motor and Honda Motor,
did well. Japan's domestic construction, retail, and banking firms, on the other
hand, did poorly. Fortunately, the Portfolio had no exposure to any of the
Japanese banks and financial firms that failed during the year, largely due to
our careful research and the Portfolio's focus on solid companies with strong
portfolio fundamentals.
In Hong Kong, the celebration of the return to a unified country helped make the
market a strong performer for the Portfolio in the first half of the year.
However, as the year progressed, the problems of the Southeast Asian markets
broadened in depth and scope. We reduced the Portfolio's position from neutral
to underweighted in October, and after we did, the market fell 22%. Fortunately,
we didn't sell immediately, but when the market came back 14%, we sold the
Portfolio's remaining exposure to Hong Kong, which had a negative overall impact
on performance. The decision to reinvest the proceeds in European stocks,
however, was strongly positive.
WAS AUSTRALIA AFFECTED BY THE FALLOUT IN ASIA?
Absolutely. We had added to the Portfolio's Australian holdings in the first
half of the year, expecting stellar performance due to robust growth and lower
interest rates. But when problems started to emerge in Southeast Asian markets,
the demand for commodities, which are a large part of the Australian economy,
started to decline. We reduced the Portfolio's Australian position from
overweighted to neutral to underweighted over the course of the second half of
1997. Some of the Portfolio's Australian holdings, such as the National
Australia Bank and News Corp. have done well. But some of the Portfolio's
holdings, such as Broken Hill Proprietary, have done poorly. So, instead of a
star performer, the Australian market was up a modest 9.2% for the year in local
currency terms.
HOW DID YOU POSITION THE PORTFOLIO TO PROTECT AGAINST CURRENCY RISK?
Basically, we were bullish on the dollar, which proved correct throughout the
year. We did manage to gain a little bit through yen exposure in the first half
of 1997. But the strength of the U.S. dollar brought substantial risk to U.S.
investors in foreign securities. Recognizing this, most of the Portfolio's
positions were partially hedged, which helped to protect investors from currency
risk. Of course, currency risk cannot be entirely eliminated. The Portfolio had
some currency exposure, which had a negative impact on performance, as virtually
all foreign currencies declined relative to the U.S. dollar in 1997.
DID THE PORTFOLIO HAVE ANY EXPOSURE TO LATIN AMERICA?
No, it didn't. While Mexico and certain South American markets had excellent
returns, we preferred the strength and stability of Europe. As part of our
approach to invest in a diversified portfolio of developed countries with high
quality stocks and to shun excessive risk, we avoided emerging markets in
Central and South America entirely.
26
<PAGE> 27
WHAT DO YOU SEE GOING FORWARD?
The Asian situation is not going to go away quickly. We will continue to monitor
the situation because we believe that, eventually, there may be buying
opportunities in the stronger markets there. We still feel that Europe will
offer strong returns as long as interest rates and inflation remain low and
companies seek partners that can assist them with the challenges of European
Monetary Union. Overall, we think foreign equities will continue to offer
opportunities for investors and we will continue to seek to provide long-term
growth of capital commensurate with an acceptable level of risk, with current
income as a secondary objective.
Shigemi Takagi
Portfolio Manager
MacKay-Shields Financial Corporation
$10,000 INVESTED IN THE
MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO ON 5/1/95
VS EAFE INDEX AND
THE CONSUMER PRICE INDEX(3)
<TABLE>
<S> <C>
One Year: 5.17%
Since Inception:
(5/1/95) 8.49%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL CONSUMER
EQUITY EAFE PRICE
PORTFOLIO INDEX INDEX
<S> <C> <C> <C>
5/1/95 10000 10000 10000
1995 10696 10520 10102
1996 11823.36 11189 10436.38
1997 12434.63 11388.24 10613.79
</TABLE>
(1) Morgan Stanley Capital International EAFE Index is an unmanaged index of the
securities of over 1,000 companies traded on the markets of Europe,
Australia, New Zealand and the Far East.
(2) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(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 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. Please refer to page 4 for returns reflective of these
charges.
International investing involves special risks that are more volatile than those
found in the U.S. markets, including foreign currency fluctuations, lesser
liquidity of securities and exchanges, political and economic instability, and
different government regulatory concerns.
27
<PAGE> 28
MAINSTAY VP TOTAL RETURN PORTFOLIO
1997 MARKET HIGHLIGHTS
- - Following the Federal Reserve Board's rate hike in March, low inflation and
declining domestic interest rates generally helped the equity markets.
- - Fiscal problems in Asia precipitated a flight to quality in both stocks and
bonds, which proved beneficial for both the equity and income portions of the
Portfolio.
- - Over the course of the year, stock market volatility increased substantially,
creating both opportunities and pitfalls.
- - After interest rates rose at the end of the first quarter, economic growth and
inflation expectations moderated and interest rates generally declined, which
proved beneficial for financial stocks and led to a rally in the bond market.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Total Return Portfolio returned
17.79%.
- - The Portfolio benefited from an overweighted position in financial services
stocks, but suffered setbacks in technology and certain health care issues.
- - Defensive domestic stocks with dependable earnings performed well in the
flight to quality that resulted from Asian market difficulties.
- - The Portfolio benefited from a short duration in the first quarter and a
longer duration throughout the remainder of the year, with emphasis on
mortgage-backed securities in the first half of the year and Treasuries in the
second half of the year.
- - Corporate bonds, which were relatively strong in the first half of the year,
performed poorly in the second half of the year.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Early in 1997, signs of rapid growth led the Federal Reserve Board to raise
interest rates by 25 basis points in late March. Throughout the rest of the
year, however, the growth rate was more moderate and inflation remained at low
levels, which was generally positive for both the stock and bond markets.
Financial stocks outperformed, while bonds rallied as yields declined.
Volatility increased as the year progressed, with the Dow Jones Industrial
Average(1) dropping 554.26 points or 7.18% on October 27, 1997, then recording
its largest single-day gain in history the following day. In the third and
fourth quarters, weakening currencies and other financial problems in Asian
markets took a severe toll on many technology stocks, stimulating increased
interest in purely domestic issues and high-quality defensive names with
dependable earnings, including pharmaceutical and health care stocks. Overall,
the stock market had another outstanding year -- the third year in a row with
the S&P 500(2) returning over 30%.
Volatility was considerably lower in the bond markets through most of the year.
Asian financial woes stimulated a flight to quality that resulted in strong
gains for long-term Treasury investors. Reductions in the U.S. budget deficit
generally led investors to rethink supply and demand dynamics in the government
security markets.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP TOTAL RETURN PORTFOLIO DO IN 1997?
For the year ended 12/31/97, the MainStay VP Total Return Portfolio returned
17.79%. The Portfolio underperformed the average Lipper(3) balanced fund, which
returned 18.95% for the year.
WHICH AREAS CONTRIBUTED MOST SIGNIFICANTLY TO THE PORTFOLIO'S EQUITY
PERFORMANCE?
One of our best decisions during the year was to keep the Portfolio's equity
portion overweighted in the financial sector. While there were some setbacks
when short-term rates rose in March, throughout much of the rest of the year
rates declined and investors focused on the group's strong portfolio
fundamentals. We had outstanding results from Travelers Group, SunAmerica, MGIC
Investment, and American International Group. Although each stock had a
different weighting, all were strong contributors to the overall performance of
the Portfolio's equity portion. Norwest, which we purchased in July, was up 27%
by the end of the year, which was an impressive gain in a short period. One
negative performer was Green Tree Financial, which was down 31% for the year,
after accounting practices were questioned.
HOW WAS THE PORTFOLIO'S EQUITY PORTION AFFECTED BY THE FALLOUT IN ASIA?
In a variety of ways. Technology stocks, many of which have close ties with
Asian markets, suffered as investors retreated to high-quality, dependable
stocks, such as pharmaceuticals and strong health care companies, solid
28
<PAGE> 29
domestic financial issues, and other large-capitalization names. We reduced
several of our technology holdings, including Intel, which underperformed, and
Seagate Technology and Lam Research, which suffered when commodity-type
technology stocks went out of favor. Since the market was more forgiving of
large-capitalization issues, we continued to hold Oracle, although it had
negative returns. We also had a rough ride with 3Com, a networking company, that
had problems integrating an acquisition. The stock was down 52% for the year and
had the worst overall impact on the equity portion of the Portfolio of any of
its holdings. Of course, not all technology stocks were negative stories.
Computer Associates International, which was up 60% for the year, was one of the
Portfolio's largest holdings, and was among the leading contributors to the
Portfolio's performance.
HOW WAS THE PORTFOLIO AFFECTED BY THE VOLATILITY OF THE STOCK MARKET IN 1997?
We held a number of stocks that benefited from the market's volatility as
investors sought out more dependable, defensive names. Merck, Johnson & Johnson,
Lilly (Eli), and Schering-Plough were among the stocks we owned or purchased
that helped stabilize the Portfolio's equity portion despite market volatility.
DID DECLINING OIL PRICES AFFECT THE PORTFOLIO?
Yes, they did, and the impact was generally negative. Three of our most
significant purchases, Diamond Offshore Drilling, Halliburton, and ENSCO
International, all declined in price after we bought them. The Portfolio
continues to hold the stocks, however, because they appear to have strong,
assured earnings for 1998. Nevertheless, the purchases were ill timed and hurt
the Portfolio's performance.
BESIDES TECHNOLOGY STOCKS, DID YOU HAVE OTHER MAJOR SALES DURING THE YEAR?
Yes. We sold Amgen, a leading biotechnology stock, as portfolio fundamentals
weakened. The sale was basically neutral for the Portfolio. We sold NIKE based
on reduced earnings and weaker portfolio fundamentals. But given the performance
after the sale, we believe it was a good move for the Portfolio. We also sold
Triton Energy, an "opportunistic" stock with oil reserves in Columbia and
natural gas holdings in Thailand that did poorly after the Asian setback
started. Fortunately, our sale protected investors from even bigger losses as
the stock continued to decline.
WERE THERE OTHER STEPS YOU TOOK TO PROTECT INVESTORS?
Yes. We saw costs rising out of control for Humana. A new president stepped in
and tried to turn things around, but we later sold the stock. That turned out to
be a wise decision given the stock's subsequent performance. Columbia/HCA
Healthcare became embroiled in a federal investigation, which made it impossible
to base decisions on the portfolio fundamentals. So we sold the stock around
where we purchased it, with a neutral impact for the Portfolio.
WHAT OTHER STOCKS DID PARTICULARLY WELL OR POORLY?
Tyco International, a diversified industrial company that exceeded earnings
expectations, was one of our strongest performers as investors looked for
quality, dependability, and strength. Aetna is a stock we sold; but it faced
problems similar to Humana and had a negative impact on the Portfolio's equity
portion. Danka Business Systems, which distributes copiers and fax machines,
suffered a setback in integrating an acquisition and hurt the Portfolio's equity
performance. Compuware, a technology stock which was purchased early in the year
was among our top performers, more than doubling in price from initial purchase.
WHAT HAPPENED IN THE PORTFOLIO'S INCOME PORTION?
The most important decision for the income portion of the Portfolio was
duration. Being short in the first quarter and longer throughout the rest of the
year helped position the Portfolio positively for changes that occurred in
interest rates. Our decision to be overweighted in mortgage-backed securities in
the first half also provided yield-enhancing opportunities when the yield curve,
duration plays, and government securities had little to offer. At the time, we
concentrated on mortgage-backed and asset-backed bonds, and collateralized
mortgage obligations ("CMOs"). When opportunities arose, we took profits in CMOs
and invested in low-balanced loans, AAA-rated manufactured housing loans, and
AAA-rated home equity loans. All of these investments had a positive impact on
performance.
WHAT ABOUT THE SECOND HALF OF THE YEAR?
During the second half of the year, declining rates raised prepayment concerns
and we moved out of mortgage-related securities and into Treasuries. We were
able to capitalize on several technical opportunities to switch between newer
and older government issues and back again, based on technical supply and demand
factors in
29
<PAGE> 30
the market. With incremental gains on each exchange and a relatively long
duration, the strategy proved beneficial for the Portfolio.
WERE THERE OTHER INCOME SECURITIES YOU BOUGHT DURING THE SECOND HALF OF 1997?
Yes, as yield spreads widened, we spotted some opportunities among basic 5-year
agencies and Fannie Mae paper, which offered attractive characteristics with few
prepayment worries. Both contributed positively to performance.
HOW DID THE PORTFOLIO'S CORPORATE BONDS PERFORM?
Although corporate bonds, particularly Yankee bonds and telecommunications
issues, performed relatively well in the first half of the year, corporate bonds
were the weak spot in the Portfolio during the second half. October was a
particularly bad month. Our best performers were banks, where we were
overweighted, and utilities, where credit concerns caused us to maintain an
underweighted position for the Portfolio.
DID YOU OWN ANY YANKEE BONDS?
Yes we did. Our Yankee holdings performed relatively well in the first half. In
the second half, however, we had a slightly overweighted position in Korean
paper that suffered a severe downgrade. Although we sold it before the downgrade
occurred, it had a definite negative impact on the Portfolio's performance, even
though Yankee bonds have no currency exposure. The Portfolio had other Yankee
holdings that did better, but not enough to overshadow the Korean difficulty.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We believe the catalysts that moved the market in 1997 are still in place.
Moderate growth, low inflation, and low interest rates are likely to continue,
and will support the long-term case for a bull market in stocks. Nevertheless,
the market is much more cautious, and for good reason. Chances are, the Asian
situation may slow economic growth in the United States and demand for exports
may decline. While that may be negative for corporate earnings, it may have a
beneficial impact on inflation. If foreign influence on domestic stocks is
stronger than we anticipate, however, the bull market may well be challenged.
In the bond market, we believe rates may continue to decline, which would be
positive for long-term bonds. We see the flight to quality as good for
Treasuries, but need to keep our eye on developments on the international front.
Regardless of what emerges, we will continue seeking to realize current income
consistent with reasonable opportunity for future growth of capital and income.
Ravi Akhoury
Edmund Spelman
Rudy Carryl
Portfolio Managers
MacKay-Shields Financial Corporation
30
<PAGE> 31
$10,000 INVESTED IN THE
MAINSTAY VP TOTAL RETURN PORTFOLIO ON
1/29/93 VS S&P 500 AND
THE CONSUMER PRICE INDEX(4)
<TABLE>
<S> <C>
One Year: 17.79%
Three Years: 19.22%
Since Inception:
(1/29/93) 13.57%
</TABLE>
<TABLE>
<CAPTION>
TOTAL CONSUMER
RETURN PRICE
PORTFOLIO S&P 500 INDEX
<S> <C> <C> <C>
1/29/93 10000 10000 10000
1993 11504 11007 10275
1994 11044.99 11148.99 10549.34
1995 14174.04 15338.78 10785.65
1996 15886.26 18857.5 11142.65
1997 18712.43 25148.36 11332.08
</TABLE>
(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" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(3) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(4) 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 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. Please refer to page 4 for returns reflective of these
charges.
31
<PAGE> 32
MAINSTAY VP VALUE PORTFOLIO
1997 MARKET HIGHLIGHTS
- - The stock market experienced its third consecutive year of over 20% returns,
with large-capitalization, high price-to-earnings (P/E) stocks accounting for
a large percentage of the gains.
- - Despite tremendous gains, the stock market saw expanding volatility, including
two corrections of about 10%, and certain sectors corrected even more during
1997.
- - Asian turmoil dominated the news in the third and fourth quarters, causing
equity investors to reassess risk and reevaluate earnings prospects going
forward.
- - Large financial and pharmaceutical companies generally performed well, while
some HMOs and basic materials companies underperformed.
- - With greater attention to the risk side of the investment equation, value
stocks did well in the fourth quarter and may provide attractive opportunities
going forward.
- - The prospects of lower inflation or possible deflation may pose difficulties
for commodity-oriented companies in the future.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Value Portfolio returned 22.89%.
- - The Portfolio reduced its position in financial stocks through the first half
of the year, missing part of the second quarter rally, with proceeds invested
largely in utilities.
- - The Portfolio's top 10 holdings were also its top 10 performers, including
names such as AT&T, Ford Motor, and PG&E, all of which earned more than 50%
for the Portfolio.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
In the third consecutive year with stock market returns of over 20%, the ten
large-capitalization stocks with high P/E ratios accounted for about 26% of the
S&P 500's(1) total return. At the same time, volatility increased and the stock
market underwent two corrections of about 10% -- one in the six weeks prior to
the end of April, the other from the market's peak in July through the last week
of October. Despite broad market gains, many individual stocks and sectors
experienced even larger corrections.
As interest rates declined after peaking in April, interest-sensitive issues
tended to outperform, with financial stocks providing robust returns, especially
during the second quarter of 1997. Communications stocks and high P/E
pharmaceuticals were also outstanding performers. Other sectors, including basic
materials, such as chemicals, paper and forest products, and agriculture,
provided positive returns (some in the double digits), but still underperformed
the market as a whole.
As Asian turmoil developed later in the year, investors began to focus more on
the risk side of the investment equation, and value stocks generally did well in
the fourth quarter. The fallout from the Asian situation may include lower
inflation or possibly even deflation, which may be good for bonds, but bad for
commodity-oriented equities. While volatility is likely to remain high, if the
market moves toward more historical return levels in 1998, value disciplines may
provide opportunities for investors.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP VALUE PORTFOLIO PERFORM IN 1997?
For the year ended 12/31/97, the MainStay VP Value Portfolio returned 22.89%.
The Portfolio underperformed the average Lipper(2) growth & income fund, which
returned 27.21% for the year.
WHY DO YOU THINK THE PORTFOLIO UNDERPERFORMED ITS PEERS IN 1997?
First, I want to point out that returns over 20% are by no means a negative. On
the other hand, several factors impacted the Portfolio over the course of the
year in a negative way. The Portfolio started 1997 heavily overweighted in the
financial sector. As those stocks began to reach our valuation targets, we
decreased the Portfolio's positions over the first half of the year.
Interest-sensitive issues, however, and financial stocks in particular, had an
outstanding second quarter. So we ended up selling as prices were rising. While
all of the sales were positive for the Portfolio, the overall decision to sell
when we did contributed negatively to the Portfolio's performance relative to
its peers. Nevertheless, the Portfolio benefited from its reduced positions in
financial stocks in the fourth quarter, when they underperformed.
WHAT DID YOU DO WITH THE PROCEEDS OF THE PORTFOLIO'S FINANCIAL STOCK SALES?
We invested most of the proceeds into utility stocks which for the first three
quarters of the year penalized the Portfolio. But our proprietary research
showed that utilities were generally undervalued and likely to outperform
32
<PAGE> 33
over time. With some utilities providing about 30% higher yields than
Treasuries, we felt that they were a solid, conservative, and attractive
investment. In the fourth quarter, Asian market turmoil caused investors to
rethink their risk taking and there was a renewed interest in utilities. The
Portfolio's utility stocks made up for lost ground, with PG&E up 52% for the
year and Long Island Lighting up 46%. Both were among the Portfolio's top ten
holdings and the Portfolio's top ten performers.
DID YOU CONTINUE TO HOLD ANY FINANCIAL STOCKS THAT DID WELL?
Yes. PNC Bank was up 57% and also among the Portfolio's top holdings. PNC Bank
is a regional bank the Portfolio held for its above-average earnings growth. The
stock has been reevaluated based on its asset value and we've since reduced the
Portfolio's position. But it was a strong performer. Several of the Portfolio's
other financial issues also did very well, even if our decision to reduce the
Portfolio's positions was not optimally timed.
Among insurance issues we owned Equitable, which benefited from restructuring,
was reevaluated in the marketplace, and returned 103% for the Portfolio in 1997.
We had identified capital appreciation potential in Allstate, and when earnings
accelerated faster than analysts anticipated, the stock returned 58% for the
Portfolio. The Portfolio also held a large position in Travelers Group through
most of the year and the stock was up 80%. As the stock outperformed, however,
we cut back the Portfolio's position to look for other issues that hadn't
reached their full potential.
WERE THERE OTHER INTEREST-SENSITIVE SECTORS WHERE THE PORTFOLIO WAS INVESTED?
Yes, the Portfolio had outstanding success in telecommunications in 1997. We had
sold AT&T several years ago, when the stock was an underperformer. But with
recent management shifts, the company appeared to be focusing more closely on
providing shareholder value, and that captured our attention. At the beginning
of the year we didn't own any AT&T. At year-end 1997, AT&T was the Portfolio's
largest holding and had provided a 90% return for the Portfolio. GTE was another
telecommunications company we bought that did well, although its progress was
stalled midyear by its entry into the bidding war for MCI. The Portfolio earned
about 25% from GTE in 1997. We believe that over time, the company's asset value
will be unlocked for shareholders, either through proactive management or other
market forces.
DID BEING VALUE-ORIENTED HURT THE PORTFOLIO IN A STRONG YEAR FOR GROWTH STOCKS?
It may have. Some value managers saw opportunities in growth stocks with high
P/E ratios and simply abandoned value investing to improve their performance. We
saw the tremendous rise in pharmaceuticals, technology stocks, and
large-capitalization issues, but these stocks didn't fit the Portfolio's
investment disciplines, so we didn't pursue them. Of course, being out of
technology helped in the fourth quarter, when many of the largest names suffered
severe setbacks.
In any event, we stuck closely to the Portfolio's value approach throughout the
year. We found what we believed to be promising undervalued opportunities among
HMOs, with names like Aetna, Foundation Health Systems and CIGNA. Our process
showed each of these issues to have positive value characteristics and we added
the stocks or increased the Portfolio's positions in them at various points in
the year. But the market is still adjusting to the HMO industry's transition
from a growth phase into a more mature management phase. Despite low P/E ratios,
low price-to-cash flow, significant free cash flow, proactive management, and
other positive characteristics, Aetna was down 11%, Foundation Health Systems
declined 10%, and CIGNA was flat for the year. Nevertheless, we still believe
these stocks offer positive potential going forward.
WERE THERE OTHER FACTORS THAT NEGATIVELY IMPACTED PERFORMANCE?
Our decision to continue overweighting basic materials had a negative impact on
the Portfolio's performance. Although fertilizers were a small portion of the
Portfolio, Agrium and IMC Global dropped, which had a negative impact on
performance. While we are used to fertilizers having cyclical performance, 1997
was the second year in a row fertilizers provided negative returns.
Chemical stocks and paper and forest products had two significant rallies during
the year, but were underperformers as a class. Many of the Portfolio's stocks
provided double-digit returns, but did not excel in a market that was up more
than 33%.
Georgia-Pacific was a good example. Their proactive management agreed to split
the company into two parts to unlock value for shareholders. That's the kind of
value catalyst that we look for, and we bought Georgia-Pacific during the year.
Yet even though the stock did well, it underperformed the market as a whole.
33
<PAGE> 34
WHAT OTHER STOCKS DID YOU BUY IN 1997?
I mentioned that we bought utilities for the Portfolio. In fact, we increased
utilities from 4.7% to 14.5% of the Portfolio. As I said, we saw real value in
the group and recognized that segmenting and separating underperforming assets
would help investors identify where the real opportunities could be found. As I
mentioned, the sector as a whole did very well for the investment portion of the
Portfolio in the fourth quarter, even though we lost some opportunity by being
overweighted in utilities earlier in the year when they were underperforming.
WHAT WERE THE PORTFOLIO'S MOST SIGNIFICANT SALES DURING THE YEAR?
The Portfolio had two types of sales. First were stocks that approached or met
the Portfolio's valuation targets and were sold as part of the Portfolio's
investment discipline to seek better opportunities. Others were stocks that
performed below expectations or whose portfolio fundamentals had changed.
In the first category, the Portfolio had names like Chubb, Travelers Group,
Wells Fargo, Allstate, Equitable, NationsBank, Banc One, and PNC Bank. All of
them were strong performers for the Portfolio that we sold as they increased in
value. Because of their strength, we generally reduced the Portfolio's positions
rather than eliminate them entirely. American International Group, however,
fully reached our target price and had increased its P/E ratio to the point
where it looked more like a growth stock than a value stock. As a result, we
sold the Portfolio's entire position with a very positive impact on performance.
Among cyclical stocks, we saw some companies with portfolio fundamentals that
were starting to dissipate. We sold Tenneco and Goodyear Tire & Rubber. In paper
and forest products, we sold Temple-Inland and Rayonier, and among chemical
firms, we sold Lyondell Petrochemical. All of these sales had a positive impact
and were appropriate given their changing value characteristics.
WERE THERE OTHER POSITIVE VALUE STORIES AMONG STOCKS THE PORTFOLIO HELD
THROUGHOUT THE YEAR?
Yes. Ford Motor is one of the Portfolio's largest holdings, based on the same
value criteria we use for all of the Portfolio's stocks. As earnings estimates
were revised upward during the year by more than 50%, the stock brought in a 57%
return for the Portfolio, which included an attractive 5% dividend yield.
Owens-Illinois is another large holding that did exceptionally well, and we
added to the Portfolio's position during the year. Their strategy of acquiring
companies that add to earnings paid off in 1997 with a 67% return for the year.
WHAT'S YOUR OUTLOOK FOR 1998?
We believe the Asian turmoil may have a positive impact on value investing by
making investors more aware of the risk side of the investment equation. We're
still attracted to utility stocks, which we continue to believe are undervalued.
The impact of Asian difficulties may be greater than we originally anticipated
in the basic materials markets, and particularly for commodity companies, so
we're reevaluating our exposure in those areas. On the whole, however, we remain
bullish on deep value stocks, not only for their capital appreciation potential,
but also for the income many provide, which could act as a cushion if the market
should decline or remain flat. While we're not making any predictions, we feel
these are scenarios worth considering after a seven-year bull market and three
consecutive years of equity market returns over 20%.
Denis Laplaige
Jeffrey Simon
Portfolio Managers
MacKay-Shields Financial Corporation
34
<PAGE> 35
$10,000 INVESTED IN THE
MAINSTAY VP VALUE PORTFOLIO ON
5/1/95 VS S&P 500 AND
THE CONSUMER PRICE INDEX(3)
<TABLE>
<S> <C>
One Year: 22.89%
Since Inception:
(5/1/95) 23.75%
</TABLE>
<TABLE>
<CAPTION>
CONSUMER
VALUE PRICE
PORTFOLIO S&P 500 INDEX
<S> <C> <C> <C>
5/1/95 10000 10000 10000
1995 11676 12179 10102
1996 14387.17 14972.86 10436.38
1997 17680.39 19967.81 10613.79
</TABLE>
(1) "Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(2) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(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 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. Please refer to page 4 for returns reflective of these
charges.
35
<PAGE> 36
MAINSTAY VP BOND PORTFOLIO
1997 MARKET HIGHLIGHTS
- - The theme for the fixed income market in 1997 was benign inflation in spite of
solid economic growth.
- - The Federal Reserve Board (the "Fed") maintained a stable monetary policy
after a 25 basis point tightening in March.
- - The market experienced a significant rally for the year with the 30 year U.S.
Treasury bond declining 72 basis points.
- - Events in Asia had a profound effect on U.S. Government securities and various
investment grade and non-investment grade corporate securities.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Bond Portfolio returned 9.65%.
- - The Portfolio outperformed the average A rated corporate bond fund in its
Lipper(1) universe by 49 basis points.
- - The Portfolio ranked 8th out of 28 bond funds (top 28.6%) for its Lipper
category.
- - An average portfolio quality of at least AA- was maintained throughout the
year, limiting credit risk.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Interest rates rose early in 1997 as market participants were concerned about an
overheating economy and a restrictive Fed. Toward the middle of the year market
sentiment shifted as investors focused on an improving budget deficit and mild
inflation statistics. The latter part of the year was dominated by the Asian
financial crisis. Many global equity markets experienced drastic declines. The
flight to quality trading caused a significant rally in U.S. Treasury
securities.
TO WHAT DO YOU ATTRIBUTE THE PORTFOLIO'S POSITIVE PERFORMANCE?
During the course of the year, the Portfolio maintained a credit barbell where
weightings were concentrated in AAA securities and lower-quality domestic
corporates which we viewed to be stable with strong relative value
characteristics. This structure worked well as lower quality corporates
outperformed within the investment grade sector. The Portfolio also had minimal
exposure to assets that would have been adversely influenced by the turmoil in
Asia. Additionally, our high quality assets benefited from the flight to quality
trading precipitated by the financial distress in Asia.
WHAT WAS YOUR PRIMARY STRATEGY DURING 1997?
The Portfolio shifted assets from the government sector to the corporate and
mortgage sectors in an effort to enhance yield and add return in a low interest
rate environment.
HOW WILL YOU ANTICIPATE MANAGING THE PORTFOLIO IN A SLOW GROWTH ENVIRONMENT?
In the corporate sector we will concentrate on non-cyclicals such as consumer
products, utilities and pipelines. We feel the bank and finance sector has
limited downside and could benefit from lower interest rates. In the mortgage
sector we will manage pre-payment risk based on our prevailing interest rate
forecast.
WHERE DO YOU PERCEIVE RISK IN THE PORTFOLIO?
Our adjustments during the year added some credit and call risk to the
Portfolio. However, the Portfolio's overall credit quality and structure
continues to be consistent with our long-term conservative approach to managing
the Portfolio.
WHAT IS YOUR OUTLOOK FOR THE FIXED INCOME MARKET IN 1998?
We expect slower economic growth, along with continued low levels of inflation.
Recent events in Asia should depress domestic growth, putting downward pressure
on inflation, interest rates, and corporate earnings. The Asian debacle may have
taken a Fed tightening out of the market for 1998. Corporate bond and mortgage-
backed security spread widening, resulting from supply pressure, low interest
rates and global dislocation, should create investment opportunities in 1998.
Albert R. Corapi, Jr.
Celia M. Holtzberg
Portfolio Managers
New York Life Insurance Company
36
<PAGE> 37
$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)
<TABLE>
<S> <C>
One Year: 9.65%
Three Years: 9.80%
Five Years: 7.33%
Ten Years: 8.87%
Since Inception:
(1/23/84) 10.09%
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH
CORPORATE AND CONSUMER
BOND GOVERNMENT PRICE
PORTFOLIO MASTER INDEX INDEX
<S> <C> <C> <C>
1/23/84 10000 10000 10000
1984 11028 11422 10365
1985 13370.4 13583 10758.9
1986 15532.3 15706.1 10877.2
1987 17637 16035.9 11359.1
1988 17390 17273.9 11861.1
1989 19396.9 19714.7 12412.7
1990 20948.6 21388.4 13171.1
1991 24390.5 24787.1 13574.1
1992 26373.4 26690.7 13967.8
1993 29380 29642.7 14351.9
1994 28384 28673.4 14735.1
1995 33581.1 34138.5 15065.2
1996 34269.5 35132 15563.8
1997 38219 38567.88 15828.41
</TABLE>
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(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 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. Please refer to page 4 for returns reflective of these
charges.
37
<PAGE> 38
MAINSTAY VP GROWTH EQUITY PORTFOLIO
1997 MARKET HIGHLIGHTS
- - The market recorded an unprecedented third consecutive year of 20% plus gains.
- - Low inflation coupled with favorable interest rates supported equity
valuations.
- - In general, earnings exceeded most investor's expectations.
- - Strong inflows into equity mutual funds, solid demand for U.S. equities from
foreign institutional investors and record levels of merger and acquisition
activity created an excellent supply/demand environment for stocks.
- - Large capitalization issues were the market's best performers.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Growth Equity Portfolio returned
26.75%.
- - Financial stocks were among the Portfolio's best performers owing primarily to
the strong bond market.
- - Consumer issues also displayed impressive gains throughout the year as wage
growth began to improve.
- - The Portfolio outperformed the Lipper(1) growth fund average return for the
year but underperformed the S&P 500(2) Index.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
For the third year in a row, the U.S. equity market generated robust results.
However, 1997 was differentiated from the prior two years by an increase in
market volatility. The market experienced corrections in March and October, but
managed to rebound rather quickly from these setbacks, keeping the current bull
market intact. The volatility appeared severe due to the steadiness of gains the
previous two years and the complacency which resulted from this stability.
However, history shows the volatility of the market in 1997 was not an anomaly
as equity markets have historically experienced choppiness in returns.
The majority of 1997's gains were recorded in the second and third quarters as
investors became more comfortable with the economy. The fear of higher interest
rates and rising inflation which caused March's correction dissipated quickly,
as strong employment reports did not bring about expected price increases. In
fact, it had a more positive effect on the economy as improving wages spurred an
increase in consumer spending; albeit at a modest rate. These factors along with
steadily growing corporate earnings created a near-perfect economic scenario.
Approaching year-end 1997, investors long time fear of inflation made a 180
degree turn as Asia's economic problems introduced the fear of deflation as an
issue. In October, a correction in the market was triggered by currency
devaluations and financial liquidity concerns in Asia. While we believe that
certain segments of the economy will definitely be impacted by deflationary
pressures, the impact of this trend is not likely to have a devastating effect
on the U.S. market.
CAN YOU DISCUSS THE MAINSTAY VP GROWTH EQUITY PORTFOLIO'S PERFORMANCE?
For the year ended 12/31/97, the MainStay VP Growth Equity Portfolio had a total
return of 26.75%. This placed us solidly ahead of the Lipper growth fund average
return of 25.36%. This marked the fifth time in the last six years that we have
outperformed the Lipper growth fund average. However, we lagged the S&P 500
return of 33.36%.
WHY DID THE AVERAGE LIPPER GROWTH FUND UNDERPERFORM THE S&P 500?
The Lipper growth fund average underperformed the S&P 500 because of the
superior relative performance of a narrow number of large capitalization issues.
In fact, the top ten performing stocks in the S&P 500 accounted for more than
one quarter of its gain. Active portfolio managers tend to underweight the S&P
500's larger companies in relation to the size of their portfolios. For example,
owning the twenty largest companies in the S&P 500 would greatly skew the
balance of an actively managed portfolio. Outperformance of these "nifty fifty"
names is common in the late stage of an earnings cycle as investors perceive
these stocks being safer than the market as a whole.
38
<PAGE> 39
WHAT WERE THE BIGGEST FACTORS LEADING TO THE PORTFOLIO'S POSITIVE PERFORMANCE?
There were several factors which supported the Portfolio's solid performance.
First, our technology holdings performed exceptionally as our focus on more
software related and computer service companies was particularly rewarding.
Second, our overweighted position in financial stocks was extremely profitable
as that sector outperformed the market by a wide margin. Finally, our
underweighting of the cyclical basic materials sector was timely as these stocks
were among the market's worst performers.
WHICH STOCKS WERE THE LARGEST CONTRIBUTORS TO THE PORTFOLIO'S RETURNS?
Three of the Portfolio's largest positions -- General Electric, Lilly (Eli) and
Kroger had excellent performance as each stock had total returns in excess of
50%. General Electric's strong performance stemmed from the consistency of its
earnings and its ability to maintain profit margins. Lilly's (Eli) performance
benefited from the introduction of a couple of blockbuster drugs combined with a
valuation upgrade of the pharmaceutical industry. Kroger, the country's largest
supermarket operator, was finally awarded a higher valuation consistent with its
earnings growth prospects.
Some other stocks which were strong contributors to our performance included:
Costco, a warehouse store operator; Halliburton, in the oil and energy service
industry; Compuware, an enterprise software company; and Freddie Mac, a
residential mortgage company.
WHAT WERE YOUR BIGGEST DISAPPOINTMENTS IN 1997?
Some of our smaller-capitalization holdings had a difficult year in 1997. It is
our strategy to make sure that our smaller issues have lower weightings in the
Portfolio due to the higher risk/reward profile attached to such holdings. For
instance, Danka Business Systems, a stock we recently held, preannounced a
disappointing quarter. The stock lost half of its market value that day.
However, its low weight in the Portfolio helped to mitigate some of the damage
in our returns.
WHAT IS YOUR OUTLOOK FOR THE EQUITY MARKET IN 1998?
After three years of extraordinary gains we believe 1998 will return to more
moderate gains. We expect interest rates to remain subdued and continue to
provide support for the equity market. Our main concern is that earnings
expectations for 1998 are probably too high and are subject to downward
revisions. Under such a situation we expect continued volatility in the market
as earning numbers come under more scrutiny. We expect that companies that are
able to meet earnings expectations for the coming year will be 1998's best
performers.
HOW IS THE PORTFOLIO CURRENTLY STRUCTURED?
In our top down approach to managing the Portfolio we have focused on sectors
and industries that have little exposure to Asia's problems. In a more subdued
economy the companies that are able to consistently grow their revenues and
earnings in excess of the market will be best rewarded. Finally, we are
overweighted in financial stocks as we believe that the current interest rate
environment will remain in place and the group's overall earnings will continue
to grow.
James Agostisi
Patricia Rossi
Portfolio Managers
New York Life Insurance Company
39
<PAGE> 40
$10,000 INVESTED IN THE
MAINSTAY VP GROWTH EQUITY PORTFOLIO
ON 1/23/84 VS S&P 500 AND
THE CONSUMER PRICE INDEX(3)
<TABLE>
<S> <C>
One Year: 26.75%
Three Years: 26.79%
Five Years: 18.59%
Ten Years: 16.87%
Since Inception:
(1/23/84) 13.97%
</TABLE>
<TABLE>
<CAPTION>
GROWTH CONSUMER
EQUITY PRICE
PORTFOLIO S&P 500 INDEX
<S> <C> <C> <C>
1/23/84 10000.00 10000.00 10000.00
1984 9824.00 10755.00 10365.00
1985 12162.11 14199.83 10758.87
1986 12648.60 16833.89 10877.22
1987 13035.64 17712.62 11359.08
1988 14791.54 20691.89 11861.15
1989 18632.91 27216.04 12421.69
1990 17535.43 26350.57 13171.11
1991 23472.93 34405.94 13574.14
1992 26423.47 37051.75 13967.79
1993 30046.13 40753.22 14351.91
1994 30406.69 41278.94 14735.11
1995 39273.28 56791.51 15065.17
1996 48895.23 69829.55 15563.83
1997 61974.70 93111.36 15828.41
</TABLE>
(1) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(2) "Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(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 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. Please refer to page 4 for returns reflective of these
charges.
40
<PAGE> 41
MAINSTAY VP INDEXED EQUITY PORTFOLIO
1997 MARKET HIGHLIGHTS
- - The S&P 500 Index(1) experienced its third consecutive year with returns over
20% and earned more than half of the year's total return in the second quarter
of 1997.
- - Political and economic problems in several Asian markets caused wide swings in
the S&P 500 Index throughout the second half of the year.
- - Large mergers and acquisitions continued to affect the market and landmark
litigation in the technology and tobacco industries had an impact on future
profit potential.
- - In an earnings-oriented environment, stocks were severely punished for not
meeting the market's earnings estimates.
- - Overall, the stock market experienced a high degree of volatility, with one
hundred point swings in the Dow Jones Industrial Average(2) more the norm than
the exception by year-end. Even when measured in terms of a percentage, the
daily swings in market value have been much higher than was observed in recent
years.
1997 PORTFOLIO HIGHLIGHTS
- - For the year ended 12/31/97, the MainStay VP Indexed Equity Portfolio returned
32.84%.
- - The Portfolio benefited from its orientation toward large-capitalization
stocks, which tended to outperform smaller-capitalization issues throughout
much of the year.
- - The MainStay VP Indexed Equity Portfolio closely tracked the S&P 500 Index
during 1997.
- - The Portfolio outperformed the Lipper(3) general equity average, which
returned only 24.36% for the year.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
For the year ended 12/31/97, the S&P 500 Index returned 33.36%-another
outstanding year for equity investors. In fact, this is the third consecutive
year that the stock market has provided returns over 20%.
The stock market benefited from strong domestic and foreign capital inflows,
combined with merger mania that continued unabated throughout the year. Yet this
paled in comparison to the impact of the smaller Asian countries. Hong Kong took
the lead in October's global market correction, declining over 13% on October
28, and more than 33% in a span of seven days. South Korea, the world's 11th
largest economy, appealed to the International Monetary Fund for a $55 billion
bailout. And Japan's stock market declined 30% for the year.
The effects were felt throughout the U.S. stock market, with the Dow dropping
554 points on October 27, and recording its largest single-day gain in history
the following day. By the end of the year, 100 point moves in the Dow were more
the norm than the exception.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP INDEXED EQUITY PORTFOLIO DO IN 1997?
Very well. For the year ended 12/31/97, the MainStay VP Indexed Equity Portfolio
returned 32.84%. It outperformed the Lipper general equity average, which
returned only 24.36% in 1997.
WHY DOES THE PORTFOLIO CONSISTENTLY TRAIL THE S&P 500?
The Portfolio seeks to track the total return performance, including
reinvestment of dividends and income, of the S&P 500 Index. The Portfolio,
however, faces management fees and trading expenses that the Index does not. For
this reason, investors should expect the Portfolio to slightly underperform the
Index, whether the market's return is positive or negative.
WHICH SECTORS WERE THE BEST PERFORMERS IN 1997?
Truckers, which had done poorly for the previous two years, were the leading
sector in 1997, with a return of 152.9%. With only one stock, however, the
sector accounts for just 0.03% of the Index. Investment bank/ brokerage firms
were up 80.7%, savings & loans rose 74.2%, airlines advanced 66.2%, and
broadcast/media returned 64.3%. Each of these sectors accounted for less than 1%
of the Index.
WHICH SECURITIES HAD THE GREATEST POSITIVE IMPACT?
General Electric is the largest capitalization stock in the Index, representing
3.17% of the total, and returned 50.9% for the year. Despite the litigation
Microsoft faced, the company's stock gained 56.4%, representing 2.06% of the
Index. Pfizer returned 82.2%, with a 1.27% weighting. Bristol-Myers Squibb and
Lilly (Eli) earned 77.5% and 93.5%, respectively, and both represent slightly
over 1% of the Index.
41
<PAGE> 42
WHICH SECTORS DID POORLY IN 1997?
Engineering and construction was the worst sector in terms of performance,
losing 37.5%, but had little impact, with just a 0.06% weighting in the Index.
Gold lost 35.9%, metals-miscellaneous was down 34.5%, and shoes slid 33.1%. Of
these losers, only gold, with a weighting of 0.23%, represented more than 0.20%
of the Index.
DID ANY INDIVIDUAL STOCKS HAVE A SIGNIFICANT NEGATIVE IMPACT ON THE INDEX?
Yes. The worst performers in terms of overall impact were 3Com, which lost 52.4%
and represented 0.16% of the Index; Columbia/HCA Healthcare, which lost 27.1%
and had a 0.25% weighting; NIKE, which fell 33.8% and represented 0.15% of the
Index; Eastman Kodak lost 22.4% with a 0.26% weighting; and Oracle, which
dropped 19.8%, accounted for 0.29% of the Index.
WERE THERE ANY CHANGES IN THE INDEX DURING THE REPORTING PERIOD?
While there were no changes in the Index construction methodology, there were
dozens of deletions to the Index that resulted from corporate actions and
committee decisions. For example, prior to their merger, both Travelers Group
and Salomon were separately listed as S&P 500 Index companies. Since the merger,
however, only Travelers appears. With the deletion of Salomon, the S&P 500 Index
committee assigned Synovus Financial, a southeastern commercial bank, to the
Index to maintain 500 stocks that reflect the overall makeup of today's stock
market.
WHAT IS THE OUTLOOK FOR 1998?
The Portfolio seeks to track the performance of the Index regardless of the
investment outlook. While the Asian crisis may cause domestic inflation to
decline and may reduce demand for domestic goods overseas, there are a number of
other factors that may also influence the stock market, many of which are
difficult to forecast.
Rather than try to predict where markets will move, investors in the Portfolio
should take note of the fact that returns for the last three years have been
more than twice the average annual total return of the S&P 500 Index since
1926.(4) Although past performance is no guarantee of future results, in the
past, markets have tended to move closer to their mean returns over time. While
we cannot say whether or when this may occur, the Portfolio will continue to
track the S&P 500 Index, whether the market continues to climb, slows to more
moderate levels, or dips into negative territory in 1998.
James A. Mehling
Portfolio Manager
Monitor Capital Advisors, Inc.
42
<PAGE> 43
$10,000 INVESTED IN THE
MAINSTAY VP INDEXED EQUITY PORTFOLIO ON
1/29/93 VS S&P 500 AND
THE CONSUMER PRICE INDEX(5)
<TABLE>
<S> <C>
One Year: 32.84%
Three Years: 30.57%
Since Inception:
(1/29/93) 19.81%
</TABLE>
<TABLE>
<CAPTION>
INDEXED CONSUMER
EQUITY PRICE
PORTFOLIO S&P 500 INDEX
<S> <C> <C> <C>
1/23/93 10000.00 10000.00 10000.00
1993 10853.00 11008.00 10275.00
1994 10935.48 11148.99 10549.34
1995 14969.58 15338.78 10785.65
1996 18325.76 18857.50 11142.65
1997 24343.94 25148.36 11332.08
</TABLE>
(1) "Standard and Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of the Standard & Poor's Corporation. The MainStay VP
Series Fund, Inc. is neither sponsored by nor affiliated with Standard &
Poor's Corporation. The S&P 500 is an unmanaged index considered generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gains distributions.
(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) Lipper Analytical Services, Inc. is an independent monitor of mutual fund
performance. Its rankings are based on total returns with capital gains and
dividends reinvested. Results do not reflect any deduction of sales charges.
