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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................................ 59
NYLIAC Variable Annuity Separate Account - III
Statement of Assets and Liabilities..... 64
Statement of Operations................. 68
Statement of Changes in Total Equity.... 72
Notes to Financial Statements........... 77
Report of Independent Accountants....... 96
MainStay VP Series Fund, Inc.
Chairman's Letter....................... 98
Capital Appreciation Portfolio.......... 99
Cash Management Portfolio............... 103
Convertible Portfolio................... 108
Government Portfolio.................... 113
High Yield Corporate Bond Portfolio..... 117
International Equity Portfolio.......... 127
Total Return Portfolio.................. 134
Value Portfolio......................... 142
Bond Portfolio.......................... 146
Growth Equity Portfolio................. 150
Indexed Equity Portfolio................ 155
American Century Income & Growth
Portfolio............................. 165
Dreyfus Large Company Value Portfolio... 172
Eagle Asset Management Growth Equity
Portfolio............................. 176
Lord Abbett Developing Growth
Portfolio............................. 179
Notes to Financial Statements........... 184
Report of Independent Accountants....... 202
The Annual Reports for the Portfolios
listed below follow:
Alger American Small Capitalization
Portfolio
Calvert Social Balanced Portfolio
Fidelity Variable Insurance Products
Fund II Contrafund Portfolio
Fidelity Variable Insurance Products
Fund Equity-Income Portfolio
Janus Aspen Series Balanced Portfolio
and Janus Aspen Series Worldwide
Growth Portfolio
Morgan Stanley Emerging Markets Equity
Portfolio
MFS Growth With Income Series Portfolio
MFS Research Series Portfolio
T. Rowe Price Equity Income Portfolio
Van Eck Worldwide Hard Assets Portfolio
</TABLE>
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LETTER FROM THE VICE CHAIRMAN
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I am pleased to present the Annual Report for the year ending December 31, 1998.
This Annual Report contains valuable financial information including year-end
performance data and separate account financial statements for each of the 26
investment divisions that are available within your NYLIAC variable annuity
policy. This book also contains the following annual reports:
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MainStay VP Series Fund, Inc. Janus Aspen Series
The Alger American Fund MFS Insurance Trust
Morgan Stanley Dean Witter Universal Funds,
Calvert Variable Series, Inc. Inc.
Fidelity Variable Insurance Products Fund T. Rowe Price Equity Series, Inc.
Fidelity Variable Insurance Products Fund II Van Eck Worldwide Insurance Trust
</TABLE>
Please note that some of the Portfolios mentioned in this report may not be
available under your policy.
ECONOMIC ENVIRONMENT YEAR-END REVIEW
The United States economy had another stellar year of rapid growth and low
inflation in 1998, as a sharply deteriorating trade deficit and shrinking
manufacturing sector were more than offset by surging domestic demand. Real
Gross Domestic Product (GDP) rose by an estimated 3.7% near its 1997 performance
and still well above virtually all estimates of the economy's non-inflationary
growth potential. As a result, the unemployment rate continued to decline from
4.7% in December 1997 to 4.3% in December 1998, the lowest rate since 1970.
Nevertheless, inflation remained remarkably subdued during the year, with the
Consumer Price Index (CPI)(1) rising 1.6% over the twelve months ending in
December (vs. 1.7% in 1997 and 3.3% in 1996). The strong dollar, along with
falling prices of oil and other commodity prices, helped keep inflation in check
despite rising wages and strong demand.
Bond yields continued their downward cycle, with treasury yields reaching their
lowest levels since the 1960's. Earlier in the year, the Federal Reserve adopted
a tightening bias due to concerns about an overheating economy and soaring stock
market. Later in 1998, however, with credit and liquidity spreads soaring in
response to plunging oil and other commodity prices, deteriorating economic
conditions in the rest of the world, a Russian debt default, and the bailout of
a heavily leveraged hedge fund, the Federal Reserve lowered interest rates by 75
basis points in three easing moves. This, combined with similar moves by other
central banks around the world, greatly eased the stress in financial markets
and provided some insurance against recession. The positive stock market
response helped encourage consumers to keep spending.
In 1999, growth is expected to finally slow as weakness in manufacturing spreads
to other economic sectors. Inflation is likely to pick up, but only slightly as
the unemployment rate begins to drift upward again and import competition
continues to restrain domestic prices. Bond yields may fall further, and some
additional Federal Reserve easing is likely once there is clear evidence of
slower growth. Later in the year, however, growth is expected to begin
strengthening again in response to Federal Reserve easing and improving
conditions abroad.
For the stock market, 1998 demonstrated overall solid performance combined with
major volatility. The Dow Jones Industrial Average(2) ended the year with a gain
of 18.1%. The S&P 500 Index(3) was up an even stronger 28.6% for an
unprecedented fourth year of increases exceeding 20%. However, the bull market
suffered a severe interruption from mid-July until the end of August, and could
well have been down for the year if not for the timely action of the Federal
Reserve and other central banks. Market conditions for 1999 are likely to be
mixed. Corporate profits are likely to suffer from slower growth and continuing
margin pressures from abroad. Interest rates could well reach a trough during
the year. Uncertainties about the millennium bug may worry investors. On the
positive side, the long-term outlook for the U.S. economy remains extremely
favorable, and prospects for the rest of the world are likely to improve.
VARIABLE ANNUITIES IN GENERAL
The United States variable annuity industry set another record sales year in
1998. Variable annuity sales of $88.1 billion were up 12% versus 1997 results.
Variable annuity industry assets rose 22% to $778.4 billion in 1998.
Variable annuities are viewed as an effective financial vehicle to help
Americans live comfortably during their retirement years. In addition to
providing a choice of investment divisions from an array of cash, bond and
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equity sectors covering markets throughout the United States and abroad,
variable annuities offer additional features and benefits including tax
deferral, an income for life, a guaranteed fixed interest account, and a death
benefit provision.
New York Life Insurance and Annuity Corporation (NYLIAC) recorded $1.5 billion
in variable annuity premiums during 1998, representing a 28% increase from 1997
results. There are many factors attributing to NYLIAC's impressive variable
annuity sales results including competitive product features (e.g., Interest
Sweep and Dollar Cost Averaging), solid investment division performance,
enhanced marketing materials to reflect new branding effort, and top-notch
product training support.
We now have twenty-six investment divisions managed by several of today's most
well-known fund groups including MacKay-Shields, Fidelity Investments, Dreyfus,
Janus, T. Rowe Price and American Century.
INVESTMENT DIVISION PERFORMANCE
Positive returns were realized in sixteen of the eighteen investment divisions
with at least one year of investment division track record during the period
ending December 31, 1998 and assuming the policy was not surrendered. Please
refer to the performance summary on the following page for details.(4) The
following eleven investment divisions experienced double-digit returns for the
period assuming the policy was not surrendered:
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MainStay VP Capital Appreciation Calvert Social Balanced
MainStay VP International Equity Fidelity VIP II Contrafund(5)
MainStay VP Total Return Fidelity VIP Equity-Income(5)
MainStay VP Growth Equity Janus Aspen Series Balanced
MainStay VP Indexed Equity Janus Aspen Series Worldwide Growth
Alger American Small Capitalization
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Thank you for making us "The Company You Keep(R)".
/s/ FREDERICK J. SIEVERT
Frederick J. Sievert
Vice Chairman
New York Life Insurance Company,
parent of New York Life Insurance and Annuity Corporation
(1) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
(2) The Dow Jones Industrial Average is a trademark of, and the property of, Dow
Jones and Co., Inc. The DJIA Index is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but also including
financial, leisure, and other service-oriented firms.
(3) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(4) Past performance is not indicative of future results.
(5) VIP and VIP II refer to Variable Insurance Products Fund and Variable
Insurance Products Fund II.
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NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT III
AVERAGE ANNUAL TOTAL RETURNS* FOR THE PERIODS ENDING DECEMBER 31, 1998
ASSUMING CONTRACT NOT SURRENDERED**
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<CAPTION>
PORTFOLIO INVESTMENT DIVISION SINCE PORTFOLIO
INVESTMENT DIVISIONS INCEPTION DATE INCEPTION DATE 1 YR. 5 YRS. 10 YRS. INCEPTION
<S> <C> <C> <C> <C> <C> <C>
MainStay VP Capital Appreciation 01/29/93 05/01/95 36.24% 19.65% N/A 19.82%
MainStay VP Cash Management 01/29/93 05/01/95 3.75% 3.53% N/A 3.17%
MainStay VP Convertible 10/01/96 10/01/96 3.03% N/A N/A 8.99%
MainStay VP Government 01/29/93 05/01/95 7.50% 5.45% N/A 5.32%
MainStay VP High Yield Corporate Bond 05/01/95 05/01/95 1.24% N/A N/A 9.85%
MainStay VP International Equity 05/01/95 05/01/95 21.40% N/A N/A 11.58%
MainStay VP Total Return 01/29/93 05/01/95 25.39% 14.04% N/A 14.14%
MainStay VP Value 05/01/95 05/01/95 -5.47% N/A N/A 13.18%
MainStay VP Bond 01/23/84 05/01/95 7.62% 5.41% 7.44% 8.49%
MainStay VP Growth Equity 01/23/84 05/01/95 24.86% 19.48% 16.27% 13.12%
MainStay VP Indexed Equity 01/29/93 05/01/95 26.73% 21.86% N/A 19.55%
Alger American Small Capitalization 09/20/88 10/01/96 13.95% 11.52% 18.18% 17.20%
Calvert Social Balanced 09/02/86 10/01/96 14.68% 12.99% 11.31% 10.06%
Fidelity VIP II Contrafund 01/03/95 10/01/96 28.20% N/A N/A 26.84%
Fidelity VIP Equity-Income 10/09/86 10/01/96 10.10% 17.13% 14.02% 12.69%
Janus Aspen Series Balanced 09/13/93 10/01/96 32.44% 17.46% N/A 17.83%
Janus Aspen Series Worldwide Growth 09/13/93 10/01/96 27.16% 19.64% N/A 22.30%
MFS Growth With Income Series 10/09/95 05/01/98 20.64% N/A N/A 24.21%
MFS Research Series 07/26/95 05/01/98 18.99% N/A N/A 20.01%
Morgan Stanley Emerging Markets Equity 10/01/96 10/01/96 -25.23% N/A N/A -12.54%
T. Rowe Price Equity Income 03/31/94 05/01/98 6.82% N/A N/A 18.62%
Van Eck Worldwide Hard Assets 09/01/89 05/01/98 -31.88% -4.60% N/A 0.68%
<CAPTION>
SINCE INVESTMENT
INVESTMENT DIVISIONS DIVISION INCEPTION
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MainStay VP Capital Appreciation 25.57%
MainStay VP Cash Management 3.73%
MainStay VP Convertible 8.99%
MainStay VP Government 5.95%
MainStay VP High Yield Corporate Bond 9.85%
MainStay VP International Equity 11.58%
MainStay VP Total Return 17.84%
MainStay VP Value 13.18%
MainStay VP Bond 5.97%
MainStay VP Growth Equity 23.73%
MainStay VP Indexed Equity 25.73%
Alger American Small Capitalization 8.33%
Calvert Social Balanced 15.39%
Fidelity VIP II Contrafund 25.50%
Fidelity VIP Equity-Income 18.04%
Janus Aspen Series Balanced 24.30%
Janus Aspen Series Worldwide Growth 22.74%
MFS Growth With Income Series 5.66%
MFS Research Series 8.34%
Morgan Stanley Emerging Markets Equity -12.54%
T. Rowe Price Equity Income 1.28%
Van Eck Worldwide Hard Assets -19.82%
</TABLE>
ASSUMING CONTRACT SURRENDERED***
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<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT DIVISION SINCE PORTFOLIO
INVESTMENT DIVISIONS INCEPTION DATE INCEPTION DATE 1 YR. 5 YRS. 10 YRS. INCEPTION
<S> <C> <C> <C> <C> <C> <C>
MainStay VP Capital Appreciation 01/29/93 05/01/95 29.24% 18.96% N/A 19.33%
MainStay VP Cash Management 01/29/93 05/01/95 -2.79% 2.58% N/A 2.53%
MainStay VP Convertible 10/01/96 10/01/96 -3.46% N/A N/A 6.16%
MainStay VP Government 01/29/93 05/01/95 0.73% 4.49% N/A 4.67%
MainStay VP High Yield Corporate Bond 05/01/95 05/01/95 -5.14% N/A N/A 8.34%
MainStay VP International Equity 05/01/95 05/01/95 14.40% N/A N/A 10.13%
MainStay VP Total Return 01/29/93 05/01/95 18.39% 13.20% N/A 13.52%
MainStay VP Value 05/01/95 05/01/95 -11.43% N/A N/A 11.79%
MainStay VP Bond 01/23/84 05/01/95 0.84% 4.44% 7.44% 8.49%
MainStay VP Growth Equity 01/23/84 05/01/95 17.86% 18.79% 16.27% 13.12%
MainStay VP Indexed Equity 01/29/93 05/01/95 19.73% 21.22% N/A 19.05%
Alger American Small Capitalization 09/20/88 10/01/96 6.95% 10.60% 18.18% 17.20%
Calvert Social Balanced 09/02/86 10/01/96 7.68% 12.12% 11.31% 10.06%
Fidelity VIP II Contrafund 01/03/95 10/01/96 21.20% N/A N/A 25.97%
Fidelity VIP Equity-Income 10/09/86 10/01/96 3.16% 16.38% 14.02% 12.69%
Janus Aspen Series Balanced 09/13/93 10/01/96 25.44% 16.71% N/A 17.17%
Janus Aspen Series Worldwide Growth 09/13/93 10/01/96 20.16% 18.95% N/A 21.74%
MFS Growth With Income Series 10/09/95 05/01/98 13.64% N/A N/A 22.85%
MFS Research Series 07/26/95 05/01/98 11.99% N/A N/A 18.69%
Morgan Stanley Emerging Markets Equity 10/01/96 10/01/96 -29.94% N/A N/A -15.03%
T. Rowe Price Equity Income 03/31/94 05/01/98 0.09% N/A N/A 17.84%
Van Eck Worldwide Hard Assets 09/01/89 05/01/98 -36.17% -5.48% N/A 0.68%
<CAPTION>
SINCE INVESTMENT
INVESTMENT DIVISIONS DIVISION INCEPTION
<S> <C>
MainStay VP Capital Appreciation 24.52%
MainStay VP Cash Management 2.17%
MainStay VP Convertible 6.16%
MainStay VP Government 4.36%
MainStay VP High Yield Corporate Bond 8.34%
MainStay VP International Equity 10.13%
MainStay VP Total Return 16.59%
MainStay VP Value 11.79%
MainStay VP Bond 4.38%
MainStay VP Growth Equity 22.64%
MainStay VP Indexed Equity 24.68%
Alger American Small Capitalization 5.47%
Calvert Social Balanced 14.07%
Fidelity VIP II Contrafund 23.13%
Fidelity VIP Equity-Income 15.48%
Janus Aspen Series Balanced 21.90%
Janus Aspen Series Worldwide Growth 20.30%
MFS Growth With Income Series -0.99%
MFS Research Series 1.52%
Morgan Stanley Emerging Markets Equity -15.03%
T. Rowe Price Equity Income -5.10%
Van Eck Worldwide Hard Assets -24.87%
</TABLE>
* The values shown are unaudited.
** Assumes no deduction for the contingent deferred sales charge.
*** The maximum contingent deferred sales charge for each premium payment is 7%,
declining to 0% by the seventh year after a premium payment has been in the
policy.
Withdrawals may be taxable transactions, and prior to age 59 1/2 may be
subject to an IRS penalty.
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Past performance is no guarantee of future results. Due to current market
volatility, current performance may be less than the figures shown. The
investment return and the accumulation value of your policy will fluctuate so
that a 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 and include an annualized Separate
Account Fee of 1.40%. A policy service 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 $20,000.