The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies.
(4) Source: Ibbotson Associates, Chicago. Used with permission. All rights
reserved. Average annual total return for 1926-1996 was 10.7%. Past
performance is not a guarantee of future results.
(5) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included in the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns shown indicate past
performance and are not indicative of future results. Investment return and
principal value will fluctuate so that shares, upon redemption, may be worth
more or less than their original cost. These results do not reflect any
deduction of sales charges, mortality and expense charges, contract charges, or
administrative charges. Please refer to page 4 for returns relative of those
charges.
Unlike other funds that generally seek to beat market averages, often with
unpredictable results, index funds seek to match the return of their respective
indexes.
43
<PAGE> 44
GLOSSARY
ASSET-BACKED SECURITIES: Securities backed by loan paper, receivables, or an
anticipated income stream from the sale of merchandise or services. The
securities are generally originated by banks, credit card companies, or other
providers of credit and often "enhanced" by a bank letter of credit or by
insurance from an institution other than the issuer.
AVERAGE MATURITY: Maturity is the termination date of an obligation or the
length of time an income security is required to pay interest. Average maturity
reflects the average of the maturities of all fixed-income securities in a
portfolio.
BASIS POINT: One hundredth of one percent in the yield of an investment, i.e.,
100 basis points equals 1%.
BOTTOM-UP INVESTING: Security selection based on the specific portfolio
fundamental merits of individual issues. The opposite of "top-down" investing,
which starts with general economic trends, compares market sectors, and uses
relative security values to narrow the range of issues to examine.
BULLISH/BEARISH: A bull market occurs when security prices are rising, a bear
market occurs when security prices decline. A bullish attitude therefore
suggests a positive outlook, while a bearish attitude represents a negative view
of the market or the opportunities it may present.
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.
CONVERSION PREMIUM: The amount by which the price of a convertible security
exceeds the market price of the underlying stock. If a stock is trading at $50
and the convertible bond at $45, the premium is $5. When the premium is high,
the bond trades like an income security, when it is low, it trades like a stock.
CORRECTION: A market shift in security prices that brings them more in line
with historically appropriate levels.
CREDIT QUALITY: A measure of an individual issuer's ability to repay principal
and interest on its income securities--or a measure of the general credit risk
of securities in an income portfolio.
CYCLICAL STOCK: A stock that tends to rise quickly with economic upturns and
fall quickly when the economy slows. Noncyclical industries, such as food,
insurance, and pharmaceuticals, are likely to have more consistent performance
regardless of economic changes.
DEFAULT: Failure of a debtor to repay principal or interest on an obligation or
to meet some other provision of a debt instrument. If an issuer defaults,
bondholders may make claims against the assets of the issuer to recoup their
principal.
DEFENSIVE ISSUES: Stocks chosen for their reliability of earnings, growth, and
positive performance.
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.
EMERGING MARKETS: Countries with smaller or more recently established capital
markets.
EUROPEAN MONETARY UNION: A proposed system that would allow participating
European countries to operate with a common currency or monetary unit.
FLIGHT TO QUALITY: When investors in general move to improve the credit quality
of the securities they own, either because of credit concerns or a lack of yield
advantages among lower-rated securities.
HEDGING/CURRENCY MANAGEMENT: The process of managing or "hedging" the risks
associated with owning securities denominated in different currencies, the
relative values of which may change at any time. There can be no assurance that
currency hedging will protect investors.
44
<PAGE> 45
INFLATION: An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
PORTFOLIO FUNDAMENTALS: Key economic factors such as interest rates, gross
national product, inflation, unemployment, and currency stability, which may
affect the direction of a country's economy--or issuer-specific factors such as
assets, earnings, sales, products, and management, which may affect the
performance of a company's securities.
PREPAYMENT RISK: The risk that mortgage or loan holders will repay their
obligations before they mature, shortening the stream of interest payments
investors receive.
PRICE-TO-CASH FLOW RATIO: The relationship between the price of a stock and the
amount of free cash flow the company is able to generate.
PRICE-TO-EARNINGS RATIO: The price of a stock divided by its earnings per
share.
PRIVATIZATION: The process of converting state-run or publicly operated
companies into privately owned and operated entities. In theory, enterprises may
run more efficiently and offer better service to customers when owned by
shareholders rather than the government.
RESTRUCTURING: Any action designed to improve the overall financial structure,
labor relations, or productivity of a company. Restructuring may include such
steps as changing management, investing in new plant and equipment, engaging in
mergers and acquisitions, or taking other action to increase output or lower
costs.
SHORT SALE: Selling a security or commodity futures contract not owned by the
seller. The technique may be used to take advantage of anticipated price
declines or to protect profit in a long position.
SPLIT ISSUES: Securities rated top tier by one credit rating agency and second
tier by another.
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.
TENDER: To offer money or goods in settlement for a prior debt or claim.
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 or
sector, i.e., a portfolio is said to be overweighted in a sector when that
portion of the portfolio is greater than the sector's general relationship to
the market as a whole.
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 5- and 10-year Treasuries.
45
<PAGE> 46
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
Monitor Capital Advisors, Inc.
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
Price Waterhouse LLP
46
<PAGE> 47
(THIS PAGE INTENTIONALLY LEFT BLANK)
47
<PAGE> 48
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at
net asset
value
(Identified
Cost:
$168,872,797;
$30,016,769;
$7,520,352;
$35,273,439;
$134,958,445;
$9,337,777;
$130,125,402;
$62,161,818;
$27,338,361,
respectively)... $256,064,007 $ 30,016,823 $ 7,494,402
LIABILITIES:
Liability for
mortality and
expense risk
charges...... 824,706 96,319 22,469
------------ ------------ ------------
Total
equity... $255,239,301 $ 29,920,504 $ 7,471,933
============ ============ ============
TOTAL EQUITY
REPRESENTED BY:
Equity of
Policyowners:
Variable
accumulation
units
outstanding:
11,857,215;
25,688,688;
635,509;
2,748,627;
9,538,610;
750,958;
9,719,609;
4,277,068;
2,248,999,
respectively... $255,239,301 $ 29,920,504 $ 7,471,933
============ ============ ============
Variable
accumulation
unit
value...... $ 21.53 $ 1.16 $ 11.76
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at
net asset
value
(Identified
Cost:
$80,720,219;
$111,142,475;
$7,255,549;
$2,276,607;
$21,594,510;
$14,067,992;
$9,179,146;
$31,207,175;
$5,255,533,
respectively)... $ 86,897,287 $153,994,311 $ 7,613,494
LIABILITIES:
Liability for
mortality and
expense risk
charges...... 275,867 482,230 22,359
------------ ------------ ------------
Total
equity... $ 86,621,420 $153,512,081 $ 7,591,135
============ ============ ============
TOTAL EQUITY
REPRESENTED BY:
Equity of
Policyowners:
Variable
accumulation
units
outstanding:
4,307,208;
6,723,894;
721,914;
154,270;
1,843,744;
1,137,704;
802,381;
2,632,482;
451,979,
respectively... $ 86,621,420 $153,512,081 $ 7,591,135
============ ============ ============
Variable
accumulation
unit
value...... $ 20.11 $ 22.83 $ 10.52
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
48
<PAGE> 49
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 35,054,735 $134,678,051 $ 8,982,399 $171,156,971 $ 72,783,401 $ 27,305,154
115,849 420,547 28,791 554,884 225,248 86,967
------------ ------------ ------------ ------------ ------------ ------------
$ 34,938,886 $134,257,504 $ 8,953,608 $170,602,087 $ 72,558,153 $ 27,218,187
============ ============ ============ ============ ============ ============
$ 34,938,886 $134,257,504 $ 8,953,608 $170,602,087 $ 72,558,153 $ 27,218,187
============ ============ ============ ============ ============ ============
$ 12.71 $ 14.08 $ 11.92 $ 17.55 $ 16.96 $ 12.10
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,360,941 $ 23,981,487 $ 15,222,651 $ 9,831,227 $ 32,993,284 $ 4,455,794
6,885 69,426 40,198 28,336 99,725 13,421
------------ ------------ ------------ ------------ ------------ ------------
$ 2,354,056 $ 23,912,061 $ 15,182,453 $ 9,802,891 $ 32,893,559 $ 4,442,373
============ ============ ============ ============ ============ ============
$ 2,354,056 $ 23,912,061 $ 15,182,453 $ 9,802,891 $ 32,893,559 $ 4,442,373
============ ============ ============ ============ ============ ============
$ 15.26 $ 12.97 $ 13.34 $ 12.22 $ 12.50 $ 9.83
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
49
<PAGE> 50
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
----------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income......................................... $ 358 $ 1,424,114 $ 273,318
Mortality and expense risk charges...................... (2,935,500) (361,085) (63,188)
------------ ------------ ------------
Net investment income (loss)........................ (2,935,142) 1,063,029 210,130
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments....................... 11,447,214 67,359,027 687,004
Cost of investments sold................................ (6,613,610) (67,358,815) (627,999)
------------ ------------ ------------
Net realized gain (loss) on investments............. 4,833,604 212 59,005
Realized gain distribution received..................... 3,437,276 -- 387,948
Change in unrealized appreciation (depreciation) on
investments........................................... 38,112,703 110 (25,065)
------------ ------------ ------------
Net gain (loss) on investments...................... 46,383,583 322 421,888
------------ ------------ ------------
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account.......................... (83,048) (1,863) (1,962)
------------ ------------ ------------
Net increase in total equity resulting
from operations................................... $ 43,365,393 $ 1,061,488 $ 630,056
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
----------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income......................................... $ 602,605 $ 1,910,979 $ --
Mortality and expense risk charges...................... (891,722) (1,544,251) (54,706)
------------ ------------ ------------
Net investment income (loss)........................ (289,117) 366,728 (54,706)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments....................... 910,771 1,658,901 1,255,456
Cost of investments sold................................ (654,669) (914,161) (1,252,553)
------------ ------------ ------------
Net realized gain on investments.................... 256,102 744,740 2,903
Realized gain distribution received..................... 11,217,552 3,565,021 118,813
Change in unrealized appreciation (depreciation) on
investments........................................... 3,863,793 25,776,218 359,486
------------ ------------ ------------
Net gain (loss) on investments...................... 15,337,447 30,085,979 481,202
------------ ------------ ------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account.......................... (33,051) (54,381) (1,129)
------------ ------------ ------------
Net increase (decrease) in total equity resulting
from operations................................... $ 15,015,279 $ 30,398,326 $ 425,367
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
50
<PAGE> 51
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,235,207 $ 8,570,871 $ 718,059 $ 3,608,904 $ 914,708 $ 1,700,876
(454,797) (1,322,206) (115,249) (2,026,697) (687,336) (320,303)
------------ ------------ ------------ ------------ ------------ ------------
1,780,410 7,248,665 602,810 1,582,207 227,372 1,380,573
------------ ------------ ------------ ------------ ------------ ------------
8,336,469 3,376,427 1,659,858 10,564,695 798,692 3,531,376
(8,878,032) (2,849,382) (1,551,576) (7,542,119) (535,791) (3,444,295)
------------ ------------ ------------ ------------ ------------ ------------
(541,563) 527,045 108,282 3,022,576 262,901 87,081
-- 5,363,338 -- 3,083,183 3,104,376 75,997
1,410,360 (2,322,236) (441,057) 15,736,284 6,547,148 449,976
------------ ------------ ------------ ------------ ------------ ------------
868,797 3,568,147 (332,775) 21,842,043 9,914,425 613,054
------------ ------------ ------------ ------------ ------------ ------------
(6,627) (31,582) 338 (48,358) (20,257) (5,093)
------------ ------------ ------------ ------------ ------------ ------------
$ 2,642,580 $ 10,785,230 $ 270,373 $ 23,375,892 $ 10,121,540 $ 1,988,534
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 51,740 $ 32,149 $ 23,706 $ 173,454 $ 209,871 $ 29,964
(19,732) (162,903) (81,489) (60,966) (234,791) (42,259)
------------ ------------ ------------ ------------ ------------ ------------
32,008 (130,754) (57,783) 112,488 (24,920) (12,295)
------------ ------------ ------------ ------------ ------------ ------------
118,973 182,770 239,984 331,396 257,157 443,766
(108,105) (152,033) (228,742) (290,382) (210,715) (393,623)
------------ ------------ ------------ ------------ ------------ ------------
10,868 30,737 11,242 41,014 46,442 50,143
112,234 84,966 119,190 5,979 85,328 132,571
90,491 2,355,000 1,149,335 650,923 1,754,303 (805,601)
------------ ------------ ------------ ------------ ------------ ------------
213,593 2,470,703 1,279,767 697,916 1,886,073 (622,887)
------------ ------------ ------------ ------------ ------------ ------------
(526) (5,233) (2,151) (1,929) (4,941) 670
------------ ------------ ------------ ------------ ------------ ------------
$ 245,075 $ 2,334,716 $ 1,219,833 $ 808,475 $ 1,856,212 $ (634,512)
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
51
<PAGE> 52
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
---------------------------------- ----------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ (2,935,142) $ (1,920,018) $ 1,063,029 $ 778,847
Net realized gain (loss) on
investments....................... 4,833,604 2,055,551 212 (235)
Realized gain distribution
received.......................... 3,437,276 -- -- --
Change in unrealized appreciation
(depreciation) on investments..... 38,112,703 24,383,346 110 73
Decrease attributable to funds of
New York Life Insurance and
Annuity Corporation retained by
Separate Account.................. (83,048) (22,494) (1,863) (636)
------------ ------------ ------------ ------------
Net increase in total equity
resulting
from operations................. 43,365,393 24,496,385 1,061,488 778,049
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 14,108,843 11,223,373 241,494,473 209,046,761
Policyowners' surrenders............ (5,441,134) (3,554,017) (1,240,425) (1,051,462)
Policyowners' annuity and death
benefits.......................... (1,439,678) (1,048,434) (348,829) (58,589)
Net transfers from (to) Fixed
Account........................... (315,375) 240,896 (29,451,497) (17,698,298)
Transfers between Investment
Divisions......................... 12,641,649 42,660,785 (208,989,293) (184,767,230)
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 19,554,305 49,522,603 1,464,429 5,471,182
------------ ------------ ------------ ------------
Increase (decrease) in total
equity........................ 62,919,698 74,018,988 2,525,917 6,249,231
TOTAL EQUITY:
Beginning of year................... 192,319,603 118,300,615 27,394,587 21,145,356
------------ ------------ ------------ ------------
End of year......................... $255,239,301 $192,319,603 $ 29,920,504 $ 27,394,587
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
---------------------------------- ----------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ 602,810 $ 322,495 $ 1,582,207 $ 1,249,533
Net realized gain on investments.... 108,282 39,714 3,022,576 1,030,984
Realized gain distribution
received.......................... -- 10,103 3,083,183 --
Change in unrealized appreciation
(depreciation) on investments..... (441,057) 68,930 15,736,284 10,463,926
Increase (decrease) attributable to
funds of New York Life Insurance
and Annuity Corporation retained
by Separate Account............... 338 (1,398) (48,358) (15,330)
------------ ------------ ------------ ------------
Net increase in total equity
resulting
from operations................. 270,373 439,844 23,375,892 12,729,113
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 798,731 1,082,586 7,050,067 7,728,846
Policyowners' surrenders............ (179,972) (54,539) (4,323,373) (3,911,629)
Policyowners' annuity and death
benefits.......................... (97,579) (27,254) (1,491,783) (1,176,265)
Net transfers from (to) Fixed
Account........................... 17,008 131,997 (1,817,519) (190,777)
Transfers between Investment
Divisions......................... 409,137 4,423,391 6,374,145 22,838,889
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 947,325 5,556,181 5,791,537 25,289,064
------------ ------------ ------------ ------------
Increase in total equity........ 1,217,698 5,996,025 29,167,429 38,018,177
TOTAL EQUITY:
Beginning of year................... 7,735,910 1,739,885 141,434,658 103,416,481
------------ ------------ ------------ ------------
End of year......................... $ 8,953,608 $ 7,735,910 $170,602,087 $141,434,658
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
52
<PAGE> 53
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
----------------------------- ----------------------------- -----------------------------
1997 1996(a) 1997 1996 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 210,130 $ 13,510 $ 1,780,410 $ 1,881,109 $ 7,248,665 $ 2,756,422
59,005 522 (541,563) (466,032) 527,045 127,325
387,948 2,681 -- -- 5,363,338 888,770
(25,065) (885) 1,410,360 (1,107,570) (2,322,236) 2,017,948
(1,962) (11) (6,627) (2,229) (31,582) (12,399)
------------ ------------ ------------ ------------ ------------ ------------
630,056 15,817 2,642,580 305,278 10,785,230 5,778,066
------------ ------------ ------------ ------------ ------------ ------------
1,000,635 169,046 1,300,452 2,254,998 12,524,157 5,917,987
(92,401) (3,468) (1,196,410) (1,440,538) (2,556,656) (837,749)
(34,724) -- (689,466) (938,740) (869,008) (178,205)
1,952 3,022 (612,836) (235,117) 228,545 986,909
4,375,014 1,406,984 (3,880,014) (798,404) 45,401,706 41,300,726
------------ ------------ ------------ ------------ ------------ ------------
5,250,476 1,575,584 (5,078,274) (1,157,801) 54,728,744 47,189,668
------------ ------------ ------------ ------------ ------------ ------------
5,880,532 1,591,401 (2,435,694) (852,523) 65,513,974 52,967,734
1,591,401 -- 37,374,580 38,227,103 68,743,530 15,775,796
------------ ------------ ------------ ------------ ------------ ------------
$ 7,471,933 $ 1,591,401 $ 34,938,886 $ 37,374,580 $134,257,504 $ 68,743,530
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
----------------------------- ----------------------------- -----------------------------
1997 1996 1997 1996 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 227,372 $ 153,150 $ 1,380,573 $ 1,200,794 $ (289,117) $ (45,376)
262,901 48,430 87,081 78,888 256,102 151,536
3,104,376 476,456 75,997 -- 11,217,552 6,131,118
6,547,148 3,713,466 449,976 (1,019,234) 3,863,793 1,120,490
(20,257) (7,269) (5,093) (1,345) (33,051) (11,636)
------------ ------------ ------------ ------------ ------------ ------------
10,121,540 4,384,233 1,988,534 259,103 15,015,279 7,346,132
------------ ------------ ------------ ------------ ------------ ------------
5,621,886 2,686,173 1,281,523 1,840,303 5,888,507 3,561,882
(1,035,379) (314,427) (811,171) (468,736) (1,372,347) (712,387)
(377,102) (26,412) (345,774) (204,169) (198,025) (237,850)
147,179 55,019 (134,442) (63,064) (126,113) (25,716)
22,805,397 20,923,800 1,981,470 2,657,996 17,823,214 15,708,702
------------ ------------ ------------ ------------ ------------ ------------
27,161,981 23,324,153 1,971,606 3,762,330 22,015,236 18,294,631
------------ ------------ ------------ ------------ ------------ ------------
37,283,521 27,708,386 3,960,140 4,021,433 37,030,515 25,640,763
35,274,632 7,566,246 23,258,047 19,236,614 49,590,905 23,950,142
------------ ------------ ------------ ------------ ------------ ------------
$ 72,558,153 $ 35,274,632 $ 27,218,187 $ 23,258,047 $ 86,621,420 $ 49,590,905
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
53
<PAGE> 54
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN
MAINSTAY VP SMALL
INDEXED EQUITY CAPITALIZATION
---------------------------------- ----------------------------------
1997 1996 1997 1996(a)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ 366,728 $ 374,435 $ (54,706) $ (1,200)
Net realized gain (loss) on
investments....................... 744,740 3,373,859 2,903 (671)
Realized gain distribution
received.......................... 3,565,021 1,047,477 118,813 --
Change in unrealized appreciation
(depreciation) on investments..... 25,776,218 7,690,196 359,486 (1,540)
Decrease attributable to funds of
New York Life Insurance and
Annuity Corporation retained by
Separate Account.................. (54,381) (20,656) (1,129) (231)
------------ ------------ ------------ ------------
Net increase (decrease) in total
equity resulting from
operations...................... 30,398,326 12,465,311 425,367 (3,642)
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 9,886,766 5,256,430 1,293,929 88,539
Policyowners' surrenders............ (2,667,000) (1,433,327) (39,761) (1,040)
Policyowners' annuity and death
benefits.......................... (872,882) (409,320) (12,225) --
Net transfers from (to) Fixed
Account........................... (229,219) (77,411) 26,191 (13,494)
Transfers between Investment
Divisions......................... 33,975,643 24,995,760 4,664,076 1,163,195
Return of equity contribution to New
York Life Insurance and Annuity
Corporation....................... -- (10,765,092) -- --
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 40,093,308 17,567,040 5,932,210 1,237,200
------------ ------------ ------------ ------------
Increase in total equity........ 70,491,634 30,032,351 6,357,577 1,233,558
TOTAL EQUITY:
Beginning of year................... 83,020,447 52,988,096 1,233,558 --
------------ ------------ ------------ ------------
End of year......................... $153,512,081 $ 83,020,447 $ 7,591,135 $ 1,233,558
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
---------------------------------- ----------------------------------
1997 1996(a) 1997 1996(a)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ (57,783) $ (844) $ 112,488 $ 8,081
Net realized gain (loss) on
investments....................... 11,242 63 41,014 --
Realized gain distribution
received.......................... 119,190 -- 5,979 --
Change in unrealized appreciation
(depreciation) on investments..... 1,149,335 5,323 650,923 1,158
Increase (decrease) attributable to
funds of New York Life Insurance
and Annuity Corporation retained
by
Separate Account.................. (2,151) 6 (1,929) (7)
------------ ------------ ------------ ------------
Net increase (decrease) in total
equity resulting from
operations...................... 1,219,833 4,548 808,475 9,232
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 2,305,722 52,277 1,423,207 98,306
Policyowners' surrenders............ (84,983) -- (54,290) (482)
Policyowners' annuity and death
benefits.......................... (22,573) -- -- --
Net transfers from Fixed Account.... 74,509 1,901 53,541 5,999
Transfers between Investment
Divisions......................... 10,880,655 750,564 6,614,826 844,077
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 13,153,330 804,742 8,037,284 947,900
------------ ------------ ------------ ------------
Increase in total equity........ 14,373,163 809,290 8,845,759 957,132
TOTAL EQUITY:
Beginning of year................... 809,290 -- 957,132 --
------------ ------------ ------------ ------------
End of year......................... $ 15,182,453 $ 809,290 $ 9,802,891 $ 957,132
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
54
<PAGE> 55
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
---------------------------------- ----------------------------------
1997 1996 1997 1996(a)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 32,008 $ 11,721 $ (130,754) $ (2,543)
10,868 1,807 30,737 --
112,234 47,239 84,966 --
90,491 5,463 2,355,000 31,977
(526) (105) (5,233) (40)
------------ ------------ ------------ ------------
245,075 66,125 2,334,716 29,394
------------ ------------ ------------ ------------
108,024 71,210 2,951,510 155,357
(29,649) (7,044) (103,333) (73)
(2,729) -- (31,006) --
(4,077) 9,915 151,968 14,838
1,146,500 473,217 16,067,377 2,341,313
-- -- -- --
------------ ------------ ------------ ------------
1,218,069 547,298 19,036,516 2,511,435
------------ ------------ ------------ ------------
1,463,144 613,423 21,371,232 2,540,829
890,912 277,489 2,540,829 --
------------ ------------ ------------ ------------
$ 2,354,056 $ 890,912 $ 23,912,061 $ 2,540,829
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
---------------------------------- ----------------------------------
1997 1996(a) 1997 1996(a)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ (24,920) $ 9,432 $ (12,295) $ 274
46,442 -- 50,143 (14)
85,328 -- 132,571 --
1,754,303 31,806 (805,601) 5,862
(4,941) (39) 670 (111)
------------ ------------ ------------ ------------
1,856,212 41,199 (634,512) 6,011
------------ ------------ ------------ ------------
4,205,570 240,993 687,149 32,353
(207,344) (4,872) (35,384) (4,237)
(79,209) -- (5,001) --
303,760 33,213 8,356 6,633
24,161,558 2,342,479 3,646,978 734,027
------------ ------------ ------------ ------------
28,384,335 2,611,813 4,302,098 768,776
------------ ------------ ------------ ------------
30,240,547 2,653,012 3,667,586 774,787
2,653,012 -- 774,787 --
------------ ------------ ------------ ------------
$ 32,893,559 $ 2,653,012 $ 4,442,373 $ 774,787
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
55
<PAGE> 56
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value (Identified Cost:
$151,064,610; $32,195,156; $5,328,711; $24,401,449;
$73,882,990; $6,892,566; $107,216,334; $46,775,710;
$20,131,634, respectively).......................... $222,686,276 $ 32,195,212 $ 5,316,168
LIABILITIES:
Liability for mortality and expense risk charges...... 712,189 96,290 16,610
------------ ------------ ------------
Total equity...................................... $221,974,087 $ 32,098,922 $ 5,299,558
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 10,311,858;
27,559,044; 451,954; 1,903,657; 5,214,982;
553,260; 7,910,664; 3,185,866; 1,654,689,
respectively...................................... $221,974,087 $ 32,098,922 $ 5,299,558
============ ============ ============
Variable accumulation unit value.................... $ 21.53 $ 1.16 $ 11.73
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value (Identified Cost:
$64,998,805; $94,607,783; $5,500,996; $2,047,811;
$17,868,641; $9,540,935; $6,906,891; $25,777,339;
$4,616,486, respectively)........................... $ 69,630,271 $128,627,046 $ 5,815,482
LIABILITIES:
Liability for mortality and expense risk charges...... 219,373 399,623 16,941
------------ ------------ ------------
Total equity...................................... $ 69,410,898 $128,227,423 $ 5,798,541
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 3,451,426;
5,616,413; 551,479; 137,819; 1,542,236; 788,332;
599,878; 2,159,402; 391,289, respectively......... $ 69,410,898 $128,227,423 $ 5,798,541
============ ============ ============
Variable accumulation unit value.................... $ 20.11 $ 22.83 $ 10.51
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
56
<PAGE> 57
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 24,278,244 $ 73,545,810 $ 6,619,585 $139,300,543 $ 54,364,589 $ 20,090,664
80,078 225,405 20,288 449,641 166,167 65,031
------------ ------------ ------------ ------------ ------------ ------------
$ 24,198,166 $ 73,320,405 $ 6,599,297 $138,850,902 $ 54,198,422 $ 20,025,633
============ ============ ============ ============ ============ ============
$ 24,198,166 $ 73,320,405 $ 6,599,297 $138,850,902 $ 54,198,422 $ 20,025,633
============ ============ ============ ============ ============ ============
$ 12.71 $ 14.06 $ 11.93 $ 17.55 $ 17.01 $ 12.10
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,111,815 $ 19,673,384 $ 10,469,988 $ 7,370,102 $ 27,114,475 $ 3,886,258
6,237 55,147 28,292 21,202 79,439 11,452
------------ ------------ ------------ ------------ ------------ ------------
$ 2,105,578 $ 19,618,237 $ 10,441,696 $ 7,348,900 $ 27,035,036 $ 3,874,806
============ ============ ============ ============ ============ ============
$ 2,105,578 $ 19,618,237 $ 10,441,696 $ 7,348,900 $ 27,035,036 $ 3,874,806
============ ============ ============ ============ ============ ============
$ 15.28 $ 12.72 $ 13.25 $ 12.25 $ 12.52 $ 9.90
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
57
<PAGE> 58
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
----------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income.......................................... $ 300 $ 1,382,051 $ 199,553
Mortality and expense risk charges....................... (2,475,736) (350,404) (43,923)
------------ ------------ ------------
Net investment income (loss)......................... (2,475,436) 1,031,647 155,630
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments........................ 5,262,336 55,385,080 198,827
Cost of investments sold................................. (2,718,618) (55,384,897) (176,922)
------------ ------------ ------------
Net realized gain (loss) on investments.............. 2,543,718 183 21,905
Realized gain distribution received...................... 2,984,667 -- 283,232
Change in unrealized appreciation (depreciation) on
investments............................................ 33,808,820 125 (11,797)
------------ ------------ ------------
Net gain (loss) on investments....................... 39,337,205 308 293,340
------------ ------------ ------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account........................... (69,865) (1,788) (1,344)
------------ ------------ ------------
Net increase in total equity resulting
from operations.................................... $ 36,791,904 $ 1,030,167 $ 447,626
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
----------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income.......................................... $ 481,476 $ 1,596,927 $ --
Mortality and expense risk charges....................... (700,526) (1,250,210) (42,024)
------------ ------------ ------------
Net investment income (loss)......................... (219,050) 346,717 (42,024)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments........................ 640,992 807,367 365,891
Cost of investments sold................................. (462,390) (445,585) (353,124)
------------ ------------ ------------
Net realized gain on investments..................... 178,602 361,782 12,767
Realized gain distribution received...................... 8,962,456 2,960,475 107,111
Change in unrealized appreciation (depreciation)
on investments......................................... 2,829,774 20,854,191 313,020
------------ ------------ ------------
Net gain (loss) on investments....................... 11,970,832 24,176,448 432,898
------------ ------------ ------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account........................... (25,859) (43,500) (1,063)
------------ ------------ ------------
Net increase (decrease) in total equity resulting
from operations.................................... $ 11,725,923 $ 24,479,665 $ 389,811
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
58
<PAGE> 59
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,545,116 $ 4,674,959 $ 523,324 $ 2,935,313 $ 680,688 $ 1,257,256
(310,443) (706,975) (78,885) (1,612,221) (502,898) (239,936)
------------ ------------ ------------ ------------ ------------ ------------
1,234,673 3,967,984 444,439 1,323,092 177,790 1,017,320
------------ ------------ ------------ ------------ ------------ ------------
4,937,270 1,309,724 1,092,303 4,219,522 370,587 2,635,043
(5,138,805) (1,068,612) (1,006,509) (2,956,411) (246,090) (2,585,081)
------------ ------------ ------------ ------------ ------------ ------------
(201,535) 241,112 85,794 1,263,111 124,497 49,962
-- 2,921,075 -- 2,507,716 2,307,137 56,176
809,190 (1,246,855) (318,086) 13,467,450 4,894,124 357,210
------------ ------------ ------------ ------------ ------------ ------------
607,655 1,915,332 (232,292) 17,238,277 7,325,758 463,348
------------ ------------ ------------ ------------ ------------ ------------
(4,567) (16,924) 183 (38,300) (14,829) (3,789)
------------ ------------ ------------ ------------ ------------ ------------
$ 1,837,761 $ 5,866,392 $ 212,330 $ 18,523,069 $ 7,488,719 $ 1,476,879
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 46,184 $ 16,931 $ 12,547 $ 131,738 $ 167,546 $ 26,126
(18,193) (120,851) (59,704) (43,915) (179,360) (32,989)
------------ ------------ ------------ ------------ ------------ ------------
27,991 (103,920) (47,157) 87,823 (11,814) (6,863)
------------ ------------ ------------ ------------ ------------ ------------
188,442 127,107 100,105 139,843 79,111 505,191
(162,143) (110,037) (92,292) (122,226) (62,679) (475,192)
------------ ------------ ------------ ------------ ------------ ------------
26,299 17,070 7,813 17,617 16,432 29,999
100,182 44,746 63,085 4,553 67,264 115,592
76,729 1,795,628 927,663 464,904 1,328,505 (732,744)
------------ ------------ ------------ ------------ ------------ ------------
203,210 1,857,444 998,561 487,074 1,412,201 (587,153)
------------ ------------ ------------ ------------ ------------ ------------
(494) (3,917) (1,663) (1,422) (3,757) 702
------------ ------------ ------------ ------------ ------------ ------------
$ 230,707 $ 1,749,607 $ 949,741 $ 573,475 $ 1,396,630 $ (593,314)
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
59
<PAGE> 60
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
---------------------------------- ----------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ (2,475,436) $ (1,474,114) $ 1,031,647 $ 674,859
Net realized gain (loss) on
investments....................... 2,543,718 407,621 183 (170)
Realized gain distribution
received.......................... 2,984,667 -- -- --
Change in unrealized appreciation
(depreciation) on investments..... 33,808,820 19,749,356 125 30
Decrease attributable to funds of
New York Life Insurance and
Annuity Corporation retained by
Separate Account.................. (69,865) (16,885) (1,788) (579)
------------ ------------ ------------ ------------
Net increase in total equity
resulting from operations....... 36,791,904 18,665,978 1,030,167 674,140
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 17,283,267 13,248,538 221,468,721 159,193,839
Policyowners' surrenders............ (7,420,904) (4,150,737) (2,149,399) (997,807)
Policyowners' annuity and death
benefits.......................... (496,971) (354,048) (12,026) --
Net transfers from (to) Fixed
Account........................... (634,517) 140,085 (21,745,282) (16,336,626)
Transfers between Investment
Divisions......................... 23,244,461 37,494,148 (189,074,178) (136,755,752)
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 31,975,336 46,377,986 8,487,836 5,103,654
------------ ------------ ------------ ------------
Increase (decrease) in total
equity........................ 68,767,240 65,043,964 9,518,003 5,777,794
TOTAL EQUITY:
Beginning of year................... 153,206,847 88,162,883 22,580,919 16,803,125
------------ ------------ ------------ ------------
End of year......................... $221,974,087 $153,206,847 $ 32,098,922 $ 22,580,919
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
---------------------------------- ----------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ 444,439 $ 202,046 $ 1,323,092 $ 1,002,318
Net realized gain on investments.... 85,794 23,512 1,263,111 446,360
Realized gain distribution
received.......................... -- 6,289 2,507,716 --
Change in unrealized appreciation
(depreciation) on investments..... (318,086) 35,676 13,467,450 7,966,085
Increase (decrease) attributable to
funds of New York Life Insurance
and Annuity Corporation retained
by Separate Account............... 183 (781) (38,300) (11,256)
------------ ------------ ------------ ------------
Net increase in total equity
resulting from operations....... 212,330 266,742 18,523,069 9,403,507
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 756,173 456,933 9,496,059 8,598,145
Policyowners' surrenders............ (235,473) (92,408) (4,771,168) (3,109,248)
Policyowners' annuity and death
benefits.......................... (15,263) (9,215) (536,283) (292,743)
Net transfers from (to) Fixed
Account........................... 6,221 37,407 (1,062,480) (169,531)
Transfers between Investment
Divisions......................... 977,443 3,062,319 8,742,557 19,659,858
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 1,489,101 3,455,036 11,868,685 24,686,481
------------ ------------ ------------ ------------
Increase in total equity........ 1,701,431 3,721,778 30,391,754 34,089,988
TOTAL EQUITY:
Beginning of year................... 4,897,866 1,176,088 108,459,148 74,369,160
------------ ------------ ------------ ------------
End of year......................... $ 6,599,297 $ 4,897,866 $138,850,902 $108,459,148
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
60
<PAGE> 61
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
----------------------------- ----------------------------- -----------------------------
1997 1996(a) 1997 1996 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 155,630 $ 5,737 $ 1,234,673 $ 1,258,997 $ 3,967,984 $ 1,421,096
21,905 -- (201,535) (206,200) 241,112 73,731
283,232 1,118 -- -- 2,921,075 455,418
(11,797) (746) 809,190 (776,162) (1,246,855) 928,223
(1,344) (4) (4,567) (1,635) (16,924) (6,157)
------------ ------------ ------------ ------------ ------------ ------------
447,626 6,105 1,837,761 275,000 5,866,392 2,872,311
------------ ------------ ------------ ------------ ------------ ------------
542,669 46,322 1,341,036 1,956,083 5,458,336 2,698,422
(84,162) -- (1,368,958) (1,172,007) (2,267,246) (730,510)
-- -- (104,052) (166,939) (110,532) (39,751)
(13,754) -- (103,177) (138,140) 87,769 133,504
3,648,550 706,202 (2,364,157) 669,666 28,483,192 22,396,428
------------ ------------ ------------ ------------ ------------ ------------
4,093,303 752,524 (2,599,308) 1,148,663 31,651,519 24,458,093
------------ ------------ ------------ ------------ ------------ ------------
4,540,929 758,629 (761,547) 1,423,663 37,517,911 27,330,404
758,629 -- 24,959,713 23,536,050 35,802,494 8,472,090
------------ ------------ ------------ ------------ ------------ ------------
$ 5,299,558 $ 758,629 $ 24,198,166 $ 24,959,713 $ 73,320,405 $ 35,802,494
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
----------------------------- ----------------------------- -----------------------------
1997 1996 1997 1996 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 177,790 $ 111,643 $ 1,017,320 $ 919,319 $ (219,050) $ (37,598)
124,497 56,211 49,962 67,613 178,602 114,907
2,307,137 331,458 56,176 -- 8,962,456 4,635,761
4,894,124 2,480,326 357,210 (785,904) 2,829,774 909,080
(14,829) (4,901) (3,789) (1,060) (25,859) (8,840)
------------ ------------ ------------ ------------ ------------ ------------
7,488,719 2,974,737 1,476,879 199,968 11,725,923 5,613,310
------------ ------------ ------------ ------------ ------------ ------------
4,232,629 2,144,693 1,000,361 1,356,317 5,776,378 2,973,597
(1,188,146) (340,909) (1,052,054) (1,016,681) (2,165,671) (857,970)
(135,096) (37,598) (99,443) (26,793) (167,673) (49,744)
260,817 179,498 (63,468) 14,027 46,978 186,645
18,941,073 14,663,548 975,709 2,674,350 16,644,547 11,331,332
------------ ------------ ------------ ------------ ------------ ------------
22,111,277 16,609,232 761,105 3,001,220 20,134,559 13,583,860
------------ ------------ ------------ ------------ ------------ ------------
29,599,996 19,583,969 2,237,984 3,201,188 31,860,482 19,197,170
24,598,426 5,014,457 17,787,649 14,586,461 37,550,416 18,353,246
------------ ------------ ------------ ------------ ------------ ------------
$ 54,198,422 $ 24,598,426 $ 20,025,633 $ 17,787,649 $ 69,410,898 $ 37,550,416
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
61
<PAGE> 62
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN
MAINSTAY VP SMALL
INDEXED EQUITY CAPITALIZATION
---------------------------------- ----------------------------------
1997 1996 1997 1996(a)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ 346,717 $ 301,328 $ (42,024) $ (499)
Net realized gain (loss) on
investments....................... 361,782 3,237,791 12,767 (193)
Realized gain distribution
received.......................... 2,960,475 826,965 107,111 --
Change in unrealized appreciation
(depreciation) on investments..... 20,854,191 5,372,322 313,020 1,465
Increase (decrease) attributable to
funds of New York Life Insurance
and Annuity Corporation retained
by Separate Account............... (43,500) (16,075) (1,063) 8
------------ ------------ ------------ ------------
Net increase in total equity
resulting from operations....... 24,479,665 9,722,331 389,811 781
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 9,283,406 5,191,859 554,447 27,083
Policyowners' surrenders............ (3,655,368) (1,629,285) (85,204) (1,082)
Policyowners' annuity and death
benefits.......................... (210,205) (103,547) (107) --
Net transfers from (to) Fixed
Account........................... (22,594) 209,758 35,666 11,702
Transfers between Investment
Divisions......................... 32,489,812 20,247,586 4,377,981 487,463
Return of equity contribution to New
York
Life Insurance and Annuity Corporation... -- (10,765,101) -- --
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 37,885,051 13,151,270 4,882,783 525,166
------------ ------------ ------------ ------------
Increase in total equity........ 62,364,716 22,873,601 5,272,594 525,947
TOTAL EQUITY:
Beginning of year................... 65,862,707 42,989,106 525,947 --
------------ ------------ ------------ ------------
End of year......................... $128,227,423 $ 65,862,707 $ 5,798,541 $ 525,947
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
---------------------------------- ----------------------------------
1997 1996(a) 1997 1996(a)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)........ $ (47,157) $ (505) $ 87,823 $ 3,529
Net realized gain on investments.... 7,813 308 17,617 558
Realized gain distribution
received.......................... 63,085 -- 4,553 --
Change in unrealized appreciation
(depreciation) on investments..... 927,663 1,391 464,904 (1,693)
Increase (decrease) attributable to
funds of New York Life Insurance
and Annuity Corporation retained
by Separate Account............... (1,663) (1) (1,422) (6)
------------ ------------ ------------ ------------
Net increase (decrease) in total
equity resulting from
operations...................... 949,741 1,193 573,475 2,388
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments...... 1,272,681 53,102 920,259 20,348
Policyowners' surrenders............ (132,003) -- (122,827) --
Policyowners' annuity and death
benefits.......................... (8,989) -- (48,121) --
Net transfers from (to) Fixed
Account........................... 49,560 (2,670) 41,510 5,196
Transfers between Investment
Divisions......................... 7,776,259 482,822 5,584,736 371,936
------------ ------------ ------------ ------------
Net contributions and
withdrawals..................... 8,957,508 533,254 6,375,557 397,480
------------ ------------ ------------ ------------
Increase in total equity........ 9,907,249 534,447 6,949,032 399,868
TOTAL EQUITY:
Beginning of year................... 534,447 -- 399,868 --
------------ ------------ ------------ ------------
End of year......................... $ 10,441,696 $ 534,447 $ 7,348,900 $ 399,868
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
62
<PAGE> 63
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
---------------------------------- ----------------------------------
1997 1996 1997 1996(a)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 27,991 $ 12,238 $ (103,920) $ (881)
26,299 3,532 17,070 114
100,182 42,293 44,746 --
76,729 (8,190) 1,795,628 9,115
(494) (77) (3,917) (15)
------------ ------------ ------------ ------------
230,707 49,796 1,749,607 8,333
------------ ------------ ------------ ------------
307,316 112,398 2,529,779 41,751
(26,289) (19,134) (193,614) --
-- -- (3,255) --
(2,218) 11,968 68,020 6,319
805,582 494,939 14,518,700 892,597
-- -- -- --
------------ ------------ ------------ ------------
1,084,391 600,171 16,919,630 940,667
------------ ------------ ------------ ------------
1,315,098 649,967 18,669,237 949,000
790,480 140,513 949,000 --
------------ ------------ ------------ ------------
$ 2,105,578 $ 790,480 $ 19,618,237 $ 949,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
WORLDWIDE EMERGING MARKETS
GROWTH EQUITY
---------------------------------- ----------------------------------
1997 1996(a) 1997 1996(a)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ (11,814) $ 3,984 $ (6,863) $ 194
16,432 -- 29,999 40
67,264 -- 115,592 --
1,328,505 8,631 (732,744) 2,517
(3,757) (17) 702 (2)
------------ ------------ ------------ ------------
1,396,630 12,598 (593,314) 2,749
------------ ------------ ------------ ------------
3,626,051 68,873 846,636 21,005
(306,921) (1,073) (44,611) (1,078)
(6,683) -- (2,380) --
195,389 5,954 48,827 15,204
21,087,779 956,439 3,360,106 221,662
------------ ------------ ------------ ------------
24,595,615 1,030,193 4,208,578 256,793
------------ ------------ ------------ ------------
25,992,245 1,042,791 3,615,264 259,542
1,042,791 -- 259,542 --
------------ ------------ ------------ ------------
$ 27,035,036 $ 1,042,791 $ 3,874,806 $ 259,542
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
63
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation Variable Annuity Separate
Account I ("Separate Account I") and New York Life Insurance and Annuity
Corporation Variable Annuity Separate Account II ("Separate Account II")
were established on October 5, 1992, 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 premium
payments under Non-Qualified Flexible Premium Multi-Funded Variable Retirement
Annuity Policies (Separate Account I) and Qualified Flexible Premium
Multi-Funded Variable Retirement Annuity Policies (Separate Account II) issued
by New York Life Insurance and Annuity Corporation. Separate Account I policies
are designed to establish retirement benefits to provide individuals with
supplemental retirement income. Separate Account II policies are designed to
establish retirement benefits for individuals who participate in qualified
pension, profit sharing or annuity plans. The policies are distributed by NYLIFE
Distributors Inc. and sold by registered representatives of NYLIFE Securities
Inc., both of which are wholly-owned subsidiaries of NYLIFE Inc., which is a
wholly-owned subsidiary of New York Life Insurance Company. 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 in the
shares of the MainStay VP Series Fund, Inc. (formerly, "New York Life MFA Series
Fund, Inc."), The Alger American Fund, the Acacia Capital Corporation, the
Fidelity Variable Insurance Products Fund, the Fidelity Variable Insurance
Products Fund II, the Janus Aspen Series and the Morgan Stanley Universal Funds,
Inc. (collectively, "Funds"). These assets are clearly identified and
distinguished from the other assets and liabilities of New York Life Insurance
and Annuity Corporation.
Separate Account I and Separate Account II offer the following eighteen
variable Investment Divisions, with their respective fund portfolios, for
Policyowners to invest premium payments: MainStay VP Capital Appreciation,
MainStay VP Cash Management, MainStay VP Convertible, MainStay VP Government,
MainStay VP High Yield Corporate Bond, MainStay VP International Equity,
MainStay VP Total Return, MainStay VP Value, MainStay VP Bond, MainStay VP
Growth Equity, MainStay VP Indexed Equity, Alger American Small Capitalization,
Calvert Socially Responsible, Fidelity VIP II: Contrafund, Fidelity VIP:
Equity-Income, Janus Aspen Balanced, Janus Aspen Worldwide Growth and Morgan
Stanley Emerging Markets Equity. Each Investment Division of the Separate
Accounts will invest exclusively in the corresponding Eligible Portfolio.