Certain Portfolios existed prior to the date that they were added as an
Investment Division of the Separate Account. For periods prior to May 1, 1995
when the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Government, MainStay VP Total Return, MainStay VP Bond, MainStay VP Growth
Equity, MainStay VP Indexed Equity and Calvert Social Balanced Investment
Divisions commenced operations, for periods prior to October 1, 1996 when the
Alger American Small Capitalization, Fidelity VIP II Contrafund, Fidelity VIP
Equity-Income, Janus Aspen Series Balanced and Janus Aspen Series Worldwide
Growth Investment Divisions commenced operations, and for periods prior to May
1, 1998 when the MFS Growth With Income Series, MFS Research Series, T. Rowe
Price Equity Income and Van Eck Worldwide Hard Assets Investment Divisions
commenced operations, the performance of the Investment Divisions was derived
from the performance of the corresponding Portfolios, modified to reflect
Separate Account and Fund annual expenses as if the policy had been available
during the periods shown.
There is no performance information for the American Century Income & Growth,
Dreyfus Large Company Value, Eagle Asset Management Growth Equity and Lord
Abbett Developing Growth Investment Divisions because of their recent inception.
NYLIAC assumed a portion of the expenses of the MainStay VP Convertible and the
MainStay VP International Equity Investment Divisions until 12/31/98, 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 Dean Witter Investment
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 return 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
Given a scenario of floundering Asian economies, a Russian financial crisis
which spread to Latin America, an American President undergoing impeachment, a
third quarter stock market correction, another bombing of Iraq, and finally the
collapse of one of the most respected hedge funds, one would expect investors to
react negatively. Instead, financial markets exhibited for a fourth straight
year unprecedented staying power and resiliency. The Dow Jones Industrial
Average(1) increased 18.13%, the S&P 500(2) (including income) advanced 28.58%
and the NASDAQ Composite(3) rose 39.63%.
However, what the numbers do not reveal is that only a handful of very large
capitalization stocks pushed up the averages, while the majority of smaller
issues trailed badly -- a continuation of the trends of the past three years.
The S&P 500 outshone the Dow Industrials because it includes such companies as
Microsoft, Dell Computer and Intel, the kind of companies that ruled the market.
This is despite the fact that big-stock valuations are at or near record levels
hit last July. In dramatic contrast, small capitalization stocks lost 2.55% as
represented by the Russell 2000(4). Traditional deep value investing also
suffered as these stocks sorely underperformed their large-cap growth peers,
with the lowest price-to-earnings stocks actually showing a loss for the year.
In addition to the large-cap effect, another factor contributed to the market's
rise during 1998. Internet-related companies, such as Amazon.com and eBay, saw
their stock prices more than double as Internet mania took over the investment
scene. The entire technology sector contributed heavily to the market's return
as many investors thought any computer-related business would benefit from the
increase in demand due to the Internet. Other highly performing industries
included entertainment and drug retailers.
There were few good markets on the international front during 1998. Investments
in Europe, where markets were anticipating monetary and economic unity, were for
the most part positive. On the other hand, the Asian financial crisis which
started with the Thai baht's devaluation in 1997, caused devaluation fears
around the world among investors, culminating in Russia's financial fiasco and
subsequently Latin America's. Complacent investors were suddenly and shockingly
confronted with the high degrees of risk they were assuming across emerging
markets. Volatility reached levels seldom experienced this century. The Dow
Jones had ten swings of more than 5% during 1998 -- twice the usual amount. Two
of those occasions were swings of greater than 15%.
Many investors embraced the perceived safety of U.S. Treasury bonds in 1998,
with the 30-year U.S. Treasury bond up 17.1%, more in line with historical stock
returns. For the bond market as a whole, many non-government bond sectors had
high volatility at best, losses at worst. 1998 was the first year since 1990
that safer bonds had higher returns than riskier bonds. In fact, 1998 was the
worst year for most risky bonds since 1990. Escalating concerns regarding
struggling Asian economies and developing problems in Latin America over the
summer caused a "flight to safety" to U.S. Treasuries.
Credited with bringing about stability and putting the stock market back on its
positive trajectory is Federal Reserve Chairman Alan Greenspan who led the move
to lower Federal Funds rates in September, October and November. Once convinced
that the Federal Reserve Board would do anything to prevent a financial
meltdown, many investors poured dollars back into the stock market, pushing
valuations to record high levels. Inflows into stock mutual funds returned to
positive territory after a negative August.
Even though the U.S. economy seems to be on sound footing with an accommodating
Federal Reserve, risks to the financial markets include a continuing malaise in
Southeast Asian and weak Latin American financial markets. Continuing
deflationary trends, not an economic scenario since the 1930s, and corporate
earnings disappointments could derail investor expectations of higher than
historical returns that we have experienced for the past several years.
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Going forward, most economists see a slowly growing economy, continuing mild
inflation and relatively low interest rates. General demographic trends and
macroeconomic themes will continue to support equity investments into 1999.
Technological advances should help productivity and utilization of resources.
Stock market inflows should continue to be bolstered by U.S. baby boomers
properly saving for their retirement needs.
Ravi Akhoury
Chairman and Chief Executive Officer
MacKay-Shields Financial Corporation
(1) The Dow Jones Industrial Average is a trademark of, and the property of, Dow
Jones and Co., Inc. The DJIA Index is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but also including
financial, leisure, and other service-oriented firms.
(2) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) "NASDAQ Composite Index" is an unmanaged index and is considered generally
representative of the U.S. small capitalization stock market.
(4) The Russell 2000 Growth Index measures the performance of those companies in
the Russell 2000 with higher price-to-book ratios and higher forecasted
earnings growth values. The Index is unmanaged, does not reflect fees or
expenses, and is not available for direct investment.
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NEW YORK LIFE INSURANCE COMPANY
ADVISER'S REPORT
Market Overview
Global events dominated investment market news in 1998. Beginning with the Asian
debt market crisis, followed by the Russian economic meltdown of the summer,
global investment system signals started to flash "caution" to worldwide
investors at an increasing pace. These messages were offset by strong positive
signals from the U.S. economy, and to a lesser extent, from Europe.
Within the U.S., continued economic growth has been driven by strong corporate
competitiveness and robust job growth despite these shocks. A major contributor
to economic health has been the low level of inflation, producing quality
earnings and a stable capital planning platform for corporations. U.S. companies
have used their capital wisely, especially compared to some of the
"capital-burning" practices of certain Asian economies. The emergence of the
Euro as a common currency and prospects for improved economic integration have
provided positive fundamentals for Europe.
As a consequence, 1998 turned in another strong year of investment performance
for both stock and bond investors. Some bond investors were burned by the
emerging market disarray as the market adopted a more restrictive credit risk
stance. However, by and large most bondholders benefited by the decline in
longer term Treasury rates of almost 1% as the Federal Reserve cut rates three
times during the course of the year. Most stock investors fared even better as
the S&P 500(1) returned 28.6%. Despite some deceleration of U.S. corporate
profit growth, the stock market benefited from lower interest rates, record
levels of merger and acquisition activity, and strong inflows from mutual funds
and foreign investors.
Going forward, the fundamentals of low inflation, capital discipline, fiscal and
monetary strength combined with a healthy job market should provide for steady
growth. Offsetting these positive factors are the risk of further global
economic weakness in Japan or emerging market countries, Y2K dislocations or
unanticipated inflationary pressures. On balance, our outlook for 1999 remains
positive.
We see value in the bond sector, especially in the corporate bond market where
credit spreads have widened. We also have a positive outlook for the stock
market, but we anticipate notable disparities in performance by sector, further
accentuating a trend begun in 1998 where strong performance was concentrated in
a limited number of stocks.
The Portfolios we manage performed very well relative to their objectives in
1998. Further discussions by our managers regarding Portfolio performance and
market outlook for their respective sectors follow.
Jean E. Hoysradt
Senior Vice President
in Charge of the Investment Department
New York Life Insurance Company
(1) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
8
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MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO
1998 MARKET RECAP
- - The U.S. stock market was highly volatile throughout 1998, but provided
double-digit returns for the fourth year in a row.
- - In general, companies benefited from low inflation throughout 1998 and
declining interest rates in the second half of the year.
- - Financial problems in Asia, Russia, and Latin America led investors to seek
highly liquid, purely domestic stocks with steady growth and relatively
predictable earnings.
- - Technology and pharmaceutical stocks generally showed strong performance,
while cyclical, energy, and commodity-related stocks tended to underperform.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP Capital Appreciation
Portfolio returned 38.14%.
- - The Portfolio benefited from seeking to remain fully invested throughout the
year and from careful security selection among the leading
large-capitalization companies in the technology and pharmaceutical sectors.
- - Our decision to reduce the Portfolio's positions in problem sectors such as
energy contributed positively to performance.
- - The Portfolio outperformed the average Lipper Variable Products(1) capital
appreciation portfolio, which returned 22.22% for the year.
MANAGEMENT DISCUSSION AND ANALYSIS
As years go, 1998 was one of the most volatile in recent memory. Despite its ups
and downs, however, the S&P 500 Index(2) closed the year with a 28.58% gain,
making 1998 the fourth year in a row domestic stocks in general have returned
more than 20.00%.
With financial problems in Asia, Russia, and Latin America, declining oil
prices, and weaknesses in other commodities, investors sought refuge in stocks
they felt were least likely to be affected by these difficulties. The market
focused on large-capitalization growth stocks that appeared to have steady and
predictable earnings prospects. Purely domestic issues continued to do well,
while oil and commodity-related stocks tended to show poor performance. The
technology sector as a whole made strong advances and pharmaceutical companies
generally performed well as new drug introductions and a stream of anticipated
advances helped push stock prices higher.
Declining interest rates improved earnings prospects for many companies in the
latter half of the year, and calm inflation also helped strengthen the stock
market's advance. Despite international tensions and impeachment action against
President Clinton, the stock market remained relatively strong at the end of the
year.
HOW DID THE MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO PERFORM IN THIS MARKET
ENVIRONMENT?
Quite well. The MainStay VP Capital Appreciation Portfolio returned 38.14% for
the year-ended 12/31/98, outperforming the average Lipper Variable Products
capital appreciation portfolio, which returned 22.22% for the year.
HOW DID THE PORTFOLIO MANAGE TO DO SO WELL?
A number of factors contributed positively to the Portfolio's performance, but
we believe the most important factor was sticking to our strict investment
disciplines. We seek companies with strong growth prospects, considering factors
such as steady growth in revenues, accelerating earnings, and increasing
earnings per share. During the volatile market environment in 1998, we
concentrated on large-capitalization companies, which were among the stocks
investors favored when problems in foreign markets caused a flight to quality in
both the stock and bond markets. We also reduced the Portfolio's positions in
sectors we felt were weak, such as oil and energy. By concentrating on winners
and largely avoiding losers, the Portfolio had an excellent year.
WHICH SECTORS CONTRIBUTED MOST STRONGLY TO PERFORMANCE?
We don't select sectors. Instead, we choose stocks for the Portfolio based on
their individual merits after extensive quantitative analysis and fundamental
research. As a result of the Portfolio's selection process, however, we found a
number of technology stocks that we believed had strong growth potential and
they contributed to the Portfolio's significant outperformance. Despite various
setbacks throughout the year, the Portfolio remained overweighted in technology
stocks through all four quarters.
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<PAGE> 10
Pharmaceutical stocks also had an excellent year, and the Portfolio had a number
of holdings that did well. New drug introductions, direct-to-consumer
advertising, and a long pipeline of FDA-approved drugs awaiting release helped
advance the sector as a whole.
Consumer staples as a group showed relatively weak performance in 1998, but our
stock selection process positioned the Portfolio in relatively defensive, purely
domestic companies, such as supermarkets, which performed well at a time when
the market seemed to prefer stable growth and relatively predictable earnings.
As a group, supermarkets are benefiting from consolidation, which is helping
improve margins and profits.
CAN YOU GIVE SOME EXAMPLES OF TECHNOLOGY STOCKS THAT DID WELL?
Certainly. Lucent Technologies was the Portfolio's best-performing stock in 1998
and also our largest holding. The company has done exceedingly well, with the
value of the Portfolio's position more than tripling during the year.
In January, we purchased EMC, a stock we had owned and sold a few years ago. The
company is a leader in corporate data storage systems, hardware, and software.
We believed EMC had excellent potential, based on increasing dominance in the
company's market sector and rapidly accelerating earnings. The Portfolio's
position almost doubled in value during the year.
Compuware is a computer software company that was also among the Portfolio's
best performing stocks, and it more than doubled in value during the year.
DID ALL OF THE PORTFOLIO'S TECHNOLOGY STOCKS DO THAT WELL?
No, the Portfolio also held issues that showed relatively poor performance.
Computer Associates International is an example. The company's management team
announced that it might have difficulty closing large contracts, which led to
lower earnings estimates.
WHAT ABOUT PHARMACEUTICAL STOCKS?
Given the positive fundamentals in the pharmaceutical industry and the high unit
volume growth in a low inflationary environment, pharmaceuticals were generally
excellent performers. Although we increased the Portfolio's position in Pfizer,
our timing could have been better. In the first half of the year, many investors
were selling the stock to take profits after the release of Viagra. Since the
Portfolio seeks long-term capital appreciation, however, we looked at the
company's fundamentals and continued to hold the stock in the Portfolio, which
had a modestly positive impact for the year. During the year, we also increased
the Portfolio's position in Merck, a major drug company profiting from
successful names such as Pepcid AC, Propecia, and many others.
Other positive performers among drug stocks included Eli Lilly, a stock the
Portfolio has held for some time and Schering-Plough. Schering-Plough's Claritin
product for allergy sufferers helped sales, earnings, and stock performance.
Overall, pharmaceutical stocks accounted for a substantial portion of the
Portfolio's positive total return.
DID THE PORTFOLIO REMAIN OVERWEIGHTED IN FINANCIAL STOCKS IN 1998?
No, over the course of the year, we decreased the Portfolio's weighting in
financial stocks for a number of reasons. First, we believed that growth was
slowing in the financial sector. Second, the huge mergers in the financial
industry produced companies that were more difficult to analyze and evaluate.
The NationsBank merger with BankAmerica is a good example. The combination added
to the company's financial risk because BankAmerica was invested in the D. E.
Shaw hedge fund when the market had just suffered a major setback from a debacle
at Long Term Capital. Since the stock no longer fit the Portfolio's growth
criteria and risk profile, we sold out of the Portfolio's position, which had a
slightly negative impact. Although our decision to sell helped reduce portfolio
risk, the stock's subsequent performance suggested that the Portfolio would have
been rewarded for a more patient outlook.
Travelers Group, which the Portfolio had owned for several years, merged with
Citicorp to form Citigroup during the year, which reduced our overall confidence
level in the company. In particular, we were not certain the company would be
able to deliver the level of earnings the market expected. As a result, we cut
back on our holdings in Citigroup in the summer, which was not the best time to
sell, so the transaction had a negative impact on performance.
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<PAGE> 11
WHAT WERE SOME OF THE MAJOR PURCHASES THE PORTFOLIO MADE DURING THE YEAR?
In addition to the purchases we already mentioned, the Portfolio purchased Fred
Meyer, a large supermarket chain. We liked the company's fundamentals and
believed it might benefit from consolidation in the supermarket industry. The
Portfolio bought the stock midyear at an average price around $40 and in
September, the company announced that it would be acquired by Kroger, another of
the Portfolio's investments. By the end of the year, Fred Meyer stock was
trading around $60, for an increase of about 50% from the Portfolio's purchase
price.
In the second quarter, the Portfolio purchased Colgate-Palmolive. The company
has shown stable growth and was having success with its new Total toothpaste.
Despite the company's international exposure, we believed it could handle any
difficulties the market might generate. For the year, the stock was up 28%,
which was in line with the S&P 500 Index.
As new money came in over the course of the year, we used much of it to add to
the Portfolio's most successful positions, including Lucent Technologies, Cisco
Systems, EMC, and others. So our buying strategy paralleled our investment
strategy of sticking with the winners in the investment portfolio.
WERE ALL OF THE PORTFOLIO'S PURCHASES EQUALLY SUCCESSFUL?
No. We purchased HBO, a leading provider of health care software systems, during
the third quarter of 1998. The company looked attractive given its size, market
share, and growth rate. But shortly after we purchased the stock, they announced
an acquisition that the market didn't like. Next, the company decided to merge
with McKessen, a leading drug distributor. But miscommunication about the merger
caused the stock to substantially underperform the market. Although the stock
provided a positive return, it was substantially lower than other holdings, and
on a relative basis, had negative impact on the Portfolio's performance.
YOU MENTIONED SOME FINANCIAL STOCK SALES. WHAT ELSE DID THE PORTFOLIO SELL
DURING 1998?
Perhaps the Portfolio's most significant sales were in the energy sector. In
light of declining oil prices and weakening prospects of oil services companies
and exploration and drilling, we sold the Portfolio's positions in Diamond
Offshore Drilling, Halliburton, and ENSCO International. Since the impact of
energy service stocks was almost uniformly negative in 1998, we viewed the
timing of the sales as good news, even though the Portfolio lost money on each
of these transactions. The wisdom of reallocating the assets was further
underscored as oil prices continued to decline.
The Portfolio also sold toy maker Mattel during the first half of the year. We
saw deteriorating fundamentals, slowing growth, and weakening returns at the
company. Toys "R" Us made major inventory reductions on Mattel items and
Barbie's popularity appeared to be declining. As a result, we were pleased to
sell the Portfolio's position at a gain over its original purchase price,
although the Portfolio had a slightly negative return on the stock in 1998.
Again, we view the sale as a positive for the Portfolio, because the company
missed its earnings estimates each quarter and preannounced its fourth quarter
decline, which had a severely negative impact. But since the Portfolio no longer
owned the stock, we avoided most of the impact of these negative developments.
DID THE PORTFOLIO MAKE OTHER SIGNIFICANT SALES?
Yes. The Portfolio sold Tenet Healthcare and United Healthcare, both of which
saw decelerating earnings growth rates. Tenet is a large hospital chain that
missed its earnings projections. United Healthcare suffered from rising medical
costs and an inability to smoothly integrate recent acquisitions. Although both
companies declined after we sold the Portfolio's holdings, United Healthcare has
since recovered a bit. Nevertheless, we believe the sales were positive for the
Portfolio by allowing us to put the assets to better use elsewhere.
Adaptec is a technology company the Portfolio sold at a loss, after the Asian
crisis and slower earnings undercut the fundamental reasons for owning the
stock. The Portfolio sold the stock in the low twenties, and the price continued
to decline even further throughout most of the year.
Hewlett-Packard was a long-standing position in the Portfolio that simply failed
to live up to earnings expectations. The Portfolio sold the stock at a huge gain
over the Portfolio's original cost, but at a slight loss for the year.
WHICH STOCKS WERE THE PORTFOLIO'S WORST PERFORMERS IN 1998?
By far the worst stock was Cendant, which was plagued by news of accounting
irregularities at CUC International, prior to its merger with HFS in late 1997.
The stock, which was a major holding, was down nearly 44%
11
<PAGE> 12
for the year. We continue to own the stock and believe the market has
overpenalized a company that is generating $1.5 billion of free cash flow.
Other poor performers included HEALTHSOUTH, a nationwide rehabilitation and
outpatient surgical provider, which surprised the market by missing earnings
projections and preannouncing that problems would continue until 1999. Conseco
is an insurance company that acquired Green Tree Financial, and suffered from
negative perceptions of its top management. Despite these and other negative
performers, the Portfolio was still able to outperform the market by a
substantial margin.
WERE THERE OTHER ASPECTS OF THE PORTFOLIO'S MANAGEMENT THAT HELPED OR HURT
PERFORMANCE?
Our focus during the year was primarily on the kinds of stocks the market
wanted -- large capitalization issues with consistent growth records and
relatively dependable and predictable earnings. While we couldn't predict the
problems in Russia or Brazil, we have always believed that strong stocks are
likely to get stronger on a relative basis when macroeconomic problems arise.
While we also couldn't predict specific company shortfalls, we believe the
Portfolio's diversification and stock selection process helped contribute to
excellent performance in 1998.
WERE THERE SPECIFIC WAYS YOU SOUGHT TO MANAGE THE PORTFOLIO'S RISK DURING THE
YEAR?
Leaving energy stocks was one step we took, with a positive overall impact on
performance. We also avoided the heavy overweighting in technology that some
funds pursued.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We continue to view the market as highly volatile and generally unpredictable.
So instead of trying to time our investments or dodge and weave with the market,
we will continue to select companies with strong growth characteristics, solid
performance records, and reasons to perform well in the future. The Portfolio
invests for the long-term and we believe the market is willing to pay a premium
for companies that can show consistent growth potential over time.
Edmund Spelman
Rudolph 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(3)
[Line Chart]
<TABLE>
<CAPTION>
CAPITAL APPRECIATION S&P 500 CONSUMER PRICE INDEX
PORTFOLIO
------------------------- ------- --------------------
<S> <C> <C> <C>
1/29/93 10000.0 10000.0 10000.0
12/31/93 12054.0 11007.0 10275.0
12/31/94 11526.0 11149.0 10549.3
12/31/95 15650.0 15338.8 10785.6
12/31/96 18584.4 18857.5 11142.6
12/31/97 22950.0 25148.0 11332.0
12/31/98 31703.0 32336.0 11515.0
</TABLE>
<TABLE>
<S> <C>
One Year: 38.14%
Since Inception:
(1/29/93) 21.50%
Five Years: 21.33%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not 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 the Performance
Summary for returns reflective of these charges.
12
<PAGE> 13
MAINSTAY VP CASH MANAGEMENT PORTFOLIO
1998 MARKET RECAP
- - In 1998, the money markets were influenced in various ways by modest
inflation, low unemployment, falling commodity prices, and a budget surplus
that reduced Treasury issuance.
- - During the first half of 1998, the money market yield curve was flat and
exhibited low volatility, while during the second half of the year, volatility
increased dramatically.
- - Financial difficulties in Asia, Russia, and Brazil resulted in a flight to
quality that raised demand for high-quality, highly liquid securities.
- - In the third quarter, problems at a major hedge fund disrupted market
activity, making it difficult for any but the strongest issuers to raise money
in the capital markets.
- - The Federal Reserve Board cut short-term interest rates three times between
September and November in order to restore stability to the markets.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP Cash Management Portfolio
returned 5.18%.
- - Throughout the first half of the year, the Portfolio maintained its investment
days to maturity in a relatively stable range, lengthening days to maturity in
midsummer, when Russian and Latin American difficulties began to affect the
market.
- - Concentration on top-tier securities helped the Portfolio outperform as
spreads widened to near recession levels among second-tier names in the second
half of the year.
- - The Portfolio outperformed the average Lipper(1) Variable Products money
market portfolio, which returned 5.10% for the year-ended 12/31/98.
MANAGEMENT DISCUSSION AND ANALYSIS
Overall, 1998 was a year of extremes in the bond and money markets, causing
investors to reevaluate risk at several levels. The first half of the year saw
the lowest level of volatility in 15 years, while the second half of the year
reflected the highest volatility in 15 years.
A variety of forces fueled the progress of the income markets, including a
budget surplus that reduced Treasury issuance and tightened supply, and a flight
to quality in the third quarter of 1998 that dramatically increased demand for
government bonds. Fueled by financial problems in Asia, Russia, and Latin
America, and the near collapse of one of the world's largest hedge funds,
investors rushed to purchase high-quality, highly liquid issues, which was
generally positive for the money market.
Meanwhile, modest inflation, low unemployment, and a strong U.S. dollar provided
a positive economic backdrop, but earnings disappointments at leading
corporations caused wide swings in the stock market, eroding investor confidence
in the third quarter of 1998. Yield spreads on second-tier money market
instruments widened to near recession levels, while first-tier securities
remained strong on a relative basis. The Federal Reserve moved to stabilize the
situation by reducing interest rates three times in the third and fourth
quarters.
HOW DID THE MAINSTAY VP CASH MANAGEMENT PORTFOLIO PERFORM IN THIS MARKET
ENVIRONMENT?
The MainStay VP Cash Management Portfolio outperformed the average Lipper
Variable Products money market portfolio, which returned 5.10% over the one-year
period ending 12/31/98.
WHAT ACCOUNTED FOR THE PORTFOLIO'S ABOVE-AVERAGE PERFORMANCE?
Several factors contributed to the Portfolio's strong performance. In the first
half of the year, a flat yield curve provided few opportunities to add value by
changing days to maturity, so the Portfolio concentrated on securities with
yield-enhancing characteristics, such as domestic and Yankee issues, corporate
and asset-backed commercial paper, and floating-rate notes. Each of these helped
the Portfolio outperform in the first half of the year.
As financial difficulties in Russia and a major hedge fund setback began to rock
the markets, we lengthened the Portfolio's days to maturity, believing that the
Federal Reserve Board would likely adopt an accommodative policy to help
stabilize the situation. From September through November, the Federal Reserve
Board moved to reduce short-term interest rates three times, which had a
positive impact on the Portfolio's performance. When European central banks took
similar action, the Portfolio's positioning was further enhanced.
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<PAGE> 14
DID THE PORTFOLIO OWN ANY SECURITIES IN TROUBLED MARKETS?
No. The Portfolio maintained its high-quality orientation throughout the year,
avoiding emerging market debt and Latin American issues. Instead, it
concentrated entirely on top-tier money market instruments, which means
securities in the highest rating category. It did not own any split-rated issues
or second-tier securities during 1998.
WHAT TYPES OF YANKEE SECURITIES DID THE PORTFOLIO OWN?
The Portfolio invested in Yankee instruments from Canada, Western European
countries, and Australia. Most carried a long-term rating at or above AA.(2) The
Portfolio invested in Yankee banks that are among the largest banks in the world
and have strong franchises in their domestic markets.
DID ANY OF THE PORTFOLIO'S SECURITIES FACE PROBLEMS DURING THE YEAR?
No, they did not. This underscores the value of our decision to stick with the
highest-quality securities. In the second half of the year, spreads on
second-tier issues widened considerably, to near-recession levels. Since the
Portfolio did not own any of these securities, it did not face the negative
impact on performance that came with widening spreads.
WHERE DID THE PORTFOLIO INVEST ITS ASSETS?
Primarily in extremely liquid investments, such as commercial paper and bank
certificates of deposit, and floating-rate notes. The Portfolio did not invest
in more exotic securities such as callable CDs or other issues with imbedded
option features. Instead, the Portfolio stuck with relatively plain conservative
issues.
Regarding asset allocation, the Portfolio concentrated most heavily in
commercial paper and CDs from banks and bank holding companies. The Portfolio
also had a relatively strong weighting in top-tier asset-backed securities,
including asset-backed commercial paper, agency conventional mortgage loans,
trade receivables, and corporate loans. Since these securities offer higher
yields than ordinary commercial paper, they contributed positively to
performance without compromising quality. In selecting asset-backed securities
for the Portfolio, we look for high credit quality, strong cash flows backed by
collateral, and a highly rated credit enhancement.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We expect the Federal Reserve Board to remain on hold for the early part of
1999, but believe they may have a bias toward easing interest rates later in the
year. We will manage the Portfolio's investment days to maturity accordingly.
While we remain optimistic, recent developments illustrate that risk is a major
investor concern and dislocations can easily occur in the money market as a
result of international developments or problems with corporate earnings.
Whatever happens, the Portfolio will continue to seek high-quality securities
that may provide a high level of current income consistent with preservation of
capital and liquidity.
Ed Munshower
Claude Athaide
Portfolio Managers
MacKay-Shields Financial Corporation
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) Debt rated AA by Standard & Poor's differs from the highest rated issues
only in small degree.
Total returns for the Portfolio shown indicate past performance and are not
indicative of future results. Investment return and principal value will
fluctuate so that shares, upon redemption, may be worth more or less than their
original cost. These results do not reflect any deduction of sales charges,
mortality and expense charges, contract charges, or administrative charges.
Please refer to the Performance Summary for returns reflective of these charges.
Though an investment in a money market portfolio is generally considered to be
protected from market risk, this investment is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Portfolio seeks to preserve the value of your investment, it is
possible to lose money by investing in this Portfolio.
14
<PAGE> 15
MAINSTAY VP CONVERTIBLE PORTFOLIO
1998 MARKET RECAP
- - The U.S. stock market was highly volatile throughout 1998, but provided
double-digit returns for the fourth consecutive year, with advances in
large-capitalization issues masking corrections among small-cap and mid-cap
stocks.
- - In general, companies benefited from low inflation throughout 1998 and
declining interest rates in the second half of the year.
- - Financial problems in Asia, Russia, and Latin America caused severe setbacks
in the convertible market from July through October, particularly for
lower-rated issues as a general flight to high-quality bonds caused prices to
drop in the high-yield market.
- - The convertible market saw tight yield spreads and throughout the year, many
new issues carried low coupons and high premiums.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP Convertible Portfolio
returned 4.49%.
- - The Portfolio continued its risk-averse approach to convertible investing,
which provided lower volatility than the market as a whole, but detracted from
performance during the market recovery during the fourth quarter of 1998.
- - In the July to October period, the Portfolio sought opportunities among
securities whose prices were severely reduced.
- - The Portfolio underperformed the average Lipper(1) Variable Products
specialty/miscellaneous portfolio, which returned 28.41% for the year.
MANAGEMENT DISCUSSION AND ANALYSIS
As years go, 1998 was one of the most volatile in recent memory. Despite the
market's ups and downs, however, the S&P 500 Index(2) closed the year with a
28.58% gain, making 1998 the fourth year in a row domestic stocks in general
have returned more than 20.00%. Advances in large-cap growth stocks, however,
tended to mask corrections among various sectors of the small- and mid-cap
markets.
In the third quarter of 1998, financial problems in Asia, Russia, and Latin
America, declining commodity prices, and problems at a leading hedge fund,
generally caused a flight to quality. As many investors rushed to purchase the
largest and most liquid stocks and bonds, the convertible and high-yield bond
markets experienced severe setbacks, with liquidity all but evaporating for many
lower-rated issuers.
Beginning in late September, the Federal Reserve Board began to ease interest
rates in a series of moves that ultimately had a positive effect on both the
stock and bond markets. There was a rapid stock market recovery in the fourth
quarter, which left many defensively positioned investors at a relative
disadvantage. For the year, convertible securities provided only modest
returns -- well below those provided by large-capitalization stocks and
long-term Treasury bonds.
HOW DID THE MAINSTAY VP CONVERTIBLE PORTFOLIO PERFORM IN THIS MARKET
ENVIRONMENT?
The MainStay VP Convertible Portfolio returned 4.49% for the year-ended
12/31/98, underperforming the average Lipper Variable Products
specialty/miscellaneous portfolio, which returned 28.41% for the same period.
WHY DID THE PORTFOLIO UNDERPERFORM ITS PEERS?
A number of factors contributed to the Portfolio's underperformance, but the
most important was the decision to have the Portfolio remain defensively
positioned in a highly volatile market. Although the Portfolio seeks to
participate in the upside potential of the securities it selects, it also
typically seeks a measure of downside protection. When we believe that
securities are overpriced or likely to have the full downside potential of
equities, we tend to avoid them. While that strategy placed the Portfolio in the
top quartile for much of the year, particularly during highly volatile periods,
it resulted in underperformance when the stock market rallied in early July and
at the end of the year.
In 1998, the markets seemed to favor securities that didn't fit our style of
managing risk and reward. We saw a number of new issues that carried low coupons
and high premiums, with little room to provide protection in the event of a
market decline. We also saw preferred stock issues that we believed would behave
less like convertibles and more like common stock with a slightly higher
dividend. We used these securities sparingly, since they carried most of the
downside risk of the underlying stock, with only slightly better protection.
15
<PAGE> 16
During the year, we also saw a tremendous interest in Internet stocks that
traded at levels we felt were unrealistic. In short, our willingness to
sacrifice upside potential to protect investors on the downside was the primary
reason the Portfolio underperformed its peers in the volatile markets of 1998.
WHAT WERE SOME OF THE POSITIVE FACTORS THAT INFLUENCED THE PORTFOLIO'S
PERFORMANCE?
Generally speaking, the Portfolio maintained an investment portfolio of higher
quality which was also part of our risk management strategy and worked well for
investors in difficult periods.
DID YOU MAINTAIN THE CREDIT QUALITY OF THE PORTFOLIO'S INVESTMENTS THROUGHOUT
THE YEAR?
During October, liquidity problems in the high-yield market presented purchasing
opportunities among lower-rated securities. With high-yield bond prices
generally dropping precipitously, the Portfolio was able to purchase some
lower-rated bonds at what we felt were bargain prices. That lowered the overall
quality of the Portfolio's investments, but enhanced the Portfolio's return
potential in ways that met our investment criteria. In general, the purchases we
made for the Portfolio during this period had a positive impact on performance
as the markets calmed in the fourth quarter.