Initial premium payments received are allocated to the MainStay VP Cash
Management Investment Division until 15 days after the policy issue date.
Thereafter, premium payments will be allocated to the Investment Divisions of
Separate Account I or Separate Account II in accordance with the Policyowner's
instructions. In addition, the Policyowner has the option to transfer amounts
between the Investment Divisions of Separate Account I or 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 investments are valued at the net asset value of
shares of the respective Fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
64
<PAGE> 65
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
65
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, the investments of Separate Account I and Separate
Account II are as follows:
<TABLE>
<CAPTION>
MAINSTAY
MAINSTAY VP VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Number of shares........................................ 11,437 30,017 696
Identified cost*........................................ $168,873 $ 30,017 $ 7,520
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Number of shares........................................ 9,946 32,196 494
Identified cost*........................................ $151,065 $ 32,195 $ 5,329
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY ALGER
MAINSTAY VP VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Number of shares........................................ 4,278 7,484 174
Identified cost*........................................ $ 80,720 $111,142 $ 7,256
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Number of shares........................................ 3,428 6,251 133
Identified cost*........................................ $ 64,999 $ 94,608 $ 5,501
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1997, was as follows:
<TABLE>
<CAPTION>
MAINSTAY
MAINSTAY VP VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Purchases............................................... $ 31,623 $ 69,906 $ 6,554
Proceeds from sales..................................... 11,447 67,359 687
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Purchases............................................... $ 37,904 $ 64,929 $ 4,745
Proceeds from sales..................................... 5,262 55,385 199
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY ALGER
MAINSTAY VP VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Purchases............................................... $ 33,940 $ 45,844 $ 7,272
Proceeds from sales..................................... 911 1,659 1,255
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Purchases............................................... $ 29,593 $ 42,147 $ 5,329
Proceeds from sales..................................... 641 807 366
</TABLE>
66
<PAGE> 67
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3,566 11,479 871 10,393 4,523 2,077
$ 35,273 $134,958 $ 9,338 $ 130,125 $ 62,162 $ 27,338
2,470 6,269 642 8,459 3,378 1,529
$ 24,401 $ 73,883 $ 6,893 $ 107,216 $ 46,776 $ 20,132
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1,191 1,203 627 563 1,411 473
$ 2,277 $ 21,595 $ 14,068 $ 9,179 $ 31,207 $ 5,256
1,065 987 431 422 1,159 412
$ 2,048 $ 17,869 $ 9,541 $ 6,907 $ 25,777 $ 4,616
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,023 $ 70,903 $ 3,214 $ 21,063 $ 31,389 $ 6,966
8,336 3,376 1,660 10,565 799 3,531
$ 3,564 $ 39,957 $ 3,031 $ 19,980 $ 25,044 $ 4,473
4,937 1,310 1,092 4,220 371 2,635
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,485 $ 19,235 $ 13,492 $ 8,513 $ 28,794 $ 4,879
119 183 240 331 257 444
$ 1,405 $ 17,038 $ 9,100 $ 6,627 $ 24,805 $ 4,834
188 127 100 140 79 505
</TABLE>
67
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
Separate Account I and Separate Account II are charged for administrative
services provided and the mortality and expense risks assumed by New York
Life Insurance and Annuity Corporation. These charges are made daily at an
annual rate of 1.30% of the daily net asset value of each Investment
Division. The amounts of these charges retained in the Investment Divisions
represent funds of New York Life Insurance and Annuity Corporation. Accordingly,
New York Life Insurance and Annuity Corporation participates in the results of
each Investment Division ratably with the Policyowners.
- --------------------------------------------------------------------------------
NOTE 4 --Distribution of Net Income:
- --------------------------------------------------------------------------------
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.
68
<PAGE> 69
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
69
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, 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>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals)................ $162,440 $ 26,827 $ 6,826
Accumulated net investment income (loss)................. (5,929) 3,101 224
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 11,690 -- 450
Unrealized appreciation (depreciation) on investments.... 87,191 -- (26)
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (153) (7) (2)
-------- -------- --------
Net amount applicable to Policyowners.................... $255,239 $ 29,921 $ 7,472
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals)................ $ 60,455 $ 97,146 $ 7,169
Accumulated net investment income (loss)................. (192) 1,816 (56)
Accumulated net realized gain on investments and
realized gain distributions received................... 20,234 11,805 121
Unrealized appreciation (depreciation) on investments.... 6,177 42,852 358
Increase (decrease) attributable to funds of New York
Life
Insurance and Annuity Corporation retained by Separate
Account................................................ (53) (107) (1)
-------- -------- --------
Net amount applicable to Policyowners.................... $ 86,621 $153,512 $ 7,591
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals)................ $148,491 $ 29,425 $ 4,847
Accumulated net investment income (loss)................. (4,692) 2,680 161
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 6,675 -- 306
Unrealized appreciation (depreciation) on investments.... 71,622 -- (13)
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (122) (6) (1)
-------- -------- --------
Net amount applicable to Policyowners.................... $221,974 $ 32,099 $ 5,300
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
------------------------------------------------------
<S> <C> <C> <C>
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Cost to Policyowners (net of withdrawals)................ $ 49,267 $ 82,925 $ 5,409
Accumulated net investment income (loss)................. (157) 1,495 (43)
Accumulated net realized gain on investments and
realized gain distributions received................... 15,711 9,874 120
Unrealized appreciation (depreciation) on investments.... 4,631 34,019 314
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account....................................... (41) (86) (1)
-------- -------- --------
Net amount applicable to Policyowners.................... $ 69,411 $128,227 $ 5,799
======== ======== ========
</TABLE>
70
<PAGE> 71
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 27,672 $ 117,091 $ 8,144 $ 115,807 $ 57,651 $ 22,916
9,169 10,489 998 5,622 416 4,137
(1,663) 7,003 168 8,242 3,897 209
(219) (280) (355) 41,032 10,622 (33)
(20) (45) (1) (101) (28) (11)
-------- -------- -------- -------- -------- --------
$ 34,939 $ 134,258 $ 8,954 $ 170,602 $ 72,558 $ 27,218
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,031 $ 21,547 $ 13,958 $ 8,985 $ 30,996 $ 5,070
59 (133) (59) 121 (15) (12)
181 116 130 47 132 183
84 2,387 1,155 652 1,786 (800)
(1) (5) (2) (2) (5) 1
-------- -------- -------- -------- -------- --------
$ 2,354 $ 23,912 $ 15,182 $ 9,803 $ 32,894 $ 4,442
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 19,420 $ 64,277 $ 6,056 $ 97,610 $ 43,491 $ 16,847
5,891 5,659 696 4,253 315 3,073
(977) 3,745 121 4,981 2,823 155
(123) (337) (273) 32,084 7,589 (41)
(13) (24) (1) (77) (20) (8)
-------- -------- -------- -------- -------- --------
$ 24,198 $ 73,320 $ 6,599 $ 138,851 $ 54,198 $ 20,026
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,818 $ 17,860 $ 9,492 $ 6,773 $ 25,626 $ 4,465
48 (105) (48) 91 (8) (7)
177 62 71 23 84 146
64 1,805 929 463 1,337 (730)
(1) (4) (2) (1) (4) 1
-------- -------- -------- -------- -------- --------
$ 2,106 $ 19,618 $ 10,442 $ 7,349 $ 27,035 $ 3,875
======== ======== ======== ======== ======== ========
</TABLE>
71
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the years ended December 31, 1997 and
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
-------------------------- --------------------------
1997 1996 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Units issued on premium payments....................... 712 682 211,219 189,700
Units redeemed on surrenders........................... (277) (216) (1,083) (955)
Units redeemed on annuity and death benefits........... (73) (62) (306) (53)
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (16) 16 (25,765) (16,041)
Units issued (redeemed) on transfers between
Investment Divisions................................. 621 2,618 (182,812) (167,769)
---------- ---------- ---------- ----------
-- -- -- --
Net increase (decrease).............................. 967 3,038 1,253 4,882
Units outstanding, beginning of year................... 10,890 7,852 24,436 19,554
---------- ---------- ---------- ----------
-- -- -- --
Units outstanding, end of year......................... 11,857 10,890 25,689 24,436
============ ============ ============ ============
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Units issued on premium payments....................... 886 803 193,703 144,385
Units redeemed on surrenders........................... (373) (250) (1,883) (902)
Units redeemed on annuity and death benefits........... (25) (21) (10) --
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (32) 9 (19,052) (14,788)
Units issued (redeemed) on transfers between
Investment Divisions................................. 1,181 2,282 (165,341) (124,092)
---------- ---------- ---------- ----------
-- -- -- --
Net increase (decrease).............................. 1,637 2,823 7,417 4,603
Units outstanding, beginning of year................... 8,675 5,852 20,142 15,539
---------- ---------- ---------- ----------
-- -- -- --
Units outstanding, end of year......................... 10,312 8,675 27,559 20,142
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE
-------------------------- --------------------------
1997 1996 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Units redeemed on withdrawal by New York Life
Insurance and Annuity Corporation.................... -- -- -- --
Units issued on premium payments....................... 428 543 362 214
Units redeemed on surrenders........................... (265) (272) (66) (25)
Units redeemed on annuity and death benefits........... (92) (83) (24) (2)
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (111) (13) 9 5
Units issued on transfers between
Investment Divisions................................. 391 1,615 1,474 1,672
---------- ---------- ---------- ----------
-- -- -- --
Net increase......................................... 351 1,790 1,755 1,864
Units outstanding, beginning of year................... 9,369 7,579 2,522 658
---------- ---------- ---------- ----------
-- -- -- --
Units outstanding, end of year......................... 9,720 9,369 4,277 2,522
============ ============ ============ ============
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Units redeemed on withdrawal by New York Life
Insurance and Annuity Corporation.................... -- -- -- --
Units issued on premium payments....................... 585 602 273 170
Units redeemed on surrenders........................... (290) (217) (76) (27)
Units redeemed on annuity and death benefits........... (34) (21) (8) (3)
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (66) (11) 16 14
Units issued on transfers between Investment
Divisions............................................ 531 1,382 1,227 1,165
---------- ---------- ---------- ----------
-- -- -- --
Net increase......................................... 726 1,735 1,432 1,319
Units outstanding, beginning of year................... 7,185 5,450 1,754 435
---------- ---------- ---------- ----------
-- -- -- --
Units outstanding, end of year......................... 7,911 7,185 3,186 1,754
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
72
<PAGE> 73
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CONVERTIBLE GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
--------------------- --------------------- --------------------- ---------------------
1997 1996(a) 1997 1996 1997 1996 1997 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
91 17 108 197 933 501 67 99
(8) -- (100) (126) (190) (71) (15) (5)
(3) -- (57) (83) (65) (14) (8) (2)
-- -- (52) (20) 17 85 1 12
402 137 (327) (72) 3,395 3,502 32 405
-------- -------- -------- -------- -------- -------- -------- -------
-- -- -- --
482 154 (428) (104) 4,090 4,003 77 509
154 -- 3,177 3,281 5,449 1,446 674 165
-------- -------- -------- -------- -------- -------- -------- -------
-- -- -- --
636 154 2,749 3,177 9,539 5,449 751 674
======== ======== ======== ======== ======== ======== ======== =======
49 5 112 171 408 227 64 41
(7) -- (113) (102) (169) (61) (20) (8)
-- -- (9) (15) (8) (3) (1) (1)
(1) -- (9) (12) 7 11 1 3
337 69 (199) 60 2,136 1,889 83 279
-------- -------- -------- -------- -------- -------- -------- -------
-- -- -- --
378 74 (218) 102 2,374 2,063 127 314
74 -- 2,122 2,020 2,841 778 426 112
-------- -------- -------- -------- -------- -------- -------- -------
-- -- -- --
452 74 1,904 2,122 5,215 2,841 553 426
======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP MAINSTAY VP SMALL
BOND GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
--------------------- --------------------- --------------------- ---------------------
1997 1996 1997 1996 1997 1996 1997 1996(a)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- -- (718) -- --
111 169 325 244 483 335 128 9
(70) (43) (74) (48) (130) (91) (4) --
(31) (19) (11) (16) (43) (26) (1) --
(12) (6) (7) (2) (14) (3) 3 (1)
171 246 989 1,076 1,660 1,594 467 121
-------- -------- -------- -------- -------- -------- -------- --------
-- -- -- --
169 347 1,222 1,254 1,956 1,091 593 129
2,080 1,733 3,085 1,831 4,768 3,677 129 --
-------- -------- -------- -------- -------- -------- -------- --------
-- -- -- --
2,249 2,080 4,307 3,085 6,724 4,768 722 129
======== ======== ======== ======== ======== ======== ======== ========
-- -- -- -- -- (718) -- --
87 125 318 205 453 330 56 3
(91) (93) (118) (58) (176) (102) (8) --
(9) (2) (9) (3) (10) (6) -- --
(6) 1 2 13 (1) 14 3 1
83 246 922 776 1,567 1,282 445 51
-------- -------- -------- -------- -------- -------- --------- --------
-- -- -- --
64 277 1,115 933 1,833 800 496 55
1,591 1,314 2,336 1,403 3,783 2,983 55 --
-------- -------- -------- -------- -------- -------- --------- --------
-- -- -- --
1,655 1,591 3,451 2,336 5,616 3,783 551 55
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
73
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY FIDELITY
SOCIALLY VIP II: VIP:
RESPONSIBLE CONTRAFUND EQUITY-INCOME
------------------- ------------------- -------------------
1997 1996 1997 1996(a) 1997 1996(a)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Units issued on premium payments.................... 7 6 245 15 186 5
Units redeemed on surrenders........................ (2) (1) (8) -- (7) --
Units redeemed on annuity and death benefits........ -- -- (2) -- (2) --
Units issued on net transfers from
Fixed Account..................................... -- 1 13 1 6 --
Units issued on transfers between
Investment Divisions.............................. 80 39 1,356 224 878 72
--------- --------- -------- ------- -------- -------
Net increase...................................... 85 45 1,604 240 1,061 77
Units outstanding, beginning of year................ 69 24 240 -- 77 --
--------- --------- -------- ------- -------- -------
Units outstanding, end of year...................... 154 69 1,844 240 1,138 77
========= ========= ======== ======= ======== =======
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Units issued on premium payments.................... 22 9 216 4 106 5
Units redeemed on surrenders........................ (2) (2) (16) -- (10) --
Units redeemed on annuity and death benefits........ -- -- -- -- (1) --
Units issued on net transfers from
Fixed Account..................................... -- 1 6 1 4 --
Units issued on transfers between
Investment Divisions.............................. 57 41 1,245 86 638 46
--------- --------- -------- ------- -------- -------
Net increase...................................... 77 49 1,451 91 737 51
Units outstanding, beginning of year................ 61 12 91 -- 51 --
--------- --------- -------- ------- -------- -------
Units outstanding, end of year...................... 138 61 1,542 91 788 51
========= ========= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
JANUS ASPEN EMERGING
ASPEN WORLDWIDE MARKETS
BALANCED GROWTH EQUITY
------------------- ------------------- -------------------
1997 1996(a) 1997 1996(a) 1997 1996(a)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Units issued on premium payments.................... 124 9 351 24 61 3
Units redeemed on surrenders........................ (5) -- (17) -- (3) --
Units redeemed on annuity and death benefits........ -- -- (6) -- (1) --
Units issued on net transfers from
Fixed Account..................................... 5 1 25 3 1 1
Units issued on transfers between
Investment Divisions.............................. 584 84 2,023 229 316 74
--------- --------- -------- ------- -------- -------
Net increase...................................... 708 94 2,376 256 374 78
Units outstanding, beginning of year................ 94 -- 256 -- 78 --
--------- --------- -------- ------- -------- -------
Units outstanding, end of year...................... 802 94 2,632 256 452 78
========= ========= ======== ======= ======== =======
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Units issued on premium payments.................... 80 2 304 6 74 2
Units redeemed on surrenders........................ (10) -- (24) -- (4) --
Units redeemed on annuity and death benefits........ (4) -- (1) -- -- --
Units issued on net transfers from
Fixed Account..................................... 3 1 16 1 4 2
Units issued on transfers between
Investment Divisions.............................. 492 36 1,764 93 291 22
--------- --------- -------- ------- -------- -------
Net increase...................................... 561 39 2,059 100 365 26
Units outstanding, beginning of year................ 39 -- 100 -- 26 --
--------- --------- -------- ------- -------- -------
Units outstanding, end of year...................... 600 39 2,159 100 391 26
========= ========= ======== ======= ======== =======
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
74
<PAGE> 75
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
75
<PAGE> 76
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>
MAINSTAY VP
CAPITAL APPRECIATION
---------------------------------------------------------
1997 1996 1995 1994 1993(a)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................. $17.66 $15.07 $11.24 $11.91 $ 10.00
Net investment income (loss).............................. (0.26) (0.20) (0.10) (0.08) (0.08)
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 4.13 2.79 3.93 (0.59) 1.99
------ ------ ------ ------ ------
Unit value, end of year................................... $21.53 $17.66 $15.07 $11.24 $ 11.91
====== ====== ====== ====== ======
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................. $17.66 $15.07 $11.24 $11.91 $ 10.00
Net investment income (loss).............................. (0.26) (0.20) (0.10) (0.08) (0.09)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)........................................... 4.13 2.79 3.93 (0.59) 2.00
------ ------ ------ ------ ------
Unit value, end of year................................... $21.53 $17.66 $15.07 $11.24 $ 11.91
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL
CORPORATE BOND EQUITY
------------------------------- ---------------------------------
1997 1996 1995(c) 1997 1996 1995(c)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................. $12.62 $10.91 $10.00 $11.48 $10.53 $ 10.00
Net investment income..................................... 0.96 0.81 0.76 0.82 0.71 0.91
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 0.50 0.90 0.15 (0.38) 0.24 (0.38)
------ ------ ------ ------ ------ ------
Unit value, end of year................................... $14.08 $12.62 $10.91 $11.92 $11.48 $ 10.53
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................. $12.60 $10.89 $10.00 $11.49 $10.53 $ 10.00
Net investment income..................................... 0.98 0.84 0.84 0.88 0.75 1.11
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 0.48 0.87 0.05 (0.44) 0.21 (0.58)
------ ------ ------ ------ ------ ------
Unit value, end of year................................... $14.06 $12.60 $10.89 $11.93 $11.49 $ 10.53
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
GROWTH EQUITY
---------------------------------------------------------
1997 1996 1995 1994 1993++(b)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................. $16.07 $13.08 $10.26 $10.27 $ 10.00
Net investment income (loss).............................. (0.08) (0.02) 0.05 0.23 0.14
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 4.12 3.01 2.77 (0.24) 0.13
------ ------ ------ ------ ------
Unit value, end of year................................... $20.11 $16.07 $13.08 $10.26 $ 10.27
====== ====== ====== ====== ======
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................. $16.07 $13.08 $10.26 $10.27 $ 10.00
Net investment income (loss).............................. (0.07) (0.02) 0.06 0.20 0.15
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 4.11 3.01 2.76 (0.21) 0.12
------ ------ ------ ------ ------
Unit value, end of year................................... $20.11 $16.07 $13.08 $10.26 $ 10.27
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
++ Per unit data based on average daily units outstanding during the period.
(a) For the period January 29, 1993 (Commencement of Operations) through
December 31, 1993.
(b) For the period December 15, 1993 (Commencement of Operations) through
December 31, 1993.
(c) For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
(d) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
76
<PAGE> 77
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CASH MANAGEMENT CONVERTIBLE GOVERNMENT
------------------------------------------------------- ------------------- -------------------------------------------
1997 1996 1995 1994 1993(a) 1997 1996(d) 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.12 $ 1.08 $ 1.04 $ 1.01 $ 1.00 $10.32 $10.00 $11.76 $11.65 $10.11 $10.44
0.04 0.04 0.04 0.03 0.01 0.49 0.15 0.61 0.57 0.68 0.68
-- -- -- -- -- 0.95 0.17 0.34 (0.46) 0.86 (1.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 1.16 $ 1.12 $ 1.08 $ 1.04 $ 1.01 $11.76 $10.32 $12.71 $11.76 $11.65 $10.11
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$ 1.12 $ 1.08 $ 1.04 $ 1.01 $ 1.00 $10.29 $10.00 $11.76 $11.65 $10.11 $10.44
0.04 0.04 0.04 0.03 0.01 0.52 0.15 0.62 0.58 0.68 0.70
-- -- -- -- -- 0.92 0.14 0.33 (0.47) 0.86 (1.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 1.16 $ 1.12 $ 1.08 $ 1.04 $ 1.01 $11.73 $10.29 $12.71 $11.76 $11.65 $10.11
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
MAINSTAY VP
GOVERNMENT
- ---------------
1993(a)
- ---------------
<S> <C>
$ 10.00
0.70
(0.26)
------
$ 10.44
======
$ 10.00
0.60
(0.16)
------
$ 10.44
======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE BOND
------------------------------------------------------- ------------------------------- -------------------------------
1997 1996 1995 1994 1993(a) 1997 1996 1995(c) 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$15.10 $13.65 $10.77 $11.37 $10.00 $13.98 $11.50 $10.00 $11.18 $11.10 $ 9.51
0.17 0.14 0.20 0.22 0.24 0.07 0.10 0.13 0.64 0.63 0.71
2.28 1.31 2.68 (0.82) 1.13 2.91 2.38 1.37 0.28 (0.55) 0.88
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$17.55 $15.10 $13.65 $10.77 $11.37 $16.96 $13.98 $11.50 $12.10 $11.18 $11.10
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$15.10 $13.65 $10.77 $11.37 $10.00 $14.02 $11.53 $10.00 $11.18 $11.10 $ 9.51
0.18 0.16 0.21 0.24 0.17 0.07 0.10 0.16 0.63 0.62 0.77
2.27 1.29 2.67 (0.84) 1.20 2.92 2.39 1.37 0.29 (0.54) 0.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$17.55 $15.10 $13.65 $10.77 $11.37 $17.01 $14.02 $11.53 $12.10 $11.18 $11.10
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
MAINSTAY VP
BOND
- -----------------------
1994 1993++(b)
- -----------------------
<S> <C>
$ 9.97 $ --
1.18 --
(1.64) --
------ ------
$ 9.51 $ --
====== ======
$ 9.97 $ 10.00
1.17 0.56
(1.63) (0.59)
------ ------
$ 9.51 $ 9.97
====== ======
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN CALVERT
MAINSTAY VP SMALL SOCIALLY
INDEXED EQUITY CAPITALIZATION RESPONSIBLE
------------------------------------------------------- ------------------- ------------------------------
1997 1996 1995 1994 1993(a) 1997 1996(d) 1997 1996 1995(c)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$17.41 $14.41 $10.66 $10.72 $10.00 $ 9.56 $10.00 $12.87 $11.58 $ 10.00
0.06 0.09 0.15 0.14 0.13 (0.13) (0.02) 0.30 0.25 1.54
5.36 2.91 3.60 (0.20) 0.59 1.09 (0.42) 2.09 1.04 .04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$22.83 $17.41 $14.41 $10.66 $10.72 $10.52 $ 9.56 $15.26 $12.87 $ 11.58
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$17.41 $14.41 $10.66 $10.72 $10.00 $ 9.56 $10.00 $12.89 $11.59 $ 10.00
0.07 0.10 0.15 0.13 0.10 (0.13) (0.02) 0.29 0.39 1.34
5.35 2.90 3.60 (0.19) 0.62 1.08 (0.42) 2.10 0.91 .25
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$22.83 $17.41 $14.41 $10.66 $10.72 $10.51 $ 9.56 $15.28 $12.89 $ 11.59
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
77
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP II: VIP:
CONTRAFUND EQUITY-INCOME
------------------- -------------------
1997 1996(d) 1997 1996(d)
-------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................. $10.58 $10.00 $10.55 $10.00
Net investment loss....................................... (0.13) (0.02) (0.11) (0.02)
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 2.52 0.60 2.90 0.57
------ ------ ------ ------
Unit value, end of year................................... $12.97 $10.58 $13.34 $10.55
====== ====== ====== ======
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................. $10.38 $10.00 $10.47 $10.00
Net investment loss....................................... (0.13) (0.02) (0.13) (0.02)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)........................................... 2.47 0.40 2.91 0.49
------ ------ ------ ------
Unit value, end of year................................... $12.72 $10.38 $13.25 $10.47
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN
JANUS ASPEN STANLEY
ASPEN WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
------------------- ------------------- -------------------
1997 1996(d) 1997 1996(d) 1997 1996(d)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Unit value, beginning of year............................. $10.14 $10.00 $10.36 $10.00 $ 9.93 $10.00
Net investment income (loss).............................. 0.28 0.17 (0.02) 0.07 (0.04) 0.01
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 1.80 (0.03) 2.16 0.29 (0.06) (0.08)
------ ------ ------ ------ ------ ------
Unit value, end of year................................... $12.22 $10.14 $12.50 $10.36 $ 9.83 $ 9.93
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Unit value, beginning of year............................. $10.16 $10.00 $10.38 $10.00 $10.00 $10.00
Net investment income (loss).............................. 0.30 0.21 (0.01) 0.09 (0.03) 0.02
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................... 1.79 (0.05) 2.15 0.29 (0.07) (0.02)
------ ------ ------ ------ ------ ------
Unit value, end of year................................... $12.25 $10.16 $12.52 $10.38 $ 9.90 $10.00
====== ====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(d) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
78
<PAGE> 79
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND TAX-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
79
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance and
Annuity Corporation and the Variable Annuity 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 New York Life Insurance and Annuity Corporation Variable Annuity Separate
Account I and the New York Life Insurance and Annuity Corporation Variable
Annuity Separate Account II comprised of the MainStay VP Capital Appreciation
Investment Division, MainStay VP Cash Management Investment Division, MainStay
VP Convertible Investment Division, MainStay VP Government Investment Division,
MainStay VP High Yield Corporate Bond Investment Division, MainStay VP
International Equity Investment Division, MainStay VP Total Return Investment
Division, MainStay VP Value Investment Division, MainStay VP Bond Investment
Division, MainStay VP Growth Equity Investment Division, MainStay VP Indexed
Equity Investment Division, Alger American Small Capitalization Investment
Division, Calvert Socially Responsible Investment Division, Fidelity VIP II:
Contrafund Investment Division, Fidelity VIP: Equity-Income Investment Division,
Janus Aspen Balanced Investment Division, Janus Aspen Worldwide Growth
Investment Division, and Morgan Stanley Emerging Markets Equity Investment
Division at December 31, 1997, 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, 1997 with the MainStay VP Series Fund, Inc., The Alger American
Fund, the Acacia Capital Corporation, the Fidelity Variable Insurance Products
Fund, the Fidelity Variable Insurance Products Fund II, the Janus Aspen Series,
and the Morgan Stanley Universal Funds, Inc., provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 23, 1998
80
<PAGE> 81
(THIS PAGE INTENTIONALLY LEFT BLANK)
81
<PAGE> 82
- --------------------------------------------------------------------------------
To Policyowners:
The assets of NYLIAC Variable Annuity Separate Account I, NYLIAC Variable
Annuity Separate Account II, NYLIAC Variable Annuity Separate Account III
(formerly NYLIAC LifeStages(SM) Separate Account), NYLIAC Variable Universal
Life Separate Account I, New York Life Insurance and Annuity Corporation MFA
Separate Account I, New York Life Insurance and Annuity Corporation MFA Separate
Account II and New York Life Insurance and Annuity Corporation VLI Separate
Account are invested in shares of MainStay VP Series Fund, Inc. (formerly New
York Life MFA Series Fund, Inc.). In addition, the assets of NYLIAC Variable
Annuity Separate Account I, NYLIAC Variable Annuity Separate Account II, NYLIAC
Variable Annuity Separate Account III and NYLIAC Variable Universal Life
Separate Account I may be invested in Acacia Capital Corporation, the Alger
American Fund, Fidelity Variable Insurance Products Fund, Fidelity Variable
Insurance Products Fund II, the Janus Aspen Series and the Morgan Stanley
Universal Funds Inc., which are not affiliated with MainStay VP Series Fund,
Inc. or NYLIAC and any of its subsidiaries.
At the Annual Meeting of the Board of Directors of the Fund held on November 11,
1997, executive officers of the Fund were elected. On December 29, 1997, 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, 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. KERMAN JR.
Chairman of the Board
and Chief Executive Officer
MAINSTAY VP SERIES FUND, INC.
82
<PAGE> 83
MAINSTAY VP SERIES FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
- ------------
<TABLE>
<CAPTION>
COMMON STOCKS (92.0%)+
SHARES VALUE
---------------------------
<S> <C> <C>
BANKS (4.1%)
NationsBank Corp. ............... 180,000 $ 10,946,250
Norwest Corp. ................... 331,000 12,784,875
Washington Mutual, Inc. ......... 118,000 7,529,875
------------
31,261,000
------------
BUILDINGS (0.7%)
Oakwood Homes Corp. ............. 158,000 5,243,625
------------
COMPUTER SOFTWARE (6.9%)
Computer Associates
International, Inc. ............ 385,312 20,373,372
Compuware Corp. (a).............. 352,000 11,264,000
Microsoft Corp. (a).............. 96,400 12,459,700
Oracle Corp. (a)................. 393,000 8,768,812
------------
52,865,884
------------
COMPUTERS & OFFICE EQUIPMENT
(3.0%)
Hewlett-Packard Co. ............. 149,000 9,312,500
Sun Microsystems, Inc. (a)....... 333,000 13,278,375
------------
22,590,875
------------
CONSUMER DURABLES (1.5%)
Harley-Davidson, Inc. ........... 412,000 11,278,500
------------
CONSUMER SERVICES (4.5%)
Cendant Corp. (a)................ 750,030 25,782,281
Service Corp. International...... 222,400 8,214,900
------------
33,997,181
------------
COSMETICS (1.4%)
Gillette Co. (The)............... 109,300 10,977,819
------------
DRUGS (8.2%)
Elan Corp. PLC ADR (a)(b)........ 211,000 10,800,562
Lilly (Eli) & Co. ............... 288,000 20,052,000
Merck & Co., Inc. ............... 119,000 12,643,750
Schering-Plough Corp. ........... 306,500 19,041,313
------------
62,537,625
------------
ENERGY (0.1%)
Abacan Resource Corp. (a)........ 402,000 628,125
------------
FINANCIAL SERVICES (15.2%)
Associates First Capital Corp.
Class A......................... 166,000 11,806,750
CIT Group, Inc. (The) Class A
(a)............................. 400,000 12,900,000
Equifax Inc. .................... 237,000 8,398,687
Fannie Mae....................... 185,800 10,602,213
Green Tree Financial Corp. ...... 348,400 9,123,725
Household International, Inc. ... 114,300 14,580,394
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
FINANCIAL SERVICES (Continued)
MGIC Investment Corp. ........... 225,600 $ 15,002,400
SunAmerica Inc. ................. 381,300 16,300,575
Travelers Group Inc. ............ 325,248 17,522,736
------------
116,237,480
------------
HEALTH CARE (5.3%)
Cardinal Health, Inc. ........... 102,000 7,662,750
HEALTHSOUTH Corp. (a)............ 465,000 12,903,750
Tenet Healthcare Corp. (a)....... 369,925 12,253,766
United Healthcare Corp. ......... 156,000 7,751,250
------------
40,571,516
------------
INDUSTRIAL (4.6%)
Illinois Tool Works Inc. ........ 156,000 9,379,500
Tyco International Ltd. ......... 573,800 25,856,862
------------
35,236,362
------------
INSURANCE (3.5%)
American International Group,
Inc. ........................... 120,375 13,090,781
Conseco, Inc. ................... 206,400 9,378,300
Frontier Insurance Group,
Inc. ........................... 170,000 3,888,750
------------
26,357,831
------------
LEISURE (0.7%)
Mirage Resorts, Inc. (a)......... 234,000 5,323,500
------------
MATERIALS/PROCESSING (1.0%)
Monsanto Co. .................... 189,000 7,938,000
------------
MEDICAL EQUIPMENT (5.4%)
Guidant Corp. ................... 228,200 14,205,450
Johnson & Johnson................ 173,462 11,426,809
Medtronic, Inc. ................. 293,800 15,369,413
------------
41,001,672
------------
OIL SERVICES (2.4%)
Diamond Offshore Drilling,
Inc. ........................... 157,200 7,565,250
ENSCO International Inc. ........ 215,000 7,202,500
Halliburton Co. ................. 72,000 3,739,500
------------
18,507,250
------------
POLLUTION CONTROL (0.9%)
USA Waste Services, Inc. (a)..... 177,000 6,947,250
------------
RETAIL (11.5%)
Bed Bath & Beyond Inc. (a)....... 204,800 7,884,800
CVS Corp. ....................... 162,100 10,384,531
Dollar General Corp. ............ 245,750 8,908,437
Home Depot, Inc. (The)........... 243,900 14,359,613
Kohl's Corp. (a)................. 191,900 13,073,188
</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.
83
<PAGE> 84
CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
RETAIL (Continued)
Kroger Co. (The) (a)............. 250,000 $ 9,234,375
Safeway Inc. (a)................. 255,900 16,185,675
Staples, Inc. (a)................ 289,700 8,039,175
------------
88,069,794
------------
TECHNOLOGY (6.6%)
Adaptec, Inc. (a)................ 207,600 7,707,150
Cisco Systems, Inc. (a).......... 265,350 14,793,262
Intel Corp. ..................... 181,900 12,778,475
Linear Technology Corp. ......... 81,000 4,667,625
3Com Corp. (a)................... 300,150 10,486,491
------------
50,433,003
------------
TELECOMMUNICATION EQUIPMENT
(2.0%)
Lucent Technologies Inc. ........ 192,000 15,336,000
------------
TELECOMMUNICATION SERVICES (1.6%)
WorldCom, Inc. (a)............... 396,388 11,990,737
------------
TOYS (0.9%)
Mattel, Inc. .................... 181,000 6,742,250
------------
Total Common Stocks
(Cost $470,531,949)............. 702,073,279
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (7.9%)
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
COMMERCIAL PAPER (7.9%)
American Express Credit Corp.
6.25%, due 1/2/98............... $20,000,000 $ 20,000,000
Ford Motor Credit Co.
6.01%, due 1/5/98............... 20,000,000 20,000,000
Prudential Funding Corp.
5.85%, due 1/6/98............... 20,405,000 20,405,000
------------
Total Short-Term Investments
(Cost $60,405,000).............. 60,405,000
------------
Total Investments
(Cost $530,936,949) (c)......... 99.9% 762,478,279(d)
Cash and Other Assets,
Less Liabilities................ 0.1 600,477
---------- ----------
Net Assets....................... 100.0% $763,078,756
========== ==========
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At December 31, 1997 net unrealized appreciation was $231,541,330, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $239,743,179 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $8,201,849.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
84
<PAGE> 85
MAINSTAY VP SERIES FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $530,936,949)......... $762,478,279
Cash..................................... 924
Receivables:
Investment securities sold............. 8,268,222
Fund shares sold....................... 1,340,887
Dividends and interest................. 259,954
------------
Total assets..................... 772,348,266
------------
LIABILITIES:
Payables:
Investment securities purchased........ 8,743,404
Adviser................................ 226,963
Administrator.......................... 126,090
Custodian.............................. 16,496
Directors.............................. 447
Accrued expenses......................... 156,110
------------
Total liabilities................ 9,269,510
------------
Net assets applicable to outstanding
shares................................. $763,078,756
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share)
50 million shares authorized........... $ 340,834
Additional paid-in capital............... 531,131,454
Accumulated undistributed net
investment income...................... 29,913
Accumulated undistributed net realized
gain on investments.................... 35,225
Net unrealized appreciation
on investments......................... 231,541,330
------------
Net assets applicable to outstanding
shares................................. $763,078,756
============
Shares of capital stock outstanding...... 34,083,384
============
Net asset value per share outstanding.... $ 22.39
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 3,024,167
Interest............................... 1,145,435
------------
Total income..................... 4,169,602
------------
Expenses:
Advisory............................... 2,304,863
Administration......................... 1,280,480
Shareholder communication.............. 392,347
Professional........................... 67,913
Custodian.............................. 55,980
Directors.............................. 19,704
Miscellaneous.......................... 18,081
------------
Total expenses................... 4,139,368
------------
Net investment income.................... 30,234
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments......... 17,402,879
Net change in unrealized appreciation
on investments......................... 113,288,532
------------
Net realized and unrealized gain
on investments......................... 130,691,411
------------
Net increase in net assets resulting
from operations........................ $130,721,645
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$11,163.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
85
<PAGE> 86
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................... $ 30,234 $ 323,264
Net realized gain on investments.................................................... 17,402,879 184,606
Net change in unrealized appreciation on investments................................ 113,288,532 61,390,345
------------ ------------
Net increase in net assets resulting from operations................................ 130,721,645 61,898,215
------------ ------------
Dividends and distributions to shareholders:
From net investment income.......................................................... (1,000) (322,585)
From net realized gain on investments............................................... (10,215,853) --
------------ ------------
Total dividends and distributions to shareholders................................. (10,216,853) (322,585)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................... 151,573,522 204,401,461
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions..................................................................... 10,216,853 322,585
------------ ------------
161,790,375 204,724,046
Cost of shares redeemed............................................................. (22,838,323) (7,213,582)
------------ ------------
Increase in net assets derived from capital share transactions...................... 138,952,052 197,510,464
------------ ------------
Net increase in net assets............................................................ 259,456,844 259,086,094
NET ASSETS:
Beginning of year..................................................................... 503,621,912 244,535,818
------------ ------------
End of year........................................................................... $763,078,756 $503,621,912
============ ============
Accumulated undistributed net investment income....................................... $ 29,913 $ 679
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 18.39 $ 15.49 $ 11.45 $ 12.03 $ 10.00
------------ ------------ ------------ ------------ ------------
Net investment income..................... 0.00(b) 0.01 0.06 0.05 0.02
Net realized and unrealized gain (loss) on
investments............................. 4.31 2.90 4.04 (0.58) 2.03
------------ ------------ ------------ ------------ ------------
Total from investment operations.......... 4.31 2.91 4.10 (0.53) 2.05
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income.............. (0.00)(b) (0.01) (0.06) (0.05) (0.02)
From net realized gain on investments... (0.31) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total dividends and distributions......... (0.31) (0.01) (0.06) (0.05) (0.02)
------------ ------------ ------------ ------------ ------------
Net asset value at end of period.......... $ 22.39 $ 18.39 $ 15.49 $ 11.45 $ 12.03
============ ============ ============ ============ ============
Total investment return (d)............... 23.49% 18.75% 35.78% (4.38%) 20.54%
Ratios (to average net
assets)/Supplemental Data:
Net investment income................... 0.00%(c) 0.09% 0.57% 0.63% 0.46%+
Net expenses............................ 0.65% 0.73% 0.73% 0.73% 0.73%+
Expenses (before reimbursement)......... 0.65% 0.75% 0.90% 0.91% 1.15%+
Portfolio turnover rate................... 34% 16% 35% 39% 28%
Average commission rate paid.............. $ 0.0589 $ 0.0600 (e) (e) (e)
Net assets at end of period (in 000's).... $ 763,079 $ 503,622 $ 244,536 $ 113,999 $ 43,485
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Less than one cent per share.
(c) Less than one-hundredth of a percent.
(d) Total return is not annualized.
(e) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
86
<PAGE> 87
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
- ------------
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.2%)+
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------
<S> <C> <C>
CERTIFICATES OF DEPOSIT (2.8%)
Australia New Zealand Bank Ltd.
5.72%, due 5/11/98 (c)........... $2,000,000 $ 1,999,566
Bayerische Vereinsbank AG New York
6.19%, due 9/4/98 (b)(c)......... 2,000,000 2,000,000
------------
3,999,566
------------
COMMERCIAL PAPER (89.3%)
Abbey National North America
5.53%, due 1/14/98............... 2,650,000 2,644,708
ABN-AMRO North America Finance
Inc.
5.56%, due 5/1/98................ 2,100,000 2,061,080
Allianz of America Finance Corp.
5.67%, due 2/9/98 (a)............ 3,000,000 2,981,572
Banca CRT Financial Corp.
5.65%, due 1/23/98............... 5,000,000 4,982,736
Banco Bradesco S.A., Grand Cayman
Series A
5.53%, due 6/18/98............... 3,000,000 2,922,580
5.57%, due 6/18/98............... 2,000,000 1,948,013
Banco Santander S.A.
5.62%, due 1/14/98............... 6,500,000 6,486,809
BCI Funding Corp.
5.55%, due 1/9/98................ 1,500,000 1,498,150
5.70%, due 5/7/98................ 3,000,000 2,940,150
BellSouth Capital Funding Corp.
6.65%, due 1/2/98................ 7,075,000 7,073,693
BIL North America Inc.
5.73%, due 3/12/98............... 5,900,000 5,834,264
BTR Dunlop Finance Inc.
5.67%, due 2/19/98 (a)........... 2,000,000 1,984,565
Caisse Centrale Desjardins du
Quebec
5.55%, due 3/30/98............... 1,000,000 986,433
Compagnie Bancaire USA
Funding Corp.
5.57%, due 2/18/98............... 5,000,000 4,962,867
Franklin Resources Inc.
5.73%, due 3/19/98 (a)........... 3,200,000 3,160,781
5.79%, due 3/19/98 (a)........... 1,300,000 1,283,901
5.79%, due 3/25/98 (a)........... 2,000,000 1,973,302
Garanti Funding Corp. I Series A
5.52%, due 4/29/98............... 4,000,000 3,927,626
General Electric Capital Corp.
5.72%, due 3/19/98............... 3,000,000 2,963,297
Generale Bank Inc.
5.67%, due 2/13/98............... 1,700,000 1,688,487
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Goldman Sachs Group L.P.
5.87%, due 1/8/98................ $6,350,000 $ 6,342,752
Internationale Nederlanden (U.S.)
Funding Corp.
5.59%, due 5/12/98............... 1,000,000 979,659
Minmetals Capital & Securities
Inc.
5.80%, due 2/13/98............... 6,650,000 6,603,930
Nacional Financiera S.N.C. Series
A
5.54%, due 3/16/98............... 3,700,000 3,657,865
National Rural Utilities
Cooperative Finance Corp.
5.62%, due 3/12/98............... 3,000,000 2,967,217
5.70%, due 3/23/98............... 3,500,000 3,455,113
Pemex Capital Inc.
5.68%, due 4/22/98............... 3,300,000 3,242,206
Receivables Capital Corp.
5.88%, due 1/9/98 (a)............ 3,950,000 3,944,839
5.90%, due 1/5/98 (a)............ 200,000 199,869
Rio Tinto America Inc.
5.70%, due 3/6/98 (a)............ 3,000,000 2,969,600
San Paolo U.S. Financial Co.
5.57%, due 2/12/98............... 3,850,000 3,824,981
Songs Fuel Co.
5.58%, due 2/10/98............... 4,000,000 3,975,200
Svenska Handelsbanken Inc.
5.73%, due 2/17/98............... 5,150,000 5,111,474
Transamerica Finance Corp.
5.70%, due 1/22/98............... 5,350,000 5,332,211
Unibanco-Uniao de Bancos
Brasilieros S.A., Grand Cayman
Series A
5.74%, due 3/18/98............... 6,850,000 6,766,993
UNIfunding Inc.
5.59%, due 2/9/98................ 2,000,000 1,987,888
------------
125,666,811
------------
CORPORATE NOTES (3.1%)
Allstate Corp.
5.88%, due 6/15/98 (c)........... 1,000,000 1,000,022
American General Finance Corp.
8.50%, due 8/15/98 (c)........... 1,500,000 1,523,003
Travelers Group Inc.
5.75%, due 4/15/98 (a)(c)........ 1,900,000 1,899,824
------------
4,422,849
------------
</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.
87
<PAGE> 88
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------
<S> <C> <C>
FEDERAL AGENCY (3.6%)
Federal Home Loan Bank
5.67%, due 3/5/98 (c)............ $5,000,000 $ 5,000,000
------------
MEDIUM-TERM NOTE (1.4%)
United States Leasing
International, Inc. Series C
6.71%, due 1/27/98 (c)........... 2,000,000 2,001,262
------------
Total Short-Term Investments
(Amortized Cost $141,090,488)
(d).............................. 100.2% 141,090,488
Liabilities in Excess of
Cash and Other Assets............ (0.2) (308,978)
------------
Net Assets........................ 100.0% $140,781,510
============
</TABLE>
- ------------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1997.
(c) Coupon interest bearing security.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
The table below sets forth the diversification of Cash
Management Portfolio investments by industry.
INDUSTRY
DIVERSIFICATION
<TABLE>
<CAPTION>
AMORTIZED PERCENT+
COST
-------------------------
<S> <C> <C>
Banks #..................... $ 82,223,514 58.4%
Brokerage................... 6,342,752 4.5
Conglomerates............... 2,963,297 2.1
Federal Agency.............. 5,000,000 3.6
Finance..................... 17,877,987 12.7
Insurance................... 9,211,716 6.5
Telecommunication
Services.................. 7,073,693 5.0
Utilities................... 10,397,529 7.4
----------- ------
141,090,488 100.2
Liabilities in Excess of
Cash and Other Assets..... (308,978) (0.2)
----------- ------
Net Assets.................. $140,781,510 100.0%
=========== ======
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
# The Portfolio will invest more than 25% of the market value of its total
assets in the securities of banks and bank holding companies, including
certificates of deposit, bankers' acceptances and securities guaranteed by
banks and bank holding companies.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
88
<PAGE> 89
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(amortized cost $141,090,488).......... $141,090,488
Cash..................................... 15,486
Interest receivable...................... 405,889
------------
Total assets..................... 141,511,863
------------
LIABILITIES:
Payables:
Adviser................................ 28,967
Administrator.......................... 23,174
Custodian.............................. 4,910
Directors.............................. 79
Accrued expenses......................... 38,422
Dividend payable......................... 634,801
------------
Total liabilities................ 730,353
------------
Net assets applicable to outstanding
shares................................. $140,781,510
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 600 million shares authorized... $ 1,407,832
Additional paid-in capital............... 139,374,195
Accumulated net realized loss on
investments............................ (517)
------------
Net assets applicable to outstanding
shares................................. $140,781,510
============
Shares of capital stock outstanding...... 140,783,151
============
Net asset value per share outstanding.... $ 1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 7,165,394
------------
Expenses:
Advisory............................... 315,441
Administration......................... 252,353
Shareholder communication.............. 60,930
Professional........................... 33,376
Custodian.............................. 17,972
Directors.............................. 4,284
Miscellaneous.......................... 2,070
------------
Total expenses................... 686,426
------------
Net investment income.................... 6,478,968
------------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments......... 1,549
------------
Net increase in net assets resulting from
operations............................. $ 6,480,517
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
89
<PAGE> 90
CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................... $ 6,478,968 $ 4,723,279
Net realized gain (loss) on investments............................................. 1,549 (733)
------------ ------------
Net increase in net assets resulting from operations................................ 6,480,517 4,722,546
------------ ------------
Dividends to shareholders:
From net investment income.......................................................... (6,478,968) (4,723,279)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................... 285,479,612 237,101,140
Net asset value of shares issued to shareholders in reinvestment of dividends....... 6,345,913 4,585,514
------------ ------------
291,825,525 241,686,654
Cost of shares redeemed............................................................. (269,392,486) (211,178,343)
------------ ------------
Increase in net assets derived from capital share transactions...................... 22,433,039 30,508,311
------------ ------------
Net increase in net assets............................................................ 22,434,588 30,507,578
NET ASSETS:
Beginning of year..................................................................... 118,346,922 87,839,344
------------ ------------
End of year........................................................................... $140,781,510 $118,346,922
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income..................... 0.05 0.05 0.05 0.04 0.02
-------- -------- -------- -------- --------
Less dividends:
From net investment income.............. (0.05) (0.05) (0.05) (0.04) (0.02)
-------- -------- -------- -------- --------
Net asset value at end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return (b)............... 5.25% 4.95% 5.59% 3.82% 2.40%
Ratios (to average net
assets)/Supplemental Data:
Net investment income................... 5.13% 4.92% 5.44% 3.97% 2.65% +
Net expenses............................ 0.54% 0.62% 0.62% 0.62% 0.62% +
Expenses (before reimbursement)......... 0.54% 0.64% 0.94% 0.89% 1.10% +
Net assets at end of period (in 000's).... $ 140,782 $ 118,347 $ 87,839 $ 71,116 $ 26,733
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
90
<PAGE> 91
MAINSTAY VP SERIES FUND, INC.
CONVERTIBLE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
- ------------
<TABLE>
<CAPTION>
CONVERTIBLE SECURITIES (69.6%)+
BONDS (44.0%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
ADVERTISING (2.6%)
Omnicom Group, Inc.
2.25%, due 1/6/13 (b)............ $ 1,000,000 $ 1,045,000
-------------
AUTO PARTS (5.4%)
Mark IV Industries Inc.
4.75%, due 11/1/04 (b)........... 1,100,000 1,017,500
MascoTech, Inc.
4.50%, due 12/15/03.............. 1,300,000 1,124,500
-------------
2,142,000
-------------
CELLULAR TELEPHONE (0.9%)
United States Cellular Corp.
(zero coupon), due 6/15/15 (i)... 1,000,000 358,750
-------------
COMPUTERS & OFFICE EQUIPMENT
(0.2%)
Quantum Corp.
7.00%, due 8/1/04................ 100,000 92,500
-------------
ELECTRICAL EQUIPMENT (2.9%)
Credence Systems Corp.
5.25%, due 9/15/02 (b)........... 1,350,000 1,134,000
-------------
GAS UTILITIES (4.4%)
Consolidated Natural Gas Co.
7.25%, due 12/15/15.............. 1,500,000 1,725,000
-------------
HEALTH CARE (9.7%)
Integrated Health Services, Inc.
6.00%, due 1/1/03................ 1,000,000 1,070,000
NovaCare, Inc.
5.50%, due 1/15/00............... 250,000 234,375
PhyCor, Inc.
4.50%, due 2/15/03............... 1,400,000 1,344,000
Renal Treatment Centers, Inc.
5.625%, due 7/15/06.............. 1,000,000 1,200,000
-------------
3,848,375
-------------
MEDIA (4.4%)
Time Warner, Inc.
(zero coupon), due 6/22/13 (i)... 3,500,000 1,754,375
-------------
PUBLISHING (1.5%)
Hollinger, Inc., Series U.S.
(zero coupon), due 10/5/13 (c)... 1,500,000 588,750
-------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
RESTAURANTS & LODGING (3.7%)
Boston Chicken, Inc.
(zero coupon), due 6/1/15........ $ 6,643,000 $ 1,029,665
4.50%, due 2/1/04................ 500,000 245,000
Fine Host Corp.
5.00%, due 11/1/04 (b)(j)........ 400,000 188,000
-------------
1,462,665
-------------
RETAIL (2.4%)
Loews Corp.
3.125%, due 9/15/07.............. 800,000 791,000
Saks Holdings, Inc.
5.50%, due 9/15/06............... 200,000 170,000
-------------
961,000
-------------
SEMICONDUCTORS (1.0%)
Cypress Semiconductor Corp.
6.00%, due 10/1/02 (b)........... 500,000 421,250
-------------
STEEL, ALUMINUM & OTHER METALS
(1.9%)
Coeur d'Alene Mines Corp.
7.25%, due 10/31/05 (b).......... 700,000 532,000
Inco Ltd.
5.75%, due 7/1/04 (c)............ 250,000 236,875
-------------
768,875
-------------
TELECOMMUNICATION EQUIPMENT (1.1%)
World Access, Inc.
4.50%, due 10/1/02 (b)........... 500,000 430,000
-------------
TELECOMMUNICATION
SERVICES (1.9%)
Gilat Satellite Networks Ltd.
6.50%, due 6/3/04 (b)............ 250,000 233,125
SmarTalk Teleservices, Inc.
5.75%, due 9/15/04 (b)........... 500,000 532,500
-------------
765,625
-------------
Total Bonds
(Cost $18,409,049)............... 17,498,165
-------------
<CAPTION>
PREFERRED STOCKS (25.6%)
SHARES
-----------
<S> <C> <C>
AUTO PARTS (2.9%)
Federal-Mogul Financial Trust
7.00% (b)........................ 22,000 1,122,000
-------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
91
<PAGE> 92
CONVERTIBLE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
PREFERRED STOCKS (CONTINUED)
SHARES VALUE
----------------------------
<S> <C> <C>
BANKS (0.3%)
Fuji International Finance Trust
0.25% (a)(b)(d).................. 322,682 $ 107,292
-------------
CABLE (3.8%)
United International Holdings,
Inc. 4.00%, Series A (a)(e)...... 10,400 1,456,000
US West, Inc.
4.50%, Series D.................. 1,000 61,687
-------------
1,517,687
-------------
COMPUTERS & OFFICE EQUIPMENT
(4.8%)
Microsoft Corp.
$2.196, Series A................. 10,800 970,650
Vanstar Financing Trust
6.75% (a)........................ 25,000 925,000
-------------
1,895,650
-------------
CONSUMER STAPLES (4.1%)
Newell Financial Trust I
5.25% (b)........................ 32,000 1,648,000
-------------
CONTAINERS (1.2%)
Crown Cork & Seal Co., Inc.
4.50%............................ 10,000 470,000
-------------
DOMESTIC OIL & GAS (0.8%)
Enron Corp.
6.25%............................ 15,000 309,375
-------------
INSURANCE (3.4%)
Conseco Finance Trust IV
7.00%, Series F.................. 15,000 768,750
Merrill Lynch & Co., Inc.
7.25% (f)........................ 8,000 564,000
-------------
1,332,750
-------------
LEISURE (1.3%)
Royal Caribbean Cruises Ltd.
7.25%, Series A.................. 6,000 510,375
-------------
RESTAURANTS & LODGING (0.7%)
Host Marriott Financial Trust
6.75%............................ 5,000 296,250
-------------
STEEL, ALUMINUM & OTHER METALS
(0.8%)
Bethlehem Steel Corp.
$3.50 (b)........................ 8,000 320,000
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
TELECOMMUNICATION EQUIPMENT (1.5%)
Loral Space & Communications Ltd.
6.00%, Series C.................. 10,000 $ 615,000
-----------
Total Preferred Stocks
(Cost $9,758,740)................ 10,144,379
-----------
Total Convertible Securities
(Cost $28,167,789)............... 27,642,544
-----------
COMMON STOCKS (3.7%)
CHEMICALS (1.1%)
IMC Global, Inc................... 5,000 163,750
Lyondell Petrochemical Co......... 4,952 131,228
Monsanto Co....................... 3,000 126,000
-----------
420,978
-----------
COMPUTERS & OFFICE EQUIPMENT
(1.0%)
Unisys Corp. (a).................. 29,304 406,593
-----------
ELECTRIC UTILITIES (0.1%)
Potomac Electric Power Co......... 2,000 51,625
-----------
OIL SERVICES (0.8%)
Forcenergy, Inc. (a).............. 12,000 314,250
-----------
RESTAURANTS & LODGING (0.4%)
Apple South, Inc.................. 12,000 157,500
-----------
TELECOMMUNICATION
SERVICES (0.3%)
Premiere Technologies, Inc. (a)... 5,000 138,125
-----------
Total Common Stocks
(Cost $1,468,861)................ 1,489,071
-----------
PREFERRED STOCK (0.7%)
MINING (0.7%)
Freeport-McMoRan Copper & Gold,
Inc.
Series Silver (g)(h)............. 15,000 290,625
-----------
Total Preferred Stock
(Cost $255,750).................. 290,625
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
92
<PAGE> 93
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (21.4%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
COMMERCIAL PAPER (21.4%)
American Express Credit Corp.
6.25%, due 1/2/98................ $ 1,744,000 $ 1,744,000
American General Finance Corp.
6.01%, due 1/5/98................ 1,680,000 1,680,000
Ford Motor Credit Co.
5.96%, due 1/6/98................ 1,280,000 1,280,000
Prudential Funding Corp.
5.86%, due 1/6/98................ 1,816,000 1,816,000
Texaco, Inc.
5.67%, due 1/7/98................ 2,000,000 2,000,000
-----------
Total Short-Term Investments
(Cost $8,520,000)................ 8,520,000
-----------
Total Investments
(Cost $38,412,400) (k)........... 95.4% 37,942,240(l)
Cash and Other Assets,
Less Liabilities................. 4.6 1,826,043
---------- ---------
Net Assets........................ 100.0% $39,768,283
========== ===========
</TABLE>
- ------------
(a) Non-income producing security.
(b) May be sold to institutional investors only.
(c) Yankee bond.
(d) 12 Units--each unit reflects an interest in 1,000 Noncumulative Mandatory
Convertible preference shares of the Fuji Bank, Limited. The preference
shares are convertible into ordinary shares at an initial conversion price
of Y(Japanese Yen) 2,002 per ordinary share at a future date.
(e) Restricted security.
(f) STRYPES--Structured Yield Product Exchangeable for SunAmerica, Inc. common
stock.
(g) Depository Shares--each share represents 0.025 shares of silver denominated
preferred stock.
(h) Dividend equals U.S. dollar equivalent of 0.04125 oz. of silver per share.
(i) LYON--Liquid Yield Option Note: callable, zero coupon securities priced at
a deep discount from par. They include a "put" feature that enables holders
to redeem them at a specific date, at a specific price. Put prices reflect
fixed interest rates, and therefore increase over time.
(j) Fair valued security. Aggregate of 0.47% of net assets.
(k) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(l) At December 31, 1997 net unrealized depreciation was $470,160, 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 $1,274,563 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,744,723.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
93
<PAGE> 94
CONVERTIBLE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $38,412,400).......... $ 37,942,240
Cash..................................... 265
Receivables:
Investment securities sold............. 2,762,228
Dividends and interest................. 211,376
Fund shares sold....................... 73,043
Administrator.......................... 4,278
Unamortized organization expense......... 34,489
------------
Total assets..................... 41,027,919
------------
LIABILITIES:
Payables:
Investment securities purchased........ 1,183,602
Organization........................... 40,031
Adviser................................ 11,842
Custodian.............................. 3,000
Directors.............................. 22
Accrued expenses......................... 21,139
------------
Total liabilities................ 1,259,636
------------
Net assets applicable to outstanding
shares................................. $ 39,768,283
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 36,947
Additional paid-in capital............... 38,830,302
Accumulated undistributed net investment
income................................. 22,890
Accumulated undistributed net realized
gain on investments.................... 1,348,304
Net unrealized depreciation on
investments............................ (470,160)
------------
Net assets applicable to outstanding
shares................................. $ 39,768,283
============
Shares of capital stock outstanding...... 3,694,714
============
Net asset value per share outstanding.... $ 10.76
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 1,216,883
Dividends.............................. 486,724
------------
Total income..................... 1,703,607
------------
Expenses:
Advisory............................... 104,695
Administration......................... 58,164
Professional........................... 27,122
Shareholder communication.............. 12,491
Custodian.............................. 9,595
Amortization of organization expense... 9,194
Directors.............................. 657
Miscellaneous.......................... 5,248
------------
Total expenses before
reimbursement.................. 227,166
Expense reimbursement from
Administrator.......................... (14,863)
------------
Net expenses..................... 212,303
------------
Net investment income.................... 1,491,304
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments......... 3,443,999
Net change in unrealized appreciation on
investments............................ (722,378)
------------
Net realized and unrealized gain on
investments............................ 2,721,621
------------
Net increase in net assets resulting from
operations............................. $ 4,212,925
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
94
<PAGE> 95
MAINSTAY VP SERIES FUND, INC.
CONVERTIBLE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1997
and the period October 1, 1996 (Commencement of Operations)
through December 31, 1996
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................. $ 1,491,304 $ 153,883
Net realized gain on investments.................................................. 3,443,999 31,320
Net change in unrealized appreciation on investments.............................. (722,378) 252,218
------------ ------------
Net increase in net assets resulting from operations.............................. 4,212,925 437,421
------------ ------------
Dividends and distributions to shareholders:
From net investment income........................................................ (1,479,858) (153,822)
From net realized gain on investments............................................. (2,100,589) (26,554)
------------ ------------
Total dividends and distributions to shareholders............................... (3,580,447) (180,376)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 21,744,883 5,079,116
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions................................................................... 3,580,447 180,376
------------ ------------
25,325,330 5,259,492
Cost of shares redeemed........................................................... (1,653,885) (52,177)
------------ ------------
Increase in net assets derived from capital share transactions.................... 23,671,445 5,207,315
------------ ------------
Net increase in net assets.......................................................... 24,303,923 5,464,360
NET ASSETS:
Beginning of period................................................................. 15,464,360 10,000,000
------------ ------------
End of period....................................................................... $ 39,768,283 $15,464,360
============ ============
Accumulated undistributed net investment income..................................... $ 22,890 $ 2,378
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
OCTOBER 1,
YEAR 1996 (a)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
----------------------------
<S> <C> <C>
Net asset value at beginning of period............................................ $ 10.27 $ 10.00
-------- --------
Net investment income............................................................. 0.44 0.10
Net realized and unrealized gain on investments................................... 1.12 0.29
-------- --------
Total from investment operations.................................................. 1.56 0.39
-------- --------
Less dividends and distributions:
From net investment income...................................................... (0.44) (0.10)
From net realized gain on investments........................................... (0.63) (0.02)
-------- --------
Total dividends and distributions................................................. (1.07) (0.12)
-------- --------
Net asset value at end of period.................................................. $ 10.76 $ 10.27
======== ========
Total investment return (b)....................................................... 15.43% 3.89%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................................................... 5.13% 5.14% +
Net expenses.................................................................... 0.73% 0.73% +
Expenses (before reimbursement)................................................. 0.78% 1.46% +
Portfolio turnover rate........................................................... 217% 15%
Average commission rate paid...................................................... $ 0.0567 $ 0.0537
Net assets at end of period (in 000's)............................................ $ 39,768 $ 15,464
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
95
<PAGE> 96
GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
- ------------
<TABLE>
<CAPTION>
LONG-TERM BONDS (98.8%)+
ASSET-BACKED SECURITIES (10.0%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
AUTO LEASES (2.0%)
Nissan Auto Receivables
Grantor Trust Series 1997-A Class
A
6.15%, due 2/15/03................ $1,441,953 $ 1,441,434
------------
CONSUMER LOANS (2.0%)
Chase Manhattan Recreational
Vehicle Owner Trust Series 1997-A
Class A5
6.05%, due 11/15/04............... 780,000 778,448
Green Tree Recreational
Equipment & Consumer Trust Series
1996-C Class A1
6.22%, due 10/15/17 (d)........... 253,608 253,846
NationsCredit Grantor Trust
Series 1997-2 Class A2
6.25%, due 11/15/13............... 454,585 454,963
------------
1,487,257
------------
EQUIPMENT LOANS (3.2%)
Case Equipment Loan Trust Series
1997-A Class A3
6.45%, due 3/15/04................ 1,680,000 1,690,164
Newcourt Receivables Asset Trust
Series 1996-2 Class A
6.87%, due 6/20/04................ 703,408 706,573
------------
2,396,737
------------
HOME EQUITY LOANS (2.8%)
Southern Pacific Secured Assets
Corp. Series 1997 -1 Class A1
6.169%, due 4/25/27 (d)........... 2,039,538 2,035,867
------------
Total Asset-Backed Securities
(Cost $7,354,057)................. 7,361,295
------------
MORTGAGE-BACKED SECURITIES (4.1%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (3.1%)
Asset Securitization Corp. Series
1997-D5 Class A1C
6.75%, due 2/14/41 (c)............ 775,000 791,422
Merrill Lynch Mortgage Investors,
Inc. Series 1995-C2 Class A1
7.344%, due 6/15/21 (c)........... 820,639 834,960
Structured Asset Securities Corp.
Series 1997-LLI Class A1
6.79%, due 6/12/04 (c)............ 647,653 661,914
------------
2,288,296
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
FIRST MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (1.0%)
Countrywide Mortgage-Backed
Securities Inc.
Series 1997-A5 Class A4
10.00%, due 7/25/27 (c)........... $ 391,515 $ 408,926
Series 1997-A8 Class A2
10.00%, due 10/25/27 (c).......... 26,408 29,365
Structured Asset Securities Corp.
Series 1996-2 Class A1
7.00%, due 8/25/26 (c)............ 332,516 334,151
------------
772,442
------------
Total Mortgage-Backed Securities
(Cost $3,040,111)................. 3,060,738
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (84.7%)
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MEDIUM-TERM NOTE)
(4.7%)
5.96%, due 7/23/99................ 3,465,000 3,473,489
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (22.4%)
6.00%, due 10/1/08................ 2,754,743 2,728,049
6.45%, due 1/1/05 TBA (b)......... 585,000 590,692
6.50%, due 6/13/24 TBA (b)........ 4,805,000 4,743,448
6.54%, due 2/4/05 TBA (b)......... 550,000 558,212
6.65%, due 1/30/08 TBA (b)........ 455,000 465,055
6.72%, due 11/1/07 (c)............ 644,509 661,936
6.765%, due 1/1/07 (c)............ 1,314,088 1,351,474
7.00%, due 1/12/25 TBA (b)........ 5,380,000 5,418,682
------------
16,517,548
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITIES) (10.6%)
7.00%, due 12/15/23 (c)........... 5,144,528 5,202,404
7.50%, due 12/15/23 (c)........... 642,757 660,234
9.50%, due 5/15/22 (c)............ 1,800,456 1,965,882
------------
7,828,520
------------
</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.
96
<PAGE> 97
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
UNITED STATES TREASURY BONDS
(29.8%)
6.125%, due 11/15/27 (e).......... $7,695,000 $ 7,907,844
6.25%, due 8/15/23 (e)............ 4,370,000 4,501,100
7.625%, due 2/15/25 (e)........... 1,325,000 1,608,007
8.875%, due 8/15/17............... 3,005,000 3,988,657
11.25%, due 2/15/15............... 655,000 1,027,020
12.00%, due 8/15/13............... 1,980,000 2,917,411
------------
21,950,039
------------
UNITED STATES TREASURY NOTES
(17.2%)
5.50%, due 11/15/98 (a)........... 4,480,000 4,475,117
6.25%, due 2/28/02................ 1,590,000 1,619,065
7.75%, due 11/30/99 (e)........... 5,175,000 5,366,630
7.875%, due 11/15/04.............. 1,090,000 1,218,588
------------
12,679,400
------------
Total U.S. Government &
Federal Agencies
(Cost $60,785,862)................ 62,448,996
------------
Total Long-Term Bonds
(Cost $71,180,030)................ 72,871,029
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (16.7%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
COMMERCIAL PAPER (16.7%)
American Express Credit Corp.
6.11%, due 1/2/98................. $3,000,000 $ 3,000,000
American General Finance Corp.
6.65%, due 1/2/98................. 3,330,000 3,330,000
Ford Motor Credit Co.
5.95%, due 1/2/98................. 3,000,000 3,000,000
General Electric Capital Corp.
5.91%, due 1/7/98................. 3,000,000 3,000,000
-----------
Total Short-Term Investments
(Cost $12,330,000)................ 12,330,000
-----------
Total Investments
(Cost $83,510,030) (f)............ 115.5% 85,201,029(g)
Liabilities in Excess of
Cash and Other Assets............. (15.5) (11,446,518)
--------- -----------
Net Assets......................... 100.0% $73,754,511
========= ===========
</TABLE>
- ------------
(a) Long-term security maturing within the subsequent twelve month period.
(b) TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and maturity
date will be determined upon settlement.
(c) Segregated or partially segregated as collateral for TBA.
(d) Floating rate. Rate shown is the rate in effect at December 31, 1997.
(e) Represents securities out on loan or a portion which is out on loan.
(f) The cost for Federal income tax purposes is $83,622,877.
(g) At December 31, 1997 net unrealized appreciation was $1,578,152, 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 $1,594,433 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $16,281.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
97
<PAGE> 98
GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $83,510,030).......... $ 85,201,029
Cash..................................... 4,105
Collateral held for securities loaned, at
value.................................. 12,470,194
Receivables:
Investment securities sold............. 6,298,874
Interest............................... 732,231
Fund shares sold....................... 174,513
------------
Total assets..................... 104,880,946
------------
LIABILITIES:
Securities lending collateral, at
value.................................. 12,470,194
Payables:
Investment securities purchased........ 18,581,606
Adviser................................ 18,497
Administrator.......................... 12,332
Fund shares redeemed................... 4,496
Custodian.............................. 1,973
Directors.............................. 43
Accrued expenses......................... 37,294
------------
Total liabilities................ 31,126,435
------------
Net assets applicable to outstanding
shares................................. $ 73,754,511
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares authorized.... $ 75,024
Additional paid-in capital............... 76,806,312
Accumulated net realized loss on
investments............................ (4,817,824)
Net unrealized appreciation on
investments............................ 1,690,999
------------
Net assets applicable to outstanding
shares................................. $ 73,754,511
============
Shares of capital stock outstanding...... 7,502,387
============
Net asset value per share outstanding.... $ 9.83
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 5,220,703
------------
Expenses:
Advisory............................... 213,390
Administration......................... 142,260
Professional........................... 32,634
Shareholder communication.............. 31,826
Custodian.............................. 21,290
Directors.............................. 2,383
Portfolio pricing...................... 2,119
Miscellaneous.......................... 2,329
------------
Total expenses................... 448,231
------------
Net investment income.................... 4,772,472
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 205,612
Net change in unrealized appreciation on
investments............................ 1,417,840
------------
Net realized and unrealized gain on
investments............................ 1,623,452
------------
Net increase in net assets resulting from
operations............................. $ 6,395,924
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
98
<PAGE> 99
MAINSTAY VP SERIES FUND, INC.
GOVERNMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
-------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................... $ 4,772,472 $ 4,644,150
Net realized gain (loss) on investments............................................. 205,612 (1,685,892)
Net change in unrealized appreciation on investments................................ 1,417,840 (1,228,232)
------------ ------------
Net increase in net assets resulting from operations................................ 6,395,924 1,730,026
------------ ------------
Dividends to shareholders:
From net investment income.......................................................... (4,698,251) (4,616,401)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................... 9,479,059 18,643,180
Net asset value of shares issued to shareholders in reinvestment of dividends....... 4,698,251 4,616,401
------------ ------------
14,177,310 23,259,581
Cost of shares redeemed............................................................. (15,243,012) (12,063,044)
------------ ------------
Increase (decrease) in net assets derived from capital share transactions........... (1,065,702) 11,196,537
------------ ------------
Net increase in net assets............................................................ 631,971 8,310,162
NET ASSETS:
Beginning of year..................................................................... 73,122,540 64,812,378
------------ ------------
End of year........................................................................... $ 73,754,511 $ 73,122,540
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 9.59 $ 10.01 $ 9.21 $ 10.15 $ 10.00
-------- -------- -------- -------- --------
Net investment income..................... 0.67 0.65 0.75 0.75 0.82
Net realized and unrealized gain (loss) on
investments............................. 0.24 (0.42) 0.80 (0.94) (0.25)
-------- -------- -------- -------- --------
Total from investment operations.......... 0.91 0.23 1.55 (0.19) 0.57
-------- -------- -------- -------- --------
Less dividends:
From net investment income.............. (0.67) (0.65) (0.75) (0.75) (0.42)
-------- -------- -------- -------- --------
Net asset value at end of period.......... $ 9.83 $ 9.59 $ 10.01 $ 9.21 $ 10.15
======== ======== ======== ======== ========
Total investment return (b)............... 9.48% 2.28% 16.72% (1.84%) 5.63%
Ratios (to average net
assets)/Supplemental Data:
Net investment income................... 6.71% 6.66% 7.80% 8.16% 8.46% +
Net expenses............................ 0.63% 0.67% 0.67% 0.67% 0.67% +
Expenses (before reimbursement)......... 0.63% 0.71% 0.82% 0.87% 1.02% +
Portfolio turnover rate................... 345% 304% 592% 483% 501%
Net assets at end of period (in 000's).... $ 73,755 $ 73,123 $ 64,812 $ 61,641 $ 46,766
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
99
<PAGE> 100
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
- ------------
<TABLE>
<CAPTION>
LONG-TERM BONDS (77.7%)+
CONVERTIBLE BONDS (5.8%)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
BANKS (0.3%)
MBI Finance Ltd.
(zero coupon), due 12/18/01(e) $2,560,000 $ 1,433,600
------------
CELLULAR TELEPHONE (0.4%)
Metro Pacific Capital Ltd.
2.50%, due 4/11/03(e)........... 2,363,000 1,630,470
------------
CONGLOMERATES (1.7%)
First Pacific Capital Ltd.
2.00%, due 3/27/02(e)........... 9,000,000 7,155,000
------------
HEALTH CARE (0.5%)
Physicians Resource Group, Inc.
6.00%, due 12/1/01(c)........... 3,500,000 2,248,750
------------
MEDIA (0.9%)
Rogers Communications, Inc.
(zero coupon), due 5/20/13(i)... 8,500,000 3,580,625
------------
PAPER & FOREST PRODUCTS (0.9%)
Sappi BVI Finance Ltd.
7.50%, due 8/1/02(e)............ 4,000,000 3,680,000
------------
TECHNOLOGY (0.2%)
Samsung Electronics Co., Ltd.
0.25%, due 12/31/06(e).......... 1,000,000 815,000
------------
TELECOMMUNICATION EQUIPMENT
(0.9%)
Loxley Public Co.
2.50%, due 4/4/01(e)............ 3,250,000 1,787,500
3.50%, due 4/20/05(e)........... 3,103,000 2,172,100
------------
3,959,600
------------
Total Convertible Bonds
(Cost $28,131,939).............. 24,503,045
------------
CORPORATE BONDS (63.8%)
AEROSPACE (0.6%)
Sequa Corp.
9.375%, due 12/15/03............ 2,000,000 2,065,000
9.625%, due 10/15/99............ 400,000 413,000
------------
2,478,000
------------
AUTO MANUFACTURING (1.4%)
Titan Tire Corp.
7.00%, due 2/11/00 (j).......... 6,000,000 5,835,000
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
AUTO PARTS (0.6%)
CSK Auto, Inc.
Series A
11.00%, due 11/1/06............. $2,196,000 $ 2,415,600
------------
BANKS (1.8%)
First Nationwide Holdings, Inc.
12.25%, due 5/15/01............. 3,500,000 3,937,500
Local Financial Corp.
11.00%, due 9/5/04(c)........... 3,400,000 3,587,000
------------
7,524,500
------------
BUILDING MATERIALS (1.3%)
Associated Materials, Inc.
11.50%, due 8/15/03............. 5,300,000 5,671,000
------------
BUILDINGS (2.6%)
Greystone Homes, Inc.
10.75%, due 3/1/04.............. 1,600,000 1,744,000
NVR, Inc.
11.00%, due 4/15/03............. 2,200,000 2,376,000
Overhead Door, Inc.
12.25%, due 2/1/00.............. 5,000,000 5,162,500
U.S. Home Corp.
8.25%, due 8/15/04.............. 1,700,000 1,729,750
------------
11,012,250
------------
CABLE (5.6%)
American Telecasting, Inc.
(zero coupon), due 6/15/04
14.50%, beginning 6/15/99....... 1,050,000 346,500
Continental Cablevision, Inc.
11.00%, due 6/1/07.............. 1,000,000 1,111,857
CS Wireless Systems, Inc.
Series B
(zero coupon), due 3/1/06
11.375%, beginning 3/1/01....... 6,853,000 1,781,780
Heartland Wireless
Communications, Inc.
Series B
14.00%, due 10/15/04............ 3,500,000 1,295,000
Marcus Cable Operating Co. L.P.
(zero coupon), due 8/1/04
13.50%, beginning 8/1/99........ 8,400,000 7,770,000
Supercanal Holding, S.A.
14.50%, due 11/12/98(d)(j)...... 4,000,000 3,910,000
United International Holdings,
Inc.
(zero coupon), due 11/15/99..... 7,650,000 6,426,000
Series B
(zero coupon), due 11/15/99..... 1,600,000 1,344,000
------------
23,985,137
------------
</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.
100
<PAGE> 101
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
CASINOS (4.5%)
El Comandante Capital Corp.
11.75%, due 12/15/03............ $2,783,000 $ 2,755,170
Horseshoe Gaming LLC
Series B
12.75%, due 9/30/00............. 3,300,000 3,630,000
Penn National Gaming, Inc.
10.625%, due 12/15/04(c)........ 4,200,000 4,326,000
President Riverboat Casinos, Inc.
13.00%, due 9/15/01............. 3,500,000 3,255,000
Riviera Holdings Corp.
11.00%, due 12/31/02............ 5,000,000 5,300,000
------------
19,266,170
------------
CELLULAR TELEPHONE (2.6%)
CCPR Services, Inc.
10.00%, due 2/1/07.............. 3,740,000 3,590,400
Centennial Cellular Corp.
8.875%, due 11/1/01............. 5,540,000 5,678,500
10.125%, due 5/15/05............ 1,500,000 1,627,500
PriCellular Wireless Corp.
Series B
14.00%, due 11/15/01............ 50,000 55,500
------------
10,951,900
------------
CHEMICALS (0.2%)
Uniroyal Chemical Co., Inc.
9.00%, due 9/1/00............... 800,000 830,000
------------
CHILD CARE SERVICES (0.3%)
La Petite Holdings Corp.
9.625%, due 8/1/01.............. 1,100,000 1,133,000
------------
COMPUTERS & OFFICE EQUIPMENT
(0.4%)
Unisys Corp.
10.625%, due 10/1/99............ 1,500,000 1,530,000
------------
CONSUMER DURABLES (0.5%)
Selmer Co., Inc.
11.00%, due 5/15/05............. 1,770,000 1,947,000
------------
DOMESTIC OIL & GAS (0.4%)
Newpark Resources, Inc.
8.625%, due 12/15/07 (c)........ 1,600,000 1,626,000
------------
DRUGS (0.2%)
ICN Pharmaceuticals, Inc.
Series B
9.25%, due 8/15/05.............. 1,000,000 1,060,000
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
ELECTRIC UTILITIES (1.7%)
CMS Energy Corp.
7.625%, due 11/15/04............ $3,500,000 $ 3,496,041
8.125%, due 5/15/02............. 1,100,000 1,132,377
Midland Funding Corp. I
Series C-94
10.33%, due 7/23/02............. 2,569,207 2,763,221
------------
7,391,639
------------
EQUIPMENT FINANCING (1.3%)
Atlas Air, Inc.
12.25%, due 12/1/02............. 650,000 721,298
Continental Airlines, Inc.
8.00%, due 6/30/00 (j).......... 1,397,623 1,397,623
Seven Sixty Seven Leasing, Inc.
7.656%, due 2/2/02 (d)(j)....... 3,176,814 3,272,119
------------
5,391,040
------------
FINANCE (1.1%)
Cityscape Financial Corp.
Series A
12.75%, due 6/1/04.............. 6,000,000 2,760,000
Imperial Credit Industries, Inc.
Series B
9.875%, due 1/15/07............. 2,000,000 1,970,000
------------
4,730,000
------------
FOOD, BEVERAGE & TOBACCO (2.9%)
Colorado Prime Corp.
12.50%, due 5/1/04 (c).......... 5,210,000 5,183,950
Foodbrands America, Inc.
10.75%, due 5/15/06............. 2,500,000 2,900,000
Sparkling Spring Water Group Ltd.
11.50%, due 11/15/07 (c)........ 2,000,000 2,060,000
Standard Commercial Corp.
8.875%, due 8/1/05 (c).......... 2,000,000 2,020,000
------------
12,163,950
------------
HEALTH CARE (6.2%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02.............. 10,040,000 10,504,350
Extendicare Health Services, Inc.
9.35%, due 12/15/07 (c)......... 6,100,000 6,252,500
Magellan Health Services, Inc.
Series A
11.25%, due 4/15/04............. 3,500,000 3,880,625
Quest Diagnostics, Inc.
10.75%, due 12/15/06............ 5,200,000 5,674,500
------------
26,311,975
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
101
<PAGE> 102
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
INDUSTRIAL (2.4%)
Thermadyne Holdings Corp.
10.25%, due 5/1/02.............. $5,455,000 $ 5,618,650
10.75%, due 11/1/03............. 4,290,000 4,547,400
------------
10,166,050
------------
INSURANCE (1.0%)
Veritas Capital Trust
10.00%, due 1/1/28 (c)(q)....... 4,000,000 4,080,000
------------
LEISURE (0.9%)
Bally Total Fitness Holdings
Corp.
9.875%, due 10/15/07 (c)........ 3,800,000 3,828,500
------------
MEDIA (9.4%)
Affiliated Newspapers Investments, Inc.
(zero coupon), due 7/1/06
13.25%, beginning 7/1/99........ 4,600,000 4,347,000
Allbritton Communications Co.
11.50%, due 8/15/04............. 4,450,000 4,661,375
Antenna TV, S.A.
9.00%, due 8/1/07............... 2,160,000 2,160,000
Ascent Entertainment Group, Inc.
(zero coupon), due 12/15/04
11.875%, beginning 12/15/02
(c)............................. 3,700,000 2,118,250
CD Radio, Inc.
(zero coupon), due 12/1/07
15.00%, beginning 12/1/02....... 14,375,000 6,612,500
Garden State Newspapers, Inc.
12.00%, due 7/1/04.............. 300,000 337,875
General Media, Inc.
10.625%, due 12/31/00........... 2,700,000 2,376,000
Heritage Media Corp.
11.00%, due 10/1/02............. 2,000,000 2,087,500
SCI Television, Inc.
11.00%, due 6/30/05............. 2,000,000 2,110,768
Viacom, Inc.
6.75%, due 1/15/03.............. 8,600,000 8,435,491
8.00%, due 7/7/06............... 4,500,000 4,533,750
------------
39,780,509
------------
PAPER & FOREST PRODUCTS (0.9%)
Domain Industries Ltd.
9.25%, due 11/15/07 (c)......... 2,520,000 2,457,000
Stone Container Corp.
11.875%, due 12/1/98............ 1,522,000 1,567,660
------------
4,024,660
------------
PERSONAL SERVICES (1.6%)
Loewen Group, Inc. (The)
6.70%, due 10/1/99 (c).......... 7,000,000 7,027,384
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
PUBLISHING (0.2%)
American Color Graphics, Inc.
ARM
10.00%, due 3/31/01 (j)(p)...... $1,000,000 $ 995,000
------------
RECREATION & ENTERTAINMENT (0.5%)
Affinity Group, Inc.
11.50%, due 10/15/03............ 2,000,000 2,125,000
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05 (m)(n)...... 5,835,000 233,400
------------
2,358,400
------------
RESTAURANTS & LODGING (0.9%)
FRI-MRD Corp.
(zero coupon), due 1/24/02
15.00%, beginning 6/30/99
(c)(j).......................... 4,400,000 3,729,000
------------
RETAIL (2.5%)
Barnes & Noble, Inc.
Series B
11.875%, due 1/15/03............ 4,827,000 5,128,688
Eckerd Corp.
9.25%, due 2/15/04.............. 5,000,000 5,356,250
Guitar Center Management Co.
11.00%, due 7/1/06.............. 160,000 177,600
------------
10,662,538
------------
STEEL, ALUMINUM & OTHER METALS
(2.9%)
Easco Corp.
Series B
10.00%, due 3/15/01............. 3,200,000 3,264,000
Kaiser Aluminum & Chemical Corp.
12.75%, due 2/1/03.............. 1,800,000 1,921,500
LTV Corp. (The)
8.20%, due 9/15/07 (c).......... 5,010,000 4,834,650
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05............. 2,000,000 2,245,000
------------
12,265,150
------------
TELECOMMUNICATION SERVICES (2.9%)
GCI, Inc
9.75%, due 8/1/07............... 2,355,000 2,443,313
Intermedia Communications, Inc.
8.50%, due 1/15/08 (c).......... 2,100,000 2,100,000
Paging Network, Inc.
10.00%, due 10/15/08............ 275,000 284,969
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
102
<PAGE> 103
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES
(Continued)
USN Communications, Inc.
(zero coupon), due 8/15/04
14.625%, beginning 8/15/00
(c)............................. $10,000,000 $ 7,600,000
------------
12,428,282
------------
TRANSPORTATION (1.5%)
Kitty Hawk, Inc.
9.95%, due 11/15/04 (c)......... 2,000,000 2,010,000
Pegasus Shipping Hellas Ltd.
11.875%, due 11/15/04 (c)....... 4,100,000 4,059,000
------------
6,069,000
------------
Total Corporate Bonds
(Cost $270,302,635)............. 270,668,634
------------
FOREIGN GOVERNMENT (0.3%)
Vnesheconombank of the USSR
6.719%, due 12/15/20
(c)(d)(h)(j).................... 1,800,000 1,109,250
------------
Total Foreign Government
(Cost $1,015,271)............... 1,109,250
------------
LOAN PARTICIPATIONS (0.0%)(B)
CHEMICALS (0.0%)(b)
Kronos International, Inc.
Bank debt
3.612%, due 9/15/99 (d)(j)(r)... DM 291,617 159,748
Bank debt
6.218%, due 9/15/00 (d)(j)(r)... 155,021 84,921
------------
Total Loan Participations
(Cost $243,744)................. 244,669
------------
U.S. GOVERNMENT (1.6%)
UNITED STATES TREASURY NOTES
(1.6%)
6.875%, due 5/15/06............. $3,500,000 3,745,000
7.25%, due 5/15/04.............. 2,700,000 2,913,894
9.125%, due 5/15/99............. 100,000 104,484
------------
Total U.S. Government
(Cost $6,633,344)............... 6,763,378
------------
YANKEE BONDS (6.2%)
CABLE (0.7%)
Kabelmedia Holdings GmbH
(zero coupon), due 8/1/06
13.625%, beginning 8/1/01....... 3,910,000 2,932,500
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CELLULAR TELEPHONE (2.9%)
Millicom International Cellular,
S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01........ $10,039,000 $ 7,353,568
Occidente y Caribe Celular, S.A.
Series B
(zero coupon), due 3/15/04
14.00%, beginning 3/15/01....... 2,670,000 2,002,500
Rogers Cantel, Inc.
8.30%, due 10/1/07.............. 985,000 977,612
9.375%, due 6/1/08.............. 2,000,000 2,100,000
------------
12,433,680
------------
MEDIA (2.1%)
Le Groupe Videotron Ltee
10.625%, due 2/15/05............ 3,900,000 4,309,500
Rogers Communications, Inc.
8.875%, due 7/15/07............. 4,000,000 4,000,000
Videotron Ltee
10.25%, due 10/15/02............ 500,000 527,500
------------
8,837,000
------------
TELECOMMUNICATION SERVICES (0.5%)
Call-Net Enterprises, Inc.
(zero coupon), due 12/1/04
13.25%, beginning 12/1/99....... 2,460,000 2,241,675
------------
Total Yankee Bonds
(Cost $25,576,959).............. 26,444,855
------------
Total Long-Term Bonds
(Cost $331,903,892)............. 329,733,831
------------
<CAPTION>
COMMON STOCKS (5.5%)
<S> <C> <C>
SHARES
----------
BANKS (0.2%)
Metropolitan Bank & Trust Co.
(t)............................. 138,000 942,481
------------
BUILDING MATERIALS (0.0%)(b)
Hanson, PLC ADR (g).............. 4,312 99,445
------------
CABLE (1.0%)
Matav-Cable Systems Media Ltd.
ADR (a)(g)...................... 12,250 220,500
United International Holdings,
Inc.
Class A (a)..................... 332,000 3,818,000
------------
4,038,500
------------
CASINOS (0.7%)
Casino America, Inc. (a)......... 7,053 17,192
Colorado Gaming & Entertainment
Co. (a)......................... 12,488 71,806
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
103
<PAGE> 104
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
--------------------------
<S> <C> <C>
CASINOS (Continued)
Grand Casinos, Inc. (a).......... 42,200 $ 574,975
Harrah's Entertainment, Inc.
(a)............................. 125,000 2,359,375
------------
3,023,348
------------
CELLULAR TELEPHONE (0.2%)
Clearnet Communications, Inc.
Class A (a)..................... 11,000 125,125
Rogers Cantel Mobile
Communications, Inc. Class B
(a)............................. 87,000 810,187
------------
935,312
------------
DRUGS (0.0%)(b)
ICN Pharmaceuticals, Inc......... 1,443 70,707
------------
ELECTRIC UTILITIES (0.1%)
Energy Group, PLC ADR (g)........ 4,312 192,154
------------
FOOD, BEVERAGE & TOBACCO
(0.0%)(b)
Imperial Tobacco Group, PLC ADR
(g)............................. 8,625 108,991
------------
HEALTH CARE (0.5%)
Columbia/HCA Healthcare Corp..... 10,000 296,250
Quest Diagnostics, Inc. (a)...... 115,800 1,954,125
------------
2,250,375
------------
MEDIA (0.8%)
Le Groupe Videotron Ltee (s)..... 69,000 607,505
Metromedia International Group,
Inc............................. 3,000 28,500
Rogers Communications, Inc. Class
B (a)(s)........................ 354,900 1,711,138
Viacom, Inc. Class B (a)......... 20,700 857,756
------------
3,204,899
------------
PAPER & FOREST PRODUCTS (0.1%)
Gaylord Container Corp. (a)...... 95,340 548,205
------------
PERSONAL SERVICES (0.2%)
Loewen Group, Inc. (The)......... 38,000 978,500
------------
RECREATION & ENTERTAINMENT (0.7%)
Hollywood Entertainment Corp.
(a)............................. 250,000 2,656,250
Steinway Musical Instruments,
Inc. (a)........................ 4,100 94,813
------------
2,751,063
------------
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
RESTAURANTS & LODGING (0.0%)(b)
Lone Star Steakhouse &
Saloon, Inc. (a)................ 6,800 $ 119,000
------------
STEEL, ALUMINUM & OTHER METALS
(0.8%)
Amax Gold, Inc. (a).............. 207,700 480,306
Newmont Mining Corp.............. 58,000 1,703,750
Noranda, Inc. (s)................ 60,000 1,052,337
WHX Corp. (a).................... 15,200 181,450
------------
3,417,843
------------
TECHNOLOGY (0.2%)
Samsung Electronics Co., Ltd.