For example, the Portfolio purchased the convertible securities of Amkor
Technologies, a semiconductor packaging company, when their securities were
trading in the high 40s. By the end of the year, they were trading in the low
90s. Another purchase the Portfolio made was the convertible securities of
PhyCor, a company that manages physicians and their practices. Unfortunately,
the clinics PhyCor organized performed below expectations and the performance of
the convertibles was weak after the Portfolio purchased them. Nevertheless, we
believe the company has good potential and may show stronger performance in
1999.
WHAT OTHER SIGNIFICANT ACTIONS DID YOU TAKE DURING THE REPORTING PERIOD?
Perhaps the most important decision was to stick to our disciplines, and not
take on risks that we felt were inappropriate for the Portfolio. The Portfolio
continued to hold or add to issues that we believed had strong upside potential
and sufficient downside protection.
WERE THERE OTHER SIGNIFICANT PURCHASES IN THE PORTFOLIO?
We purchased the preferred stock of Newell Financial Trust in the first quarter
of the year. In the wake of the market downturn that resulted in part from the
Asian crisis, we felt the securities were attractively priced and represented
good value. The company acquires major brands -- from ballpoint pens to
Rolodexes and household products -- and attempts to streamline their
manufacturing and distribution process. This "integration" process has been
highly successful and has helped the company's securities provide solid
performance for the Portfolio.
WHAT SECURITIES WERE SIGNIFICANT SALES FOR THE PORTFOLIO?
One convertible security we purchased for the Portfolio during 1998 was a bond
issued by Loews that was exchangeable into the common stock of Diamond Offshore
Drilling, an oil services company with exposure to deep-water drilling. Although
the Asian crisis and low oil prices generally had a negative impact on oil
services stocks in 1998, the bonds showed strong performance for a variety of
reasons.
First, Loews is an investment-grade issuer, which helped provide the downside
protection we look for in convertibles. Second, we purchased the bonds when
Diamond Offshore Drilling was down in price, which also lowered the price of the
bonds and gave the Portfolio more upside potential. Third, since oil companies
have largely tapped shallow reserves, whenever oil showed signs of recovery,
deep-water names tended to lead the rally. During October, we were able to take
advantage of Diamond Offshore Drilling common stock price gains and sell the
bonds at a substantial profit, which had a positive impact on the Portfolio's
performance.
WERE THERE OTHER SIGNIFICANT SALES DURING THE YEAR?
The Portfolio sold a number of securities during what we refer to as the
"stealth bear market" during the year. While the S&P 500 was climbing, several
smaller-capitalization stocks were experiencing corrections, and our careful
research helped the Portfolio get out of issues that faced potential problems
before they had a major impact on performance.
One example would be the Portfolio's holdings of Premier Technologies
convertible bonds, a company that was making strategic acquisitions in the
communications industry. Although they had rapid earnings growth, our analysis
showed that their cash flow was lagging their growth rate. Sensing potential
difficulties, we sold the Portfolio's Premier Technologies convertibles in the
second quarter of 1998. Shortly thereafter, the company missed a quarterly
earnings estimate and their stock and bond prices plummeted.
BEA Systems is a company that produces "middleware," or software used to
integrate the complex systems, software platforms, and applications used by
large enterprises.
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<PAGE> 17
WHAT WERE THE PORTFOLIO'S BEST-PERFORMING SECURITIES IN 1998?
We've already discussed most of them. In order of their contribution to the
Portfolio's performance, the top performers were Unisys, Time Warner, Newell
Financial Trust, and Loews/Diamond Offshore Drilling.
WHICH OF THE PORTFOLIO'S SECURITIES WERE WEAK PERFORMERS DURING THE YEAR?
The health care industry has wide representation in the convertible market and
has been hurt by a number of factors, including escalating costs and changes in
government policy. Integrated Health Services, a contract therapy provider,
faced difficulties in the health care industry and its securities also detracted
from the performance of the Portfolio.
WHAT WERE THE BEST DECISIONS YOU MADE FOR THE PORTFOLIO IN 1998?
If you look at the Portfolio's top performers and significant sales, you'll see
the advantages of our bottom-up investment disciplines and ongoing research. We
select securities one at a time, after careful analysis of their individual
merits from a quantitative and fundamental perspective. The convertible market
requires an analysis of both the stock and the convertible security to
understand how their shifting relationship is likely to impact performance. We
believe our vigilance helped us identify strong securities and spot potential
weaknesses -- both of which benefited the Portfolio in 1998.
Although we lagged the market when it rose at year-end, we still believe our
risk-averse approach to investing was beneficial for investors, particularly as
the markets become increasingly volatile. While securities that performed like
equities helped many portfolios in the latter part of the year, we were pleased
to have fewer of those securities in the Portfolio and thus maintain a lower
risk profile.
DOES THE PORTFOLIO CURRENTLY HAVE ANY SIGNIFICANTLY OVERWEIGHTED OR
UNDERWEIGHTED POSITIONS?
The Portfolio is currently overweighted in the real estate investment trust, or
REIT, sector. The securities the Portfolio owns have underperformed in a strong
market, but we believe they have attractive risk/reward profiles and will
continue to provide steady returns. The Portfolio sold some of its oil
exploration and oil services holdings in the first half of the year, but remains
overweighted in the energy sector. We believe that eventually the price of oil
will rise and the Portfolio's energy holdings will provide attractive
appreciation potential.
Currently, the Portfolio is underweighted in media, where rising stock prices
have caused convertible securities to have more of the downside of equities than
we prefer to see. While the Portfolio may have missed some opportunity in this
sector, we prefer to balance upside potential with a measure of downside
protection.
WHAT MAJOR RISKS WILL THE MARKETS FACE GOING FORWARD?
The period from July through October showed exactly the kinds of risks
convertible investors may face. During that period, we generally saw widening
spreads, low liquidity, and sinking prices. While that's a devastating
combination for any bond investor, convertible investors may face extra
vulnerability because the fate of the securities they own may be tied to the
performance of stocks that are experiencing greater volatility themselves.
That's why we believe our concentration on risk management has been positive for
the Portfolio, even if it meant lagging other portfolios in up markets.
WHAT'S YOUR OUTLOOK FOR THE FUTURE?
We believe the low prices the convertible security market saw in October may
have a positive impact on future performance. But we continue to view volatility
as a major concern and believe that careful security selection will be the key
to solid performance in the year ahead. Whatever the markets bring, we will
continue to focus on both risk and reward as the Portfolio seeks capital
appreciation together with current income.
Denis Laplaige
Neil Feinberg
Thomas Wynn
Portfolio Managers
MacKay-Shields Financial Corporation
17
<PAGE> 18
$10,000 INVESTED IN THE
MAINSTAY VP CONVERTIBLE PORTFOLIO ON
10/1/96 VS S&P 500,
FIRST BOSTON CONVERTIBLE SECURITIES INDEX(3) AND
THE CONSUMER PRICE INDEX(4)
[Line Chart]
<TABLE>
<CAPTION>
CONVERTIBLE S&P 500 CONSUMER FIRST BOSTON
PORTFOLIO PRICE INDEX CONVERTIBLE SECURITIES
----------- ------- ----------- INDEX
----------------------
<S> <C> <C> <C> <C>
10/1/96 10000.00 10000.00 10000.00 10000.00
1996 10389.00 10833.00 10082.00 10243.00
1997 11992.00 14447.00 10222.00 11948.00
1998 12530.00 18576.00 10386.00 13340.00
</TABLE>
<TABLE>
<S> <C>
One Year: 4.49%
Since Inception:
(10/1/96) 10.53%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) The First Boston Convertible Securities Index generally includes 250-300
issues -- convertibles must have a minimum issue size of $50 million; bonds
and preferreds must be rated B- or better by S&P; and preferreds must have a
minimum of 500,000 shares outstanding. Eurobonds are also included if they
are issued by U.S.-domiciled companies, rated B- or higher by S&P, and have
an issue size greater than $100 million.
(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 for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
Certain of the Portfolio's investments have speculative characteristics.
18
<PAGE> 19
MAINSTAY VP GOVERNMENT PORTFOLIO
1998 MARKET RECAP
- - During the first half of 1998, domestic bond markets experienced the lowest
volatility in 15 years, but in the second half of the year, volatility was at
a 15-year high.
- - Throughout 1998, the bond markets were influenced by a worldwide financial
crisis, a budget surplus that reduced Treasury issuance, modest inflation, low
unemployment, and falling commodity prices.
- - In the last four months of the year, the Federal Reserve Board moved to reduce
interest rates three times.
- - In the second half of 1998, difficulties in Asia, Russia, and Brazil, along
with the near failure of a leading hedge fund, resulted in a flight to quality
that raised prices of high-quality, highly liquid securities, and reduced the
yield on 30-year Treasury bonds to record lows.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP Government Portfolio
returned 9.00%.
- - The Portfolio benefited from a duration strategy that was long to neutral
throughout the year.
- - The Portfolio's overweighted position in 30-year Treasuries helped the
Portfolio benefit as the yield curve flattened in the second quarter and again
in the second half of 1998.
- - Shifting the Portfolio's weighting in mortgage-backed bonds enhanced returns
by avoiding prepayment risk in the first and third quarters and taking
advantage of increasing investor demand for mortgage-backed bonds late in the
year.
- - The Portfolio outperformed the average Lipper(1) Variable Products general
U.S. government portfolio, which returned 8.07% for the year ended 12/31/98.
MANAGEMENT DISCUSSION AND ANALYSIS
Overall, 1998 was a year of extremes in the bond market, causing investors to
reevaluate risk at several levels. The first half of 1998 saw the lowest level
of volatility in 15 years, while the second half of the year reflected the
highest volatility in 15 years.
A variety of forces fueled the progress of the bond markets, including a budget
surplus that reduced Treasury issuance and tightened supply, and a flight to
quality in the third quarter of 1998 that dramatically increased demand for
government bonds. Fueled by financial problems in Asia, Russia, and Latin
America, and the near collapse of one of the world's largest hedge funds, the
rush to high-quality, highly liquid issues drove government bond prices higher
and reduced 30-year Treasury yields to record lows.
Meanwhile, modest inflation, low unemployment, and a strong U.S. dollar provided
a positive economic backdrop, but a worldwide financial crisis, along with
earnings disappointments at leading corporations caused wide swings in the stock
market, eroding investor confidence in the third quarter of 1998. In response,
the Federal Reserve Board moved to reduce interest rates three times in the
third and fourth quarters, helping to calm the markets, and bring liquidity back
to the marketplace.
Mortgage-backed securities had variable performance amid shifting interest rates
and prepayment concerns, but recovered strongly at the end of the fourth
quarter. Asset-backed securities generally showed positive performance,
particularly among highly rated, short-term issues, where the likelihood of
prepayment was low.
By year end, market prices reflected most of the variables that had a major
effect in 1998, including inflation expectations, Asian and emerging market
concerns, and anticipated action by the Federal Reserve Board.
HOW DID THE MAINSTAY VP GOVERNMENT PORTFOLIO PERFORM IN THIS MARKET ENVIRONMENT?
The MainStay VP Government Portfolio returned 9.00% for the year ended 12/31/98,
outperforming the average Lipper Variable Products general U.S. government
portfolio which returned 8.07% for the same period.
WHAT STRATEGIES DID THE PORTFOLIO USE TO ACHIEVE THIS PERFORMANCE?
We believe that duration was an important factor in determining the Portfolio's
performance. The Portfolio's strategy throughout the year was to remain long to
neutral. In the first half of the year, the Portfolio remained long as rates
headed lower and reduced duration as rates rallied, which had a positive impact
on performance. In the second half of the year, the Portfolio's performance
moved with the ebb and flow of the market, but its duration shortened in the
fourth quarter, which had a marginally negative impact on performance late in
the quarter. Overall, however, the Portfolio's duration strategy resulted in
positive performance.
19
<PAGE> 20
The Portfolio's yield-curve strategy was also a positive contributor to
performance. The Portfolio remained overweighted in 30-year Treasuries, which
helped the Portfolio throughout the year, but particularly in the second and
fourth quarters, when yield spreads between the 2-year and 30-year Treasury
narrowed, flattening the yield curve.
WHAT IS THE OVERALL QUALITY OF THE SECURITIES IN THE PORTFOLIO'S INVESTMENT
PORTFOLIO?
The overall credit quality of the securities held by the Portfolio's investment
portfolio is Agency(2) which is better than AAA(3). The Portfolio's emphasis on
high quality proved beneficial when investors rushed to government bonds seeking
a haven of relative security when the stock market dropped nearly 20% in August.
The uncertainty surrounding emerging markets and hedge funds helped fuel the
interest in high-grade bonds, and the Portfolio was well positioned to take
advantage of investor preferences during this period.
HOW DID THE PORTFOLIO'S MORTGAGE-BACKED SECURITIES PERFORM?
Anticipating prepayments, the Portfolio entered the year underweighted in
high-coupon mortgage-backed securities, which was positive for performance. In
the second quarter, the Portfolio added bonds we believed would not be
interest-rate sensitive and managed to take some profits as the market rallied.
Unfortunately, a second wave of prepayments hurt the Portfolio's holdings and an
overweighted position detracted from performance in the second quarter.
In the third quarter, we reduced the Portfolio to an underweighted position in
mortgage-related bonds, which proved beneficial as interest rates fell and
prepayments continued. During the fourth quarter, the Portfolio had an
opportunity to purchase mortgage-backed bonds at distressed prices from hedge
funds that were forced to liquidate their holdings. This contributed positively
to performance as the Federal Reserve moved to lower interest rates, which
helped restore investor confidence, bring order to the markets, and increase
demand for mortgage-backed securities.
WERE THERE OTHER STRATEGIES THAT CONTRIBUTED POSITIVELY TO PERFORMANCE?
In the first half of the year, interest rates remained in a relatively narrow
range, so we used a variety of technical indicators to guide the Portfolio
between newer and older issues, which provided incremental gains.
Finding few opportunities elsewhere, the Portfolio was heavily weighted in
Treasury securities, which had a positive impact on performance throughout the
year, but particularly in the second half of 1998, when a drop in the stock
market, concerns over Asia, Russia, and Brazil, and problems with major hedge
funds caused investors to seek a "safe haven" in Treasury securities. The gains
during this period were exaggerated by the budget surplus, which decreased
Treasury issuance and limited supply at a time when demand for highly liquid
top-quality securities was extremely high.
WHAT OTHER INVESTMENTS DID THE PORTFOLIO HAVE?
The Portfolio also had relatively small allocations in agency securities,
asset-backed securities, unleveraged CMOs, and variable floating-rate notes. All
of these positions contributed positively to performance over the course of the
year. Among asset-backed securities, the Portfolio's concentration on
high-quality, shorter-term issues provided a measure of prepayment protection,
which was a positive factor. The Portfolio's asset-backed securities increased
its yield and provided AAA quality.
DID THE PORTFOLIO MAKE ANY MATERIAL SHIFTS IN ITS SECTOR ALLOCATIONS DURING THE
YEAR?
Over the course of the year, the largest shift was a decrease in Treasury
holdings and an increase in mortgage-backed securities. That change accelerated
in the fourth quarter, when hedge fund liquidations made it possible to purchase
mortgage-backed securities at what we believed to be very attractive prices. The
Portfolio took profits in Treasuries to purchase these securities, and both the
purchases and sales had a positive impact on performance.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We believe that unless a major market shift occurs, the Federal Reserve is
likely to remain on hold for a while, though it may move to ease interest rates
further as the year unfolds. We continue to believe that diversification will be
important for an investor's overall allocation as was exhibited by the inverse
relationship between stocks and bonds in the second half of 1998. Within the
fixed-income market we believe value can be added along the yield curve as
reduced Treasury issuance and ongoing volatility continue to create
opportunities. We also anticipate reduced supply and higher demand for
mortgage-backed securities and believe the Portfolio is well positioned to take
advantage of any move in that direction. Whatever happens, the Portfolio will
continue to
20
<PAGE> 21
emphasize high-quality investments as we seek 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(4) AND THE CONSUMER PRICE INDEX(5)
[Line Chart]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
GOVERNMENT PORTFOLIO GOVERNMENT INDEX CONSUMER PRICE INDEX
-------------------- ---------------- --------------------
<S> <C> <C> <C>
1/29/93 10000.0 10000.0 10000.0
1993 10563.0 10914.0 10275.0
1994 10368.6 10546.2 10549.3
1995 12102.3 12480.4 10785.6
1996 12378.2 12826.1 11142.6
1997 13552.0 14056.0 11332.0
1998 14771.0 15441.0 11515.0
</TABLE>
<TABLE>
<S> <C>
One Year: 9.00%
Since Inception:
(1/29/93) 6.81%
Five Years: 6.94%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) 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) Debt rated AAA has the highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on the obligation is
strong.