GDR (c)(o)...................... 40,000 560,000
------------
TEXTILE & APPAREL (0.0%)(b)
Hosiery Corp. of America, Inc.
(a)............................. 500 3,750
------------
Total Common Stocks
(Cost $24,264,786).............. 23,244,573
------------
PREFERRED STOCKS (5.2%)
CABLE (1.5%)
United International Holdings,
Inc.
4.00%, Series A (a)(j)(l)....... 44,600 6,244,000
------------
CASINOS (0.3%)
Station Casinos, Inc.
7.00% (l)....................... 34,500 1,414,500
------------
DOMESTIC OIL & GAS (0.6%)
EEX Capital Inc. (c)(j).......... 2,573 2,630,712
------------
DRUGS (0.0%)(b)
ICN Pharmaceuticals, Inc.
Series B (c)(h)(l).............. 165 165,000
------------
EQUIPMENT FINANCING (0.6%)
GPA Group, PLC (a)(j)............ 4,750,000 2,565,000
------------
MEDIA (1.9%)
Paxson Communications Corp.
12.50% (f)...................... 1,063 1,095,042
Primedia, Inc.
11.625%, Series B (h)........... 26,933 2,902,031
Spanish Broadcasting System, Inc.
14.25% (c)(f)................... 2,076 2,200,560
14.25% (f)...................... 1,600 1,696,000
------------
7,893,633
------------
REAL ESTATE (0.3%)
Crown America Realty Trust
11.00%, Series A................ 26,120 1,364,770
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
104
<PAGE> 105
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
PREFERRED STOCKS (CONTINUED)
SHARES VALUE
--------------------------
<S> <C> <C>
TEXTILE & APPAREL (0.0%)(b)
Anvil Knitwear, Inc. (c)(f)...... 2,801 $ 67,224
------------
Total Preferred Stocks
(Cost $21,863,223).............. 22,344,839
------------
WARRANTS (0.4%)
CABLE (0.0%)(b)
Supercanal Holding, S.A.
Series A
expire 11/14/99
(a)(c)(j)....................... 492,587 39,407
------------
CASINOS (0.0%)(b)
Casino America, Inc.
expire 5/3/01 (a)............... 1,249 1,249
------------
CELLULAR TELEPHONE (0.0%)(b)
Microcell Telecommunications,
Inc.
expire 6/1/06 (a)(c)............ 5,600 76,664
Occidente y Caribe Celular, S.A.
expire 3/15/04 (a)(c)........... 10,680 107
------------
76,771
------------
FOOD, BEVERAGE & TOBACCO
(0.0%)(b)
Colorado Prime Corp.
expire 12/31/03 (a)(c).......... 5,210 52,100
------------
MEDIA (0.4%)
General Media, Inc.
expire 12/21/00 (a)............. 900 9
Spanish Broadcasting System, Inc.
expire 6/30/99 (a)(c)(u1)....... 2,500 500,000
expire 6/30/99 (a)(k)........... 2,500 875,000
------------
1,375,009
------------
POLLUTION & RELATED (0.0%)(b)
ICF Kaiser International, Inc.
expire 12/31/98 (a)(u2)......... 960 240
------------
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES
(0.0%)(b)
USN Communications, Inc.
expire 8/15/04 (a)(c)........... 100,000 $ 1,000
------------
Total Warrants
(Cost $914,897)................. 1,545,776
------------
SHORT-TERM
INVESTMENTS (5.5%)
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER (3.9%)
American Express Credit Corp.
6.55%, due 1/2/98............... $16,459,000 16,459,000
------------
Total Commercial Paper
(Cost $16,459,000).............. 16,459,000
------------
SHORT-TERM BONDS (1.6%)
FOOD, BEVERAGE & TOBACCO (0.8%)
Buenos Aires Embotelladora
Sociedad Anonima
Bank debt
9.479%, due 8/1/98 (j)(n)....... 4,500,000 3,375,000
------------
MEDIA (0.0%)(b)
Time Warner, Inc.
7.45%, due 2/1/98............... 200,000 200,170
------------
PAPER & FOREST PRODUCTS (0.8%)
P.T. Polysindo Eka Perkasa (zero
coupon), due 4/14/98............ 4,000,000 3,400,000
------------
Total Short-Term Bonds
(Cost $7,981,362)............... 6,975,170
------------
Total Short-Term Investments
(Cost $24,440,362).............. 23,434,170
------------
Total Investments
(Cost $403,387,160) (v)......... 94.3% 400,303,189(w)
Cash and Other Assets,
Less Liabilities................ 5.7 24,263,334
---------- ------------
Net Assets....................... 100.0% $424,566,523
========== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
105
<PAGE> 106
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
- ------------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Floating rate. Rate shown is the rate in effect at December 31, 1997.
(e) Euro-Dollar bond.
(f) PIK ("Payment in Kind")--interest or dividend payment is made with
additional securities.
(g) ADR--American Depository Receipt.
(h) CIK ("Cash in Kind")--interest or dividend payment is made with cash or
additional securities.
(i) Yankee bond.
(j) Restricted security.
(k) Each warrant entitles the holder thereof to purchase one share of the
Company's Class A common stock at $0.01 per share, subject to adjustment
under certain circumstances on or after the Exercisability Date and prior
to June 30, 1999.
(l) Convertible preferred stock.
(m) Issuer in bankruptcy.
(n) Issue in default.
(o) GDR--Global Depository Receipt.
(p) ARM--Adjustable Rate Mortgage. Resets quarterly.
(q) 10.00% Trust Preferred Securities. The Issuer Trust exists solely for the
purpose of issuing the Trust Securities and investing the proceeds thereof
in an equivalent amount of 10.00% Subordinated Deferrable Interest
Debentures due 2028 of Veritas Holdings GmbH.
(r) Multiple tranche facility.
(s) Canadian security.
(t) Philippine security.
(u1) Each warrant entitles the holder thereof to purchase 0.428 shares of the
Company's Class A common stock, par value $0.01 per share.
(u2) 4.8 warrants will entitle the holder thereof to purchase one share of
common stock at a price equal to $5.00 per share, subject to adjustment
under certain circumstances.
(v) The cost for Federal income tax purposes is $403,483,301.
(w) At December 31, 1997 net unrealized depreciation was $3,180,112, 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 $9,717,950 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $12,898,062.
(x) The following abbreviation is used in the above portfolio: DM--Deutsche
Mark
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
106
<PAGE> 107
MAINSTAY VP SERIES FUND, INC.
HIGH YIELD CORPORATE BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $403,387,160)......... $400,303,189
Deposit with broker...................... 111,935
Receivables:
Investment securities sold............. 19,763,763
Dividends and interest................. 6,030,193
Fund shares sold....................... 539,583
Unrealized appreciation on forward
foreign currency contracts............. 2,389
------------
Total assets..................... 426,751,052
------------
LIABILITIES:
Payables:
Investment securities purchased........ 1,177,846
Custodian.............................. 686,325
Adviser................................ 104,706
Administrator.......................... 69,804
Fund shares redeemed................... 47,801
Directors.............................. 229
Accrued expenses......................... 97,818
------------
Total liabilities................ 2,184,529
------------
Net assets applicable to outstanding
shares................................. $424,566,523
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 361,819
Additional paid-in capital............... 425,367,693
Accumulated undistributed net investment
income................................. 461,672
Accumulated undistributed net realized
gain on investments.................... 1,470,295
Net unrealized depreciation on
investments............................ (3,083,971)
Net unrealized depreciation on
translation of assets and liabilities
in foreign currencies and forward foreign
currency contracts..................... (10,985)
------------
Net assets applicable to outstanding
shares................................. $424,566,523
============
Shares of capital stock outstanding...... 36,181,893
============
Net asset value per share outstanding.... $ 11.73
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 27,943,976
Dividends (a).......................... 1,266,845
------------
Total income..................... 29,210,821
------------
Expenses:
Advisory............................... 928,565
Administration......................... 619,043
Shareholder communication.............. 146,070
Professional........................... 89,028
Custodian.............................. 16,955
Directors.............................. 9,217
Portfolio pricing...................... 6,614
Miscellaneous.......................... 18,867
------------
Total expenses................... 1,834,359
------------
Net investment income.................... 27,376,462
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain from:
Security transactions.................. 16,889,043
Foreign currency transactions.......... 41,314
------------
Net realized gain on investments and
foreign currency transactions.......... 16,930,357
------------
Net change in unrealized appreciation
(depreciation) on investments:
Security transactions.................. (7,548,249)
Translation of assets and liabilities
in foreign currencies and forward
foreign currency contracts........... (10,985)
------------
Net unrealized loss on investments and
foreign currencies..................... (7,559,234)
------------
Net realized and unrealized gain on
investments and foreign currency
transactions........................... 9,371,123
------------
Net increase in net assets resulting from
operations............................. $ 36,747,585
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $8,826.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
107
<PAGE> 108
HIGH YIELD CORPORATE BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................................................... $27,376,462 $ 9,736,281
Net realized gain on investments................................................ 16,889,043 4,084,739
Net realized gain on foreign currency transactions.............................. 41,314 --
Net change in unrealized appreciation on investments............................ (7,548,249) 3,943,445
Net change in unrealized appreciation on translation of assets and liabilities
in foreign currencies and forward foreign currency contracts.................. (10,985) --
------------ ------------
Net increase in net assets resulting from operations............................ 36,747,585 17,764,465
------------ ------------
Dividends and distributions to shareholders:
From net investment income...................................................... (27,008,388) (9,685,708)
From net realized gain on investments........................................... (16,799,012) (2,622,325)
------------ ------------
Total dividends and distributions to shareholders............................. (43,807,400) (12,308,033)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares................................................ 202,492,429 146,492,029
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions............................................................. 43,807,400 12,308,033
------------ ------------
246,299,829 158,800,062
Cost of shares redeemed......................................................... (19,674,526) (2,569,930)
------------ ------------
Increase in net assets derived from capital share transactions.................. 226,625,303 156,230,132
------------ ------------
Net increase in net assets........................................................ 219,565,488 161,686,564
NET ASSETS:
Beginning of year................................................................. 205,001,035 43,314,471
------------ ------------
End of year....................................................................... $424,566,523 $205,001,035
============ ============
Accumulated undistributed net investment income................................... $ 461,672 $ 50,573
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1995 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period................................ $ 11.61 $ 10.55 $ 10.00
-------- -------- --------
Net investment income................................................. 0.85 0.59 0.37
Net realized and unrealized gain on investments....................... 0.65 1.22 0.61
-------- -------- --------
Total from investment operations...................................... 1.50 1.81 0.98
-------- -------- --------
Less dividends and distributions:
From net investment income.......................................... (0.84) (0.59) (0.37)
From net realized gain on investments............................... (0.54) (0.16) (0.04)
In excess of net realized gain on investments....................... -- -- (0.02)
-------- -------- --------
Total dividends and distributions..................................... (1.38) (0.75) (0.43)
-------- -------- --------
Net asset value at end of period...................................... $ 11.73 $ 11.61 $ 10.55
======== ======== ========
Total investment return (b)........................................... 13.03% 17.16% 10.06%
Ratios (to average net assets)/Supplemental Data:
Net investment income............................................... 8.84% 8.59% 10.02% +
Net expenses........................................................ 0.59% 0.67% 0.67% +
Expenses (before reimbursement)..................................... 0.59% 0.71% 1.25% +
Portfolio turnover rate............................................... 153% 149% 95%
Average commission rate paid.......................................... $ 0.0581 $ 0.0613 (c)
Net assets at end of period (in 000's)................................ $ 424,567 $ 205,001 $ 43,314
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
108
<PAGE> 109
MAINSTAY VP SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
- ------------
<TABLE>
<CAPTION>
COMMON STOCKS (82.1%)+
SHARES VALUE
------------------------
<S> <C> <C>
AUSTRALIA (1.6%)
Amcor, Ltd. (forest products &
paper)............................ 2,200 $ 9,676
Boral, Ltd. (building materials &
components)....................... 3,400 8,596
Brambles Industries, Ltd. (business
& public services)................ 600 11,904
Broken Hill Proprietary Co., Ltd.
(energy sources).................. 3,500 32,497
Coles Myer, Ltd. (merchandising)... 2,570 12,341
CSR, Ltd. (multi-industry)......... 3,200 10,842
Foster's Brewing Group, Ltd.
(beverages & tobacco)............. 5,520 10,502
National Australia Bank, Ltd.
(banking)......................... 2,520 35,187
News Corp., Ltd. (broadcasting &
publishing)....................... 2,939 16,220
Pacific Dunlop, Ltd.
(multi-industry).................. 3,200 6,776
Santos, Ltd. (energy sources)...... 1,700 7,000
Telstra Corp., Ltd.
(telecommunications) (a).......... 137,400 290,062
Westpac Banking Corp., Ltd.
(banking)......................... 2,800 17,908
WMC, Ltd. (metals-nonferrous)...... 3,100 10,806
-----------
480,317
-----------
AUSTRIA (1.5%)
Austrian Airlines Oesterreichische
Luftverkehrs AG
(transportation-airlines) (a)..... 700 14,884
Bank Austria AG (banking).......... 1,200 60,707
Creditanstalt-Bankverein Stamm AG
(banking)......................... 700 44,819
EA-Generali AG (insurance)......... 150 39,353
Flughafen Wien AG
(transportation-airlines)......... 450 17,857
Oesterreichische Brau-Beteiligungs
AG (beverages & tobacco).......... 300 14,964
OMV AG (energy sources)............ 600 82,998
Verbundgesellschaft-Oesterreichische
Elektrizitatswirtschafts AG Class
A (utilities-electrical & gas).... 700 74,145
Voest-Alpine Technologie AG
(machinery & engineering)......... 300 45,483
Wienerberger Baustoffindustrie AG
(building materials &
components)....................... 250 47,922
-----------
443,132
-----------
BELGIUM (2.8%)
Electrabel, S.A.
(utilities-electrical & gas)...... 650 150,353
Fortis AG (insurance).............. 950 198,208
Generale de Banque, S.A.
(banking)......................... 250 108,808
Kredietbank N.V. (banking)......... 250 104,928
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
BELGIUM (Continued)
PetroFina, S.A. (energy sources)... 420 $ 155,023
Reunies Electrobel & Tractebel,
S.A. (multi-industry)............. 290 25,282
Solvay, S.A. Class A (chemicals)... 1,840 115,716
-----------
858,318
-----------
FRANCE (8.3%)
Alcatel Alsthom, S.A. (electrical &
electronics)...................... 678 86,217
AXA-UAP, S.A. (insurance).......... 2,493 192,988
Carrefour, S.A. (merchandising).... 265 138,317
Compagnie de Saint Gobain, S.A.
(miscellaneous-materials &
commodities)...................... 311 44,201
Compagnie de Suez, S.A.
(banking)......................... 10 26
Compagnie Financiere de Paribas,
S.A. Class A (banking)............ 1,451 126,145
Compagnie Generale des Eaux, S.A.
(business & public services)...... 1,337 186,686
Elf Aquitaine, S.A. (energy
sources).......................... 1,312 152,663
Eridania Beghin-Say, S.A. (food &
household products)............... 550 86,031
Groupe Danone, S.A. (food &
household products)............... 316 56,467
Havas, S.A. (business & public
services)......................... 1,311 94,361
Lafarge, S.A. (building materials &
components)....................... 860 56,453
L'Air Liquide, S.A. (chemicals).... 863 135,134
L'Oreal, S.A. (health & personal
care)............................. 417 163,241
LVMH (Moet Hennessy Louis Vuitton),
S.A. (beverages & tobacco)........ 510 84,691
Michelin (CGDE), S.A. Class B
(tire & rubber)................... 1,253 63,110
Pernod-Ricard, S.A.
(beverages & tobacco)............. 430 25,303
Pinault-Printemps-Redoute, S.A.
(building materials &
components)....................... 250 133,439
PSA Peugeot, S.A. (automobiles).... 150 18,925
Rhone-Poulenc, S.A. Class A
(chemicals)....................... 1,468 65,788
Schneider, S.A. (machinery &
engineering)...................... 1,567 85,124
Societe Generale, S.A. Class A
(banking)......................... 1,134 154,571
Suez Lyonnaise des Eaux, S.A.
(multi-industry).................. 1,030 114,028
Thomson CSF, S.A. (aerospace &
military technology).............. 3,047 96,082
Total, S.A. Class B (energy
sources).......................... 1,494 162,665
-----------
2,522,656
-----------
GERMANY (10.2%)
Allianz AG Registered
(insurance)....................... 1,000 259,171
BASF AG (chemicals)................ 2,400 85,092
</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.
109
<PAGE> 110
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
GERMANY (Continued)
Bayer AG (chemicals)............... 3,100 $ 115,859
Daimler-Benz AG (automobiles)...... 4,200 294,787
Deutsche Bank AG (banking)......... 4,800 339,035
Deutsche Telekom AG
(telecommunications).............. 9,300 175,082
Dresdner Bank AG (banking)......... 3,000 138,484
Karstadt AG (merchandising)........ 200 68,308
Linde AG (machinery &
engineering)...................... 150 91,600
Mannesmann AG (machinery &
engineering)...................... 500 252,775
Preussag AG (multi-industry)....... 50 15,267
RWE AG (utilities-electrical &
gas).............................. 8,850 474,974
Siemens AG (electrical &
electronics)...................... 1,700 100,693
Thyssen AG (metals-steel).......... 300 64,236
VEBA AG (utilities-electrical &
gas).............................. 2,600 177,137
Viag AG (multi-industry)........... 600 323,351
Volkswagen AG (automobiles)........ 200 112,567
-----------
3,088,418
-----------
ITALY (5.5%)
Assicurazioni Generali S.p.A.
(insurance)....................... 1,000 24,593
Banca Commerciale Italiana S.p.A.
(banking)......................... 28,000 97,465
Benetton Group S.p.A.
(textile & apparel)............... 4,160 68,164
Credito Italiano S.p.A.
(banking)......................... 34,000 104,976
Edison S.p.A. (energy sources)..... 8,000 48,450
Ente Nazionale Idrocarburi S.p.A.
(energy sources).................. 50,000 283,849
Fiat S.p.A. (automobiles).......... 1,500 4,368
Fiat S.p.A. di Risp
(automobiles)..................... 16,500 27,317
Istituto Bancario San Paolo di
Torino S.p.A. (banking)........... 1,000 9,565
Istituto Nazionale delle
Assicurazioni S.p.A.
(insurance)....................... 55,000 111,601
Italgas S.p.A.
(utilities-electrical & gas)...... 10,000 41,318
Mediobanca S.p.A. (financial
services)......................... 11,000 86,479
Montedison S.p.A.
(multi-industry).................. 79,940 71,896
Olivetti Group S.p.A.
(data processing & reproduction)
(a)............................... 19,200 11,617
Parmalat Finanziaria S.p.A. (food &
household products)............... 35,000 50,119
Pirelli S.p.A. (industrial
components)....................... 26,000 69,607
Riunione Adriatica di Sicurta
S.p.A. (insurance)................ 5,200 51,065
Sirti S.p.A.
(telecommunications).............. 7,000 42,393
Telecom Italia S.p.A.
(telecommunications).............. 32,000 204,666
Telecom Italia S.p.A. di Risp
(telecommunications).............. 12,790 56,465
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
ITALY (Continued)
Telecom Italia Mobile S.p.A.
(telecommunications).............. 31,000 $ 143,263
Telecom Italia Mobile S.p.A. di
Risp (telecommunications)......... 21,000 59,787
-----------
1,669,023
-----------
JAPAN (14.1%)
Ajinomoto Co., Inc.
(food & household products)....... 3,000 29,303
Asahi Chemical Industry Co., Ltd.
(chemicals) (d)................... 4,000 13,598
Asahi Glass Co., Ltd.
(miscellaneous-materials &
components) (d)................... 49,000 233,653
Bank of Tokyo-Mitsubishi, Ltd.
(banking) (d)..................... 12,000 166,126
Bridgestone Corp.
(industrial components)........... 3,000 65,297
Dai Nippon Printing Co., Ltd.
(business & public services)...... 2,000 37,686
Daiei, Inc. (merchandising) (d).... 10,000 41,531
Fanuc, Ltd. (electronic components
& instruments).................... 2,000 75,987
Fuji Bank, Ltd. (banking) (d)...... 14,000 56,852
Fuji Photo Film, Ltd. (recreation &
other consumer goods)............. 8,000 307,640
Fujitsu, Ltd. (data processing &
reproduction) (d)................. 11,000 118,441
Furukawa Electric Co., Ltd.
(industrial components) (d)....... 15,000 64,489
Hankyu Corp.
(transportation-road & rail)...... 3,000 14,098
Hitachi Corp., Ltd.
(electrical & electronics) (d).... 20,000 143,053
Honda Motor Co., Ltd.
(automobiles)..................... 6,000 221,039
Industrial Bank of Japan, Ltd.
(banking) (d)..................... 19,000 135,900
Ito-Yokado Co., Ltd.
(merchandising)................... 1,000 51,145
Itochu Corp. (wholesale &
international trade) (d).......... 30,000 47,300
Japan Airlines Co.
(transportation-airlines)
(a)(d)............................ 9,000 24,573
Japan Energy Corp. (energy
sources).......................... 28,000 26,488
Kajima Corp. (construction &
housing).......................... 2,000 5,061
Kansai Electric Power Co., Inc.
(utilities-electrical & gas)...... 3,000 50,991
Kawasaki Steel Corp.
(metals-steel).................... 6,000 8,214
Kinki Nippon Railway Co., Ltd.
(transportation-road & rail)...... 7,000 37,524
Kirin Brewery Co., Ltd.
(beverages & tobacco)............. 11,000 80,371
Komatsu, Ltd. (machinery &
engineering)...................... 10,000 50,376
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
110
<PAGE> 111
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Marubeni Corp. (wholesale &
international trade).............. 17,000 $ 29,941
Marui Co., Ltd. (merchandising).... 2,000 31,225
Matsushita Electric Industrial Co.,
Ltd. (appliances & household
durables)......................... 17,000 249,727
Mitsubishi Chemical
Corp. (chemicals)................. 1,967 2,829
Mitsubishi Corp.
(multi-industry).................. 5,000 39,609
Mitsubishi Estate Co., Ltd.
(construction & housing).......... 3,000 32,764
Mitsui Engineering & Shipbuilding
Co., Ltd.
(machinery & engineering) (a)..... 21,000 13,405
Mitsui Fudosan Co., Ltd.
(construction & housing).......... 6,000 58,144
Mitsui Marine & Fire Insurance Co.,
Ltd. (insurance).................. 12,000 61,466
Mitsui Trust & Banking Co., Ltd.
(financial services).............. 3,000 5,837
Mitsukoshi, Ltd. (merchandising)... 3,000 8,006
NEC Corp. (electrical &
electronics)...................... 8,000 85,524
Nippon Express Co., Ltd.
(transportation-road & rail)...... 13,000 64,989
Nippon Oil Co., Ltd. (energy
sources).......................... 8,000 20,735
Nippon Paper Industries Co.
(forest products & paper)......... 3,000 11,813
Nippon Yusen Kabushiki Kaisha
(transportation-shipping)......... 5,000 13,767
Nissan Motor Co., Ltd.
(automobiles)..................... 27,000 112,135
NKK Corp. (metals-steel)........... 58,000 46,392
Obayashi Corp.
(construction & housing).......... 5,000 17,074
Oji Paper Co., Ltd.
(forest products & paper)......... 1,000 3,992
Osaka Gas Co., Ltd.
(utilities-electrical & gas)...... 6,000 13,752
Sankyo Co., Ltd. (health &
personal care).................... 2,000 45,377
Sanyo Electric Co., Ltd.
(appliances & household
durables)......................... 45,000 117,672
Sekisui Chemical Co., Ltd.
(chemicals)....................... 1,000 5,099
Sekisui House, Ltd.
(construction & housing).......... 2,000 12,905
Sharp Corp. (appliances &
household durables)............... 5,000 34,533
Shimizu
Corp. (construction & housing).... 4,000 9,291
Shiseido Co., Ltd. (health &
personal care).................... 8,000 109,520
Sumitomo Bank, Ltd. (banking)...... 14,000 160,434
Sumitomo Chemical Co., Ltd.
(chemicals)....................... 5,000 11,536
Sumitomo Corp. (wholesale &
international trade).............. 14,000 78,602
Sumitomo Metal Mining Co.
(metals-nonferrous)............... 4,000 13,229
Taisei Corp. (construction &
housing).......................... 19,000 31,272
Taisho Pharmaceutical Co., Ltd.
(health & personal care).......... 1,000 25,611
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Takeda Chemical Industries, Ltd.
(health & personal care).......... 6,000 $ 171,663
Tobu Railway Co., Ltd.
(transportation-road & rail)...... 14,000 43,931
Tohoku Electric Power Co., Inc.
(utilities-electrical & gas)...... 1,000 15,228
Tokai Bank, Ltd. (banking)......... 11,000 51,437
Tokyo Dome
Corp. (leisure & tourism)......... 2,000 13,352
Tokyo Electric Power Co., Inc.
(utilities-electrical & gas)...... 6,000 109,827
Tokyo Gas Co., Ltd.
(utilities-electrical & gas)...... 15,000 34,148
Tokyu Corp.
(transportation-road & rail)...... 5,000 19,381
Toppan Printing Co., Ltd. (business
& public services)................ 1,000 13,075
Tostem Corp. (building materials &
components)....................... 1,000 10,767
Toto, Ltd. (building materials &
components)....................... 1,000 6,414
Toyoda Automatic Loom Works, Ltd.
(machinery & engineering)......... 1,000 18,458
Yamanouchi Pharmaceutical Co., Ltd.
(health & personal care).......... 3,000 64,604
Yamazaki Baking Co., Ltd. (food &
household products)............... 1,000 9,768
-----------
4,266,996
-----------
NETHERLANDS (3.2%)
Elsevier N.V. (broadcasting &
publishing)....................... 1,500 24,270
ING Groep N.V. (insurance)......... 4,270 179,880
Koninklijke PTT Nederland N.V.
(forest products & paper)......... 2,926 122,108
Philips Electronics N.V.
(appliances & household
durables)......................... 600 35,990
Royal Dutch Petroleum Co.
(energy sources).................. 8,200 450,201
Unilever CVA N.V. (food &
household products)............... 1,200 73,993
Wolters Kluwer CVA N.V.
(broadcasting & publishing)....... 601 77,644
-----------
964,086
-----------
NEW ZEALAND (2.4%)
Brierley Investments Ltd.
(multi-industry).................. 129,700 92,632
Carter Holt Harvey Ltd.
(forest products & paper)......... 79,100 122,173
Fletcher Challenge Building
(building materials &
components)....................... 16,500 33,724
Fletcher Challenge Energy
(energy sources).................. 16,700 58,473
Fletcher Challenge Forest
(forest products & paper)......... 2,716 2,255
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
111
<PAGE> 112
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
NEW ZEALAND (Continued)
Fletcher Challenge Paper
(forest products & paper)......... 34,700 $ 45,335
Telecom Corp. of New Zealand Ltd.
(telecommunications).............. 74,600 361,695
-----------
716,287
-----------
NORWAY (1.4%)
Bergesen d.y. ASA Class A
(transportation-shipping)......... 2,100 49,565
Bergesen d.y. ASA Class B
(transportation-shipping)......... 500 11,665
Dyno Industrier ASA (chemicals).... 500 9,631
Hafslund ASA Class A
(energy sources).................. 1,000 6,104
Hafslund ASA Class B
(energy sources).................. 600 2,865
Kvaerner ASA Class B (machinery &
engineering)...................... 400 18,610
Norsk Hydro ASA (energy sources)... 3,700 180,428
Norske Skogindustrier ASA Class A
(forest products & paper)......... 900 26,125
Nycomed Amersham PLC
(health & personal care) (a)...... 650 24,423
Nycomed Amersham PLC Class B
(health & personal care) (a)...... 390 14,178
Orkla ASA Class A
(multi-industry).................. 900 77,521
-----------
421,115
-----------
PORTUGAL (1.3%)
Banco Comercial Portugues, S.A.
Registered (banking).............. 2,700 55,276
Banco Espirito Santo e Comercial de
Lisboa, S.A. Registered
(banking)......................... 1,600 47,663
Electricidade de Portugal, S.A.
(utilities-electrical & gas)...... 6,300 119,416
Jeronimo Martins & Filho SGPS, S.A.
(food & household products)....... 1,100 34,940
Portugal Telecom, S.A. Registered
(telecommunications).............. 3,100 143,992
-----------
401,287
-----------
SPAIN (4.5%)
Acerinox, S.A. (metals-steel)...... 140 20,732
Autopistas Concesionares Espanola,
S.A. (business & public
services)......................... 7,126 95,611
Banco de Bilbao Vizcaya, S.A.
Registered (banking).............. 6,010 194,398
Banco de Central Hispanoamericano,
S.A. (banking).................... 2,860 69,616
Banco de Santander, S.A.
(banking)......................... 4,280 142,933
Corporacion Bancaria de Espana,
S.A. (banking).................... 1,140 69,335
Corporacion Mapfre, S.A.
(insurance)....................... 620 16,434
Endesa, S.A.
(utilities-electrical & gas)... 8,930 158,485
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
SPAIN (Continued)
Fomento de Construcciones y
Contratas, S.A. (construction &
housing).......................... 1,840 $ 70,019
Gas Natural SDG, S.A.
(utilities-electrical & gas)...... 1,320 68,418
Iberdrola, S.A.
(utilities-electrical & gas)...... 7,730 101,687
Repsol, S.A. (energy sources)...... 3,040 129,645
Telefonica de Espana, S.A.
(telecommunications).............. 7,780 222,044
-----------
1,359,357
-----------
SWITZERLAND (7.7%)
Credit Suisse Group Registered
(banking)......................... 1,300 201,433
Nestle S.A. Registered (food &
household products)............... 400 600,322
Novartis S.A. Registered (health &
personal care).................... 300 487,470
Schweizerische Bankverein
Registered (banking) (a).......... 700 217,887
Schweizerische Rueckversicherungs
Gesellschaft Registered
(insurance)....................... 100 187,309
Sulzer Medica Registered (health &
personal care) (a)................ 500 119,982
UBS-Union Bank of Switzerland
Bearer (banking).................. 200 289,603
Zurich Versicherungs Gesellschaft
Registered (insurance)............ 500 238,593
-----------
2,342,599
-----------
UNITED KINGDOM (17.6%)
Abbey National PLC (banking)....... 7,790 134,458
Barclays PLC (banking)............. 7,425 197,306
Bass PLC (beverages & tobacco)..... 4,500 69,304
B.A.T Industries PLC
(beverages & tobacco)............. 6,671 60,865
BG PLC (energy sources)............ 35,364 159,435
BG PLC Class B (energy sources).... 28,090 14,097
BOC Group PLC (chemicals).......... 4,963 82,192
Boots Co. PLC (merchandising)...... 6,770 98,361
British Airways PLC
(transportation-airlines)......... 7,718 75,751
British Petroleum Co. PLC
(energy sources).................. 30,054 395,855
British Telecommunications PLC
(telecommunications).............. 44,820 353,801
BTR PLC (multi-industry)........... 43,261 132,754
Cable & Wireless PLC
(telecommunications).............. 9,093 79,970
Centrica PLC (energy sources)...... 11,990 17,361
Commercial Union PLC (insurance)... 7,693 113,670
Diageo PLC (beverages & tobacco)... 37,975 348,974
EMI Group PLC (recreation &
other consumer goods)............. 1,974 17,028
Energy Group PLC (energy
sources).......................... 3,239 35,947
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
112
<PAGE> 113
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
General Electric Co. PLC
(electrical & electronics)........ 18,990 $ 124,672
GKN PLC (machinery &
engineering)...................... 3,697 75,856
Glaxo Wellcome PLC (health &
personal care).................... 17,259 408,363
Granada Group PLC (leisure &
tourism).......................... 9,080 139,990
Great Universal Stores PLC (The)
(merchandising)................... 12,200 150,554
Hanson PLC (multi-industry)........ 4,049 18,155
HSBC Holdings PLC (financial
services)......................... 3,110 80,391
Imperial Chemical Industries PLC
(chemicals)....................... 4,700 72,694
Imperial Tobacco Group PLC
(beverages & tobacco)............. 3,239 20,465
Kingfisher PLC (merchandising)..... 10,131 141,358
Lloyds TSB Group PLC (banking)..... 19,354 250,303
Marks & Spencer PLC
(merchandising)................... 16,242 160,081
MEPC PLC (real estate)............. 8,010 67,150
National Power PLC
(utilities-electrical & gas)...... 12,540 124,316
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(The) (transportation-shipping)... 4,355 49,766
Prudential Corp. PLC (insurance)... 9,120 106,018
Rank Group PLC (leisure &
tourism).......................... 5,210 29,897
Reed International PLC
(broadcasting & publishing)....... 26,300 256,399
Reuters Holdings PLC
(broadcasting & publishing)....... 5,820 64,017
Rio Tinto PLC Registered
(metals-nonferrous)............... 6,773 78,623
RMC Group PLC (building materials &
components)....................... 8,270 116,752
Sainsbury (J.) PLC
(merchandising)................... 11,780 98,756
Scottish Power PLC
(utilities-electrical & gas)...... 7,100 62,676
Thorn PLC (appliances &
household durables)............... 848 2,191
Thorn PLC Class B (appliances &
household durables) (a)........... 990 309
Unilever PLC (food &
household products)............... 11,280 96,791
Vodafone Group PLC
(multi-industry).................. 20,215 147,516
-----------
5,331,188
-----------
Total Common Stocks
(Cost $24,030,311)................ 24,864,779
-----------
<CAPTION>
PREFERRED STOCK (0.1%)
SHARES VALUE
------------------------
<S> <C> <C>
AUSTRIA (0.1%)
Creditanstalt-Bankverein Vorzug AG
AS 12.00
(banking) (e)(h).................. 450 $ 25,184
-----------
Total Preferred Stock
(Cost $26,481).................... 25,184
-----------
WARRANTS (0.0%) (B)
FRANCE (0.0%) (b)
Compagnie Generale des Eaux, S.A.
Call Warrants
Strike price FF 900
Expire 5/2/01
(business & public services)
(a)(h)............................ 1,337 909
-----------
Total Warrants..................... 909
-----------
<CAPTION>
SHORT-TERM
INVESTMENTS (12.9%)
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER (12.9%)
UNITED STATES (12.9%)
Ford Motor Credit Co.
6.25%, due 1/2/98
(financial services).............. $1,300,000 1,299,774
Marsh & McLennan Cos.
6.05%, due 1/5/98
(insurance) (c)................... 1,300,000 1,299,126
Merrill Lynch & Co. Inc.
6.00%, due 1/2/98
(financial services).............. 1,300,000 1,299,783
-----------
Total Short-Term Investments (Cost
$3,898,683)....................... 3,898,683
-----------
Total Investments (Cost
$27,955,475) (f).................. 95.1% 28,789,555 (g)
Cash and Other Assets,
Less Liabilities.................. 4.9 1,482,609
-----------
Net Assets......................... 100.0% $30,272,164
======== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
113
<PAGE> 114
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
- ------------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Segregated or partially segregated as collateral for forward foreign
currency contracts.
(e) Dividend rate shown represents the most recent annual payment.
(f) The cost for Federal income tax purposes is $28,606,912.
(g) At December 31, 1997 net unrealized appreciation for securities was
$182,643, 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 $3,710,382 and aggregate gross
unrealized depreciation for all investments on which there was an excess of
cost over market value of $3,527,739.
(h) AS--Austrian Schilling
FF --French Franc
The table below sets forth the diversification of International Equity Portfolio
investments by industry.
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT+
------------------------
<S> <C> <C>
Aerospace & Military
Technology.................. $ 96,082 0.3%
Appliances & Household
Durables.................... 440,422 1.5
Automobiles................... 791,138 2.6
Banking....................... 3,808,768 12.6
Beverages & Tobacco........... 715,439 2.4
Broadcasting & Publishing..... 438,549 1.4
Building Materials &
Components.................. 414,067 1.4
Business & Public Services.... 440,232 1.5
Chemicals..................... 715,168 2.4
Construction & Housing........ 236,529 0.8
Data Processing &
Reproduction................ 130,058 0.4
Electrical & Electronics...... 540,159 1.8
Electronic Components &
Instruments................. 75,987 0.2
Energy Sources................ 2,422,779 8.0
Financial Services............ 2,772,265 9.2
Food & Household Products..... 1,037,734 3.4
Forest Products & Paper....... 343,476 1.1
Health & Personal Care........ 1,634,432 5.4
Industrial Components......... 199,392 0.7
Insurance..................... 3,079,475 10.2
Leisure & Tourism............. 183,239 0.6
Machinery & Engineering....... 651,687 2.2
Merchandising................. 999,984 3.3
Metals-Nonferrous............. 102,658 0.3
Metals-Steel.................. 139,574 0.5
Miscellaneous-Materials &
Commodities................. 44,201 0.1
Miscellaneous-Materials &
Components.................. 233,653 0.8
Multi-Industry................ 1,075,630 3.5
Real Estate................... 67,150 0.2
Recreation & Other Consumer
Goods....................... 324,668 1.1
Telecommunications............ 2,133,220 7.0
Textile & Apparel............. 68,165 0.2
Tire & Rubber................. 63,110 0.2
Transportation-Airlines....... 133,064 0.4
Transportation-Road & Rail.... 179,923 0.6
Transportation-Shipping....... 124,763 0.4
Utilities-Electrical & Gas.... 1,776,872 5.9
Wholesale & International
Trade....................... 155,843 0.5
----------- ------
28,789,555 95.1
Cash and Other Assets, Less
Liabilities................. 1,482,609 4.9
----------- ------
Net Assets.................... $30,272,164 100.0%
=========== =======
</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.
114
<PAGE> 115
MAINSTAY VP SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $27,955,475).......... $ 28,789,555
Cash denominated in foreign currencies
(identified cost $255,748)............. 252,896
Cash..................................... 339,665
Receivables:
Investment securities sold............. 701,878
Dividends and interest................. 77,784
Fund shares sold....................... 57,640
Administrator.......................... 18,040
Unrealized appreciation on forward
foreign currency contracts............. 318,256
------------
Total assets..................... 30,555,714
------------
LIABILITIES:
Payables:
Adviser................................ 15,313
Custodian.............................. 12,600
Fund shares redeemed................... 292
Directors.............................. 20
Accrued expenses......................... 35,581
Unrealized depreciation on forward
foreign currency contracts............. 219,744
------------
Total liabilities................ 283,550
------------
Net assets applicable to outstanding
shares................................. $ 30,272,164
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 29,353
Additional paid-in capital............... 30,375,415
Accumulated undistributed net
investment income...................... 14,716
Accumulated net realized loss on
investments............................ (1,073,801)
Net unrealized appreciation on
investments............................ 834,080
Net unrealized appreciation on
translation of assets and liabilities
in foreign currencies and forward
foreign currency contracts............. 92,401
------------
Net assets applicable to outstanding
shares................................. $ 30,272,164
============
Shares of capital stock outstanding...... 2,935,266
============
Net asset value per share outstanding.... $ 10.31
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 562,414
Interest............................... 146,096
------------
Total income..................... 708,510
------------
Expenses:
Advisory............................... 191,069
Administration......................... 63,690
Custodian.............................. 43,927
Professional........................... 38,720
Shareholder communication.............. 27,756
Portfolio pricing...................... 20,026
Directors.............................. 1,103
Miscellaneous.......................... 13,031
------------
Total expenses before
reimbursement.................. 399,322
Expense reimbursement from
Administrator.......................... (90,428)
------------
Net expenses..................... 308,894
------------
Net investment income.................... 399,616
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Security transactions.................. (849,274)
Foreign currency transactions.......... 2,485,547
------------
Net realized gain on investments and
foreign currency transactions.......... 1,636,273
------------
Net change in unrealized appreciation on
investments:
Security transactions.................. 370,622
Translation of assets and liabilities
in foreign currencies and forward
foreign currency contracts........... (1,103,190)
------------
Net unrealized loss on investments and
foreign currencies..................... (732,568)
------------
Net realized and unrealized gain on
investments and foreign currency
transactions........................... 903,705
------------
Net increase in net assets resulting from
operations............................. $ 1,303,321
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$89,922.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
115
<PAGE> 116
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income........................................................... $ 399,616 $ 249,190
Net realized loss on investments................................................ (849,274) (100,619)
Net realized gain on foreign currency transactions.............................. 2,485,547 858,716
Net change in unrealized appreciation on investments............................ 370,622 319,371
Net change in unrealized appreciation on translation of assets and liabilities
in foreign currencies and forward foreign currency contracts.................. (1,103,190) 1,159,064
----------- -----------
Net increase in net assets resulting from operations............................ 1,303,321 2,485,722
----------- -----------
Dividends and distributions to shareholders:
From net investment income...................................................... (2,375,801) (1,745,204)
From net realized gain on investments and foreign currency transactions......... -- (44,794)
----------- -----------
Total dividends and distributions to shareholders............................. (2,375,801) (1,789,998)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares................................................ 10,523,926 18,900,627
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions............................................................. 2,375,801 1,789,998
----------- -----------
12,899,727 20,690,625
Cost of shares redeemed......................................................... (16,064,303) (1,507,839)
----------- -----------
Increase (decrease) in net assets derived from capital share transactions....... (3,164,576) 19,182,786
----------- -----------
Net increase (decrease) in net assets............................................. (4,237,056) 19,878,510
NET ASSETS:
Beginning of year................................................................. 34,509,220 14,630,710
----------- -----------
End of year....................................................................... $30,272,164 $34,509,220
=========== ===========
Accumulated undistributed net investment income (excess distribution)............. $ 14,716 $ (518,472)
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1995 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period................................ $ 10.65 $ 10.20 $ 10.00
------- ------- -------
Net investment income................................................. 1.06 0.44 0.64
Net realized and unrealized gain on investments....................... 0.27 0.06 0.01
Net realized and unrealized gain (loss) on foreign currency
transactions........................................................ (0.78) 0.56 0.05
------- ------- -------
Total from investment operations...................................... 0.55 1.06 0.70
------- ------- -------
Less dividends and distributions:
From net investment income.......................................... (0.89) (0.60) (0.06)
From net realized gain on investments and foreign currency
transactions...................................................... -- (0.01) (0.44)
------- ------- -------
Total dividends and distributions..................................... (0.89) (0.61) (0.50)
------- ------- -------
Net asset value at end of period...................................... $ 10.31 $ 10.65 $ 10.20
======= ======= =======
Total investment return (b)........................................... 5.17% 10.54% 6.96%
Ratios (to average net assets)/Supplemental Data:
Net investment income............................................... 1.25% 1.01% 1.07% +
Net expenses........................................................ 0.97% 0.97% 0.97% +
Expenses (before reimbursement)..................................... 1.25% 1.51% 2.51% +
Portfolio turnover rate............................................... 61% 16% 14%
Average commission rate paid.......................................... $ 0.0351 $ 0.0364 (c)
Net assets at end of period (in 000's)................................ $ 30,272 $ 34,509 $ 14,631
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
116
<PAGE> 117
MAINSTAY VP SERIES FUND, INC.
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
- ------------
<TABLE>
<CAPTION>
LONG-TERM BONDS (35.1%)+
ASSET-BACKED SECURITIES (4.8%)
<S> <C> <C>
PRINCIPAL
AMOUNT VALUE
---------------------------
AIRPLANE LEASES (0.2%)
Aircraft Lease Portfolio
Securitization Ltd.
Series 1996-1 Class CX
7.35%, due 6/15/06 (f).......... $ 1,120,757 $ 1,120,757
------------
AUTO LOANS (0.7%)
Nissan Auto Receivables
Grantor Trust
Series 1997-A Class A
6.15%, due 2/15/03.............. 3,125,783 3,124,658
------------
CONSUMER LOANS (1.9%)
BankBoston Recreational Vehicle
Asset-Backed Trust Series 1997-1
Class A10
6.39%, due 1/15/03.............. 1,620,000 1,625,476
Chase Manhattan Recreational
Vehicle Owner Trust Series
1997-A Class A5
6.05%, due 11/15/04............. 1,665,000 1,661,687
Green Tree Recreational,
Equipment & Consumer Trust
Series 1997-C Class A1
6.49%, due 2/15/18.............. 4,172,732 4,187,920
NationsCredit Grantor Trust
Series 1997-2 Class A2
6.25%, due 11/15/13............. 985,732 986,550
------------
8,461,633
------------
CREDIT CARD RECEIVABLES (0.2%)
Standard Credit Card Master Trust
Series 1995-4 Class A
5.975%, due 2/15/00 (f)......... 725,000 725,029
------------
EQUIPMENT LOANS (0.3%)
Newcourt Receivables Asset Trust
Series 1996-3 Class A
6.24%, due 12/20/04............. 587,693 586,447
Series 1996-2 Class A
6.87%, due 6/20/04.............. 831,064 834,804
------------
1,421,251
------------
MANUFACTURED HOUSING LOANS (0.5%)
Mid-State Trust VI
Class A-4
7.79%, due 7/1/35............... 1,991,307 2,060,943
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
UTILITY LOANS (1.0%)
California Infrastructure &
Economic Development Bank
Special Purpose Trust
PG&E-1
Rate Reduction Certificates
Series 1997-1 Class A3
6.15%, due 6/25/02.............. $ 1,400,000 $ 1,403,444
SCE-1
Rate Reduction Certificates
Series 1997-1 Class A5
6.28%, due 9/25/05.............. 1,110,000 1,117,226
SDG&E-1
Rate Reduction Certificates
Series 1997-1 Class A6
6.31%, due 9/25/08.............. 2,125,000 2,135,901
------------
4,656,571
------------
Total Asset-Backed Securities
(Cost $21,456,622).............. 21,570,842
------------
BRADY BOND (0.1%)
EURO BOND (0.1%)
Poland-Global Registered
Series RSTA
3.75%, due 10/27/24
4.00%, beginning 10/27/98....... 900,000 605,250
------------
Total Brady Bond
(Cost $517,352)................. 605,250
------------
CERTIFICATE OF DEPOSIT (0.2%)
BANKS (0.2%)
Mercantile Safe Deposit & Trust
Co. 6.30%, due 8/16/99.......... 1,000,000 1,003,700
------------
Total Certificate of Deposit
(Cost $1,000,000)............... 1,003,700
------------
CORPORATE BONDS (5.0%)
AEROSPACE (0.1%)
Wyman-Gordon Co.