(4) 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 income and capital gains
distributions.
(5) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
21
<PAGE> 22
MAINSTAY VP HIGH YIELD CORPORATE BOND PORTFOLIO
1998 MARKET RECAP
- - The development of the high-yield bond market in Europe added new
diversification opportunities for high-yield investors.
- - The potential for deflation became a global theme that made it increasingly
difficult for many high-yield issuers to meet earnings expectations.
- - Successive financial problems in Asia, Russia, and Latin America resulted in a
flight to quality that greatly increased the premium investors required to
assume additional risk.
- - As liquidity all but evaporated in the third quarter of 1998, lower-rated
bonds traded at more attractive levels.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP High Yield Corporate Bond
Portfolio returned 2.66%.
- - The Portfolio began the year defensively positioned and underweighted in
economically sensitive sectors.
- - In midyear, the Portfolio found opportunities among lower-rated issues as
reduced liquidity lowered prices, but by year end, higher-rated issues offered
more appealing default-adjusted spreads.
- - The Portfolio benefited from several bonds that were tendered away and from
careful selection of securities with strong asset coverage.
- - The Portfolio outperformed the average Lipper(1) Variable Products high
current yield portfolio, which returned 0.10% for the year-ended 12/31/98.
MANAGEMENT DISCUSSION AND ANALYSIS
As years go, 1998 was one of the most volatile in recent memory. Both the stock
and bond markets were affected by a number of forces that impacted high-yield
securities. While the stock market was dominated by large-cap growth stocks that
soared to new highs, many smaller companies that make up the high-yield bond
market suffered corrections.
A major theme that pervaded the markets in 1998 was the potential for global
deflation. With low inflation, prices remained relatively stable and in some
cases had to be reduced to promote sales. As a result, many corporations found
it increasingly difficult to meet earnings expectations. Since corporate
earnings are a primary factor influencing the high-yield market, any earnings
disappointments were met with quick, negative responses from investors,
underscoring the importance of careful research and credit analysis.
In the third quarter of 1998, financial problems in Asia, Russia, and Latin
America, declining commodity prices, and problems at a leading hedge fund,
caused a general flight to quality. Investors' appetite for risk would end
liquidity if the noninvestment grade market evaporated. As investors rushed to
purchase the largest and most liquid stocks and bonds, the high-yield bond
market experienced severe dislocations, with liquidity all but evaporating for
many lower-rated issuers. The resulting decrease in prices provided attractive
opportunities among lower-rated bonds. In the fourth quarter, the high-yield
market experienced a substantial recovery as the Federal Reserve Board made
successive moves to lower interest rates, which improved investor confidence.
During the year, a high-yield bond market emerged in developed European
economies, expanding the diversification opportunities for high-yield investors.
HOW DID THE MAINSTAY VP HIGH YIELD CORPORATE BOND PORTFOLIO PERFORM IN THIS
MARKET ENVIRONMENT?
The MainStay VP High Yield Corporate Bond Portfolio returned 2.66% for the year
ended 12/31/98, outperforming the average Lipper Variable Products high current
yield portfolio, which returned 0.10% for the same period.
WHY DID THE PORTFOLIO OUTPERFORM ITS PEERS?
A variety of positive developments contributed to the Portfolio's
outperformance. At the beginning of 1998, we had positioned the Portfolio
defensively, in light of the difficulties in Asia, which had taken a severe toll
on securities with foreign exposure in late 1997.
Throughout the year, telecommunications, which makes up a large portion of the
high-yield market, simply did not fit our investment disciplines. We believed
that many telecommunications issues were overpriced for the amount of risk they
involved. Our decision to underweight telecommunications in the Portfolio proved
beneficial, as the sector tended to underperform.
22
<PAGE> 23
Of course, more important than where the Portfolio didn't invest was where it
did. Using our careful bottom-up security selection process, we individually
selected securities that we believed would overcompensate the Portfolio for the
risks it would have to assume. Using this process, we were drawn throughout 1998
to recession-resistant industries, such as media, health care, utilities, and
office properties, which had a positive impact on performance.
WHAT WERE SOME OF THE PORTFOLIO'S SIGNIFICANT PURCHASES DURING 1998?
One was United International Holdings, an international cable company, which we
purchased for the Portfolio in the third quarter. The Portfolio already owned
United International Holdings bonds and had done a considerable amount of
research on the company. The company tendered for the bonds we owned, but we
felt the new issue was overpriced when it originally came to market. During the
market setback in the third-quarter, however, the price of the new bonds dropped
to about seventy-five cents on the dollar, which we thought was attractive.
Accordingly, we made a substantial purchase, and the bonds were among the
Portfolio's top-performing securities in 1998.
Although the Portfolio did not emphasize telecommunications during the year,
another top-performing name was Centennial Cellular. During 1998, the company
was acquired and the bonds were tendered away, with a positive impact on
performance.
In the fourth quarter, the Portfolio also purchased Centaur Funding, a preferred
equity obligation of Airtouch Communications, a cellular phone company. The
bonds, which were rated BBB(2) reflected the superior value of higher-rated
bonds as the high-yield market recovered. They were trading at about a 50 basis
point advantage to bonds rated BB(3). From the day we purchased the bonds for
the Portfolio, they have been positive performers. As rumors began to circulate
that Airtouch Communications might be acquired by Bell Atlantic, they
contributed positively to performance.
Another bond the Portfolio purchased in the second half of the year was issued
by Highwoods Realty, a diversified commercial property REIT. The bonds were
relatively high quality and the Portfolio was able to purchase them at what we
believe was a very attractive price -- well below where the bonds were trading
earlier in the year. Although they haven't yet had any noticeable impact on
performance, we believe they will perform well in 1999.
WERE THERE OTHER SIGNIFICANT PURCHASES IN THE PORTFOLIO?
We also purchased Medaphis bonds for the Portfolio. Medaphis provides billing
services to doctors and develops software for patient scheduling and hospital
applications. Unfortunately, just after we purchased the bonds for the
Portfolio, the company missed its third-quarter earnings projections, which took
a toll on performance.
We took another careful look at the company to determine if it still fit our
process, and we believed there was very good asset value at Medaphis. The
company told us they planned an asset sale, and we added to the Portfolio's
position at much lower prices. They did make the sale, so by year-end, they were
flush with cash, had great liquidity, and their operating momentum appeared to
be improving. Although the bonds had a negative impact on the Portfolio's
performance in 1998, we believe they will do well going forward.
WHAT WERE SOME OF THE PORTFOLIO'S MORE SIGNIFICANT SALES?
Significant sales included Viacom, Loewen Group, and Vencor. The Portfolio's
Viacom holdings reached the Portfolio's price target as yield spreads tightened
in the first half of the year, so we sold the Portfolio's position at a profit.
Loewen Group is the world's second largest publicly held funeral service and
cemetery corporation in terms of revenues and assets. Through our research
process, we identified potential problems at the company and spoke to management
several times about them. The more we spoke with the company, the less secure we
became about their understanding of the underlying economies of their business.
Perceiving a risk that they would continue to miss earnings projections, we sold
the Portfolio's position. Although the sale price was lower than the original
purchase, subsequent performance proved that it was a positive decision for the
Portfolio.
We also purchased a new issue of Vencor, a nursing home operator, but decided
that a change in Medicare payment systems was likely to negatively impact the
company's business. As a result, we sold the position in July, which, like
Loewen Group, was positive for the Portfolio, since the Portfolio was able to
reinvest the assets in more productive securities.
23
<PAGE> 24
WHICH OF THE PORTFOLIO'S SECURITIES PROVIDED THE BEST PERFORMANCE IN 1998?
CD Radio is a company that plans to do for radio what satellite TV did for
television. We bought their bonds for the Portfolio in late 1997, but during
1998 two large investors, the Bass Family and Apollo Group, infused equity into
the company, lending credibility to their business plan. That strengthened the
performance of the bonds, which were the best-performing assets in the Portfolio
for the year.
WERE THERE OTHER STRONG PERFORMERS IN THE PORTFOLIO?
Yes. The Portfolio had excellent success with Hutchison Whampoa, another Hong
Kong conglomerate with diversified holdings in property development and
investment, ports and related services, retailing and manufacturing,
telecommunications and media, and infrastructure and energy. The company has
excellent asset coverage, high-quality bonds, and performed well for the
Portfolio.
Quest Diagnostics is a health care company whose bonds showed strong performance
in 1998, as the company continued to generate strong free cash flow, improving
credit statistics.
WHICH OF THE PORTFOLIO'S SECURITIES WERE POOR PERFORMERS IN 1998?
Northern Offshore is an oil services company whose bonds the Portfolio
purchased. Within just a few months of the purchase, declining oil prices caused
the company to not put a couple of their new rigs into service, which had a
negative impact on bond performance. We have cut back on the Portfolio's
position, but lost money on the sales.
Another loser was Entex Information Services, a company that distributes
computers and software and provides technology consulting to corporate clients.
Unfortunately, the company missed its earnings projections within two quarters
of issuing its bonds, which had a negative impact on the Portfolio's
performance. We believe the value of the consulting business alone would cover
the Portfolio's bond investments, and management has assured us that their
operating momentum is now moving in a more positive direction, so the Portfolio
continues to hold their securities.
We already mentioned Medaphis, which also detracted from the Portfolio's
performance in 1998.
WERE THERE ANY MAJOR SURPRISES DURING THE YEAR?
Perhaps the biggest surprise was how quickly the market reacted to potential
problems. Investors used to have a buffer period to discover negatives before
bond prices declined. But now, the market is becoming much more efficient at
pricing negative news. We purchased Extendicare Health Services bonds for the
Portfolio in late 1997, and early in 1998, we found that our research didn't
resemble what the company had told us to expect. Fortunately, the Portfolio was
able to sell those bonds at a profit. However, these windows of opportunity are
becoming shorter as demonstrated by Medaphis, whose bonds dropped sharply
immediately following their earnings warning.
IN WHICH SECTORS WAS THE PORTFOLIO UNDERWEIGHTED AND OVERWEIGHTED IN 1998?
The Portfolio was overweighted in health care, including Medaphis, Columbia/HCA
Healthcare, Magellan Health Services, Quest Diagnostics, and ICN
Pharmaceuticals. Electric utilities were also overweighted in the Portfolio,
with positive results from several of its holdings.
During the year, the Portfolio also overweighted office property REITs,
including Highwoods Realty and Crescent Real Estate Equities. With the exception
of Medaphis, all of these holdings had a positive impact on performance.
Although some of the Portfolio's biggest winners were telecommunications names,
the Portfolio benefited from its generally underweighted position in
telecommunications relative to the high-yield market as a whole.
WHAT IS THE OVERALL QUALITY OF THE SECURITIES IN THE PORTFOLIO'S INVESTMENT
PORTFOLIO?
As of year end, the overall credit quality of the securities held by the
Portfolio was B+(4) but during the third quarter, we found a number of
opportunities among lower-rated credits, which brought the quality of securities
held by the Portfolio down to B. In the fourth quarter, we found that
default-adjusted spreads were greater in higher-rated bonds, so we made several
purchases that improved overall quality of securities held by the Portfolio back
to B+.
WHAT IS A DEFAULT-ADJUSTED SPREAD?
The Portfolio seeks the greatest possible compensation for the level of risk it
assumes. At each quality-rating level, there is a historical rate of default.
When we subtract the default rate from the spread over comparable
24
<PAGE> 25
Treasury securities, we obtain what we call the default-adjusted spread. We try
to emphasize securities with the widest spreads, after adjusting for the risk of
default. Of course, before we invest for the Portfolio, we also carefully
research the company, its asset coverage, free cash flow, and whether there is a
compelling reason to buy the bonds.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We continue to believe that we are in the late stages of the credit cycle and
will remain alert to potential risks that may arise as a result. At year-end, we
found higher-rated bonds were offering higher compensation for their relative
risk than other securities, but we realize that as yield spreads shift, this
relationship is subject to change. We believe that any factors that influence
corporate earnings will continue to influence the high-yield bond market.
Whatever happens, we will continue to seek a diversified array of high-yield
securities with the potential to maximize current income for the Portfolio.
Denis Laplaige
Steven Tananbaum
Portfolio Managers
MacKay-Shields Financial Corporation
$10,000 INVESTED IN THE MAINSTAY VP
HIGH YIELD CORPORATE BOND PORTFOLIO ON
5/1/95 VS THE CONSUMER PRICE INDEX(5)
AND THE FIRST BOSTON HIGH YIELD INDEX(6)
[Line Chart]
<TABLE>
<CAPTION>
HIGH YIELD CORPORATE BOND FIRST BOSTON HIGH YIELD
PORTFOLIO INDEX CONSUMER PRICE INDEX
----------------------- ------------------------- --------------------
<S> <C> <C> <C>
5/1/95 10000.0 10000.0 10000.0
1995 11006.0 10968.0 10102.0
1996 12894.6 12329.0 10436.4
1997 14574.8 13885.0 10613.8
1998 14962.0 13966.0 10785.0
</TABLE>
<TABLE>
<S> <C>
One Year: 2.66%
Since Inception:
(5/1/95) 11.59%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) Debt rated BBB by Standard & Poor's exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
(3) Debt rated BB by Standard & Poor's is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to the obligor's inadequate capacity to meet its financial commitment
on the obligation.
(4) Debt rated B by Standard & Poor's is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation. Ratings may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
(5) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
(6) The First Boston High Yield 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 for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
High-yield securities run greater risks of price fluctuations, loss of principal
and interest, default or bankruptcy by the issuer, and other risks, which is why
these securities are considered speculative.
25
<PAGE> 26
MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO
1998 MARKET RECAP
- - Global liquidity, led by the U.S. stock market, contributed to positive
results in stock markets throughout most of Europe.
- - As European Monetary Union approached, European stocks benefited from
increased merger and acquisition activity, moves by European central banks to
lower interest rates, and strong consumer spending.
- - Deregulation in telecommunications and banking helped these sectors show
strong performance, especially in European markets.
- - Financial problems in Asia, Russia, and Latin America caused a flight to
quality, with equity investors seeking highly liquid securities and companies
with consistent track records of steady earnings growth.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay International Equity Portfolio
returned 23.11%.
- - The Portfolio benefited from an overweighted position in European equities and
from its underweighted position in Japanese stocks.
- - A focus on telecommunications, banking, and health-related stocks helped the
Portfolio benefit from consumer, economic, and demographic trends.
- - The Portfolio outperformed the average Lipper(1) Variable Products
international portfolio, which returned 13.26% for the year.
MANAGEMENT DISCUSSION AND ANALYSIS
As years go, 1998 was one of the most volatile in recent memory. International
equity markets started the year with investors focused on the Asian financial
crisis, which grew progressively worse as Japan slipped into recession. Over the
course of the year, problems in Russia and Latin America caused a general flight
to quality, with investors focusing on highly liquid securities, well-known
names, and consistent earnings generators.
The flight to quality was a positive for the European market, which showed
strong performance as European Monetary Union approached. Most European
countries continued to benefit from low inflation, strong merger and acquisition
activity, and moves by central banks to lower interest rates. The U.K., which
faced a recession in its manufacturing sector, was also forced to lower interest
rates, which had a positive effect on stock prices.
Japanese stocks benefited from a strengthening yen in the second half of the
year, but generally tended to underperform other international markets.
Australia and New Zealand suffered somewhat as commodity prices continued to
decline, and declining oil prices had a generally negative impact on energy
stocks around the world.
Among the best-performing sectors worldwide were telecommunications, which
benefited from technological advances and wide consumer appeal; banking, which
benefited from low inflation and lower interest rates; and health-related
stocks, which advanced with new products to assist an aging population.
HOW DID THE MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO PERFORM IN THIS MARKET
ENVIRONMENT?