8.00%, due 12/15/07............. 610,000 614,575
------------
AIRLINES (0.2%)
American Airlines Pass-Through
Trust
Series 1991-A2
10.18%, due 1/2/13.............. 665,000 840,912
------------
</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.
117
<PAGE> 118
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
BANKS (1.6%)
Bankers Trust New York Corp.
Medium-Term Notes
Series A
6.70%, due 10/1/07.............. $ 680,000 $ 679,232
Capital One Bank
Medium-Term Senior Bank Notes
7.15%, due 9/15/06.............. 1,750,000 1,784,510
First Nationwide Holdings Inc.
12.25%, due 5/15/01............. 560,000 630,000
Regions Financial Corp.
7.75%, due 9/15/24.............. 1,125,000 1,259,685
Southtrust Bank
Birmingham, Alabama N A
Medium-Term Notes
7.69%, due 5/15/25.............. 1,000,000 1,113,370
Star Capital I Guaranteed
6.7025%, due 6/15/27 (f)........ 1,295,000 1,281,143
SunTrust Capital I
6.545%, due 5/15/27 (f)......... 350,000 344,120
------------
7,092,060
------------
BUILDING MATERIALS (0.1%)
Triangle Pacific Corp.
10.50%, due 8/1/03.............. 500,000 525,000
------------
BUILDINGS (0.1%)
Greystone Homes Inc.
10.75%, due 3/1/04.............. 310,000 337,900
U.S. Home Corp.
8.25%, due 8/15/04.............. 260,000 264,550
------------
602,450
------------
CABLE (0.1%)
Jones Intercable, Inc.
9.625%, due 3/15/02............. 360,000 387,000
------------
CASINOS (0.0%)(b)
Grand Casinos Inc. Guaranteed
10.125%, due 12/1/03............ 150,000 161,250
------------
CHEMICALS (0.2%)
ISP Holdings Inc.
Series B
9.00%, due 10/15/03............. 310,000 321,237
Terra Industries Inc.
Series B
10.50%, due 6/15/05............. 445,000 478,375
------------
799,612
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
DRUGS (0.2%)
ICN Pharmaceuticals, Inc.
Series B
9.25%, due 8/15/05.............. $ 250,000 $ 265,000
Merck & Co., Inc.
Medium-Term Notes
Series B
5.76%, due 5/3/37............... 450,000 460,796
------------
725,796
------------
ELECTRIC UTILITIES (0.1%)
CMS Energy Corp.
8.125%, due 5/15/02............. 300,000 308,830
------------
FINANCE (0.3%)
Associates Corp. of North America
5.96%, due 5/15/37.............. 1,365,000 1,389,625
------------
FOOD, BEVERAGE & TOBACCO (0.1%)
Standard Commercial Corp.
Guaranteed
8.875%, due 8/1/05 (c).......... 365,000 368,650
------------
HEALTH CARE (0.1%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02.............. 325,000 340,031
------------
HOSPITAL MANAGEMENT & SERVICES
(0.1%)
Tenet Healthcare Corp.
8.625%, due 12/1/03............. 360,000 381,707
------------
MEDIA (0.2%)
Viacom Inc.
8.00%, due 7/7/06............... 755,000 760,662
------------
RETAIL (0.8%)
Dayton Hudson Corp.
5.895%, due 6/15/37............. 2,170,000 2,187,317
Sears Roebuck Acceptance Corp.
Medium-Term Notes
Series IV
6.36%, due 12/4/01.............. 1,165,000 1,168,099
------------
3,355,416
------------
SHIPBUILDING (0.1%)
Newport News Shipbuilding Inc.
8.625%, due 12/1/06............. 350,000 367,937
------------
STEEL, ALUMINUM & OTHER METALS
(0.1%)
LTV Corp. (The)
8.20%, due 9/15/07 (c).......... 508,000 490,220
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
118
<PAGE> 119
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
TOBACCO (0.4%)
Philip Morris Cos. Inc.
7.25%, due 1/15/03.............. $ 1,730,000 $ 1,784,824
------------
TRANSPORTATION (0.1%)
Trico Marine Services, Inc.
Series B
8.50%, due 8/1/05............... 325,000 329,469
Series E
8.50%, due 8/1/05 (c)........... 325,000 329,469
------------
658,938
------------
Total Corporate Bonds
(Cost $21,659,899).............. 21,955,495
------------
MORTGAGE-BACKED SECURITIES (4.2%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (2.4%)
Asset Securitization Corp.
Series 1997-D5 Class A1C
6.75%, due 2/14/41.............. 1,685,000 1,720,705
Commercial Mortgage
Acceptance Corp.
Series 1997-ML1 Class A3
6.57%, due 10/15/07............. 1,345,000 1,356,809
Commercial Mortgage Pass-Through
Certificates
Series 1997-LLI Class A1
6.79%, due 6/12/04.............. 1,419,854 1,451,119
GS Mortgage Securitization Corp.
II
Series 1997-GL Class A2B
6.86%, due 7/13/30.............. 1,360,000 1,396,842
Merrill Lynch Mortgage Investors,
Inc.
Series 1995-C2 Class A1
7.3437%, due 6/15/21 (f)........ 1,767,768 1,798,616
PNC Mortgage Securities Corp.
Series 1997-6 Class A2
6.60%, due 7/25/27 ARM (e)(i)... 3,067,561 3,075,966
------------
10,800,057
------------
RESIDENTIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (1.8%)
Bear Stearns Mortgage Securities
Inc.
Series 1996-4 Class AI2
10.50%, due 9/25/27............. 537,367 559,195
Financial Asset Securitization,
Inc.
Series 1997-NAMC 2 Class FXA8
10.00%, due 7/25/27............. 1,909,514 2,010,795
Norwest Asset Securities Corp.
Series 1997-10 Class A2
6.50%, due 8/25/27.............. 1,390,000 1,392,849
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
RESIDENTIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS)(Continued)
Residential Asset Securitization
Trust
Series 1997-A3 Class A7
10.00%, due 5/25/27............. $ 1,005,565 $ 1,053,681
Series 1997-A5 Class A4
10.00%, due 7/25/27............. 800,052 835,631
Series 1997-A8 Class A2
10.00%, due 10/25/27............ 568,912 632,618
Series 1997-A9 Class A8
10.00%, due 11/26/27............ 632,840 671,747
Structured Asset Securities Corp.
Series 1996-2 Class A1
7.00%, due 8/25/26.............. 771,911 775,709
------------
7,932,225
------------
Total Mortgage-Backed Securities
(Cost $18,653,363).............. 18,732,282
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (19.3%)
FEDERAL AGENCY (1.7%)
Fannie Mae
Medium-Term Notes
5.96%, due 7/23/99.............. 7,485,000 7,503,338
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-
THROUGH SECURITIES) (5.7%)
6.00%, due 10/1/08 (e).......... 4,837,996 4,791,116
6.50%, due 1/14/28 TBA (d)...... 9,605,000 9,481,960
6.65%, due 1/30/08 TBA (d)...... 1,005,000 1,027,210
6.72%, due 11/1/07 (e).......... 1,398,934 1,436,761
6.835%, due 1/1/07 (e).......... 2,520,266 2,603,712
7.00%, due 1/14/28 TBA (d)...... 6,010,000 6,053,212
------------
25,393,971
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITIES) (3.2%)
7.00%, due 12/15/23 (e)......... 10,152,958 10,267,179
7.50%, due 12/15/23 (e)......... 1,933,105 1,985,666
9.50%, due 12/15/17-5/15/22
(e)........................... 1,761,738 1,927,590
------------
14,180,435
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
119
<PAGE> 120
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
UNITED STATES TREASURY BONDS
(5.0%)
6.125%, due 11/15/27 (g)........ $15,260,000 $ 15,682,091
7.625%, due 2/15/25 (g)......... 2,140,000 2,597,083
8.875%, due 8/15/17............. 1,530,000 2,030,830
12.00%, due 8/15/13............. 1,480,000 2,180,691
------------
22,490,695
------------
UNITED STATES TREASURY NOTES
(3.7%)
5.625%, due 11/30/00 (g)........ 2,165,000 2,160,930
6.25%, due 2/28/02.............. 195,000 198,565
6.625%, due 5/15/07 (g)......... 835,000 883,797
7.75%, due 11/30/99 (g)......... 8,995,000 9,328,085
7.875%, due 11/15/04............ 3,700,000 4,136,489
------------
16,707,866
------------
Total U.S. Government &
Federal Agencies
(Cost $84,996,181).............. 86,276,305
------------
YANKEE BONDS (1.5%)
BANKS (0.2%)
BCH Cayman Islands Ltd.
Guaranteed 7.70%, due 7/15/06... 960,000 1,017,466
------------
FINANCE (0.3%)
Spintab AB
7.50%, due 8/14/49
7.939%, beginning 8/14/06 (c)... 1,215,000 1,250,964
------------
FINANCIAL SERVICES (0.2%)
Banesto Finance Ltd. Guaranteed
7.50%, due 3/25/07.............. 660,000 693,746
------------
FOREIGN GOVERNMENT (0.2%)
Quebec Province of Canada
Series NN
7.125%, due 2/9/24.............. 925,000 955,303
------------
MEDIA (0.1%)
Rogers Communications, Inc.
8.875%, due 7/15/07............. 520,000 520,000
------------
SUPRANATIONAL (0.1%)
Corporacion Andina de Fomento
7.79%, due 3/1/17............... 575,000 596,304
------------
UTILITIES (0.4%)
Hydro-Quebec
Series IO
8.05%, due 7/7/24............... 1,335,000 1,544,675
------------
<CAPTION>
VALUE
------------
<S> <C> <C>
Total Yankee Bonds
(Cost $6,452,327)............... $ 6,578,458
------------
Total Long-Term Bonds
(Cost $154,735,744)............. $156,722,332
------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS (57.3%)
SHARES
-----------
<S> <C> <C>
BANKS (2.6%)
NationsBank Corp................. 68,200 4,147,412
Norwest Corp..................... 119,000 4,596,375
Washington Mutual, Inc........... 42,700 2,724,794
------------
11,468,581
------------
BUILDINGS (0.5%)
Oakwood Homes Corp............... 68,400 2,270,025
------------
COMPUTERS & OFFICE EQUIPMENT
(2.1%)
EMC Corp. (a).................... 40,600 1,113,962
Hewlett-Packard Co............... 56,400 3,525,000
Sun Microsystems, Inc. (a)....... 119,000 4,745,125
------------
9,384,087
------------
CONSUMER DURABLES (0.9%)
Harley-Davidson, Inc............. 151,800 4,155,525
------------
CONSUMER SERVICES (2.5%)
Cendant Corp. (a)................ 272,703 9,374,166
Service Corp. International...... 43,400 1,603,087
------------
10,977,253
------------
COSMETICS (0.8%)
Gillette Co. (The)............... 37,000 3,716,187
------------
DRUGS (5.1%)
Elan Corp. PLC ADR (a)(h)........ 77,400 3,961,913
Lilly (Eli) & Co................. 105,000 7,310,625
Merck & Co., Inc................. 43,000 4,568,750
Schering-Plough Corp............. 111,600 6,933,150
------------
22,774,438
------------
ENERGY (1.5%)
Diamond Offshore Drilling,
Inc............................. 58,500 2,815,312
ENSCO International Inc.......... 80,000 2,680,000
Halliburton Co................... 26,500 1,376,344
------------
6,871,656
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
120
<PAGE> 121
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
FINANCE (9.1%)
Associates First Capital Corp.
Class A......................... 59,300 $ 4,217,713
CIT Group, Inc. (The) Class A
(a)............................. 75,000 2,418,750
Equifax Inc...................... 87,100 3,086,606
Fannie Mae....................... 59,800 3,412,338
Green Tree Financial Corp........ 120,000 3,142,500
Household International, Inc..... 39,900 5,089,744
MGIC Investment Corp............. 87,400 5,812,100
SunAmerica Inc................... 162,750 6,957,562
Travelers Group Inc.............. 123,600 6,658,950
------------
40,796,263
------------
HEALTH CARE (3.3%)
Cardinal Health, Inc............. 36,000 2,704,500
HEALTHSOUTH Corp. (a)............ 169,000 4,689,750
Tenet Healthcare Corp. (a)....... 136,475 4,520,734
United Healthcare Corp........... 60,400 3,001,125
------------
14,916,109
------------
INDUSTRIAL (2.9%)
Illinois Tool Works Inc.......... 58,000 3,487,250
Tyco International Ltd........... 208,900 9,413,556
------------
12,900,806
------------
INSURANCE (2.0%)
American International Group,
Inc............................. 50,625 5,505,469
Conseco, Inc..................... 74,800 3,398,725
------------
8,904,194
------------
LEISURE (0.5%)
Mirage Resorts, Inc. (a)......... 86,400 1,965,600
------------
MATERIALS/PROCESSING (0.6%)
Monsanto Co...................... 68,300 2,868,600
------------
MEDICAL EQUIPMENT (3.5%)
Guidant Corp..................... 83,000 5,166,750
Johnson & Johnson................ 66,552 4,384,113
Medtronic, Inc................... 117,400 6,141,487
------------
15,692,350
------------
OIL & GAS EXPLORATION (0.0%)(b)
Abacan Resource Corp. (a)........ 85,000 132,813
------------
POLLUTION & RELATED (0.6%)
USA Waste Services, Inc. (a)..... 67,000 2,629,750
------------
RETAIL (7.2%)
Bed Bath & Beyond Inc. (a)....... 77,900 2,999,150
CVS Corp......................... 60,800 3,895,000
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
RETAIL (Continued)
Dollar General Corp.............. 81,750 $ 2,963,438
Home Depot, Inc. (The)........... 88,900 5,233,987
Kohl's Corp. (a)................. 71,400 4,864,125
Kroger Co. (The) (a)............. 93,600 3,457,350
Safeway Inc. (a)................. 93,200 5,894,900
Staples, Inc. (a)................ 107,500 2,983,125
------------
32,291,075
------------
SOFTWARE (4.5%)
Computer Associates
International, Inc.............. 141,525 7,483,134
Compuware Corp. (a).............. 130,800 4,185,600
Microsoft Corp. (a).............. 37,600 4,859,800
Oracle Corp. (a)................. 153,037 3,414,638
------------
19,943,172
------------
TECHNOLOGY (4.3%)
Adaptec, Inc. (a)................ 76,500 2,840,063
Cisco Systems, Inc. (a).......... 99,150 5,527,613
Intel Corp....................... 66,700 4,685,675
Linear Technology Corp........... 36,000 2,074,500
3Com Corp. (a)................... 119,700 4,182,019
------------
19,309,870
------------
TELECOMMUNICATION EQUIPMENT
(1.3%)
Lucent Technologies Inc.......... 72,000 5,751,000
------------
TELECOMMUNICATION SERVICES (1.0%)
WorldCom, Inc. (a)............... 145,432 4,399,318
------------
TOYS (0.5%)
Mattel, Inc...................... 55,400 2,063,650
------------
Total Common Stocks
(Cost $161,787,304)............. 256,182,322
------------
PREFERRED STOCK (0.1%)
MEDIA & ENTERTAINMENT (0.1%)
Time Warner Capital I Guaranteed
8.875%, 12/31/25................ 7,700 203,569
------------
Total Preferred Stock
(Cost $198,593)................. 203,569
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
121
<PAGE> 122
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (10.9%)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
COMMERCIAL PAPER (9.5%)
American Express Credit Corp.
6.10%, due 1/2/98............... $ 5,400,000 $ 5,400,000
6.25%, due 1/2/98............... 10,000,000 10,000,000
American General Finance Corp.
6.65%, due 1/2/98............... 14,915,000 14,915,000
Ford Motor Credit Co.
5.95%, due 1/2/98............... 12,240,000 12,240,000
------------
Total Commercial Paper
(Cost $42,555,000).............. 42,555,000
------------
U.S. GOVERNMENT (0.8%)
United States Treasury Note
5.50%, due 11/15/98 (g)......... 3,670,000 3,666,000
------------
Total U.S. Government
(Cost $3,660,803)............... 3,666,000
------------
YANKEE BOND (0.6%)
FINANCE (0.6%)
Deutsche Bank Finance NV
Guaranteed
6.375%, due 12/23/98............ 2,485,000 2,494,791
------------
Total Yankee Bond
(Cost $2,493,051)............... 2,494,791
------------
Total Short-Term Investments
(Cost $48,708,854).............. 48,715,791
------------
Total Investments
(Cost $365,430,495)(j).......... 103.4% 461,824,014(k)
Liabilities in Excess of
Cash and Other Assets........... (3.4) (15,200,429)
---------- ----------
Net Assets....................... 100.0% $446,623,585
========== ==========
</TABLE>
- ------------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and maturity
date will be determined upon settlement.
(e) Segregated or partially segregated as collateral for TBA.
(f) Floating rate. Rate shown is the rate in effect at December 31, 1997.
(g) Represents securities out on loan or a portion which is out on loan.
(h) ADR--American Depository Receipt.
(i) ARM--Adjustable Rate Mortgage. Resets annually.
(j) The cost for Federal income tax purposes is $365,481,837.
(k) At December 31, 1997 net unrealized appreciation was $96,342,177, 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 $98,916,963 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,574,786.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
122
<PAGE> 123
MAINSTAY VP SERIES FUND, INC.
TOTAL RETURN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $365,430,495)......... $461,824,014
Cash..................................... 44,443
Collateral held for securities loaned, at
value.................................. 25,264,581
Receivables:
Investment securities sold............. 13,225,948
Dividends and interest................. 1,710,322
Fund shares sold....................... 524,635
------------
Total assets..................... 502,593,943
------------
LIABILITIES:
Securities lending collateral, at
value.................................. 25,264,581
Payables:
Investment securities purchased........ 30,404,248
Adviser................................ 118,776
Administrator.......................... 74,234
Custodian.............................. 12,967
Directors.............................. 263
Accrued expenses......................... 95,289
------------
Total liabilities................ 55,970,358
------------
Net assets applicable to outstanding
shares................................. $446,623,585
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares authorized.... $ 271,204
Additional paid-in capital............... 347,911,159
Accumulated undistributed net investment
income................................. 115,108
Accumulated undistributed net realized
gain on investments.................... 1,932,595
Net unrealized appreciation on
investments............................ 96,393,519
------------
Net assets applicable to outstanding
shares................................. $446,623,585
============
Shares of capital stock outstanding...... 27,120,377
============
Net asset value per share outstanding.... $ 16.47
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 10,812,131
Dividends (a).......................... 1,144,569
------------
Total income..................... 11,956,700
------------
Expenses:
Advisory............................... 1,249,328
Administration......................... 780,830
Shareholder communication.............. 190,709
Professional........................... 53,699
Custodian.............................. 48,998
Directors.............................. 12,470
Miscellaneous.......................... 7,262
------------
Total expenses................... 2,343,296
------------
Net investment income.................... 9,613,404
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 13,159,109
Net change in unrealized appreciation on
investments............................ 40,611,907
------------
Net realized and unrealized gain on
investments............................ 53,771,016
------------
Net increase in net assets resulting from
operations............................. $ 63,384,420
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $3,721.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
123
<PAGE> 124
TOTAL RETURN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................................................... $ 9,613,404 $ 6,700,275
Net realized gain on investments................................................ 13,159,109 925,325
Net change in unrealized appreciation on investments............................ 40,611,907 23,203,457
------------ ------------
Net increase in net assets resulting from operations............................ 63,384,420 30,829,057
------------ ------------
Dividends and distributions to shareholders:
From net investment income...................................................... (9,410,905) (6,719,788)
From net realized gain on investments........................................... (8,039,987) --
------------ ------------
Total dividends and distributions to shareholders............................. (17,450,892) (6,719,788)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares................................................ 67,934,966 114,153,151
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions............................................................. 17,450,892 6,719,788
------------ ------------
85,385,858 120,872,939
Cost of shares redeemed......................................................... (17,593,189) (6,978,226)
------------ ------------
Increase in net assets derived from capital share transactions.................. 67,792,669 113,894,713
------------ ------------
Net increase in net assets........................................................ 113,726,197 138,003,982
NET ASSETS:
Beginning of year................................................................. 332,897,388 194,893,406
------------ ------------
End of year....................................................................... $446,623,585 $332,897,388
============ ============
Accumulated undistributed net investment income................................... $ 115,108 $ --
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 14.56 $ 13.26 $ 10.58 $ 11.32 $ 10.00
-------- -------- -------- -------- --------
Net investment income..................... 0.37 0.30 0.31 0.27 0.16
Net realized and unrealized gain (loss) on
investments............................. 2.21 1.30 2.69 (0.72) 1.34
-------- -------- -------- -------- --------
Total from investment operations.......... 2.58 1.60 3.00 (0.45) 1.50
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income.............. (0.36) (0.30) (0.32) (0.29) (0.16)
From net realized gain on investments... (0.31) -- -- -- --
In excess of net realized gain on
investments........................... -- -- -- -- (0.02)
-------- -------- -------- -------- --------
Total dividends and distributions......... (0.67) (0.30) (0.32) (0.29) (0.18)
-------- -------- -------- -------- --------
Net asset value at end of period.......... $ 16.47 $ 14.56 $ 13.26 $ 10.58 $ 11.32
======== ======== ======== ======== ========
Total investment return (b)............... 17.79% 12.08% 28.33% (3.99%) 15.04%
Ratios (to average net
assets)/Supplemental Data:
Net investment income................... 2.46% 2.52% 3.06% 3.50% 3.48% +
Net expenses............................ 0.60% 0.69% 0.69% 0.69% 0.69% +
Expenses (before reimbursement)......... 0.60% 0.71% 0.81% 0.88% 1.07% +
Portfolio turnover rate................... 125% 175% 253% 297% 197%
Average commission rate paid.............. $ 0.0585 $ 0.0599 (c) (c) (c)
Net assets at end of period (in 000's).... $ 446,624 $ 332,897 $ 194,893 $ 122,333 $ 55,548
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
124
<PAGE> 125
MAINSTAY VP SERIES FUND, INC.
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (87.5%)+
SHARES VALUE
---------------------------
<S> <C> <C>
AEROSPACE/DEFENSE ELECTRONICS
(1.1%)
Coltec Industries, Inc. (a)...... 122,300 $ 2,835,831
------------
AIRLINES (2.5%)
AMR Corp. (a).................... 27,500 3,533,750
Northwest Airlines Corp. Class A
(a)............................. 67,100 3,212,412
------------
6,746,162
------------
AUTO MANUFACTURING (2.3%)
Ford Motor Co. .................. 122,900 5,983,694
------------
AUTO PARTS (3.3%)
Echlin Inc....................... 99,300 3,593,419
LucasVarity PLC-ADR (b).......... 90,000 3,138,750
Mark IV Industries, Inc.......... 89,565 1,959,234
------------
8,691,403
------------
BANKS (5.3%)
Banc One Corp.................... 65,300 3,546,606
Bankers Trust New York Corp...... 13,500 1,517,906
Chase Manhattan Corp............. 16,000 1,752,000
NationsBank Corp................. 46,134 2,805,524
PNC Bank Corp.................... 38,000 2,168,375
Wells Fargo & Co................. 6,400 2,172,400
------------
13,962,811
------------
CAPITAL GOODS (1.5%)
Xerox Corp....................... 55,700 4,111,356
------------
CHEMICALS (4.3%)
Agrium Inc....................... 124,500 1,517,344
Geon Co. (The)................... 49,600 1,159,400
Georgia Gulf Corp................ 66,800 2,045,750
IMC Global Inc................... 89,000 2,914,750
Imperial Chemical Industries
PLC ADR (b)..................... 38,000 2,467,625
PPG Industries, Inc.............. 22,000 1,256,750
------------
11,361,619
------------
COMPUTERS & OFFICE EQUIPMENT
(2.3%)
Ceridian Corp. (a)............... 58,200 2,666,288
Lexmark International Group, Inc.
Class A (a)..................... 90,200 3,427,600
------------
6,093,888
------------
CONGLOMERATES (2.5%)
American Standard Cos. Inc.
(a)............................. 93,900 3,597,544
Tenneco Inc...................... 76,200 3,009,900
------------
6,607,444
------------
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
CONTAINERS (2.1%)
Crown Cork & Seal Co., Inc....... 49,200 2,466,150
Owens-Illinois Inc. (a).......... 84,900 3,220,894
------------
5,687,044
------------
DOMESTIC OIL (2.9%)
Amerada Hess Corp................ 32,000 $ 1,756,000
Noble Affiliates, Inc............ 78,200 2,756,550
Unocal Corp...................... 82,700 3,209,794
------------
7,722,344
------------
ENERGY (2.9%)
Coastal Corp. (The).............. 39,400 2,440,338
MAPCO Inc........................ 68,600 3,172,750
Seagull Energy Corp. (a)......... 98,600 2,033,625
------------
7,646,713
------------
FINANCE (2.3%)
Transamerica Corp................ 35,000 3,727,500
Travelers Group Inc.............. 44,349 2,389,302
------------
6,116,802
------------
FOOD (0.7%)
IBP, Inc......................... 94,900 1,986,969
------------
FOOD, BEVERAGE & TOBACCO (4.0%)
Philip Morris Cos. Inc........... 46,200 2,093,437
RJR Nabisco Holdings Corp........ 139,800 5,242,500
UST Inc.......................... 84,000 3,102,750
------------
10,438,687
------------
HEALTH CARE (5.8%)
Aetna Inc........................ 54,500 3,845,656
Allegiance Corp.................. 92,600 3,281,513
Columbia/HCA Healthcare Corp..... 142,800 4,230,450
Foundation Health Systems, Inc.
Class A (a)..................... 176,900 3,958,137
------------
15,315,756
------------
HOSPITAL MANAGEMENT (1.1%)
Tenet Healthcare Corp. (a)....... 90,000 2,981,250
------------
HOUSEHOLD PRODUCTS (0.7%)
Premark International, Inc....... 62,300 1,806,700
------------
INSURANCE (4.6%)
Allstate Corp. (The)............. 34,000 3,089,750
Chubb Corp....................... 40,800 3,085,500
CIGNA Corp....................... 13,100 2,267,119
Equitable Cos., Inc. (The)....... 75,200 3,741,200
------------
12,183,569
------------
</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.
125
<PAGE> 126
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
INTERNATIONAL OIL (1.8%)
British Petroleum Co., PLC ADR
(b)............................. 30,000 $ 2,390,625
Occidental Petroleum Corp........ 77,600 2,274,650
------------
4,665,275
------------
OIL SERVICES (0.2%)
Burlington Resources Inc......... 10,250 459,328
------------
PAPER & FOREST
PRODUCTS (3.9%)
Bowater Inc...................... 108,000 4,799,250
Chesapeake Corp.................. 20,200 694,375
Georgia-Pacific Corp............. 34,900 2,120,175
Georgia-Pacific Corp.
(Timber Group) (a).............. 91,900 2,084,981
Rayonier Inc..................... 13,800 587,363
------------
10,286,144
------------
RAILROADS (3.3%)
CSX Corp......................... 89,000 4,806,000
Illinois Central Corp............ 45,150 1,537,922
Union Pacific Corp............... 36,100 2,253,994
------------
8,597,916
------------
RECREATION & ENTERTAINMENT (1.3%)
Harrah's Entertainment, Inc.
(a)............................. 181,800 3,431,475
------------
RETAIL (3.2%)
Federated Department Stores, Inc.
(a)............................. 90,200 3,884,237
Penney (J.C.) Co., Inc........... 12,000 723,750
Toys "R" Us, Inc. (a)............ 123,300 3,876,244
------------
8,484,231
------------
TECHNOLOGY (1.1%)
International Business Machines
Corp............................ 27,200 2,844,100
------------
TELECOMMUNICATION (2.8%)
AT&T Corp........................ 118,900 7,282,625
------------
TELECOMMUNICATION
SERVICES (1.1%)
GTE Corp......................... 57,800 3,020,050
------------
TEXTILE & APPAREL (1.1%)
Burlington Industries, Inc.
(a)............................. 151,000 2,085,687
Reebok International Ltd. (a).... 25,900 746,244
------------
2,831,931
------------
TIRE & RUBBER (1.0%)
Goodyear Tire & Rubber Co.
(The)........................... 39,700 2,525,913
------------
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
UTILITIES (14.5%)
Boston Edison Co................. 138,000 $ 5,226,750
Central & South West Corp........ 177,000 4,790,062
FPL Group, Inc................... 85,000 5,030,938
GPU, Inc......................... 7,800 328,575
Long Island Lighting Co.......... 170,500 5,136,312
Northeast Utilities.............. 104,700 1,236,769
OGE Energy Corp.................. 72,500 3,964,843
PECO Energy Co................... 103,000 2,497,750
PG&E Corp........................ 174,500 5,311,344
Pinnacle West Capital Corp....... 42,700 1,809,413
Public Service Enterprise Group
Inc............................. 95,200 3,016,650
------------
38,349,406
------------
Total Common Stocks
(Cost $196,299,850)............. 231,058,436
------------
SHORT-TERM
INVESTMENTS (13.7%)
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
COMMERCIAL PAPER (13.7%)
American Express Credit Corp.
6.15%, due 1/2/98............... $11,167,000 11,167,000
Ford Motor Credit Co.
6.01%, due 1/5/98............... 5,000,000 5,000,000
General Electric Capital Corp.
5.90%, due 1/7/98............... 9,626,000 9,626,000
Prudential Funding Corp.
5.80%, due 1/5/98............... 5,437,000 5,437,000
5.85%, due 1/5/98............... 5,000,000 5,000,000
------------
Total Short-Term Investments
(Cost $36,230,000).............. 36,230,000
------------
Total Investments
(Cost $232,529,850) (c)......... 101.2% 267,288,436(d)
Liabilities in Excess of
Cash and Other Assets........... (1.2) (3,109,004)
---------- ------------
Net Assets....................... 100.0% $264,179,432
========== ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for Federal income tax purposes is $232,661,792.
(d) At December 31, 1997 net unrealized appreciation was $34,626,644, 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 $39,312,730 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $4,686,086.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
126
<PAGE> 127
MAINSTAY VP SERIES FUND, INC.
VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $232,529,850)......... $267,288,436
Cash..................................... 367
Receivables:
Fund shares sold....................... 594,123
Dividends and interest................. 564,353
------------
Total assets..................... 268,447,279
------------
LIABILITIES:
Payables:
Investment securities purchased........ 4,106,594
Adviser................................ 77,477
Administrator.......................... 43,042
Custodian.............................. 6,809
Directors.............................. 139
Accrued expenses......................... 33,786
------------
Total liabilities................ 4,267,847
------------
Net assets applicable to outstanding
shares................................. $264,179,432
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 164,157
Additional paid-in capital............... 226,527,210
Accumulated undistributed net investment
income................................. 696
Accumulated undistributed net realized
gain on investments.................... 2,728,783
Net unrealized appreciation on
investments............................ 34,758,586
------------
Net assets applicable to outstanding
shares................................. $264,179,432
============
Shares of capital stock outstanding...... 16,415,676
============
Net asset value per share outstanding.... $ 16.09
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 3,556,666
Interest............................... 960,349
-----------
Total income..................... 4,517,015
-----------
Expenses:
Advisory............................... 669,824
Administration......................... 372,124
Shareholder communication.............. 78,194
Professional........................... 42,118
Custodian.............................. 25,692
Directors.............................. 5,463
Miscellaneous.......................... 9,144
-----------
Total expenses................... 1,202,559
-----------
Net investment income.................... 3,314,456
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 13,030,231
Net change in unrealized appreciation on
investments............................ 21,662,906
-----------
Net realized and unrealized gain on
investments............................ 34,693,137
-----------
Net increase in net assets resulting from
operations............................. $ 38,007,593
===========
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $5,654.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
127
<PAGE> 128
VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................................................... $ 3,314,456 $ 1,417,822
Net realized gain on investments................................................ 13,030,231 2,468,445
Net change in unrealized appreciation on investments............................ 21,662,906 11,576,673
------------ ------------
Net increase in net assets resulting from operations............................ 38,007,593 15,462,940
------------ ------------
Dividends and distributions to shareholders:
From net investment income...................................................... (3,316,396) (1,415,317)
From net realized gain on investments........................................... (11,200,731) (1,616,124)
------------ ------------
Total dividends and distributions to shareholders............................. (14,517,127) (3,031,441)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares................................................ 114,898,296 81,567,373
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions............................................................... 14,517,127 3,031,441
------------ ------------
129,415,423 84,598,814
Cost of shares redeemed......................................................... (9,141,345) (1,044,875)
------------ ------------
Increase in net assets derived from capital share transactions.................. 120,274,078 83,553,939
------------ ------------
Net increase in net assets........................................................ 143,764,544 95,985,438
NET ASSETS:
Beginning of year................................................................. 120,414,888 24,429,450
------------ ------------
End of year....................................................................... $264,179,432 $120,414,888
============ ============
Accumulated undistributed net investment income................................... $ 696 $ 2,636
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1995 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period................................ $ 13.90 $ 11.58 $ 10.00
-------- -------- --------
Net investment income................................................. 0.21 0.17 0.10
Net realized and unrealized gain on investments....................... 2.94 2.52 1.58
-------- -------- --------
Total from investment operations...................................... 3.15 2.69 1.68
-------- -------- --------
Less dividends and distributions:
From net investment income.......................................... (0.21) (0.17) (0.10)
From net realized gain on investments............................... (0.75) (0.20) --
-------- -------- --------
Total dividends and distributions..................................... (0.96) (0.37) (0.10)
-------- -------- --------
Net asset value at end of period...................................... $ 16.09 $ 13.90 $ 11.58
======== ======== ========
Total investment return (b)........................................... 22.89% 23.22% 16.76%
Ratios (to average net assets)/Supplemental Data:
Net investment income............................................... 1.78% 2.10% 2.57% +
Net expenses........................................................ 0.65% 0.73% 0.73% +
Expenses (before reimbursement)..................................... 0.65% 0.79% 1.45% +
Portfolio turnover rate............................................... 48% 41% 20%
Average commission rate paid.......................................... $ 0.0594 $ 0.0593 (c)
Net assets at end of period (in 000's)................................ $ 264,179 $ 120,415 $ 24,429
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
128
<PAGE> 129
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
LONG-TERM BONDS (96.6%)+
CORPORATE BONDS (58.9%)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
AUTO PARTS/EQUIPMENT (2.3%)
Borg-Warner Automotive, Inc.
7.00%, due 11/1/06.............. $ 5,000,000 $ 5,162,500
------------
BANKS (7.1%)
BankAmerica Corp.
7.75%, due 7/15/02.............. 4,000,000 4,225,000
First Union Capital Corp.
7.935%, due 1/15/27............. 5,000,000 5,337,500
Golden West Financial Corp.
10.25%, due 12/1/00............. 1,000,000 1,107,500
Republic New York Corp.
7.75%, due 5/15/09.............. 5,000,000 5,487,500
------------
16,157,500
------------
BEVERAGES (1.8%)
Coca-Cola Enterprises, Inc.
7.125%, due 8/1/17.............. 4,000,000 4,190,000
------------
CONGLOMERATES--DIVERSIFIED
(0.9%)
Harcourt General, Inc.
9.50%, due 3/15/00.............. 2,000,000 2,132,500
------------
DATA PROCESSING (1.3%)
International Business Machines
Corp.
6.375%, due 6/15/00............. 3,000,000 3,022,500
------------
DIVERSIFIED UTILITIES (5.3%)
Consumers Energy Co.
7.375%, due 9/15/23............. 7,000,000 7,043,750
Niagara Mohawk Power Corp.
7.375%, due 8/1/03.............. 2,000,000 2,055,000
Public Service Co. of Colorado
6.00%, due 1/1/01............... 3,000,000 2,996,250
------------
12,095,000
------------
ELECTRIC UTILITIES (5.8%)
Cleveland Electric Illuminating
Co.
7.88%, due 11/1/17 (a).......... 5,000,000 5,268,750
Connecticut Light & Power Co.
7.75%, due 6/1/02............... 3,000,000 3,033,750
Texas Utilities Electric Co.
5.75%, due 7/1/98 (b)........... 5,000,000 4,993,750
------------
13,296,250
------------
FINANCE (14.3%)
Aristar, Inc.
6.50%, due 11/15/03............. 5,000,000 5,018,750
Chrysler Financial Corp.
5.875%, due 2/7/01.............. 5,000,000 4,968,750
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
FINANCE (Continued)
Ford Motor Credit Co.
7.20%, due 6/15/07.............. $ 5,000,000 $ 5,287,500
General Motors Acceptance Corp.
5.625%, due 2/15/01............. 6,000,000 5,917,500
9.625%, due 12/15/01............ 1,000,000 1,113,750
Mellon Financial Co.
7.625%, due 11/15/99............ 3,000,000 3,090,000
Norwest Financial, Inc.
6.85%, due 7/15/09.............. 7,000,000 7,253,750
------------
32,650,000
------------
FOOD (2.0%)
ConAgra, Inc.
9.875%, due 11/15/05............ 1,000,000 1,207,500
Ralcorp Holding, Inc.
8.75%, due 9/15/04.............. 3,000,000 3,405,000
------------
4,612,500
------------
OIL & GAS (1.9%)
Oryx Energy Co.
9.50%, due 11/1/99.............. 4,235,000 4,446,750
------------
PAPER PRODUCTS (2.1%)
Champion International Corp.
9.875%, due 6/1/00.............. 4,500,000 4,871,250
------------
PLASTIC PRODUCTS (1.8%)
USA Waste Services, Inc.
6.50%, due 12/15/02............. 4,000,000 3,990,000
------------
RAILROADS (4.7%)
Norfolk Southern Corp.
6.95%, due 5/1/02............... 5,000,000 5,137,500
7.80%, due 5/15/27.............. 5,000,000 5,656,250
------------
10,793,750
------------
RETAIL STORES (7.6%)
Penney (J.C.) Co., Inc.
6.95%, due 4/1/00............... 5,000,000 5,087,500
Price/Costco, Inc.
7.125%, due 6/15/05............. 5,000,000 5,225,000
Sears Roebuck & Co.
8.45%, due 11/1/98 (b).......... 7,000,000 7,136,360
------------
17,448,860
------------
Total Corporate Bonds
(Cost $129,765,535)............. 134,869,360
------------
</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.
129
<PAGE> 130
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (28.6%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (15.0%)
6.00%, due 12/1/27.............. $ 4,000,000 $ 3,855,000
6.50%, due 11/1/09.............. 7,037,811 7,079,602
7.00%, due 2/1/27............... 10,362,223 10,446,416
8.00%, due 5/1/25............... 12,503,018 12,983,609
------------
34,364,627
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITY) (2.0%)
9.00%, due 4/15/26.............. 4,191,358 4,497,851
------------
UNITED STATES TREASURY BONDS
(8.0%)
6.375%, due 8/15/27............. 5,000,000 5,276,200
6.50%, due 11/15/26............. 8,000,000 8,539,840
7.125%, due 2/15/23............. 4,000,000 4,565,800
------------
18,381,840
------------
UNITED STATES TREASURY NOTES
(3.6%)
6.125%, due 8/15/07............. 5,000,000 5,137,200
7.25%, due 5/15/04.............. 3,000,000 3,236,640
------------
8,373,840
------------
Total U.S. Government &
Federal Agencies
(Cost $63,708,839).............. 65,618,158
------------
YANKEE BONDS (9.1%)
BANKS (0.9%)
Banco Nacional de Comercio
Exterior 7.50%, due 7/1/00...... 2,000,000 1,975,000
------------
COMMERCIAL PRINTING (2.3%)
Quebecor Printing Capital Corp.
7.25%, due 1/15/07.............. 5,000,000 5,275,000
------------
CRUDE PETROLEUM &
NATURAL GAS (2.3%)
Gulf Canada Resources Ltd.
9.00%, due 8/15/99.............. 5,000,000 5,187,500
------------
PAPER PRODUCTS (1.7%)
Celulosa Arauco Constitucion S.A.
6.95%, due 9/15/05.............. 4,000,000 3,980,000
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (1.9%)
British Telecommunications
Finance, Inc.
9.375%, due 2/15/99............. $ 4,200,000 $ 4,357,500
------------
Total Yankee Bonds
(Cost $20,415,318).............. 20,775,000
------------
Total Long-Term Bonds
(Cost $213,889,692)............. 221,262,518
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (1.9%)
<S> <C> <C>
COMMERCIAL PAPER (1.9%)
Associates Corp. of North America
5.50%, due on demand (c)........ 3,370,000 3,370,000
PHH Corp.
6.10%, due 1/12/98.............. 473,000 472,118
Procter & Gamble Co.
6.05%, due 1/6/98............... 400,000 399,664
------------
Total Short-Term Investments
(Cost $4,241,782)............... 4,241,782
------------
Total Investments
(Cost $218,131,474) (d)......... 98.5% 225,504,300(e)
Cash and Other Assets,
Less Liabilities................ 1.5 3,444,737
---------- ------------
Net Assets....................... 100.0% $228,949,037
========== ============
</TABLE>
- ------------
(a) May be sold to institutional investors only.
(b) Long-term security maturing within the subsequent twelve month period.
(c) Adjustable rate. Rate shown is the rate in effect at
December 31, 1997.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At December 31, 1997 net unrealized appreciation was $7,372,826, 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 $7,489,292 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $116,466.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
130
<PAGE> 131
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $218,131,474)......... $225,504,300
Cash..................................... 6,030
Receivables:
Interest............................... 3,565,987
Fund shares sold....................... 196,296
------------
Total assets..................... 229,272,613
------------
LIABILITIES:
Payables:
Adviser................................ 142,365
Fund shares redeemed................... 87,890
Administrator.......................... 38,596
Directors.............................. 137
Accrued expenses......................... 54,588
------------
Total liabilities................ 323,576
------------
Net assets applicable to outstanding
shares................................. $228,949,037
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 174,192
Additional paid-in capital............... 221,402,019
Net unrealized appreciation on
investments............................ 7,372,826
------------
Net assets applicable to outstanding
shares................................. $228,949,037
============
Shares of capital stock outstanding...... 17,419,232
============
Net asset value per share outstanding.... $ 13.14
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 15,475,479
------------
Expenses:
Advisory............................... 559,158
Administration......................... 447,326
Shareholder communication.............. 53,832
Professional........................... 31,261
Directors.............................. 7,522
Portfolio pricing...................... 7,108
Miscellaneous.......................... 10,393
------------
Total expenses................... 1,116,600
------------
Net investment income.................... 14,358,879
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 2,351,172
Net change in unrealized appreciation on
investments............................ 3,848,534
------------
Net realized and unrealized gain on
investments............................ 6,199,706
------------
Net increase in net assets resulting from
operations............................. $ 20,558,585
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
131
<PAGE> 132
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................................................... $ 14,358,879 $ 14,382,960
Net realized gain on investments.................................................... 2,351,172 961,896
Net change in unrealized appreciation on investments................................ 3,848,534 (10,866,414)
------------ ------------
Net increase in net assets resulting from operations................................ 20,558,585 4,478,442
------------ ------------
Dividends and distributions to shareholders:
From net investment income.......................................................... (14,330,709) (14,405,743)
From net realized gain on investments............................................... (640,312) --
------------ ------------
Total dividends and distributions to shareholders................................. (14,971,021) (14,405,743)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................... 21,412,921 25,643,335
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions..................................................................... 14,971,021 14,405,743
------------ ------------
36,383,942 40,049,078
Cost of shares redeemed............................................................. (39,397,355) (38,777,335)
------------ ------------
Increase (decrease) in net assets derived from capital share transactions........... (3,013,413) 1,271,743
------------ ------------
Net increase (decrease) in net assets................................................. 2,574,151 (8,655,558)
NET ASSETS:
Beginning of year..................................................................... 226,374,886 235,030,444
------------ ------------
End of year........................................................................... $228,949,037 $226,374,886
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91
-------- -------- -------- -------- --------
Net investment income....................... 0.88 0.87 0.88 0.88 0.95
Net realized and unrealized gain (loss) on
investments............................... 0.35 (0.59) 1.33 (1.34) 0.53
-------- -------- -------- -------- --------
Total from investment operations............ 1.23 0.28 2.21 (0.46) 1.48
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income................ (0.88) (0.87) (0.88) (0.88) (0.96)
From net realized gain on investments..... (0.04) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions........... (0.92) (0.87) (0.88) (0.88) (0.96)
-------- -------- -------- -------- --------
Net asset value at end of year.............. $ 13.14 $ 12.83 $ 13.42 $ 12.09 $ 13.43
======== ======== ======== ======== ========
Total investment return..................... 9.65% 2.05% 18.31% (3.39%) 11.40%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 6.42% 6.31% 6.55% 6.53% 6.79%
Net expenses.............................. 0.50% 0.58% 0.62% 0.62%# 0.27%#
Expenses (before reimbursement)........... 0.50% 0.58% 0.91% 0.67%# 0.27%#
Portfolio turnover rate..................... 187% 103% 81% 88% 41%
Net assets at end of year (in 000's)........ $ 228,949 $ 226,375 $ 235,030 $ 206,686 $ 228,683
</TABLE>
- ------------
# At the MainStay VP Series Fund, Inc.'s shareholders meeting on December 14,
1993, the shareholders voted to have the Bond Portfolio assume certain
administrative and operating expenses of the Fund previously borne by New
York Life.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
132
<PAGE> 133
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (95.1%)+
SHARES VALUE
---------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (2.6%)
Coltec Industries Inc. (a)....... 270,000 $ 6,260,625
Lockheed Martin Corp. ........... 80,000 7,880,000
Loral Space & Communications Ltd.
(a)............................. 258,500 5,541,594
------------
19,682,219
------------
AUTO & AUTO SERVICES (1.2%)
Ford Motor Co. .................. 150,000 7,303,125
United Rentals, Inc. (a)......... 113,800 2,197,762
------------
9,500,887
------------
BANKS (8.4%)
Ahmanson (H.F.) & Co. ........... 135,000 9,036,563
Bank of New York Co., Inc.
(The)........................... 150,000 8,671,875
BankBoston Corp.................. 100,000 9,393,750
Chase Manhattan Corp. (The)...... 90,000 9,855,000
Fleet Financial Group, Inc....... 96,300 7,216,481
NationsBank Corp................. 160,000 9,730,000
Norwest Corp..................... 250,000 9,656,250
------------
63,559,919
------------
BEVERAGES (1.0%)
PepsiCo, Inc. ................... 200,000 7,287,500
------------
BUILDING PRODUCTS (1.5%)
Masco Corp. ..................... 96,000 4,884,000
Sherwin-Williams Co. (The)....... 225,000 6,243,750
------------
11,127,750
------------
CAPITAL GOODS (0.5%)
Checkpoint Systems, Inc. (a)..... 214,400 3,752,000
------------
CHEMICALS (1.6%)
FMC Corp. (a).................... 40,000 2,692,500
Sealed Air Corp. (a)............. 150,000 9,262,500
------------
11,955,000
------------
COMMERCIAL SERVICES (2.6%)
Cendant Corp. (a)................ 300,000 10,312,500
Service Corp. International...... 250,000 9,234,375
------------
19,546,875
------------
COMMUNICATIONS (3.2%)
Northern Telecom Ltd. ........... 60,000 5,340,000
Teleport Communications Group
Inc. Class A (a)................ 184,500 10,124,437
Tyco International Ltd. ......... 200,000 9,012,500
------------
24,476,937
------------
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
COMPUTERS & OFFICE EQUIPMENT
(7.6%)
Computer Associates
International, Inc. ............ 172,500 $ 9,120,938
Computer Sciences Corp. (a)...... 100,000 8,350,000
Compuware Corp. (a).............. 200,000 6,400,000
EMC Corp. (a).................... 200,000 5,487,500
Fiserv, Inc. (a)................. 155,000 7,614,375
International Business Machines
Corp. .......................... 60,000 6,273,750
SunGard Data Systems Inc. (a).... 300,000 9,300,000
Tech Data Corp. (a).............. 125,000 4,859,375
------------
57,405,938
------------
DRUGS (7.2%)
Bristol-Myers Squibb Co. ........ 95,000 8,989,375
Elan Corp. PLC ADR (a)(c)........ 146,900 7,519,444
Johnson & Johnson................ 120,000 7,905,000
Lilly (Eli) & Co................. 160,000 11,140,000
Pfizer Inc. ..................... 135,000 10,065,937
SmithKline Beecham PLC ADR
(a)(c).......................... 180,000 9,258,750
------------
54,878,506
------------
ELECTRICAL (2.6%)
General Electric Co.............. 200,000 14,675,000
Mark IV Industries, Inc. ........ 234,945 5,139,422
------------
19,814,422
------------
ELECTRONICS (0.8%)
Computer Products, Inc. (a)...... 140,000 3,167,500
Methode Electronics, Inc. Class
A............................... 160,000 2,600,000
------------
5,767,500
------------
FINANCE (5.3%)
Comdisco Inc. ................... 300,000 10,031,250
Fannie Mae....................... 160,000 9,130,000
Freddie Mac...................... 200,000 8,387,500
Republic New York Corp. ......... 75,000 8,564,062
SLM Holding Corp. ............... 30,000 4,173,750
------------
40,286,562
------------
FOOD (4.8%)
CPC International Inc. .......... 80,000 8,620,000
Hershey Foods Corp. ............. 126,700 7,847,481
International Home Foods, Inc.
(a)............................. 196,800 5,510,400
Sara Lee Corp. .................. 117,000 6,588,563
Sysco Corp. ..................... 180,000 8,201,250
------------
36,767,694
------------
HEALTH CARE (0.6%)
Meditrust Corp. (d).............. 125,000 4,578,125
------------
</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.
133
<PAGE> 134
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
HEAVY INDUSTRIAL (0.4%)
United States Filter Corp. (a)... 110,000 $ 3,293,125
------------
HOSPITAL & MEDICAL
SERVICES (2.4%)
Cardinal Health, Inc. ........... 100,000 7,512,500
HEALTHSOUTH Corp. (a)............ 280,000 7,770,000
Orthodontic Centers of
America, Inc. (a)............... 200,000 3,325,000
------------
18,607,500
------------
HOUSEHOLD PRODUCTS (3.1%)
Gillette Co. (The)............... 75,000 7,532,812
Newell Co. ...................... 195,000 8,287,500
Procter & Gamble Co. (The)....... 92,300 7,366,694
------------
23,187,006
------------
INSURANCE--PROPERTY & CASUALTY
(6.1%)
Allstate Corp. (The)............. 100,000 9,087,500
Conseco, Inc. ................... 225,000 10,223,437
Equitable Cos. Inc. (The)........ 150,000 7,462,500
ESG Re Limited (a)............... 35,000 822,500
Provident Cos., Inc. ............ 260,000 10,042,500
Travelers Group Inc. ............ 154,500 8,323,688
------------
45,962,125
------------
INTERNET SOFTWARE (1.1%)
America Online, Inc. (a)......... 90,000 8,026,875
------------
LEISURE/AMUSEMENT (1.6%)
AMF Bowling, Inc. (a)............ 150,000 3,750,000
Carnival Corp. Class A........... 155,000 8,583,125
------------
12,333,125
------------
LODGING & RESTAURANTS (1.9%)
Hilton Hotels Corp. ............. 218,000 6,485,500
Marriott International, Inc. .... 110,000 7,617,500
------------
14,103,000
------------
MEDIA & INFORMATION SERVICES
(4.1%)
CBS Corp. ....................... 280,000 8,242,500
Comcast Corp. Special Class A.... 300,000 9,468,750
News Corp. Ltd. (The) ADR (c).... 240,000 5,355,000
Viacom Inc. Class B (a).......... 200,000 8,287,500
------------
31,353,750
------------
MEDICAL (0.3%)
Centocor, Inc. (a)............... 71,100 2,364,075
------------
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
METAL (0.3%)
Ispat International NV-NY (a).... 120,000 $ 2,595,000
------------
NETWORKING PRODUCTS (1.3%)
Cisco Systems, Inc. (a).......... 135,000 7,526,250
Xylan Corp. (a).................. 175,000 2,646,875
------------
10,173,125
------------
OIL & ENERGY SERVICES (5.6%)
BJ Services Co. (a).............. 44,300 3,186,831
Consolidated Natural Gas Co. .... 120,000 7,260,000
Halliburton Co. ................. 140,000 7,271,250
Mobil Corp. ..................... 80,000 5,775,000
Quaker State Corp. .............. 333,000 4,745,250
Schlumberger Ltd. ............... 100,000 8,050,000
Smith International, Inc. (a).... 90,000 5,523,750
XCL Ltd. (a)..................... 87,787 367,607
------------
42,179,688
------------
PAPER & FOREST PRODUCTS (1.2%)
Boise Cascade Corp. ............. 175,000 5,293,750
Stone Container Corp. (a)........ 400,000 4,175,000
------------
9,468,750
------------
REAL ESTATE (2.4%)
Chelsea GCA Realty, Inc. ........ 96,300 3,677,456
First Industrial Realty Trust,
Inc. ........................... 175,000 6,321,875
Healthcare Realty Trust, Inc. ... 125,000 3,617,188
Liberty Property Trust........... 166,500 4,755,656
------------
18,372,175
------------
RETAIL TRADE & MERCHANDISING
(4.9%)
Costco Cos., Inc. (a)............ 200,000 8,925,000
Federated Department Stores, Inc.
(a)............................. 160,000 6,890,000
Kroger Co. (The) (a)............. 296,000 10,933,500
Smart & Final Inc. .............. 163,000 2,934,000
Staples, Inc. (a)................ 260,000 7,215,000
------------
36,897,500
------------
SCHOOLS (0.5%)
Sylvan Learning Systems, Inc.
(a)............................. 100,000 3,900,000
------------
TELECOMMUNICATIONS (1.0%)
CIENA Corp. (a).................. 70,000 4,278,750
DSC Communications Corp. (a)..... 150,000 3,600,000
------------
7,878,750
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
134
<PAGE> 135
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
UTILITIES--ELECTRIC (0.8%)
CMS Energy Corp. ................ 135,000 $ 5,948,438
------------
UTILITIES--TELEPHONE (3.1%)
Ameritech Corp. ................. 103,000 8,291,500
Bell Atlantic Corp. ............. 100,000 9,100,000
WorldCom, Inc. (a)............... 205,000 6,201,250
------------
23,592,750
------------
WASTE DISPOSAL (1.5%)
Republic Industries, Inc. (a).... 225,000 5,245,312
USA Waste Services, Inc. (a)..... 160,000 6,280,000
------------
11,525,312
------------
Total Common Stocks
(Cost $562,605,347)............. 722,149,903
------------
SHORT-TERM
INVESTMENTS (5.9%)
PRINCIPAL
AMOUNT VALUE
---------------------------
COMMERCIAL PAPER (5.9%)
American Express Credit Corp.
6.25%, due 1/2/98............... $ 4,928,000 4,927,144
Associates Corp. of North America
5.50%, due on demand (b)........ 26,400,000 26,400,000
PHH Corp.
6.10%, due 1/8/98............... 5,462,000 5,455,522
Walt Disney Co.
6.10%, due 1/5/98............... 8,090,000 8,084,517
------------
Total Short-Term Investments
(Cost $44,867,183).............. 44,867,183
------------
Total Investments
(Cost $607,472,530) (e)......... 101.0% 767,017,086(f)
Liabilities in Excess of
Cash and Other Assets........... (1.0) (7,962,799)
---------- ------------
Net Assets....................... 100.0% $759,054,287
========== ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) Adjustable rate. Rate shown is the rate in effect at
December 31, 1997.
(c) ADR--American Depository Receipt.
(d) Paired common stock shares of Meditrust Corp. and Meditrust Operating Co.
under the same management that are sold as a unit.
(e) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(f) At December 31, 1997 net unrealized appreciation was $159,544,556, 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 $174,357,797 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $14,813,241.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
135
<PAGE> 136
GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $607,472,530)......... $767,017,086
Cash..................................... 8,826
Receivables:
Dividends and interest................. 743,639
Fund shares sold....................... 534,643
------------
Total assets..................... 768,304,194
------------
LIABILITIES:
Payables:
Investment securities purchased........ 8,423,666
Adviser................................ 468,269
Administrator.......................... 125,644
Fund shares redeemed................... 110,661
Directors.............................. 457
Accrued expenses......................... 121,210
------------
Total liabilities................ 9,249,907
------------
Net assets applicable to outstanding
shares................................. $759,054,287
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 373,724
Additional paid-in capital............... 599,136,007
Net unrealized appreciation on
investments............................ 159,544,556
------------
Net assets applicable to outstanding
shares................................. $759,054,287
============
Shares of capital stock outstanding...... 37,372,405
============
Net asset value per share outstanding.... $ 20.31
============
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 6,962,329
Interest............................... 1,711,229
------------
Total income..................... 8,673,558
------------
Expenses:
Advisory............................... 1,667,722
Administration......................... 1,334,178
Shareholder communication.............. 244,142
Professional........................... 53,796
Directors.............................. 21,223
Miscellaneous.......................... 34,840
------------
Total expenses................... 3,355,901
------------
Net investment income.................... 5,317,657
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 97,560,028
Net change in unrealized appreciation on
investments............................ 52,771,507
------------
Net realized and unrealized gain on
investments............................ 150,331,535
------------
Net increase in net assets resulting from
operations............................. $155,649,192
============
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $18,598.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
136
<PAGE> 137
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................... $ 5,317,657 $ 4,810,773
Net realized gain on investments.................................................... 97,560,028 69,850,131
Net change in unrealized appreciation on investments................................ 52,771,507 32,938,177
------------ ------------
Net increase in net assets resulting from operations................................ 155,649,192 107,599,081
------------ ------------
Dividends and distributions to shareholders:
From net investment income.......................................................... (5,271,609) (4,810,773)
From net realized gain on investments............................................... (98,150,349) (69,699,164)
------------ ------------
Total dividends and distributions to shareholders................................. (103,421,958) (74,509,937)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................... 99,117,945 74,877,524
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions..................................................................... 103,421,958 74,509,937
------------ ------------
202,539,903 149,387,461
Cost of shares redeemed............................................................. (60,398,261) (45,298,015)
------------ ------------
Increase in net assets derived from capital share transactions...................... 142,141,642 104,089,446
------------ ------------
Net increase in net assets............................................................ 194,368,876 137,178,590
NET ASSETS:
Beginning of year..................................................................... 564,685,411 427,506,821
------------ ------------
End of year........................................................................... $759,054,287 $564,685,411
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53
-------- -------- -------- -------- --------
Net investment income....................... 0.16 0.18 0.22 0.22 0.24
Net realized and unrealized gain (loss) on
investments............................... 4.74 4.06 4.06 (0.03) 1.88
-------- -------- -------- -------- --------
Total from investment operations............ 4.90 4.24 4.28 0.19 2.12
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income................ (0.16) (0.18) (0.22) (0.22) (0.25)
From net realized gain on investments..... (3.06) (2.65) (1.53) (0.92) (1.76)
-------- -------- -------- -------- --------
Total dividends and distributions........... (3.22) (2.83) (1.75) (1.14) (2.01)
-------- -------- -------- -------- --------
Net asset value at end of year.............. $ 20.31 $ 18.63 $ 17.22 $ 14.69 $ 15.64
======== ======== ======== ======== ========
Total investment return..................... 26.75% 24.50% 29.16% 1.20% 13.71%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 0.80% 0.98% 1.29% 1.41% 1.42%
Net expenses.............................. 0.50% 0.58% 0.62% 0.62%# 0.27%#
Expenses (before reimbursement)........... 0.50% 0.58% 0.91% 0.65%# 0.27%#
Portfolio turnover rate..................... 103% 104% 104% 108% 121%
Average commission rate paid................ $ 0.0599 $ 0.0595 (a) (a) (a)
Net assets at end of year (in 000's)........ $ 759,054 $ 564,685 $ 427,507 $ 330,161 $ 319,196
</TABLE>
- ------------
(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
# At the MainStay VP Series Fund, Inc.'s shareholders meeting on December 14,
1993, the shareholders voted to have the Growth Equity Portfolio assume
certain administrative and operating expenses of the Fund previously borne
by New York Life.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
137
<PAGE> 138
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (97.1%)+
SHARES VALUE
-------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.6%)
Boeing Co. (The)................ 63,866 $ 3,125,442
General Dynamics Corp. ......... 4,009 346,528
Lockheed Martin Corp. .......... 12,410 1,222,385
Northrop Grumman Corp. ......... 4,279 492,085
Raytheon Co. Class B............ 21,668 1,094,234
Rockwell International Corp. ... 13,306 695,239
United Technologies Corp. ...... 14,838 1,080,392
------------
8,056,305
------------
AIRLINES (0.4%)
AMR Corp. (a)................... 5,876 755,066
Delta Air Lines, Inc. .......... 4,804 571,676
Southwest Airlines Co. ......... 13,943 343,346
US Airways Group, Inc. (a)...... 5,776 361,000
------------
2,031,088
------------
ALUMINUM (0.3%)
Alcan Aluminum Ltd. ............ 14,479 399,982
Aluminum Co. of America......... 11,120 782,570
Reynolds Metals Co. ............ 4,625 277,500
------------
1,460,052
------------
AUTO PARTS & EQUIPMENT (0.3%)
Cooper Tire & Rubber Co. ....... 4,999 121,851
Echlin Inc. .................... 3,973 143,773
Genuine Parts Co. .............. 11,376 386,073
Goodyear Tire & Rubber Co.
(The).......................... 9,989 635,550
------------
1,287,247
------------
AUTOMOBILES (1.6%)
Chrysler Corp. ................. 42,307 1,488,678
Ford Motor Co. ................. 76,577 3,728,343
General Motors Corp. ........... 45,169 2,738,370
------------
7,955,391
------------
BEVERAGES--ALCOHOLIC (0.5%)
Anheuser-Busch Cos., Inc. ...... 31,382 1,380,808
Brown-Forman Corp. Class B...... 4,407 243,487
Coors (Adolph) Co. Class B...... 2,418 80,398
Seagram Co. Ltd. (The).......... 22,752 735,174
------------
2,439,867
------------
BEVERAGES--SOFT DRINKS (2.8%)
Coca-Cola Co. (The)............. 157,862 10,517,556
PepsiCo, Inc. .................. 96,836 3,528,462
------------
14,046,018
------------
BROADCAST/MEDIA (0.9%)
CBS Corp. ...................... 44,906 1,321,920
Clear Channel Communications,
Inc. (a)....................... 6,177 490,685
Comcast Corp. Special Class A... 22,244 702,076
Tele-Communications, Inc. Series
A TCI Group (a)................ 32,328 903,164
US West Media Group (a)......... 38,641 1,115,759
------------
4,533,604
------------
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
BUILDING MATERIALS (0.2%)
Masco Corp. .................... 10,557 537,088
Owens Corning................... 3,336 113,841
Sherwin-Williams Co. (The)...... 11,027 305,999
------------
956,928
------------
CHEMICALS (2.0%)
Air Products & Chemicals,
Inc. .......................... 7,096 $ 583,646
Dow Chemical Co. (The).......... 14,579 1,479,769
Du Pont (E.I.) De Nemours &
Co. ........................... 72,091 4,329,966
Eastman Chemical Co. ........... 5,094 303,411
Goodrich (B.F.) Co. (The)....... 4,612 191,110
Hercules Inc. .................. 6,135 307,133
Monsanto Co. ................... 37,804 1,587,768
Praxair, Inc. .................. 10,078 453,510
Rohm & Haas Co. ................ 3,860 369,595
Union Carbide Corp. ............ 7,979 342,598
------------
9,948,506
------------
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. ........... 6,538 292,575
Engelhard Corp. ................ 9,149 158,964
FMC Corp. (a)................... 2,392 161,011
PPG Industries, Inc. ........... 11,428 652,825
------------
1,265,375
------------
CHEMICALS--SPECIALTY (0.2%)
Grace (W.R.) & Co. ............. 4,663 375,080
Great Lakes Chemical Corp. ..... 3,818 171,333
Morton International, Inc. ..... 8,495 292,015
Nalco Chemical Co. ............. 4,222 167,033
Sigma-Aldrich Corp. ............ 6,332 251,697
------------
1,257,158
------------
COMMUNICATION--EQUIPMENT
MANUFACTURERS (2.2%)
Andrew Corp. (a)................ 5,817 139,608
Bay Networks, Inc. (a).......... 13,486 344,736
Cabletron Systems, Inc. (a)..... 10,109 151,635
Cisco Systems, Inc. (a)......... 64,131 3,575,303
DSC Communications Corp. (a).... 7,483 179,592
Lucent Technologies Inc. ....... 40,941 3,270,163
NextLevel Systems, Inc. (a)..... 9,322 166,631
Northern Telecom Ltd. .......... 16,775 1,492,975
Scientific-Atlanta, Inc. ....... 4,919 82,393
Tellabs, Inc. (a)............... 11,590 612,821
3Com Corp. (a).................. 22,051 770,407
------------
10,786,264
------------
COMPUTER--SOFTWARE & SERVICES
(3.6%)
Adobe Systems Inc. ............. 4,633 191,111
Autodesk, Inc. ................. 3,128 115,736
Automatic Data Processing,
Inc. .......................... 18,673 1,146,055
Ceridian Corp. (a).............. 4,853 222,328
Computer Associates
International, Inc. ........... 34,877 1,844,121
Computer Sciences Corp. (a)..... 4,885 407,898
Equifax Inc. ................... 9,621 340,944
First Data Corp. ............... 27,357 800,192
HBO & Co. ...................... 12,664 607,872
Microsoft Corp. (a)............. 77,033 9,956,515
Novell, Inc. (a)................ 22,269 167,018
</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.
138
<PAGE> 139
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------
<S> <C> <C>
COMPUTER--SOFTWARE & SERVICES
(Continued)
Oracle Corp. (a)................ 62,472 $ 1,393,907
Parametric Technology Corp.
(a)............................ 8,124 384,875
Shared Medical Systems Corp. ... 1,537 101,442
------------
17,680,014
------------
COMPUTER SYSTEMS (3.6%)
Apple Computer, Inc. (a)........ 8,092 106,208
Compaq Computer Corp. (a)....... 48,253 2,723,279
Data General Corp. (a).......... 3,097 54,004
Dell Computer Corp. (a)......... 20,852 1,751,568
Digital Equipment Corp. (a)..... 9,407 348,059
EMC Corp. (a)................... 31,576 866,366
Hewlett-Packard Co. ............ 66,404 4,150,250
International Business Machines
Corp. ......................... 62,011 6,484,025
Seagate Technology, Inc. (a).... 15,615 300,589
Silicon Graphics, Inc. (a)...... 11,972 148,902
Sun Microsystems, Inc. (a)...... 23,946 954,847
Unisys Corp. (a)................ 11,203 155,441
------------
18,043,538
------------
CONGLOMERATES (0.2%)
Tenneco Inc. ................... 10,890 430,155
Textron Inc. ................... 10,487 655,437
------------
1,085,592
------------
CONTAINERS--METAL & GLASS (0.2%)
Ball Corp. ..................... 1,903 67,200
Crown Cork & Seal Co., Inc. .... 8,172 409,622
Owens-Illinois, Inc. (a)........ 8,969 340,261
------------
817,083
------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ................ 3,371 148,535
Stone Container Corp. .......... 6,224 64,963
Temple-Inland Inc. ............. 3,514 183,826
------------
397,324
------------
COSMETICS (0.9%)
Alberto-Culver Co. Class B...... 3,614 115,874
Avon Products, Inc. ............ 8,404 515,795
Gillette Co. (The).............. 35,768 3,592,449
International Flavors &
Fragrances Inc. ............... 7,052 363,178
------------
4,587,296
------------
DRUGS (4.7%)
Lilly (Eli) & Co. .............. 70,819 4,930,773
Merck & Co., Inc. .............. 76,454 8,123,238
Pfizer Inc. .................... 82,442 6,147,082
Pharmacia & Upjohn, Inc. ....... 32,410 1,187,016
Schering-Plough Corp. .......... 46,739 2,903,660
------------
23,291,769
------------
ELECTRIC POWER COMPANIES (2.7%)
American Electric Power Co.,
Inc. .......................... 12,109 625,127
Baltimore Gas & Electric Co. ... 9,368 319,097
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
ELECTRIC POWER COMPANIES
(Continued)
Carolina Power & Light Co. ..... 9,682 410,880
Central & South West Corp. ..... 13,528 $ 366,101
Cinergy Corp. .................. 10,060 385,424
Consolidated Edison Co. of New
York, Inc. .................... 14,945 612,745
Dominion Resources, Inc. ....... 11,792 501,897
DTE Energy Co. ................. 9,178 318,362
Duke Energy Corp. .............. 22,980 1,272,518
Edison International............ 24,362 662,342
Entergy Corp. .................. 15,582 466,486
FirstEnergy Corp. (a)........... 14,647 424,763
FPL Group, Inc. ................ 11,602 686,693
GPU, Inc. ...................... 7,661 322,720
Houston Industries Inc. ........ 18,170 484,912
Niagara Mohawk Power Corp.
(a)............................ 9,236 96,978
Northern States Power Co. ...... 4,725 275,231
PacifiCorp...................... 18,874 515,496
PECO Energy Co. ................ 14,213 344,665
PG&E Corp. ..................... 27,980 851,641
PP&L Resources, Inc. ........... 10,458 250,338
Public Service Enterprise Group
Inc. .......................... 14,772 468,088
Southern Co. (The).............. 44,003 1,138,578
Texas Utilities Co. ............ 15,699 652,490
Unicom Corp. ................... 13,712 421,644
Union Electric Co. ............. 8,618 372,729
------------
13,247,945
------------
ELECTRICAL EQUIPMENT (3.8%)
AMP Inc. ....................... 13,935 585,270
Emerson Electric Co. ........... 28,295 1,596,899
General Electric Co. (d)........ 208,913 15,328,991
General Signal Corp. ........... 3,251 137,152
Grainger (W.W.), Inc. .......... 3,230 313,916
Honeywell Inc. ................. 8,112 555,672
Raychem Corp. .................. 5,604 241,322
Thomas & Betts Corp. ........... 3,387 160,036
------------
18,919,258
------------
ELECTRONIC--DEFENSE (0.0%)(b)
EG&G, Inc. ..................... 2,856 59,440
------------
ELECTRONIC--INSTRUMENTATION
(0.1%)
Perkin-Elmer Corp. (The)........ 2,790 198,264
Tektronix, Inc. ................ 3,172 125,889
------------
324,153
------------
ELECTRONIC--SEMICONDUCTORS
(2.5%)
Advanced Micro Devices, Inc.
(a)............................ 8,966 160,828
Applied Materials, Inc. (a)..... 23,282 701,370
Intel Corp. .................... 104,398 7,333,959
KLA-Tencor Corp. (a)............ 5,377 207,687
LSI Logic Corp. (a)............. 8,980 177,355
Micron Technology, Inc. ........ 13,384 347,984
Motorola, Inc. ................. 38,006 2,168,717
National Semiconductor Corp.
(a)............................ 10,274 266,482
Texas Instruments Inc. ......... 24,871 1,119,195
------------
12,483,577
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
139
<PAGE> 140
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------
<S> <C> <C>
ENGINEERING & CONSTRUCTION
(0.0%)(b)
Fluor Corp. .................... 5,314 $ 198,611
Foster Wheeler Corp. ........... 2,625 71,039
------------
269,650
------------
ENTERTAINMENT (1.5%)
King World Productions, Inc.
(a)............................ 2,399 138,542
Time Warner Inc. ............... 35,770 2,217,740
Viacom Inc. Class B (a)......... 22,564 934,996
Walt Disney Co. (The)........... 43,029 4,262,560
------------
7,553,838
------------
FINANCIAL--MISCELLANEOUS (2.8%)
American Express Co. ........... 29,625 2,644,031
American General Corp. ......... 15,566 841,537
Fannie Mae...................... 67,776 3,867,468
Freddie Mac..................... 44,412 1,862,528
Green Tree Financial Corp. ..... 8,743 228,957
MBIA Inc. ...................... 5,735 383,170
MBNA Corp. ..................... 31,868 870,395
Morgan Stanley, Dean Witter,
Discover & Co. ................ 37,845 2,237,586
SunAmerica Inc. ................ 12,494 534,118
Transamerica Corp. ............. 4,078 434,307
------------
13,904,097
------------
FOOD DISTRIBUTORS (0.2%)
Cardinal Health, Inc. .......... 6,951 522,194
SUPERVALU Inc. ................. 3,836 160,632
SYSCO Corp. .................... 10,887 496,039
------------
1,178,865
------------
FOODS (2.9%)
Archer-Daniels-Midland Co. ..... 35,572 771,468
Campbell Soup Co. .............. 29,349 1,705,911
ConAgra, Inc. .................. 30,189 990,577
CPC International Inc. ......... 9,141 984,943
General Mills, Inc. ............ 10,108 723,986
Heinz (H.J.) Co. ............... 23,551 1,196,685
Hershey Foods Corp. ............ 9,073 561,959
Kellogg Co. .................... 26,199 1,300,125
Quaker Oats Co. (The)........... 8,807 464,569
Ralston-Ralston Purina Group.... 6,777 629,837
Sara Lee Corp. ................. 30,714 1,729,582
Unilever, N.V. ................. 40,869 2,551,758
Wrigley (Wm.) Jr. Co. .......... 7,414 589,876
------------
14,201,276
------------
GOLD (0.2%)
Barrick Gold Corp. ............. 23,841 444,039
Battle Mountain Gold Co. ....... 14,607 85,816
Echo Bay Mines Ltd. (a)......... 8,856 21,586
Homestake Mining Co. ........... 9,396 83,390
Newmont Mining Corp. ........... 9,906 290,989
Placer Dome Inc. ............... 15,225 193,167
------------
1,118,987
------------
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. (The)...... 5,986 $ 233,828
Snap-on Inc. ................... 3,866 168,654
Stanley Works (The)............. 5,661 267,129
------------
669,611
------------
HEALTH CARE--DIVERSIFIED (4.1%)
Abbott Laboratories............. 48,817 3,200,564
Allergan, Inc. ................. 4,201 140,996
American Home Products Corp. ... 41,385 3,165,953
Bristol-Myers Squibb Co. ....... 63,429 6,001,969
Johnson & Johnson............... 85,873 5,656,884
Mallinckrodt Inc. .............. 4,706 178,828
Warner-Lambert Co. ............. 17,310 2,146,440
------------
20,491,634
------------
HEALTH CARE--HMOs (0.2%)
Humana Inc. (a)................. 10,466 217,169
United Healthcare Corp. ........ 12,007 596,598
------------
813,767
------------
HEALTH CARE--MISCELLANEOUS
(0.4%)
ALZA Corp. (a).................. 5,436 172,933
Amgen Inc. (a).................. 16,864 912,764
HEALTHSOUTH Corp. (a)........... 25,132 697,413
Manor Care, Inc. ............... 4,007 140,245
------------
1,923,355
------------
HEAVY DUTY TRUCKS & PARTS (0.3%)
Cummins Engine Co., Inc. ....... 2,504 147,893
Dana Corp. ..................... 6,617 314,308
Eaton Corp. .................... 4,916 438,753
ITT Industries, Inc. ........... 7,494 235,124
Navistar International Corp.
(a)............................ 4,803 119,174
PACCAR Inc. .................... 4,854 254,835
------------
1,510,087
------------
HOMEBUILDING (0.0%)(b)
Centex Corp. ................... 1,849 116,372
Kaufman & Broad Home Corp. ..... 2,451 54,994
Pulte Corp. .................... 1,503 62,844
------------
234,210
------------
HOSPITAL MANAGEMENT (0.4%)
Columbia/HCA Healthcare
Corp. ......................... 41,379 1,225,853
Tenet Healthcare Corp. (a)...... 19,531 646,964
------------
1,872,817
------------
HOTEL--MOTEL (0.4%)
Harrah's Entertainment, Inc.
(a)............................ 6,446 121,668
Hilton Hotels Corp. ............ 15,996 475,881
ITT Corp. (a)................... 7,430 615,761
Marriott International, Inc. ... 8,164 565,357
------------
1,778,667
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
140
<PAGE> 141
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------
<S> <C> <C>
HOUSEHOLD--FURNISHINGS &
APPLIANCES (0.1%)
Armstrong World Industries,
Inc. .......................... 2,621 $ 195,920
Maytag Corp. ................... 6,065 226,300
Whirlpool Corp. ................ 4,702 258,610
------------
680,830
------------
HOUSEHOLD PRODUCTS (2.2%)
Clorox Co. (The)................ 6,488 512,958
Colgate-Palmolive Co. .......... 18,882 1,387,827
Fort James Corp. ............... 13,338 510,179
Kimberly-Clark Corp. ........... 35,497 1,750,446
Procter & Gamble Co. (The)...... 85,748 6,843,762
------------
11,005,172
------------
HOUSEWARES (0.2%)
Fortune Brands, Inc. ........... 10,835 401,572
Newell Co. ..................... 10,165 432,013
Rubbermaid Inc. ................ 9,534 238,350
Tupperware Corp. ............... 3,966 110,552
------------
1,182,487
------------
INSURANCE BROKERS (0.3%)
Aon Corp. ...................... 10,661 625,001
Marsh & McLennan Cos., Inc. .... 10,807 805,797
------------
1,430,798
------------
INVESTMENT BANK/BROKERAGE
(0.5%)
Merrill Lynch & Co., Inc. ...... 21,148 1,542,482
Schwab (Charles) Corp. (The).... 16,874 707,654
------------
2,250,136
------------
LEISURE TIME (0.1%)
Brunswick Corp. ................ 6,248 189,393
Mirage Resorts, Inc. (a)........ 11,311 257,325
------------
446,718
------------
LIFE INSURANCE (0.6%)
Aetna Inc. ..................... 9,572 675,424
Conseco, Inc. .................. 12,022 546,250
Jefferson-Pilot Corp. .......... 4,536 353,241
Lincoln National Corp. ......... 6,544 511,250
Torchmark Corp. ................ 8,808 370,487
UNUM Corp. ..................... 8,852 481,327
------------
2,937,979
------------
MACHINE TOOLS (0.0%)(b)
Cincinnati Milacron Inc. ....... 2,488 64,532
------------
MACHINERY-- DIVERSIFIED (0.8%)
Briggs & Stratton Corp. ........ 1,593 77,360
Case Corp. ..................... 4,677 282,666
Caterpillar Inc. ............... 23,797 1,155,642
Cooper Industries, Inc. ........ 7,838 384,062
Deere & Co. .................... 16,126 940,347
Harnischfeger Industries,
Inc. .......................... 3,130 110,528
Ingersoll-Rand Co. ............. 10,585 428,693
NACCO Industries, Inc. Class
A.............................. 555 59,489
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
MACHINERY--
DIVERSIFIED (Continued)
Thermo Electron Corp. (a)....... 9,698 431,561
Timken Co. (The)................ 3,898 133,994
------------
4,004,342
------------
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
MAJOR REGIONAL BANKS (5.5%)
Banc One Corp. ................. 37,465 $ 2,034,818
Bank of New York Co., Inc.
(The).......................... 24,011 1,388,136
BankBoston Corp. ............... 9,273 871,082
Barnett Banks, Inc. ............ 12,329 886,147
BB&T Corp. ..................... 8,704 557,600
Comerica Inc. .................. 6,834 616,769
CoreStates Financial Corp. ..... 12,669 1,014,312
Fifth Third Bancorp............. 9,858 805,891
First Union Corp. .............. 40,015 2,050,769
Fleet Financial Group, Inc. .... 15,934 1,194,054
Huntington Bancshares Inc. ..... 12,236 440,496
KeyCorp ........................ 13,877 982,665
Mellon Bank Corp. .............. 16,103 976,244
National City Corp. ............ 13,764 904,983
NationsBank Corp. .............. 45,493 2,766,543
Norwest Corp. .................. 48,225 1,862,691
PNC Bank Corp. ................. 19,562 1,116,257
Republic New York Corp. ........ 3,480 397,372
State Street Corp. ............. 10,261 597,062
SunTrust Banks, Inc. ........... 13,415 957,496
Synovus Financial Corp. ........ 11,177 366,047
U.S. Bancorp.................... 15,757 1,763,799
Wachovia Corp. ................. 12,994 1,054,138
Wells Fargo & Co. .............. 5,628 1,910,354
------------
27,515,725
------------
MANUFACTURED HOUSING (0.0%)(b)
Fleetwood Enterprises, Inc. .... 2,293 97,309
------------
MANUFACTURING--DIVERSIFIED
(1.1%)
Aeroquip-Vickers, Inc. ......... 1,815 89,048
AlliedSignal Inc. .............. 36,044 1,403,463
Crane Co. ...................... 2,872 124,573
Dover Corp. .................... 14,108 509,652
Illinois Tool Works Inc. ....... 15,961 959,655
Johnson Controls, Inc. ......... 5,380 256,895
Millipore Corp. ................ 2,831 96,077
Pall Corp. ..................... 8,055 166,638
Parker-Hannifin Corp. .......... 7,219 331,172
Tyco International Ltd. ........ 33,877 1,526,582
------------
5,463,755
------------
MEDICAL PRODUCTS (1.0%)
Bard (C.R.), Inc. .............. 3,651 114,322
Bausch & Lomb Inc. ............. 3,615 143,244
Baxter International Inc. ...... 17,906 903,134
Becton, Dickinson & Co. ........ 7,865 393,250
Biomet, Inc. ................... 7,211 184,782
Boston Scientific Corp. (a)..... 12,347 566,418
Guidant Corp. .................. 9,421 586,457
Medtronic, Inc. ................ 29,813 1,559,593
St. Jude Medical, Inc. (a)...... 5,820 177,510
United States Surgical Corp. ... 4,867 142,664
------------
4,771,374
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
141
<PAGE> 142
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
METALS--MISCELLANEOUS (0.1%)
ASARCO Inc. .................... 2,531 $ 56,789
Cyprus Amax Minerals Co. ....... 5,980 91,942
Freeport-McMoRan Copper & Gold
Inc. Class B................... 12,340 194,355
Inco Ltd. ...................... 10,690 181,730
Phelps Dodge Corp. ............. 3,886 241,904
------------
766,720
------------
MISCELLANEOUS (1.2%)
AirTouch Communications, Inc.
(a)............................ 32,169 1,337,024
American Greetings Corp. Class
A.............................. 4,729 185,022
Corning Inc. ................... 14,653 543,992
Harcourt General, Inc. ......... 4,496 246,156
Harris Corp. ................... 5,000 229,375
Jostens, Inc. .................. 2,514 57,979
Minnesota Mining & Manufacturing
Co. ........................... 26,077 2,139,944
Pioneer Hi-Bred International,
Inc. .......................... 4,207 451,201
TRW, Inc. ...................... 7,874 420,275
Whitman Corp. .................. 6,576 171,387
------------
5,782,355
------------
MONEY CENTER BANKS (2.7%)
BankAmerica Corp. .............. 44,239 3,229,447
Bankers Trust New York Corp. ... 6,360 715,103
Chase Manhattan Corp. .......... 27,024 2,959,128
Citicorp........................ 29,301 3,704,745
First Chicago NBD Corp. ........ 18,556 1,549,426
Morgan (J.P.) & Co., Inc. ...... 11,473 1,295,015
------------
13,452,864
------------
MULTI-LINE INSURANCE (2.1%)
American International Group,
Inc. .......................... 44,800 4,872,000
CIGNA Corp. .................... 4,837 837,103
Hartford Financial Services
Group, Inc. ................... 7,471 699,005
Travelers Group Inc. ........... 73,212 3,944,297
------------
10,352,405
------------
NATURAL GAS DISTRIBUTORS &
PIPELINES (0.7%)
Coastal Corp. (The)............. 6,659 412,442
Columbia Gas System, Inc. ...... 3,470 272,612
Consolidated Natural Gas Co. ... 6,087 368,264
Eastern Enterprises............. 1,289 58,005
Enron Corp. .................... 20,252 841,723
NICOR Inc. ..................... 3,056 128,925
ONEOK, Inc. .................... 2,027 81,840
Pacific Enterprises............. 5,318 200,090
Peoples Energy Corp. ........... 2,203 86,743
Sonat, Inc. .................... 5,429 248,377
Williams Cos., Inc. (The)....... 20,318 576,523
------------
3,275,544
------------
OFFICE EQUIPMENT & SUPPLIES
(0.5%)
Moore Corp. Ltd. ............... 5,581 84,412
Pitney Bowes Inc. .............. 9,207 828,055
Xerox Corp. .................... 20,740 1,530,871
------------
2,443,338
------------
<CAPTION> SHARES VALUE
------------------------
<S> <C> <C>
OIL & GAS DRILLING (0.1%)
Helmerich & Payne, Inc. ........ 1,578 107,107
Rowan Cos., Inc. (a)............ 5,494 167,567
------------
274,674
------------
OIL--EXPLORATION & PRODUCTION
(0.3%)
Anadarko Petroleum Corp. ....... 3,839 $ 232,979
Apache Corp. ................... 5,769 202,276
Burlington Resources Inc. ...... 11,258 504,499
Oryx Energy Co. (a)............. 6,700 170,850
Union Pacific Resources Group,
Inc. .......................... 16,182 392,413
------------
1,503,017
------------
OIL--INTEGRATED DOMESTIC (1.1%)
Amerada Hess Corp. ............. 5,906 324,092
Ashland Inc. ................... 4,758 255,445
Atlantic Richfield Co. ......... 20,486 1,641,441
Kerr-McGee Corp. ............... 3,004 190,191
Occidental Petroleum Corp. ..... 21,590 632,857
Pennzoil Co. ................... 3,001 200,504
Phillips Petroleum Co. ......... 16,751 814,517
Sun Co., Inc. .................. 4,581 192,688
Unocal Corp. ................... 15,816 613,859
USX-Marathon Group.............. 18,428 621,945
------------
5,487,539
------------
OIL--INTEGRATED INTERNATIONAL
(5.7%)
Amoco Corp. .................... 31,089 2,646,451
Chevron Corp. .................. 41,817 3,219,909
Exxon Corp. .................... 157,371 9,629,138
Mobil Corp. .................... 50,135 3,619,120
Royal Dutch Petroleum Co. ...... 136,740 7,409,599
Texaco Inc. .................... 34,980 1,902,038
------------
28,426,255
------------
OIL--WELL EQUIPMENT & SERVICES
(1.0%)
Baker Hughes Inc. .............. 10,751 469,012
Dresser Industries, Inc. ....... 11,168 468,358
Halliburton Co. ................ 16,720 868,395
McDermott International,
Inc. .......................... 3,468 127,016
Schlumberger Ltd. .............. 31,640 2,547,020
Western Atlas Inc. (a).......... 3,390 250,860
------------
4,730,661
------------
PAPER & FOREST PRODUCTS (0.7%)
Boise Cascade Corp. ............ 3,550 107,387
Champion International Corp. ... 6,121 277,358
Georgia-Pacific Corp. .......... 5,845 355,084
International Paper Co. ........ 19,261 830,630
Louisiana-Pacific Corp. ........ 7,004 133,076
Mead Corp. (The)................ 6,766 189,448
Potlatch Corp. ................. 1,847 79,421
Union Camp Corp. ............... 4,399 236,171
Westvaco Corp. ................. 6,544 205,727
Weyerhaeuser Co. ............... 12,611 618,727
Willamette Industries, Inc. .... 7,075 227,727
------------
3,260,756
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
142
<PAGE> 143
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------
<S> <C> <C>
PERSONAL LOANS (0.4%)
Beneficial Corp. ............... 3,411 $ 283,539
Countrywide Credit Industries,
Inc. .......................... 6,802 291,636
Household International,
Inc. .......................... 6,823 870,359
Providian Financial Corp. ...... 5,964 269,498
------------
1,715,032
------------
PHOTOGRAPHY/IMAGING (0.3%)
Eastman Kodak Co. .............. 20,775 1,263,380
IKON Office Solutions, Inc. .... 8,488 238,725
Polaroid Corp. ................. 2,877 140,074
------------
1,642,179
------------
POLLUTION CONTROL (0.3%)
Browning-Ferris Industries,
Inc. .......................... 12,589 465,793
Waste Management, Inc. ......... 28,980 796,950
------------
1,262,743
------------
PROPERTY--CASUALTY INSURANCE
(1.6%)
Allstate Corp. (The)............ 27,386 2,488,703
Chubb Corp. (The)............... 10,903 824,539
Cincinnati Financial Corp. ..... 3,500 492,625
General Re Corp. ............... 5,116 1,084,592
Loews Corp. .................... 7,361 781,186
MGIC Investment Corp. .......... 7,330 487,445
Progressive Corp. (The)......... 4,512 540,876
SAFECO Corp. ................... 8,894 433,583
St. Paul Cos., Inc. (The)....... 5,292 434,275
USF&G Corp. .................... 7,236 159,644
------------
7,727,468
------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The).... 6,403 473,822
Meredith Corp. ................. 3,365 120,088
------------
593,910
------------
PUBLISHING--NEWSPAPER (0.6%)
Dow Jones & Co., Inc. .......... 6,190 332,326
Gannett Co., Inc. .............. 18,021 1,113,923
Knight-Ridder, Inc. ............ 5,356 278,512
New York Times Co. (The) Class
A.............................. 6,160 407,330
Times Mirror Co. (The) Class
A.............................. 6,051 372,136
Tribune Co. .................... 7,757 482,873
------------
2,987,100
------------
RAILROADS (0.7%)
Burlington Northern Santa Fe
Corp. ......................... 9,914 921,382
CSX Corp. ...................... 13,920 751,680
Norfolk Southern Corp. ......... 23,935 737,497
Union Pacific Corp. ............ 15,777 985,077
------------
3,395,636
------------
RESTAURANTS (0.5%)
Darden Restaurants, Inc. ....... 9,695 121,188
McDonald's Corp. ............... 43,887 2,095,604
Tricon Global Restaurants, Inc.