Quite well. The MainStay VP International Equity Portfolio returned 23.11% for
the year ended 12/31/98, outperforming the average Lipper Variable Products
international portfolio, which returned 13.26%.
HOW DID THE PORTFOLIO MANAGE TO DO SO WELL?
The Portfolio uses a "country first" approach, seeking to identify the most
promising markets and invest in a wide array of companies in each target market.
This approach proved beneficial in 1998, as difficulties in Asia led the
Portfolio to maintain an underweighted position in Japanese equities. Overall,
Japanese stocks underperformed other global markets, despite currency gains in
the second half of the year. At the same time, the promise of European Monetary
Union led the Portfolio to take an overweighted position in Europe, which proved
highly beneficial for the Portfolio's performance. Finland was up 106.10% for
the year, Belgium 55.50%, Italy 42.20%, Spain 39.40%, France 31.40%, and Ireland
29.40%, all in local terms.
The Portfolio did not restrict its investments to countries that would
participate in European Monetary Union. Portfolio investments in non-EMU
countries, such as Sweden and the U.K., also had a positive impact on the
Portfolio's performance.
26
<PAGE> 27
Although the Portfolio seeks to invest across a broad range of industries and
sectors, recognizing the strong potential in telecommunications, banking, and
health-related stocks, we emphasized these sectors in its 1998 investments,
which also contributed to outstanding performance.
WHAT WAS SO GOOD ABOUT TELECOMMUNICATIONS STOCKS?
Telecommunications stocks have benefited from strong growth and increasing
consumer demand. At the same time, many companies are taking advantage of new
technological advances to improve performance and deliver better service to
their customers. The Portfolio's largest holding and best-performing issue in
1998 was Nokia Oyj, a Finnish stock that we purchased in the third quarter. The
company has surpassed Motorola and Ericsson as the leading provider of mobile
phones and sold a record million handsets in a single month in 1998.
Another company that benefited from its telecommunications interests was
Mannesmann, which designs and manufactures a wide range of industrial products,
production machinery and assembly systems. The company also makes
telecommunication gears and equipment, which contributed significantly to
profits and earnings. The stock earned 110.10% in local terms for the year.
Deutsche Telekom was another of the Portfolio's strong performers. The company
owns and leases public telecommunications networks and has introduced new ADSL
technology, which promises faster transmission than existing ISDN lines.
Although telecommunications is growing more slowly in Germany than in the rest
of Europe, the stock contributed significantly to the Portfolio's positive
performance.
In July and August, we began to take profits in European and Japanese issues
that had reached the target values we had established for the Portfolio. We
invested some of the proceeds of these sales in telecommunications stocks in
Australia and New Zealand. One was an initial public offering in Cable &
Wireless Optus. The stock went public at 2.15 Australian dollars and by year-end
was trading at close to 4.00, which had a positive impact on the Portfolio's
performance.
WHY DID THE PORTFOLIO FOCUS ON THE BANKING AND FINANCIAL INDUSTRIES?
Financial stocks tend to perform well when interest rates decline. With the
severe market setbacks caused by problems in Asia, Russia, and Latin America, we
believed that central banks would be likely to lower interest rates to help
corporations cope with pressures to increase earnings in a low-inflation
environment. In the third and fourth quarter, the Federal Reserve Bank lowered
U.S. interest rates three times, and several European banks lowered rates
throughout the year, which helped stimulate corporate growth and make borrowing
more affordable. Since banks profit when borrowing increases, the results were
positive for the banking industry.
One of the Portfolio's successful investments was Allied Irish Banks, which was
up 76.90% in local terms for the year. The company provides a full range of
banking services through over 319 offices in Ireland, 82 branches in Northern
Ireland, and 37 offices in the U.K. It also operates over 200 branches in the
United States through its wholly-owned subsidiary, First Maryland Bancorp. With
the inception of the single currency throughout core Europe, we believe
financial institutions will look to establish themselves as a European force,
and we believe Allied Irish Banks has the experience and potential to do so.
Another financial services stock that showed positive performance during the
year was ING Groep. The company is headquartered in the Netherlands and has
global offices that provide commercial, savings, and investment banking, and
property and commercial insurance. The company was hurt in the third quarter by
its emerging market trading, but still returned 44.80% in local terms for the 12
months ended 12/31/98.
HOW DID THE PORTFOLIO BENEFIT FROM HEALTH-RELATED STOCKS?
Health-related sectors were stimulated by advances at several pharmaceutical
companies that capitalized on the aging population. Some of the biggest and best
pharmaceutical names are located in Europe, and the Portfolio sought to take
advantage of the positive trends in this sector. Other companies benefited from
the move toward natural foods, herbal remedies, and other health and
fitness-related trends.
The Portfolio owned the stock of Novartis, a large pharmaceutical company that
emerged from the combination of Sandoz and Ciba Geigy. As the price of the stock
rose, we decided to take profits from the Portfolio's Novartis shares and invest
them in the stock of Schering, a German pharmaceutical company specializing in
diagnostics, fertility control, hormone therapy, and dermatology. We believed
that Schering represented better value. Although neither stock was a stellar
performer, both Novartis and Schering provided positive returns for the
Portfolio in 1998.
27
<PAGE> 28
Although the Portfolio tended to underweight Japanese stocks, it did own names
that had broad exposure to world markets. One of these was Yamanouchi
Pharmaceutical, which was up 30.00% in local terms for the year. While few
people have ever heard the name Yamanouchi Pharmaceutical, almost everyone is
familiar with one of their leading products, Pepcid AC. The company also has a
number of drugs that may provide substantial earnings growth over time,
including medications for high cholesterol, hepatitis C, and diabetes. The stock
reflected the Portfolio's concentration in the health-related sector and
provided strong relative value in a Japanese stock market that declined 8.90% in
local terms in 1998.
WHICH OTHER MARKETS WERE WEAK PERFORMERS FOR THE PORTFOLIO IN 1998?
New Zealand was the worst market, declining 14.90% in local terms for the year.
While Australian stocks advanced an otherwise respectable 12.70%, that figure
was substantially below the returns available in the Portfolio's best performing
European markets.
DID THE PORTFOLIO OWN STOCKS IN OTHER SECTORS THAT SHOWED STRONG PERFORMANCE IN
1998?
Yes. The Portfolio owned the stock of CRH, an Irish company that manufactures
cement, concrete products, and building materials. With operations in 12
countries, including Ireland, Spain, Germany, and the Netherlands, the company
is well positioned to take advantage of government spending throughout Europe to
improve infrastructure. Although cement may seem like a dull industry, expanding
and improving Europe's infrastructure is presenting growth opportunities for the
company, which was a positive contributor to the Portfolio's performance in
1998.
Another positive contributor to the Portfolio's performance was Volkswagen, the
car and truck manufacturer. The company expects double-digit growth in its North
American car sales in 1999, based on the introduction of its new Beetle. The
stock was up 34.20% in local terms for the year.
WHICH STOCKS DIDN'T DO WELL IN 1998?
The Portfolio owned a number of stocks that underperformed. One was Royal Dutch
Petroleum, which suffered from the substantial decline in the price of oil and
declined 16.00% in local terms for the year. As of year-end, we believed the
company represented good value and may perform well if and when oil prices turn
around. In fact, we're hoping to add to the Portfolio's position in this stock
to take advantage of its broad-based energy exposure -- from exploration and
drilling to final processing, delivery, and marketing.
Another stock that underperformed was Volvo. We added the stock to the portfolio
in September because we felt Sweden was a desirable market, autos were a solid
industry, and Volvo had strong fundamentals and international breadth, with 80%
of its sales outside of Sweden. Given the merger of Daimler Benz and Chrysler,
we believe that Volvo may be the next acquisition in the auto industry. But the
stock did not perform well in the few months the Portfolio owned it in 1998.
Finally, Nestle, the Swiss cocoa and consumer products company, was a
substantial underperformer. Although the company has solid fundamentals, a good
growth plan, and is involved in the growing market for nutritious foods, the
stock was too defensive to gain investor attention with the boom in
telecommunications and technology stocks.
WERE THERE ANY SIGNIFICANT SALES YOU MADE FOR THE PORTFOLIO IN 1998?
In Japan, we recognized the difficulties the financial industry was facing and
decided to sell several of the Portfolio's financial holdings, including
Sumitomo Bank. The sale was positive for the Portfolio, since we were able to
invest the assets elsewhere for more productive returns.
Most of the Portfolio's sales were designed to narrow its focus from 300
securities to about 215 at the end of the year -- and improve its positioning in
industries we felt had the strongest potential in individual countries. Many of
the sales that were part of this repositioning had only modest impact on
performance, though in most cases, the impact was positive.
WERE THERE OTHER SHIFTS IN THE MAKEUP OF THE PORTFOLIO?
Yes. While we retained about the same weighting in Europe, in the third quarter
of 1998, we shifted the Portfolio's focus from central European countries to
take in more peripheral European nations, such as Ireland, Finland, and Sweden.
With names like Allied Irish Banks and Nokia Oyj each of these additions had a
positive impact on performance.
28
<PAGE> 29
WHAT WAS THE EFFECT OF CURRENCY MOVEMENTS ON THE PORTFOLIO IN 1998?
Generally speaking, the Portfolio had positive results from its currency
exposure. European currencies strengthened about 7.6% against the U.S. dollar
over the course of the year, which had a positive effect on total return
performance.
In the second half of 1998, European currencies weakened against the yen, and
the Portfolio participated in the yen's advance through the forwards market,
with a proxy hedge of European currency exposure. The trade was a contrarian
move that reflected our belief that negative sentiment about the yen, as well as
euphoria over the new European currency, the Euro, were both excessive. As the
yen strengthened, the hedge contributed positively to the Portfolio's
performance. The Portfolio also had direct exposure to the yen through its
weighting in Japanese equities, which strengthened the otherwise weak returns
from Japanese stocks in the second half of the year.
Commodity-linked currencies, particularly the Canadian, Australian, and New
Zealand dollar, all suffered from the general commodity weakness in 1998. Each
of these currencies declined about 7% relative to the U.S. dollar, which had a
negative impact on the Portfolio's performance.
IF YOU COULD RELIVE 1998, WHAT WOULD YOU HAVE DONE DIFFERENTLY?
In hindsight, the Portfolio would have benefited by being longer in yen-based
securities during the second half of the year. The Portfolio also might have
benefited by being in Hong Kong and Singapore in the second half of the year,
since they were both very strong. While the Portfolio might have missed some
opportunities there, we feel that the decisions we made for the Portfolio were
positive ones, and they were reflected in the Portfolio's performance relative
to its peers.
AS OF YEAR-END, WHERE WAS THE PORTFOLIO OVERWEIGHTED AND UNDERWEIGHTED?
At year-end, the Portfolio was overweighted in Finland, Belgium, Spain, Ireland,
Portugal, Sweden, New Zealand, and Australia. It was neutral in Germany and
underweighted in France and Switzerland. As we noted earlier, the Portfolio is
heavily underweighted in Japan.
WHAT RISKS DO YOU SEE AHEAD FOR INVESTORS?
The problems we saw this year represent real risks going forward. Emerging
markets, by their very nature, are relatively fragile and subject to forces that
can make them highly volatile. Brazil's economic difficulties are not happening
in a vacuum. They could have implications for other countries, such as Spain and
Portugal, which have economic, cultural, and language ties with Brazil. While we
believe that Europe should remain strong, the effects of European Monetary Union
are as yet untested. So we will continue to monitor developments in both
participating and nonparticipating European countries.
WHAT IS YOUR OUTLOOK FOR THE FUTURE?
We believe that Europe is likely to benefit from additional mergers and
acquisitions as monetary union gets underway. As long as interest rates and
inflation remain low, economic growth should continue to expand in both core and
peripheral European nations. In light of recent global economic setbacks,
however, we may position the Portfolio more defensively in the months ahead.
Generally speaking, we like the industries in which the Portfolio is
concentrated. Telecommunications should continue to benefit from advancing
technology and high consumer demand. Health-related companies should continue to
find opportunities as the population ages. While favorable forces have helped
banks and financial services, we recognize that that could change at any time.
Whatever happens, we will seek to identify countries and companies that we
believe may provide long-term growth of capital commensurate with an acceptable
level of risk.
Joseph Portera
Portfolio Manager
MacKay-Shields Financial Corporation
29
<PAGE> 30
$10,000 INVESTED IN THE
MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO ON 5/1/95
VS EAFE INDEX(2) AND
THE CONSUMER PRICE INDEX(3)
[Line Chart]
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
PORTFOLIO CONSUMER PRICE INDEX EAFE INDEX
-------------------- -------------------- ----------
<S> <C> <C> <C>
5/1/95 10000.00 10000.00 10000.00
1995 10696.00 10102.00 10520.00
1996 11823.40 10436.40 11189.00
1997 12435.00 10614.00 11388.00
1998 15308.00 10785.00 13666.00
</TABLE>
<TABLE>
<S> <C>
One Year: 23.11%
Since Inception:
(5/1/95) 12.29%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) 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.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
Investments in foreign securities may be subject to greater risks than domestic
investments. These risks include currency fluctuations, changes in U.S. or
foreign tax or currency laws, and changes in monetary policies and economic and
political conditions in foreign countries.
30
<PAGE> 31
MAINSTAY VP TOTAL RETURN PORTFOLIO
1998 MARKET RECAP
- - The U.S. stock market was highly volatile throughout 1998, but provided
double-digit returns for the fourth year in a row in a growth-oriented
environment marked by low inflation and declining interest rates.
- - Difficulties in Asia, Russia, and Latin America generally caused a flight to
quality in both the stock and bond markets, with many investors seeking highly
liquid securities and stocks of companies with steady earnings growth.
- - Technology and pharmaceutical stocks generally showed strong performance,
while cyclical, energy, and commodity-related stocks tended to underperform.
- - Long-term Treasury securities showed strong performance throughout the year,
while corporate bonds suffered from earnings disappointments and
mortgage-backed securities faced prepayment risk through much of the year.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP Total Return Portfolio
returned 27.13%.
- - The Portfolio benefited from careful stock selection among
large-capitalization companies in technology, pharmaceuticals, and consumer
staples and by reducing positions in problem sectors such as energy.
- - The Portfolio benefited from a long to neutral duration throughout the year
and from being overweighted in 30-year Treasuries when the yield curve
flattened.
- - The Portfolio alternated between an underweighted and overweighted position in
mortgage-backed securities, which generally proved beneficial.
- - The Portfolio outperformed the average Lipper(1) Variable Products balanced
portfolio, which returned 14.79% for the year.
MANAGEMENT DISCUSSION AND ANALYSIS
As years go, 1998 was one of the most volatile in recent memory. Despite its ups
and downs, however, the S&P 500 Index(2) closed the year with a 28.58% gain,
making 1998 the fourth year in a row domestic stocks in general have returned
more than 20.00%.
With financial problems in Asia, Russia, and Latin America, declining oil
prices, and weaknesses in other commodities, many investors sought refuge in
stocks they felt were least likely to be affected by these difficulties. Many
investors focused on large-capitalization growth stocks that appeared to have
steady and predictable earnings prospects, with particular attention given to
technology and pharmaceutical issues. Purely domestic issues continued to do
well, while oil and commodity-related stocks tended to show poor performance.
Declining interest rates improved earnings prospects for many companies in the
latter half of the year, and calm inflation also helped strengthen the stock
market's advance. These same forces combined to make 1998 a year of extremes in
the bond market. The first half of the year saw the lowest level of volatility
in 15 years, while the second half of the year reflected the highest volatility
in 15 years.
A Federal budget surplus reduced Treasury issuance and tightened supply, while
the flight to quality in the third quarter of 1998 dramatically increased demand
for government bonds. With emerging market problems prompting the near collapse
of one of the world's largest hedge funds, the rush to high-quality, highly
liquid issues drove government bond prices higher and reduced yields on 30-year
Treasury bonds to record lows. Corporate bonds generally suffered from earnings
disappointments and weak demand as the stock market offered much higher return
potential. Mortgage-backed securities showed mixed performance, with prepayments
reducing returns in the first three quarters and stronger performance in the
fourth quarter of 1998, as the Federal Reserve Board's move to ease interest
rates helped stabilize the bond markets. Asset-backed securities generally
showed positive performance, particularly among highly rated, short-term issues,
where the likelihood of prepayment was low.