(a)............................ 9,763 283,737
Wendy's International, Inc. .... 8,389 201,860
------------
2,702,389
------------
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
RETAIL STORES--APPAREL (0.4%)
Charming Shoppes, Inc. (a)...... 6,739 $ 31,589
Gap, Inc. (The)................. 25,730 911,789
Limited, Inc. (The)............. 17,285 440,768
TJX Cos., Inc. (The)............ 10,424 358,325
------------
1,742,471
------------
RETAIL STORES--DEPARTMENT
(0.6%)
Dillard's, Inc. Class A......... 7,176 252,954
Federated Department Stores,
Inc. (a)....................... 13,234 569,889
May Department Stores Co.
(The).......................... 14,803 779,933
Mercantile Stores Co., Inc. .... 2,380 144,883
Nordstrom, Inc. ................ 4,945 298,554
Penney (J.C.) Co., Inc. ........ 15,873 957,340
------------
3,003,553
------------
RETAIL STORES--DRUGS (0.3%)
Longs Drug Stores Corp. ........ 2,518 80,891
Rite Aid Corp. ................. 7,887 462,868
Walgreen Co. ................... 31,361 983,951
------------
1,527,710
------------
RETAIL STORES--FOOD CHAIN
(0.5%)
Albertson's, Inc. .............. 15,715 744,498
American Stores Co. ............ 17,387 357,520
Giant Food Inc. Class A......... 3,779 127,305
Great Atlantic & Pacific Tea
Co., Inc. (The)................ 2,440 72,437
Kroger Co. (The) (a)............ 16,248 600,161
Winn-Dixie Stores, Inc. ........ 9,498 414,944
------------
2,316,865
------------
RETAIL STORES--GENERAL
MERCHANDISE (1.6%)
Dayton Hudson Corp. ............ 13,890 937,575
Kmart Corp. (a)................. 31,125 359,883
Sears, Roebuck & Co. ........... 24,961 1,129,485
Wal-Mart Stores, Inc. .......... 143,808 5,671,428
------------
8,098,371
------------
RETAIL STORES--SPECIALTY (1.2%)
AutoZone, Inc. (a).............. 9,521 276,109
Circuit City Stores--Circuit
City Group..................... 6,227 221,448
Costco Cos., Inc. (a)........... 13,574 605,740
CVS Corp. ...................... 10,937 700,651
Home Depot, Inc. (The).......... 46,594 2,743,222
Lowe's Cos., Inc. .............. 11,086 528,664
Pep Boys-Manny, Moe & Jack
(The).......................... 3,969 94,760
Tandy Corp. .................... 6,573 253,471
Toys "R" Us, Inc. (a)........... 18,238 573,357
Woolworth Corp. (a)............. 8,583 174,878
------------
6,172,300
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
143
<PAGE> 144
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------
<S> <C> <C>
SAVINGS & LOANS (0.4%)
Ahmanson (H.F.) & Co. .......... 6,169 $ 412,938
Golden West Financial Corp. .... 3,691 361,026
Washington Mutual, Inc. ........ 16,430 1,048,439
------------
1,822,403
------------
SHOES (0.2%)
NIKE, Inc. Class B.............. 18,420 722,985
Reebok International Ltd. ...... 3,546 102,169
------------
825,154
------------
SPECIALIZED SERVICES (1.0%)
Block (H&R), Inc. .............. 6,603 295,897
Cendant Corp. (a)............... 50,362 1,731,194
Cognizant Corp. ................ 10,494 467,639
Dun & Bradstreet Corp. (The).... 10,772 333,259
Ecolab Inc. .................... 4,074 225,852
Interpublic Group of Cos., Inc.
(The).......................... 7,944 395,710
Laidlaw Inc. ................... 20,982 285,880
National Service Industries,
Inc. .......................... 2,713 134,463
Omnicom Group Inc. ............. 10,400 440,700
Safety-Kleen Corp. ............. 3,707 101,711
Service Corp. International..... 16,038 592,403
------------
5,004,708
------------
SPECIALTY PRINTING (0.1%)
Deluxe Corp. ................... 5,260 181,470
Donnelley (R.R.) & Sons Co. .... 9,298 346,351
Harland (John H.) Co. .......... 1,933 40,593
------------
568,414
------------
STEEL (0.2%)
Allegheny Teledyne Inc. ........ 11,120 287,730
Armco Inc. (a).................. 6,806 33,605
Bethlehem Steel Corp. (a)....... 7,179 61,919
Inland Steel Industries,
Inc. .......................... 3,074 52,642
Nucor Corp. .................... 5,600 270,550
USX-U.S. Steel Group Inc. ...... 5,508 172,125
Worthington Industries, Inc. ... 6,222 102,663
------------
981,234
------------
TELECOMMUNICATIONS-- LONG
DISTANCE (2.3%)
AT&T Corp. ..................... 103,531 6,341,274
MCI Communications Corp. ....... 44,445 1,902,802
Sprint Corp. ................... 27,368 1,604,449
WorldCom, Inc. (a).............. 57,614 1,742,823
------------
11,591,348
------------
TELEPHONE (4.1%)
ALLTEL Corp. ................... 11,828 485,687
Ameritech Corp. ................ 35,070 2,823,135
Bell Atlantic Corp. ............ 49,516 4,505,956
BellSouth Corp. ................ 63,162 3,556,810
Frontier Corp. ................. 10,456 251,597
GTE Corp. ...................... 61,011 3,187,825
SBC Communications Inc. ........ 58,403 4,278,020
US West Communications Group.... 30,790 1,389,399
------------
20,478,429
------------
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
TEXTILES--APPAREL MANUFACTURERS
(0.2%)
Fruit of the Loom, Inc. Class A
(a)............................ 4,690 $ 120,181
Liz Claiborne, Inc. ............ 4,219 176,407
Russell Corp. .................. 2,439 64,786
Springs Industries, Inc. Class
A.............................. 1,270 66,040
VF Corp. ....................... 7,768 356,843
------------
784,257
------------
TOBACCO (1.5%)
Philip Morris Cos. Inc. ........ 154,790 7,013,922
UST Inc. ....................... 11,697 432,058
------------
7,445,980
------------
TOYS (0.2%)
Hasbro, Inc. ................... 8,063 253,984
Mattel, Inc. ................... 18,527 690,131
------------
944,115
------------
TRANSPORTATION--MISCELLANEOUS
(0.1%)
Federal Express Corp. (a)....... 7,316 446,733
Ryder System, Inc. ............. 5,006 163,947
------------
610,680
------------
TRUCKERS (0.0%)(b)
Caliber System, Inc. ........... 2,491 121,281
------------
Total Common Stocks
(Cost $365,729,562)............ 482,154,668 (c)
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (2.5%)
PRINCIPAL
AMOUNT
<S> <C> <C>
----------
COMMERCIAL PAPER (1.9%)
Dynamic Fuji Corp. 6.75%, due
2/13/98 (d).................... $6,700,000 6,645,981
7.50%, due 2/13/98 (d)......... 1,300,000 1,288,354
Dynamic Funding Corp. 7.65%, due
2/13/98 (d).................... 700,000 693,604
7.75%, due 2/13/98 (d)......... 800,000 792,595
------------
Total Commercial Paper
(Cost $9,420,534).............. 9,420,534
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
144
<PAGE> 145
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
U.S. GOVERNMENT (0.6%)
United States Treasury Bills
4.89%, due 3/26/98 (d)......... $1,000,000 $ 988,103
5.14%, due 4/2/98 (d).......... 2,000,000 1,973,950
-------------
Total U.S. Government
(Cost $2,961,767).............. 2,962,053
-------------
Total Short-Term Investments
(Cost $12,382,301)............. 12,382,587
-------------
Total Investments
(Cost $378,111,863)(f)......... 99.6% 494,537,255 (g)
Cash and Other Assets,
Less Liabilities............... 0.4 2,235,026
---------- ------------
Net Assets...................... 100.0% $496,772,281
========== ===========
FUTURES CONTRACTS (0.0%) (B)
CONTRACTS UNREALIZED
LONG APPRECIATION(e)
-----------------------------
Standard & Poor's 500
March 1998..................... 50 $ 107,875
Mini March 1998................ 4 1,517
------------
Total Futures Contracts
(Settlement Value
$12,434,570)(c)................ $ 109,392
============
</TABLE>
- ------------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts represents 99.6% of net assets.
(d) Segregated or partially segregated as collateral for futures contracts.
(e) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1997.
(f) The cost for Federal income tax purposes is $378,301,683.
(g) At December 31, 1997 net unrealized appreciation was $116,235,572, 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 $120,408,068 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $4,172,496.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
145
<PAGE> 146
INDEXED EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $378,111,863)......... $494,537,255
Cash..................................... 44,555
Receivables:
Fund shares sold....................... 1,709,710
Investment securities sold............. 1,471,369
Dividends and interest................. 623,666
------------
Total assets..................... 498,386,555
------------
LIABILITIES:
Payables:
Investment securities purchased........ 1,383,832
Administrator.......................... 81,420
Adviser................................ 40,710
Custodian.............................. 17,329
Directors.............................. 263
Accrued expenses......................... 86,476
Variation margin payable on futures
contracts.............................. 4,244
------------
Total liabilities................ 1,614,274
------------
Net assets applicable to outstanding
shares................................. $496,772,281
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares authorized.... $ 241,418
Additional paid-in capital............... 374,743,992
Accumulated undistributed net investment
income................................. 32,358
Accumulated undistributed net realized
gain on investments.................... 5,219,729
Net unrealized appreciation on
investments............................ 116,534,784
------------
Net assets applicable to outstanding
shares................................. $496,772,281
============
Shares of capital stock outstanding...... 24,141,792
============
Net asset value per share outstanding.... $ 20.58
============
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 5,617,589
Interest............................... 1,956,347
-----------
Total income..................... 7,573,936
-----------
Expenses:
Administration......................... 706,874
Advisory............................... 353,437
Shareholder communication.............. 176,267
Custodian.............................. 67,819
Professional........................... 53,561
Directors.............................. 10,276
Portfolio pricing...................... 3,142
Miscellaneous.......................... 12,529
-----------
Total expenses................... 1,383,905
-----------
Net investment income.................... 6,190,031
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain from:
Securities transactions................ 7,869,036
Futures transactions................... 7,254,056
-----------
Net realized gain on investments......... 15,123,092
-----------
Net change in unrealized appreciation on
investments:
Securities transactions................ 71,893,117
Futures transactions................... 238,337
-----------
Net unrealized gain on investments....... 72,131,454
-----------
Net realized and unrealized gain on
investments............................ 87,254,546
-----------
Net increase in net assets resulting from
operations............................. $ 93,444,577
===========
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $34,098.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
146
<PAGE> 147
MAINSTAY VP SERIES FUND, INC.
INDEXED EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................... $ 6,190,031 $ 3,184,041
Net realized gain on investments.................................................... 15,123,092 3,967,042
Net change in unrealized appreciation on investments................................ 72,131,454 24,620,177
------------ ------------
Net increase in net assets resulting from operations................................ 93,444,577 31,771,260
------------ ------------
Dividends and distributions to shareholders:
From net investment income.......................................................... (6,158,063) (3,183,651)
From net realized gain on investments............................................... (11,301,944) (2,701,672)
------------ ------------
Total dividends and distributions to shareholders................................. (17,460,007) (5,885,323)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................... 184,972,008 110,486,675
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions..................................................................... 17,460,007 5,885,323
------------ ------------
202,432,015 116,371,998
Cost of shares redeemed............................................................. (5,588,851) (23,483,920)
------------ ------------
Increase in net assets derived from capital share transactions...................... 196,843,164 92,888,078
------------ ------------
Net increase in net assets............................................................ 272,827,734 118,774,015
NET ASSETS:
Beginning of year..................................................................... 223,944,547 105,170,532
------------ ------------
End of year........................................................................... $496,772,281 $223,944,547
============ ============
Accumulated undistributed net investment income....................................... $ 32,358 $ 390
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 16.10 $ 13.53 $ 10.38 $ 10.58 $ 10.00
-------- -------- -------- -------- --------
Net investment income..................... 0.27 0.24 0.27 0.24 0.19
Net realized and unrealized gain (loss) on
investments............................. 4.99 2.79 3.55 (0.15) 0.67
-------- -------- -------- -------- --------
Total from investment operations.......... 5.26 3.03 3.82 0.09 0.86
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income.............. (0.27) (0.24) (0.28) (0.24) (0.19)
From net realized gain on investments... (0.51) (0.22) (0.39) (0.05) (0.08)
In excess of net realized gain on
investments........................... -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total dividends and distributions......... (0.78) (0.46) (0.67) (0.29) (0.28)
-------- -------- -------- -------- --------
Net asset value at end of period.......... $ 20.58 $ 16.10 $ 13.53 $ 10.38 $ 10.58
======== ======== ======== ======== ========
Total investment return (b)............... 32.84% 22.42% 36.89% 0.76% 8.53%
Ratios (to average net
assets)/Supplemental Data:
Net investment income................... 1.75% 2.14% 2.52% 2.61% 2.54% +
Net expenses............................ 0.39% 0.47% 0.47% 0.47% 0.47% +
Expenses (before reimbursement)......... 0.39% 0.50% 0.62% 0.68% 0.96% +
Portfolio turnover rate................... 5% 3% 5% 8% 7%
Average commission rate paid.............. $ 0.0499 $ 0.0498 (c) (c) (c)
Net assets at end of period (in 000's).... $ 496,772 $ 223,945 $ 105,171 $ 63,164 $ 43,081
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
147
<PAGE> 148
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Business:
- --------------------------------------------------------------------------------
MainStay VP Series Fund, Inc. (the "Company") was incorporated under Maryland
law on June 3, 1983. The Company is registered under the Investment Company Act
of 1940, as amended, ("Investment Company Act") as an open-end diversified
management investment company. Convertible Portfolio, which commenced
operations on October 1, 1996, High Yield Corporate Bond, International Equity
and Value Portfolios, which commenced operations on May 1, 1995, Capital
Appreciation, Cash Management, Government, Total Return and Indexed Equity
Portfolios, which commenced operations on January 29, 1993 and Bond and Growth
Equity Portfolios, which commenced operations on January 23, 1984, (the
"Funds"; each separately a "Portfolio") are separate portfolios of the Company.
Shares of the Funds are currently offered only to New York Life Insurance and
Annuity Corporation ("NYLIAC"), a wholly owned subsidiary of New York Life
Insurance Company ("New York Life"). NYLIAC allocates shares of the Funds to,
among others, New York Life Insurance and Annuity Corporation's Variable
Annuity Separate Account I and Variable Annuity Separate Account II
(collectively "Separate Accounts"). The Separate Accounts are used to fund
multi-funded retirement annuity policies.
The investment objectives for each of the Portfolios of the Company are as
follows:
Capital Appreciation: to seek long-term growth of capital.
Cash Management: to seek as high a level of current income as is considered
consistent with the preservation of capital and liquidity.
Convertible: to seek capital appreciation together with current income.
Government: to seek a high level of current income, consistent with safety of
principal.
High Yield Corporate Bond: to maximize current income through investment in a
diversified portfolio of high yield, high risk debt securities which are
ordinarily in the lower rating categories of recognized rating agencies.
International Equity: to seek long-term growth of capital by investing in a
portfolio consisting primarily of non-U.S. equity securities.
Total Return: to realize current income consistent with reasonable opportunity
for future growth of capital and income.
Value: to realize maximum long-term total return from a combination of capital
growth and income.
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.
Indexed Equity: to provide investment results that correspond to the total
return performance (reflecting reinvestment of dividends) of common stocks in
the aggregate, as represented by the S&P 500.
- --------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies followed by the
Company:
(A)
VALUATION OF FUND SHARES. The net asset value per share of each Portfolio is
calculated on each day the New York Stock Exchange (the "Exchange") is open for
trading as of the close of regular trading on the Exchange. The net asset value
per share is calculated for each Portfolio by dividing the current market value
(amortized cost, in the case of Cash Management Portfolio) of the Portfolio's
total assets, less liabilities, by the total number of outstanding shares of
that Portfolio.
148
<PAGE> 149
MAINSTAY VP SERIES FUND, INC.
(B)
SECURITIES VALUATION. Portfolio securities of Cash Management Portfolio are
valued at amortized cost, which approximates market value. The amortized cost
method involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of the difference
between such cost and the value on maturity date.
Securities of each of the other Portfolios are stated at value determined (a) by
appraising common and preferred stocks which are traded on the Exchange at the
last sale price on that day or, if no sale occurs, at the mean between the
closing bid and asked prices, (b) by appraising common and preferred stocks
traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities not quoted on
the National Association of Securities Dealers NASDAQ system and securities
listed or traded on certain foreign exchanges whose operations are similar to
the U.S. over-the-counter market, at prices supplied by the pricing agent or
brokers selected by the Adviser if these prices are deemed to be representative
of market values at the regular close of business of the 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)
FORWARD FOREIGN CURRENCY CONTRACTS. A forward foreign currency contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolio's basis in the contract. The High Yield Corporate Bond and
International Equity Portfolios enter into forward foreign currency contracts in
order to hedge their foreign currency denominated investments and receivables
and payables against adverse movements in future foreign exchange rates.
The use of forward contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The contract amount reflects the extent of the Portfolio's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the
Portfolio's exposure at year-end to credit loss in the event of a counterparty's
failure to perform its obligations.
149
<PAGE> 150
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HIGH YIELD CORPORATE BOND PORTFOLIO
Forward foreign currency contract open at December 31, 1997:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT UNREALIZED
SOLD PURCHASED APPRECIATION
------------- --------- ------------
<S> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACT
- ---------------------------------------------------------------------
Deutsche Mark vs. U.S. Dollar, expiring 2/23/98...................... DM 525,000 $ 295,276 $ 2,389
==========
</TABLE>
INTERNATIONAL EQUITY PORTFOLIO
Forward foreign currency contracts open at December 31, 1997:
<TABLE>
<CAPTION>
CONTRACT CONTRACT UNREALIZED
AMOUNT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
--------------- --------------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
- -----------------------------------------------------------------
Australian Dollar vs. U.S. Dollar, expiring 2/3/98............... A$ 270,000 $ 183,256 $ 7,187
Deutsche Mark vs. Pound Sterling, expiring 1/14/98............... DM 4,679,373 L 1,670,000 141,283
Deutsche Mark vs. Spanish Peseta, expiring 1/12/98............... DM 140,175 SP 11,870,000 (111)
Deutsche Mark vs. Swedish Krona, expiring 3/16/98................ DM 1,403,457 SK 6,155,000 (6,621)
Deutsche Mark vs. U.S. Dollar, expiring 1/2/98-1/20/98........... DM 8,191,181 $ 4,695,000 136,444
French Franc vs. Deutsche Mark, expiring 2/18/98................. FF 2,370,000 DM 707,716 (361)
Italian Lira vs. Deutsche Mark, expiring 1/12/98................. IL 725,125,000 DM 736,317 (625)
New Zealand Dollar vs. U.S. Dollar, expiring 1/26/98............. N$ 1,320,000 $ 762,168 (2,553)
Norwegian Krone vs. Deutsche Mark, expiring 1/30/98.............. NK 1,372,000 DM 337,266 1,465
Pound Sterling vs. Deutsche Mark, expiring 1/14/98............... L 265,000 DM 784,199 771
Pound Sterling vs. Deutsche Mark, expiring 1/15/98............... L 700,000 DM 2,020,340 (26,296)
Spanish Peseta vs. U.S. Dollar, expiring 1/12/98................. SP 81,506,000 $ 562,110 27,186
Swiss Franc vs. Deutsche Mark, expiring 1/20/98.................. CF 1,085,000 DM 1,346,321 3,920
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
PURCHASED SOLD
--------------- ---------------
<S> <C> <C> <C>
FOREIGN CURRENCY BUY CONTRACTS
- -----------------------------------------------------------------
Australian Dollar vs. U.S. Dollar, expiring 2/3/98............... A$ 270,000 $ 181,119 (5,050)
Deutsche Mark vs. U.S. Dollar, expiring 1/2/98-1/20/98........... DM 9,652,032 $ 5,549,759 (178,127)
----------
Net unrealized appreciation on forward foreign currency
contracts...................................................... $ 98,512
==========
</TABLE>
(D)
FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin". When the
futures contract is closed, the Portfolio records a realized gain or loss equal
to the difference between the proceeds from (or cost of) the closing transaction
and the Portfolio's basis in the contract. The Indexed Equity Portfolio invests
in stock index futures contracts to gain full exposure to changes in stock
market prices to fulfill its investment objective.
150
<PAGE> 151
MAINSTAY VP SERIES FUND, INC.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts and variation margin reflect the
extent of the Portfolio's involvement in open futures positions. Risks arise
from the possible imperfect correlation in movements in the price of futures
contracts and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Portfolio's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
(E)
REPURCHASE AGREEMENTS. At the time a Portfolio enters into a repurchase
agreement, the value of the underlying security, including accrued interest,
will be equal to or exceed the value of the repurchase agreement and, in the
case of repurchase agreements exceeding one day, the value of the underlying
security, including accrued interest, is required during the term of the
agreement to be equal to or exceed the value of the repurchase agreement. The
underlying securities for all repurchase agreements are held in a segregated
account of the respective Portfolio's custodian. In the case of repurchase
agreements exceeding one day, the market value of the underlying securities are
monitored by the Adviser by pricing them daily. (Also see Note 5).
(F)
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Company records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage related and other
asset-backed securities. Dividend income is recognized on the ex-dividend date
and interest income is accrued daily except when collection is not expected.
Discounts on securities purchased for all Portfolios are accreted on the
constant yield method over the life of the respective securities or, if
applicable, over the period to the first call date. Premiums on securities
purchased are not amortized for any Portfolio except Cash Management Portfolio
which amortizes the premium on the constant yield method over the life of the
respective securities.
(G)
FOREIGN CURRENCY INVESTING. The books and records of the Company are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and
liabilities--at the valuation date,
(ii) purchases and sales of investment securities, income and
expenses--at the date of such transactions.
The assets and liabilities of High Yield Corporate Bond and International Equity
Portfolios are presented at the exchange rates and market values at the close of
the year. The changes in net assets arising from fluctuations in exchange rates
and the changes in net assets resulting from changes in market prices are not
separately presented. However, gains and losses from certain foreign currency
transactions are treated as ordinary income for Federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on forward currency contracts, net currency gains or losses realized
as a result of differences between the amounts of securities sale proceeds or
purchase cost, dividends, interest and withholding taxes recorded on the
Portfolio's books and the U.S. dollar equivalent amount actually received or
paid. Net currency gains or losses from valuing foreign currency denominated
assets and liabilities, other than investments, at year-end exchange rates are
reflected in unrealized foreign exchange gains (losses).
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
151
<PAGE> 152
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INTERNATIONAL EQUITY PORTFOLIO
Foreign currency held at December 31, 1997:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- ---------------------------------------------------- ------- -------
<S> <C> <C> <C> <C>
Australian Dollar A$ 6,379 $ 4,202 $ 4,157
Deutsche Mark DM 393,930 223,106 218,982
French Franc FF 2,413 406 401
Japanese Yen Y 2,204,176 17,066 18,575
Netherland Guilder NG 757 380 373
New Zealand Dollar N$ 12,231 7,219 7,103
Spanish Peseta SP 503,764 3,369 3,305
-------- --------
$255,748 $252,896
======== ========
</TABLE>
(H)
MORTGAGE DOLLAR ROLLS. Certain of the Portfolios enter into mortgage dollar roll
transactions ("MDRs") in which they sell mortgage backed securities ("MBS") from
their portfolio to a counterparty from whom they simultaneously agree to buy a
similar security on a delayed delivery basis. The MDR transactions of the
Portfolios are classified as purchase and sale transactions. The securities sold
in connection with the MDRs are removed from the portfolio and a realized gain
or loss is recognized. The securities the Portfolios have agreed to acquire are
included at market value in the portfolio of investments and liabilities for
such purchase commitments are included as payables for investments purchased.
The Portfolios maintain a segregated account with the custodian containing
securities from the respective portfolios having a value not less than the
repurchase price, including accrued interest. MDR transactions involve certain
risks, including the risk that the MBS returned to the Portfolios at the end of
the roll, while substantially similar, could be inferior to what was initially
sold to the counterparty.
(I)
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt sale
at an acceptable price may be difficult. The issuers of the securities will bear
the costs involved in registration under the Securities Act of 1933 and in
connection with the disposition of such securities. The Convertible and High
Yield Corporate Bond Portfolios do not have the right to demand that such
securities be registered. The Portfolios may not invest more than 15% and 10%,
respectively, of their net assets in illiquid securities.
152
<PAGE> 153
MAINSTAY VP SERIES FUND, INC.
CONVERTIBLE PORTFOLIO
Restricted security held at December 31, 1997:
<TABLE>
<CAPTION>
PERCENT
ACQUISITION 12/31/97 OF
SECURITY DATE SHARES COST VALUE NET ASSETS
- ------- ---------------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
United International Holdings, Inc.
4.00%, Series A
Convertible Preferred Stock............... 8/1/97 10,400 $ 1,416,743 $ 1,456,000 3.7%
=========== =========== ===
</TABLE>
HIGH YIELD CORPORATE BOND PORTFOLIO
Restricted securities held at December 31, 1997:
<TABLE>
<CAPTION>
PRINCIPAL PERCENT
ACQUISITION AMOUNT/ 12/31/97 OF
SECURITY DATE(S) SHARES COST VALUE NET ASSETS
- ------- ---------------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
American Color Graphics, Inc. ARM
10.00%, due 3/31/01....................... 9/10/97 $1,000,000 $ 1,000,000 $ 995,000 0.2%
Buenos Aires Embotelladora
Sociedad Anonima
9.479%, due 8/1/98........................ 9/19/97 - 10/22/97 $4,500,000 3,920,000 3,375,000 0.8
Continental Airlines, Inc.
8.00%, due 6/30/00........................ 8/21/97 $1,397,623 1,391,259 1,397,623 0.3
EEX Capital Inc.
Preferred Stock........................... 11/17/97 2,573 2,603,112 2,630,712 0.6
FRI-MRD Corp.
(zero coupon), due 1/24/02
15.00%, beginning 6/30/99................. 8/12/97 $4,400,000 3,378,741 3,729,000 0.9
GPA Group, PLC
Preferred Stock........................... 3/28/96 - 11/20/97 4,750,000 2,353,175 2,565,000 0.6
Kronos International, Inc.
Bank debt
3.612%, due 9/15/99....................... 2/25/97 DM 291,617 159,144 159,748 0.0(a)
Bank debt
6.218%, due 9/15/00....................... 2/25/97 DM 155,021 84,600 84,921 0.0(a)
Seven Sixty Seven Leasing, Inc.
7.656%, due 2/2/02........................ 9/3/97 $3,176,814 3,169,126 3,272,119 0.8
Supercanal Holding, S.A.
14.50%, due 11/12/98...................... 11/20/97 $4,000,000 3,863,838 3,910,000 0.9
Warrants, Series A, expire 11/14/99....... 11/20/97 492,587 39,407 39,407 0.0(a)
Titan Tire Corp.
7.00%, due 2/11/00........................ 6/24/97 $6,000,000 5,761,941 5,835,000 1.4
United International Holdings, Inc.
4.00%, Series A
Convertible Preferred Stock............... 8/1/97 44,600 6,075,648 6,244,000 1.5
Vnesheconombank of the USSR
6.719%, due 12/15/20...................... 12/29/97 $1,800,000 1,014,750 1,109,250 0.3
----------- ----------- ------
$34,814,741 $35,346,780 8.3%
=========== =========== ======
</TABLE>
- ------------
(a) Less than one tenth of a percent.
DM--Deutsche Mark
153
<PAGE> 154
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(J)
SECURITIES LENDING. The Portfolios may lend their securities to broker-dealers
and financial institutions. The loans are secured by collateral (cash or
securities) at least equal at all times to the market value of the securities
loaned. The Portfolios may bear the risk of delay in recovery of, or loss of
rights in, the securities loaned should the borrower of the securities fail
financially. The Portfolios receive compensation for lending their securities in
the form of fees or they retain a portion of interest on the investment of any
cash received as collateral. The Portfolios also continue to receive interest
and dividends on the securities loaned, and any gain or loss in the market price
of the securities loaned that may occur during the term of the loan will be for
the account of the Portfolios.
(K)
COMMITMENTS AND CONTINGENCIES. As of December 31, 1997, High Yield Corporate
Bond Portfolio had an unfunded loan commitment pursuant to the following loan
agreement:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
- ----------------------------------------------------------------------------------------- ----------
<S> <C>
Kronos International, Inc................................................................ $111,935
=========
</TABLE>
(L)
FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK. High Yield Corporate
Bond Portfolio invests in Loan Participations. When the Portfolio purchases a
Participation, the Portfolio typically enters into a contractual relationship
with the lender or third party selling such Participation ("Selling
Participant"), but not with the Borrower. As a result, the Portfolio assumes the
credit risk of the Borrower, the Selling Participant and any other persons
interpositioned between the Portfolio and the Borrower ("Intermediate
Participants"). The Portfolio may not directly benefit from the collateral
supporting the Senior Loan in which it has purchased the Participation. The
Portfolio may be considered to have a concentration of credit risk in the
banking industry, since the Portfolio will only acquire Participations if the
Selling Participant and each Intermediate Participant is a financial
institution.
(M)
FEDERAL INCOME TAXES. Each of the Portfolios is treated as a separate entity for
Federal income tax purposes. The Company's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of the taxable income to the shareholders of
each Portfolio within the allowable time limits. Therefore, no Federal income
tax provision is required.
Investment income received by a Portfolio from foreign sources may be subject to
foreign income taxes withheld at the source.
154
<PAGE> 155
MAINSTAY VP SERIES FUND, INC.
(N)
STATEMENT OF POSITION 93-2. Permanent book-tax differences relating to
shareholder distributions have been reclassified. Net investment income (loss),
net realized gain (loss) and net assets are not affected. The following table
discloses the current year reclassifications between accumulated undistributed
net investment income (loss) and accumulated undistributed net realized gain
(loss) on investments.
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED
ACCUMULATED NET REALIZED
ACCUMULATED UNDISTRIBUTED GAIN (LOSS) ON
UNDISTRIBUTED NET REALIZED FOREIGN ADDITIONAL
NET INVESTMENT GAIN (LOSS) CURRENCY PAID-IN
INCOME (LOSS) ON INVESTMENTS TRANSACTIONS CAPITAL
-------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Convertible Portfolio................................. $ 9,066 $ 128 $ 0 $ (9,194)
Government Portfolio.................................. (74,221) 85,972 0 (11,751)
High Yield Corporate Bond Portfolio................... 43,025 0 (41,314) (1,711)
International Equity Portfolio........................ 2,509,373 (23,826) (2,485,547) 0
Total Return Portfolio................................ (87,391) 87,390 0 1
Bond Portfolio........................................ (28,170) 75,452 0 (47,282)
Growth Equity Portfolio............................... (46,048) 439,354 0 (393,306)
</TABLE>
The reclassifications for the Portfolios relate primarily to the character for
tax purposes of certain short-term gains and losses.
(O)
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.
(P)
ORGANIZATION COSTS. Costs incurred in connection with the initial organization
and registration of a Portfolio of the Company are amortized over a maximum
period of 60 months beginning with the commencement of operations of the
respective Portfolio. Organization costs for Convertible Portfolio, paid by, and
reimbursable to, NYLIAC, totalled approximately $46,000. Such costs are being
amortized beginning with the commencement of operations on October 1, 1996. In
the event that any of the initial shares purchased by NYLIAC are redeemed,
proceeds of such redemption will be reduced by the proportionate amount of the
unamortized deferred organizational expenses which the number of shares redeemed
bears to the total number of initial shares purchased.
(Q)
EXPENSES. Expenses with respect to the Company are allocated to the individual
Portfolios in proportion to the net assets of the respective Portfolios when the
expenses are incurred except when direct allocations of expenses can be made.
(R)
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.
155
<PAGE> 156
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Fees and Related Party Policies:
- --------------------------------------------------------------------------------
(A)
INVESTMENT ADVISORY AND ADMINISTRATION FEES. MacKay-Shields Financial
Corporation ("MacKay-Shields") acts as investment adviser to Capital
Appreciation, Cash Management, Convertible, Government, High Yield Corporate
Bond, International Equity, Total Return and Value Portfolios 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. Monitor
Capital Advisors Inc. ("Monitor") acts as investment adviser to Indexed Equity
Portfolio under an Investment Advisory Agreement. Monitor is a registered
investment adviser, a wholly-owned subsidiary of NYLIFE Inc. and an indirect
wholly-owned subsidiary of New York Life.
NYLIAC is Administrator for the Company.
The Company, on behalf of each Portfolio, pays the Advisers and Administrator a
monthly fee for the services performed and the facilities furnished at an
approximate annual rate of the average daily net assets of each Portfolio as
follows:
<TABLE>
<CAPTION>
ADVISER ADMINISTRATOR
------ -------------
<S> <C> <C>
Capital Appreciation Portfolio........................................................ 0.36% 0.20%
Cash Management Portfolio............................................................. 0.25% 0.20%
Convertible Portfolio................................................................. 0.36% 0.20%
Government Portfolio.................................................................. 0.30% 0.20%
High Yield Corporate Bond Portfolio................................................... 0.30% 0.20%
International Equity Portfolio........................................................ 0.60% 0.20%
Total Return Portfolio................................................................ 0.32% 0.20%
Value Portfolio....................................................................... 0.36% 0.20%
Bond Portfolio........................................................................ 0.25% 0.20%
Growth Equity Portfolio............................................................... 0.25% 0.20%
Indexed Equity Portfolio.............................................................. 0.10% 0.20%
</TABLE>
The Administrator has voluntarily agreed to assume the operating expenses of
Convertible, High Yield Corporate Bond, International Equity and Value
Portfolios through December 31, 1997, which on an annualized basis exceed the
percentages indicated below.
<TABLE>
<S> <C>
Convertible Portfolio................................................................................. 0.73%
High Yield Corporate Bond Portfolio................................................................... 0.67%
International Equity Portfolio........................................................................ 0.97%
Value Portfolio....................................................................................... 0.73%
</TABLE>
In connection with such expense limitation, the Administrator assumed certain of
the expenses of the Convertible and International Equity Portfolios for the year
ended December 31, 1997 as shown on the Statement of Operations.
The Administrator has voluntarily agreed to assume the operating expenses of
Convertible and International Equity Portfolios through December 31, 1998. High
Yield Corporate Bond and Value Portfolios will not have an expense limitation in
1998.
The Capital Appreciation, Cash Management, Government, Total Return, Bond,
Growth Equity and Indexed Equity Portfolios did not have an expense limitation
in 1997 and will not have an expense limitation in 1998.
(B)
DISTRIBUTOR. NYLIFE Distributors Inc. ("NYLIFE Distributors"), a wholly-owned
subsidiary of NYLIFE Inc. and an indirect wholly-owned subsidiary of New York
Life, serves as the Company's distributor and principal underwriter (the
"Distributor") pursuant to a Distribution agreement. NYLIFE Distributors is not
obligated to sell any specific amount of the Company's shares, and receives no
compensation from the Company pursuant to the Distribution Agreement.
156
<PAGE> 157
MAINSTAY VP SERIES FUND, INC.
(C)
DIRECTORS FEES. Directors, other than those affiliated with New York Life,
MacKay-Shields, Monitor or NYLIFE Distributors, are paid an annual fee of
$35,000 and $1,500 for each Board meeting and each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Company allocates
this expense in proportion to the net assets of the respective Portfolios.
(D)
CAPITAL. At December 31, 1997 NYLIAC was the beneficial owner of shares of the
following Portfolio with a net asset value as follows:
<TABLE>
<S> <C>
Convertible Portfolio.............................................................................. $11,782,933
</TABLE>
This value represents 29.6% of the net assets of the Convertible Portfolio at
year-end.
(E)
OTHER. Fees for the cost of legal services provided to the Company by the Office
of General Counsel of New York Life are charged to the Portfolios. For the year
ended December 31, 1997 these fees were as follows:
<TABLE>
<S> <C>
Capital Appreciation Portfolio......................................................................... $31,359
Cash Management Portfolio.............................................................................. 6,628
Convertible Portfolio.................................................................................. 1,398
Government Portfolio................................................................................... 3,640
High Yield Corporate Bond Portfolio.................................................................... 15,017
International Equity Portfolio......................................................................... 1,690
Total Return Portfolio................................................................................. 19,383
Value Portfolio........................................................................................ 8,951
Bond Portfolio......................................................................................... 11,432
Growth Equity Portfolio................................................................................ 33,311
Indexed Equity Portfolio............................................................................... 16,873
</TABLE>
- --------------------------------------------------------------------------------
NOTE 4--Federal Income Tax:
- --------------------------------------------------------------------------------
At December 31, 1997, for Federal income tax purposes, capital loss
carryforwards, as shown in the table below, are available to the extent
provided by regulations to offset future realized gains of each respective
Portfolio through the years indicated. To the extent that these loss
carryforwards are used to offset future capital gains, it is probable that the
capital gains so offset will not be distributed to shareholders. Additionally,
as shown in the table below, certain Portfolios intend to elect, to the extent
provided by regulations, to treat certain qualifying capital losses that arose
during the year after October 31, 1997 as if they arose on January 1, 1998.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S) DEFERRED (000'S)
---------------- ------------- --------------
<S> <C> <C> <C>
Government Portfolio............................................ 2002 $3,119
2004 1,523
------
$4,642 $ 63
====== ======
International Equity Portfolio.................................. 2005 $ 268 $ 368
====== ======
</TABLE>
Capital Appreciation, Cash Management, Government, Total Return and Bond
Portfolios utilized $5,143,304, $1,537, $141,604, $3,048,046 and $1,786,311,
respectively, of capital loss carryforwards during the current year.
157
<PAGE> 158
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Financial Investments:
- --------------------------------------------------------------------------------
High Yield Corporate Bond Portfolio invests primarily in high yield bonds.
These bonds may involve special risks in addition to the risks associated with
investment in higher rated debt securities. High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher grade bonds. Also, the secondary market on which high
yield bonds are traded may be less liquid than the market for higher grade
bonds.
Each Portfolio may enter into repurchase agreements to earn income. In the event
of the bankruptcy of the seller or the failure of the seller to repurchase the
securities as agreed, a Portfolio could suffer losses, including loss of
interest on or principal of the security and costs associated with delay and
enforcement of the repurchase agreement.
- --------------------------------------------------------------------------------
NOTE 6--Portfolio Securities Loaned:
- --------------------------------------------------------------------------------
At December 31, 1997, Government and Total Return Portfolios had portfolio
securities with a fair market value of $14,919,251 and $31,500,145,
respectively on loan to broker-dealers and government securities dealers.
Cash collateral received by Government and Total Return Portfolios is invested
in investment grade commercial paper, or other securities in accordance with the
Portfolios securities lending procedures. Such investments are included as an
asset and a corresponding liability in the Statement of Assets and Liabilities.
While the Portfolios invest cash collateral in investment grade securities or
other "high quality" investment vehicles, the Portfolios bear the risk that
liability for the collateral may exceed the value of the investment. Non-cash
collateral received and held by the Portfolios, in the form of U.S. Government
obligations, had a value of $2,802,500 and $6,883,438, respectively, at December
31, 1997.
Net income earned on securities lending amounted to $26,147 and $37,677, net of
broker fees and rebates, respectively, for the year ended December 31, 1997,
which is included as interest income on the Statement of Operations.
- --------------------------------------------------------------------------------
NOTE 7--Line of Credit:
- --------------------------------------------------------------------------------
Capital Appreciation, Cash Management, Convertible, Government, High Yield
Corporate Bond, International Equity, Total Return, Value and Indexed Equity
Portfolios maintain a line of credit with Bank of New York in order to secure a
source of funds for temporary purposes to meet unanticipated or excessive
shareholder redemption requests. There was no outstanding balance on this line
of credit at December 31, 1997.
158
<PAGE> 159
MAINSTAY VP SERIES FUND, INC.
(THIS PAGE INTENTIONALLY LEFT BLANK)
159
<PAGE> 160
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the year ended December 31, 1997, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION CONVERTIBLE GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES PURCHASES SALES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities.......................... $ -- $ -- $ -- $ -- $215,454 $ 223,451
All others.......................................... 302,400 211,436 65,435 54,004 31,941 20,064
-------- --------- -------- --------- -------- ---------
Total............................................... $302,400 $ 211,436 $ 65,435 $ 54,004 $247,395 $ 243,515
======== ========= ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY INDEXED EQUITY
PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES
---------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities.......................... $ -- $ -- $ -- $ --
All others.......................................... 688,456 649,966 203,462 16,585
-------- --------- -------- ---------
Total............................................... $688,456 $ 649,966 $203,462 $ 16,585
======== ========= ======== =========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 9--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in capital shares throughout each year ended December 31, 1997 and
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION CASH MANAGEMENT CONVERTIBLE
PORTFOLIO PORTFOLIO PORTFOLIO
1997 1996 1997 1996 1997 1996(a)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold......................................... 7,339 12,007 285,484 237,105 2,001 494
Shares issued in reinvestment of dividends and
distributions..................................... 470 18 6,346 4,586 335 17
------- ------- -------- -------- ------- -------
7,809 12,025 291,830 241,691 2,336 511
Shares redeemed..................................... (1,119) (416) (269,397) (211,181) (148) (5)
------- ------- -------- -------- ------- -------
Net increase (decrease)............................. 6,690 11,609 22,433 30,510 2,188 506
======= ======= ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY INDEXED EQUITY
PORTFOLIO PORTFOLIO
1997 1996 1997 1996
---------------------------------------------
<S> <C> <C> <C> <C>
Shares sold......................................... 4,700 3,863 9,651 7,431
Shares issued in reinvestment of dividends and
distributions..................................... 5,219 3,968 872 363
------- ------ ------ -------
9,919 7,831 10,523 7,794
Shares redeemed..................................... (2,855) (2,346) (294) (1,657)
------- ------ ------ -------
Net increase........................................ 7,064 5,485 10,229 6,137
======= ====== ====== =======
</TABLE>
- ------------
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
160
<PAGE> 161
MAINSTAY VP SERIES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
CORPORATE BOND EQUITY TOTAL RETURN VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 21,807 $ 20,351 $ -- $ -- $449,496 $ 431,248 $ -- $ -- $199,723
589,443 377,526 16,408 22,035 104,552 40,943 174,187 81,080 205,159
- ------------------------------------------------------------------------------------------------------------------------------
$611,250 $ 397,877 $ 16,408 $ 22,035 $554,048 $ 472,191 $174,187 $ 81,080 $404,882
==============================================================================================================================
<CAPTION>
SALES
- ----------------
<S> <C>
$ 265,480
136,662
- ----------------
$ 402,142
================
</TABLE>
================================================================================
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
GOVERNMENT CORPORATE BOND EQUITY TOTAL RETURN VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
954 1,887 16,421 12,714 958 1,777 4,296 8,197 7,460 6,418 1,611 1,940
478 479 3,743 1,061 227 168 1,080 459 920 217 1,140 1,117
- ------------------------------------------------------------------------------------------------------------------------------------
1,432 2,366 20,164 13,775 1,185 1,945 5,376 8,656 8,380 6,635 2,751 3,057
(1,553) (1,219) (1,638) (225) (1,489) (140) (1,116) (494) (626) (83) (2,980) (2,923)
- ------------------------------------------------------------------------------------------------------------------------------------
(121) 1,147 18,526 13,550 (304) 1,805 4,260 8,162 7,754 6,552 (229) 134
====================================================================================================================================
</TABLE>
161
<PAGE> 162
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 Capital Appreciation Portfolio,
Cash Management Portfolio, Convertible Portfolio, Government Portfolio, High
Yield Corporate Bond Portfolio, International Equity Portfolio, Total Return
Portfolio, Value Portfolio, Bond Portfolio, Growth Equity Portfolio, and Indexed
Equity Portfolio (separate portfolios constituting MainStay VP Series Fund,
Inc., hereafter referred to as the "Fund") at December 31, 1997, and the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the periods indicated and the financial highlights
for each of the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 23, 1998
162
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164