HOW DID THE MAINSTAY VP TOTAL RETURN PORTFOLIO PERFORM IN THIS MARKET
ENVIRONMENT?
Quite well. The MainStay VP Total Return Portfolio returned 27.13% for the
year-ended, outperforming the average Lipper Variable Products balanced
portfolio, which returned 14.79% for the year.
HOW DID THE PORTFOLIO MANAGE TO DO SO WELL?
A number of factors contributed positively to the Portfolio's performance, but
we believe the most important factor was sticking to our strict investment
disciplines. In the stock portion of the Portfolio, we generally seek companies
with strong growth prospects, considering such factors as steady growth in
revenues, accelerating
31
<PAGE> 32
earnings, and increasing earnings per share. During the volatile market
environment in 1998, the Portfolio concentrated on large-capitalization issues,
which were among the stocks investors favored when problems in foreign markets
caused a flight to quality in both the stock and bond markets. We also reduced
the Portfolio's positions in sectors we felt were weak, such as oil and energy.
By concentrating on winners and largely avoiding losers, the Portfolio had an
excellent year.
In the bond portion of the Portfolio, we benefited from a long to neutral
duration strategy throughout the year, from being overweighted in 30-year
Treasuries as yield spreads tightened, and from being underweighted in
mortgage-backed securities when we believed the prepayment risk was high.
WHICH SECTORS CONTRIBUTED MOST STRONGLY TO THE PORTFOLIO'S STOCK PERFORMANCE?
We don't select sectors. Instead, we choose stocks for the Portfolio based on
their individual merits after extensive quantitative analysis and fundamental
research. As a result of the Portfolio's selection process, however, we found a
number of technology stocks that we believed had strong growth potential and
they contributed to the Portfolio's significant outperformance. Despite various
setbacks throughout the year, the Portfolio remained overweighted in technology
stocks through all four quarters.
Pharmaceutical stocks also had an excellent year, and the Portfolio had a number
of holdings that did well. New drug introductions, direct-to-consumer
advertising, and a long pipeline of FDA-approved drugs awaiting release helped
advance the sector as a whole.
Consumer staples as a group showed relatively weak performance in 1998, but our
stock selection process positioned the Portfolio in relatively defensive, purely
domestic companies, such as supermarkets, which performed well at a time when
the market seemed to prefer stable growth and relatively predictable earnings.
As a group, supermarkets are benefiting from consolidation, which is helping
improve margins and profits.
CAN YOU GIVE SOME EXAMPLES OF TECHNOLOGY STOCKS THAT DID WELL?
Certainly. Lucent Technologies was the Portfolio's best-performing stock in 1998
and also its largest equity holding. The company has done exceedingly well, with
the value of the Portfolio's position more than tripling during the year. Cisco
Systems is another technology stock that showed outstanding performance, with an
increase of 149% in 1998.
In January, the Portfolio purchased EMC, a leader in corporate data storage
systems, hardware, and software. We believed the company had excellent
potential, based on increasing dominance in its market sector and rapidly
accelerating earnings. The Portfolio's position almost doubled in value during
the year.
Compuware is a computer software company that was also among the Portfolio's
best performing stocks, and it more than doubled in value during the year.
DID ALL OF THE PORTFOLIO'S TECHNOLOGY STOCKS DO THAT WELL?
No. Computer Associates International showed relatively poor performance when
the company's management team lowered its earnings estimates and announced that
it might have difficulty closing large contracts.
WHAT ABOUT PHARMACEUTICAL STOCKS?
Given the positive fundamentals in the pharmaceutical industry and the high unit
volume growth in a low inflationary environment, pharmaceuticals were generally
excellent performers. Although we increased the Portfolio's position in Pfizer,
our timing could have been better. In the first half of the year, many investors
were selling the stock to take profits after the release of Viagra. During the
year, we also increased the Portfolio's position in Merck, a major drug company
profiting from successful products such as Pepcid AC, Propecia, and many others.
Other positive performers among drug stocks included Eli Lilly, a stock the
Portfolio has held for some time, and Schering-Plough. Schering-Plough's
Claritin product for allergy sufferers helped sales, earnings, and stock
performance.
DID THE PORTFOLIO REMAIN OVERWEIGHTED IN FINANCIAL STOCKS IN 1998?
No. Over the course of the year, we decreased the Portfolio's weighting in
financial stocks for a number of reasons. First, we believed that growth was
slowing in the financial sector. Second, the huge mergers in the financial
industry produced companies that were more difficult to analyze and evaluate.
32
<PAGE> 33
The NationsBank merger with BankAmerica is a good example. The combination added
to the company's financial risk because BankAmerica was invested in a hedge fund
when the market had just suffered a major setback as a result of the problems at
Long Term Capital. Since the stock no longer fit the Portfolio's growth criteria
and risk profile, we cut back on the Portfolio's position, which had a slightly
negative impact. Although our decision to sell helped reduce portfolio risk, the
stock's subsequent performance suggested that the Portfolio would have been
rewarded for a more patient outlook.
Travelers Group and Citicorp joined to form Citigroup during the year, which
reduced our confidence in the company, as management faced a substantial
reorganization in an uncertain financial environment. As a result, we cut back
on the Portfolio's holdings in the summer, which was not the best time to sell,
so the transaction had a negative impact on performance.
WHAT WERE SOME OF THE MAJOR EQUITY PURCHASES THE PORTFOLIO MADE DURING THE YEAR?
In addition to those already mentioned, the Portfolio purchased Fred Meyer, a
large supermarket chain. We liked the company's fundamentals and believed it
might benefit from consolidation in the supermarket industry, which happened
when the company announced that it would be acquired by Kroger, another of the
Portfolio's investments. By the end of the year, Fred Meyer stock had increased
by about 50% from the Portfolio's purchase price.
In the first quarter, the Portfolio purchased the common stock of
Colgate-Palmolive. The company has shown stable growth and was having success
with its new Total toothpaste. Despite the company's international exposure, we
believed it could handle any difficulties the market might generate. For the
year, the stock was up 28%, which was in line with the S&P 500 Index.
As new money came into the Portfolio over the course of the year, we used much
of it to add to the Portfolio's most successful positions, including Lucent
Technologies, Cisco Systems, EMC, and others. So our buying strategy paralleled
our investment strategy of sticking with the winners in the investment
portfolio.
WERE ALL OF THE PORTFOLIO'S STOCK PURCHASES EQUALLY SUCCESSFUL?
No. We purchased HBO, a leading provider of health care software systems, during
the second quarter of 1998. The company looked attractive given its size, market
share, and growth rate. But shortly after we purchased the stock, the company
announced an acquisition that the market didn't like. Next, they decided to
merge with McKessen, a leading drug distributor. But miscommunication about the
merger caused the stock to substantially underperform the market. Although the
investment provided a positive return, it was substantially lower than other
holdings, and on a relative basis, had a negative impact on performance.
YOU MENTIONED SOME FINANCIAL STOCK SALES. WHAT OTHER STOCKS DID THE PORTFOLIO
SELL DURING 1998?
Perhaps the Portfolio's most significant stock sales were in the energy sector.
With declining oil prices and weakening prospects for exploration, drilling, and
oil services, we sold the Portfolio's positions in Diamond Offshore Drilling,
Halliburton, and ENSCO International. Since the performance of energy service
stocks was generally negative in 1998, we viewed the timing of the sales as
positive for the Portfolio, even though the Portfolio lost money on each of
these transactions. The wisdom of reallocating the assets was further
underscored as oil prices continued to decline.
We also sold the Portfolio's holdings of toy maker Mattel during the first half
of the year as fundamentals deteriorated and Barbie sales declined. We were
pleased to get out at a gain over the Portfolio's original purchase price,
although the Portfolio had a slightly negative return on the stock in 1998.
Later developments at the company underscored the wisdom of this sale.
DID THE PORTFOLIO MAKE OTHER SIGNIFICANT STOCK SALES?
Yes. The Portfolio sold its investments in Tenet Healthcare and United
Healthcare, both of which saw decelerating earnings growth rates. Tenet
Healthcare is a large hospital chain that missed its earnings projections.
United Healthcare suffered from rising medical costs and an inability to
smoothly integrate recent acquisitions. Although both stocks declined after we
sold the Portfolio's holdings, United Healthcare has since recovered a bit.
Nevertheless, we believe the sales were positive for the Portfolio by allowing
us to put the assets to better use elsewhere.
Adaptec is a technology company we sold at a loss after the Asian crisis slowed
earnings, which undercut the Portfolio's fundamental reasons for owning the
stock. The Portfolio sold the stock in the low twenties, and the price continued
to decline even further throughout most of the year.
33
<PAGE> 34
Hewlett-Packard was a long-standing position in the Portfolio that simply failed
to live up to earnings expectations. The Portfolio sold the stock at a huge gain
over the Portfolio's original cost, but at a slight loss for the year.
WHICH STOCKS WERE THE PORTFOLIO'S WORST PERFORMERS IN 1998?
By far the worst stock was Cendant, which was plagued by news of accounting
irregularities at CUC International prior to its merger with HFS in late 1997.
The stock, which was a major holding, was down nearly 44% for the year. The
Portfolio continues to own the stock and believes the market has overpenalized
the company, which is generating $1.5 billion of free cash flow. But there's no
question that the company's reputation has been tarnished.
Other poor performers included HEALTHSOUTH, a nationwide rehabilitation and
outpatient surgical provider, which surprised the market by missing earnings
projections and preannouncing that problems would continue until 1999. Conseco
is an insurance company that acquired Green Tree Financial and suffered from
negative perceptions of its top management by many investors. Despite these and
other negative performers, the stock portion of the Portfolio was still able to
outperform the market by a substantial margin.
WHAT FACTORS CONTRIBUTED SIGNIFICANTLY TO BOND PERFORMANCE IN THE PORTFOLIO?
We believe that duration is among the most important factors determining bond
fund performance and our strategy throughout the year was to remain long to
neutral. In the first half of the year, the Portfolio remained neutral as rates
headed higher and extended duration as rates rallied, which had a positive
impact on performance. In the second half, we shifted the Portfolio's duration
with the ebb and flow of the market, but shortened in the fourth quarter, which
had a negative impact on performance. Overall, however, our duration strategy
was positive for the Portfolio.
Our yield-curve strategy was also a positive contributor to performance. We
remained overweighted in 30-year Treasuries, which helped the Portfolio
throughout the year, but particularly in the second and fourth quarters, when
yield spreads narrowed, flattening the yield curve.
WERE THERE OTHER STRATEGIES THAT CONTRIBUTED POSITIVELY TO PERFORMANCE?
In the first half of the year, interest rates remained in a relatively narrow
range, so we used a variety of technical indicators to guide the Portfolio
between newer and older issues, which provided slight incremental gains.
Finding few opportunities elsewhere, the Portfolio was heavily weighted in
Treasury securities, which had a positive impact on performance throughout the
year, but particularly in the second half of 1998, when a drop in the stock
market, concerns over Asia, Russia, and Brazil, and problems with major hedge
funds caused many investors to seek a "safe haven" in Treasury securities. The
gains during this period were exaggerated by the budget surplus, which decreased
Treasury issuance and limited supply at a time when demand for highly liquid
top-quality securities was extremely high.
DOES THE PORTFOLIO CONCENTRATE ON HIGH-QUALITY DEBT SECURITIES?
Yes it does. The Portfolio's income portfolio emphasized U.S. government bonds,
high-quality mortgage-backed and asset-backed securities, and high-grade
corporate issues.
HOW DID THE PORTFOLIO'S MORTGAGE-BACKED SECURITIES PERFORM?
Anticipating prepayments, the Portfolio entered the year underweighted in
high-coupon mortgage-backed securities, which was positive for performance. In
the second quarter, the Portfolio purchased bonds we believed would not be
interest-rate sensitive and managed to take some profits for the Portfolio as
the market rallied. Unfortunately, a second wave of prepayments hurt the
Portfolio's holdings and an overweighted position detracted from performance in
the second quarter.
In the third quarter, we reduced the Portfolio's bond holdings to an
underweighted position in mortgage-related bonds, which proved beneficial as
interest rates fell and prepayments continued. During the fourth quarter, the
Portfolio had an opportunity to purchase mortgage-backed bonds at distressed
prices from hedge funds that were forced to liquidate their holdings. This
contributed positively to performance as the Federal Reserve moved to lower
interest rates, which helped restore investor confidence, bring order to the
markets, and increase demand for mortgage-backed securities.
34
<PAGE> 35
WHAT OTHER INCOME INVESTMENTS DID THE PORTFOLIO HAVE?
The Portfolio's corporate bonds had suffered a severe setback in the fourth
quarter of 1997 and given the impact of the Asian crisis, corporate spreads
widened substantially in the first quarter of 1998. We increased the Portfolio's
corporate exposure in the second quarter, seeking high-quality domestic issues
with minimal Asian exposure. With low volatility and the calm before the storm,
the contribution to performance was minimal for the second quarter.
In the second half of 1998, the Portfolio focused primarily on what we believed
to be capable media companies, utilities, retailers, and regional banks. But
with the financial problems in Russia and Brazil and difficulties at major hedge
funds, the corporate bond market generally faced a substantial setback. New
issuance all but stopped in the third quarter, and despite strong growth in
America's Gross Domestic Product, corporate bonds provided their worst
performance in a decade. Although the Portfolio was positioned in high-quality,
highly liquid issues and in some of the top-performing sectors, the overall
movement of the corporate market had a negative impact on performance.
The Portfolio also had relatively small allocations in agency securities,
asset-backed securities, CMOs, and variable floating-rate notes. All of these
securities contributed positively to performance over the course of the year,
but there were few if any remarkable events in any of these markets. Among
asset-backed securities, the Portfolio's concentration on high-quality,
shorter-term issues provided a measure of prepayment protection, which was a
positive factor. The Portfolio's asset-backed securities increased its yield and
added value during the flight to quality.
DID THE PORTFOLIO MAKE ANY DRAMATIC SHIFTS IN ITS BOND SECTOR ALLOCATIONS DURING
THE YEAR?
As we noted, adding corporate bonds in the second quarter did not work in the
Portfolio's favor. Over the course of the year, there was an increase in
mortgage-backed securities. That change accelerated in the fourth quarter, when
hedge fund liquidations made it possible to purchase mortgage-backed securities
at what we believed to be very attractive prices. The Portfolio took profits in
Treasuries to purchase these securities, and both the purchases and sales had a
positive impact on performance.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We continue to view the markets as highly volatile and generally unpredictable.
So instead of trying to time our investments or dodge and weave with the market,
we will continue to select stocks we believe have strong growth characteristics,
solid performance records, and reasons to perform well in the future. In the
bond markets, we believe that unless a major market shift occurs, the Federal
Reserve is not likely to change interest rates for a while, though it may move
to ease interest rates further as the new year unfolds.
We continue to believe that diversification will be important for investors and
view the mix of stocks and bonds in the MainStay VP Total Return Portfolio as an
excellent way to spread risk while seeking high total-return potential. As long
as volatility continues, we believe investors will seek stocks with a history of
steady growth and have positioned the Portfolio's stock investments accordingly.
At year-end, we anticipated reduced supply and higher demand for mortgage-backed
securities and had overweighted these bonds in the income portion of the
Portfolio. Whatever happens, we will continue to seek to realize current income
consistent with reasonable opportunity for future growth of capital and income.
Ravi Akhoury
Edmund Spelman
Rudolph Carryl
Portfolio Managers
MacKay-Shields Financial Corporation
35
<PAGE> 36
$10,000 INVESTED IN THE
MAINSTAY VP TOTAL RETURN PORTFOLIO ON
1/29/93 VS S&P 500 AND
THE CONSUMER PRICE INDEX(3)
[Line Chart]
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO S&P 500 CONSUMER PRICE INDEX
---------------------- ------- --------------------
<S> <C> <C> <C>
1/29/93 10000.00 10000.00 10000.00
1993 11504.00 11007.00 10275.00
1994 11045.00 11149.00 10549.30
1995 14174.00 15338.80 10785.60
1996 15886.30 18857.50 11142.60
1997 18712.00 25148.00 11332.00
1998 23789.00 32336.00 11515.00
</TABLE>
<TABLE>
<S> <C>
One Year: 27.13%
Since Inception:
(1/29/93) 15.76%
Five Years: 15.64%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not 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 the Performance
Summary for returns reflective of these charges.
36
<PAGE> 37
MAINSTAY VP VALUE PORTFOLIO
1998 MARKET RECAP
- - In 1998, the U.S. stock market provided double-digit returns for the fourth
consecutive year, with advances dominated by large-capitalization growth
stocks in technology and pharmaceuticals.
- - As the Asian financial crisis unfolded, low inflation, declining interest
rates, and falling commodity prices had a negative impact on economically
sensitive value sectors.
- - Amid extreme volatility in the equity markets, many investors virtually
ignored traditional value measures such as low price-to-earnings ratios and
instead sought refuge in the market's largest and most familiar names, with
little regard for valuation.
- - Although value stocks traditionally outperform in declining markets, investors
continued to focus on growth investments as many stock prices fell in the
third quarter of 1998.
- - A spirit of confidence by many investors was reflected in the high prices of
several Internet stocks with little history and virtually no earnings.
1998 PORTFOLIO RECAP
- - For the 12 months ended 12/31/98, the MainStay VP Value Portfolio returned -
4.14%.
- - The Portfolio maintained its strict deep-value disciplines throughout 1998,
despite the preference by many investors in the market for
large-capitalization growth stocks.
- - The Portfolio benefited from an overweighted position in electric utilities,
which provided significant positive returns, but was hurt by energy
investments, which suffered from declining oil prices.
- - Purchasing financial services stocks after the market correction had a
positive impact on performance, while certain retail and sporting goods stock
purchases based on restructuring potential had a definite negative impact on
the Portfolio in 1998.
- - The Portfolio underperformed the average Lipper(1) Variable Products growth
and income portfolio, which returned 16.37% for the year.
MANAGEMENT DISCUSSION AND ANALYSIS
As years go, 1998 was one of the most volatile in recent memory. Despite its ups
and downs, however, the S&P 500 Index(2) closed the year with a 28.58% gain,
making 1998 the fourth consecutive year domestic stocks in general have returned
more than 20%. About two-thirds of the market's gains, however, occurred in the
25 largest issues. Severe corrections among smaller-capitalization stocks were
largely overshadowed by tremendous gains in large technology and pharmaceutical
stocks.
As the Asian crisis unfolded, low inflation, declining interest rates, and
falling commodity prices helped focus the attention of many investors on growth
stocks and had a negative impact on economically sensitive value sectors.
Extreme market volatility surrounding problems in Russia and Latin America
caused a general flight to quality, with many investors seeking a "safe haven"
in long-term U.S. government bonds and many of the stock market's largest and
most familiar names.
Throughout the year, many investors seemed to ignore traditional value measures,
preferring a "bigger is better" approach, regardless of cost or
price-to-earnings ratios. As a result, value stocks, which traditionally
outperform in declining markets, severely underperformed when the market tumbled
almost 20% at the end of August. Many smaller deep-value stocks experienced
their worst relative performance since the decade began.
In addition to ignoring traditional valuation criteria, many investors showed
enthusiasm for Internet stocks. Many of these issues had little history and
virtually no earnings, yet soared to record high prices, attracting a level of
attention that was reminiscent of biotechnology stocks in the early 1990s.
HOW DID THE MAINSTAY VP VALUE PORTFOLIO PERFORM IN THIS MARKET ENVIRONMENT?
The MainStay VP Value Portfolio returned - 4.14% for the year-ended 12/31/98,
underperforming the average Lipper Variable Products growth and income
portfolio, which returned 16.37% for the same year.
WHY DID THE PORTFOLIO UNDERPERFORM ITS PEERS?
There were a variety of reasons, but the most significant ones have to do with
our value disciplines and the category to which the Portfolio was compared. By
virtually every measure, 1998 was a year for large-capitalization growth stocks.
Our value disciplines usually lead us to invest in smaller-capitalization value
names, which were among the worst-performing stocks in 1998. Due to the
Portfolio's pure value orientation, it generally underperformed portfolios that
were growth oriented in 1998. As a result, the Portfolio underperformed its peer
37
<PAGE> 38
group which includes growth and income portfolios that pursue growth disciplines
as well as funds that pursue value disciplines.
Yet even within the narrower value stock universe, our deep-value approach
seemed to run contrary to the market's preference for large, familiar names,
regardless of cost or underlying value. We continued to seek stocks with low
price-to-earnings ratios and low price to cash flow ratios, even as in some
cases the market seemed to reward stocks with high prices and high
price-to-earnings ratios. Finally, our concentration in traditional value
sectors, such as energy and basic materials, contributed to the Portfolio's
underperformance as financial problems in Asia, Russia, and Latin America
unfolded, bringing lower prices for oil and other major commodities.
Fortunately, the declines in traditional deep-value sector stocks helped us add
to many of the Portfolio's positions at what we believe to be very attractive
prices. So while the Portfolio underperformed its peers in 1998, we believe that
the Portfolio is positioned to lead its peers once investors recognize the
attractiveness of value stocks.
WHAT WERE SOME OF THE DECISIONS THAT HELPED THE PORTFOLIO IN 1998?
Although the Portfolio is generally underweighted in technology stocks, one of
our most successful decisions was to purchase Adaptec, a major supplier in
technology hardware and software. We purchased the stock for the Portfolio in
the second quarter, and when the Asian crisis caused a correction in the
technology sector, the stock dropped about 50%. At that time, we were even more
convinced that the stock was undervalued, so we doubled the Portfolio's position
when it fell to $10. By the end of 1998, Adaptec stock was trading well above
the Portfolio's average purchase price for the stock, which provided a
significant gain for the Portfolio. The story reflects exactly what we try to do
in the Portfolio -- buy on disappointments and profit as value is realized.
Another significant decision for the Portfolio involved our investment in Philip
Morris. We have bought and sold the stock many times over the years, but we made
a significant purchase in the second quarter after the bulk of the negative
publicity about tobacco litigation had already driven down the stock price. At
the time Philip Morris was one of the worst-performing stocks, but we recognized
that even discounting what we believed to be the risk to investors as a result
of existing and potential lawsuits, the company's assets were worth more than
the stock's value. Apparently the market finally realized what we saw in the
stock, which recovered substantially and was one of the Portfolio's
best-performing stocks in 1998.
A third positive decision was to add to electric utilities in the first half of
the year, with stocks like Texas Utilities, FPL Group, OGE Energy, Niagara
Mohawk Power, and Energy East. The Portfolio's utility stocks performed very
well during the market correction in the third quarter, actually increasing in
value as the stock market declined nearly 20%. Later in the year, we sold some
of the Portfolio's utility holdings to take profits. One significant sale was
FPL Group, a Florida utility, which the Portfolio sold at a market high, with a
positive impact on the Portfolio's performance.
We reinvested the proceeds of the Portfolio's utility stock sales in financial
services stocks, including SLM Holding, Washington Mutual, MGIC Investment, and
Conseco, all of which appeared to be very undervalued on a relative basis. All
of these stocks were trading in the range of 10 to 11 times earnings, when the
price of stocks in general was nearing 25 times earnings. Each of these
financial services stocks had a positive impact on the Portfolio through
year-end.
WERE THERE MAJOR DECISIONS THAT HAD A NEGATIVE IMPACT?
Yes there were. As the price of oil declined, the Portfolio purchased stocks of
several midsized energy companies, including Unocal, Union Pacific Resources
Group, Noble Affiliates, and Oryx Energy, believing that they were attractively
priced. The Asian financial crisis reduced manufacturing output which had a
negative impact on demand for oil causing oil prices to decline, so we continued
to purchase more of these stocks for the Portfolio at successively lower prices
throughout the year. In retrospect, we believe our purchasing decisions were
premature, and the overall effect was severely negative in 1998. As industry
fundamentals shift and Asian economies begin to stabilize, we believe the
Portfolio's strong commitment to energy stocks should be rewarded.
WHAT OTHER SIGNIFICANT PURCHASES DID YOU MAKE FOR THE PORTFOLIO IN 1998?
In the third quarter of 1998, we increased the Portfolio's HMO stock exposure
with the initial purchase of United Healthcare stock at what we believed to be
bargain basement prices, considering excellent management, strong financial
characteristics, and stock repurchases by the company. We bought the stock in
the mid-$30 range and it has been up ever since, so we believe both the
selection and timing were positive for the Portfolio.
38
<PAGE> 39
A stock we bought that didn't work out as well was Toys "R" Us. Although the
company met all of our deep-value disciplines, management of the company failed
to deliver on their promises. Earnings have been disappointing and a promised
restructuring has not been successful to date. Although the Portfolio still
holds the stock, we're watching the situation closely.
WHAT OTHER SECURITIES DID YOU SELL DURING THE YEAR?
One of the Portfolio's successful sales was its position in Ford Motor. We
purchased the stock for the Portfolio at an attractive price and sold it in July
at a substantial profit. At the time, we believed the auto sector was fully
valued, and the stock did decline after we sold it. So we believe the sale was
positive for the Portfolio.
A less successful sale was the stock of Coltec Industries, a leading aerospace
and industrial manufacturing company. When we purchased the stock for the
Portfolio, we thought the company was an excellent value and might be a takeover
target. Although we were right on both counts, offers from two potential
acquirers failed to come close to our original cost. In December, we decided to
cut our losses by selling the shares which had a negative impact on the
Portfolio's performance, since we no longer believed that the management of the
company was acting in the best interests of its shareholders.
On a more positive note, the Portfolio sold two deep value stocks, Lexmark
International Group (a laser printer company) and Allegiance (a health care
provider), when they reached the Portfolio's target values. The Portfolio sold
Lexmark International Group in the third quarter for a 69% gain and Allegiance
in July for a gain of 50%. These were two of the best performers in the
Portfolio, and although both stocks rose after we sold them, they performed more
like growth stocks than value candidates and were no longer appropriate holdings
for the Portfolio.
WERE THERE OTHER SIGNIFICANT SALES DURING THE YEAR?
Yes. We sold Tenneco, an automotive parts and packaging company, as part of our
decision to cut back on economically sensitive sectors, which was a positive
move for the Portfolio as these sectors generally performed poorly, even though
the Portfolio took a small loss on the stock. In September, we sold Crown Cork &
Seal, a paper, glass, and plastic container company that was suffering from its
exposure to Asia and South America. The company had lowered its earnings
forecasts earlier in the year, and the Portfolio sold based on fears that they
would do so again. Although we sold at a loss, the stock has continued to
underperform, so our decision to sell was good in that it allowed the Portfolio
to reinvest the assets more productively.
BESIDES LEXMARK INTERNATIONAL GROUP AND ALLEGIANCE, WHAT WERE THE PORTFOLIO'S
BEST-PERFORMING STOCKS?
We already mentioned selling Ford Motor shares at a substantial profit, which
made it the Portfolio's third-best performer. The Portfolio also profited from
the sale of Echlin, an auto parts company, whose stock advanced dramatically
when the company was acquired by Dana Corp., one of the world's largest supplier
of automotive parts.
The Portfolio also earned a 49% return on US West, as it benefited from the
reappraisal of the telecommunications group. Finally, the Portfolio's investment
in the insurance giant CIGNA provided a 37% return, which contributed positively
to the Portfolio's overall return.
WHAT ABOUT NEGATIVE PERFORMERS?
In a difficult market for value stocks, the Portfolio had more losers than
winners. Perhaps the worst cases were two stocks that the Portfolio purchased on
their restructuring potential. One was Venator Group, formerly known as
Woolworth. We believe the name change confused the market, and the company
shifted into athletic footwear as the Asian market had difficulties. The ensuing
earnings disappointment was poorly received by investors, and Venator Group
stock lost over half of its value in 1998.
Another failed restructuring candidate was Callaway Golf, a manufacturer of golf
equipment, that simply failed to perform up to our expectations. The stock was
purchased at a very cheap relative price, but continued to decline throughout
the year, as Asian conditions worsened.
Union Pacific Resources Group was a leveraged company whose oil stock the
Portfolio bought too early. The price declined 50% over the course of the year,
and we have added to the Portfolio's position, believing the market will see the
company's value when oil prices begin to stabilize.
Finally, Northwest Airlines, which is the principal air link between the United
States and the Far East, had a dismal year when the Asian crisis hurt its sales
and a labor strike reduced its profits. The Portfolio continues to
39
<PAGE> 40
hold the stock, believing its long-term potential will be realized as Asia
stabilizes and the strike fades from recent memory.
AT YEAR-END, WHERE WAS THE PORTFOLIO OVERWEIGHTED AND UNDERWEIGHTED?
As of 12/31/98, the Portfolio was overweighted in financial services, energy,
electric utilities, basic materials, and HMOs. We believe that the disparity
between the prices of these stocks and their earnings potential gives them
better prospects than the market as a whole. Since stocks in technology,
pharmaceuticals, and consumer staples tend to have high prices and high
price-to-earnings ratios, they don't fit our value disciplines and were
underweighted in the Portfolio at the end of 1998. The Portfolio has not
participated in the rise of Internet stocks, since they represent the exact
opposite of what we look for in long-range investments.
WHAT IS YOUR OUTLOOK FOR VALUE STOCKS?
In 1998, the Federal Reserve Board Chairman described the stock market's
performance as "irrational exuberance." When investors ignore basic fundamentals
such as the relationships between price, company worth, cash flow, and earnings,
we tend to agree with his assessment. Ultimately, however, we believe many
investors will have to ask themselves if what they're buying is worth the cost.
At that point, we believe value stocks will once again become desirable
investments and that the Portfolio's deep-value approach will tend to provide
attractive returns.
We believe we have already seen the beginnings of a global recession, with
problems throughout Asia, Russia, and Latin America. We have already seen some
stabilization in Asia and may see improvements in Latin America over time. We
believe that as signs of economic strength return, more investors will begin to
focus on stocks which represent value over time. Since value stocks have
traditionally outperformed growth stocks over full market cycles, we see no
reason to vary our approach or change our disciplines. Whatever changes the
markets may bring, the Portfolio will continue to seek to realize maximum
long-term total return from a combination of capital growth and income.
Denis Laplaige
Jeffrey A. Simon
Portfolio Managers
MacKay-Shields Financial Corporation
$10,000 INVESTED IN THE
MAINSTAY VP VALUE PORTFOLIO ON
5/1/95 VS S&P 500 AND
THE CONSUMER PRICE INDEX(3)
[Line Chart]
<TABLE>
<CAPTION>
VALUE PORTFOLIO S&P 500 CONSUMER PRICE INDEX
--------------- ------- --------------------
<S> <C> <C> <C>
5/1/95 10000.00 10000.00 10000.00
1995 11676.00 12179.00 12102.00
1996 14387.20 14972.90 10436.40
1997 17680.00 19968.00 10614.00
1998 16948.00 25675.00 10785.00
</TABLE>
<TABLE>
<S> <C>
One Year: -4.14%
Since Inception:
(5/1/95) 15.44%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect
any deduction of sales charges.
(2) Standard and Poor's 500 Composite Stock Price Index(R) and "S&P 500(R)" are
registered trademarks of The McGraw-Hill Companies, Inc. The product is not
sponsored, endorsed, sold or promoted by Standard & Poor's Corporation. The
S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gain distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
40
<PAGE> 41
MAINSTAY VP BOND PORTFOLIO
1998 MARKET RECAP
- - Global events dominated the fixed income markets in 1998. Fixed income
securities with the slightest hint of credit risk experienced spread pressure,
and liquidity became the principal concern of investors.
- - The Federal Reserve Bank eased monetary policy three times during the course
of the year. The Fed took these actions in an effort to provide liquidity to
the market and allay fears regarding a global financial crisis.
- - The market experienced a significant rally for the year. The five-year U.S.
Treasury note declined 116 basis points.
1998 PORTFOLIO RECAP
- - For the year-ended 12/31/98, the Portfolio had a return of 9.12%,
outperforming the average portfolio in its Lipper(1) peer group (Corporate
Debt A Rated), which returned 8.07%.
- - The Portfolio ranked seventh out of 30 funds (top 23.3%) in its Lipper
variable product universe.
- - Market risk was limited by maintaining a relatively neutral duration posture
throughout the year.
- - An average investment portfolio quality of at least AA- was maintained
throughout the year, limiting credit risk.
MANAGEMENT DISCUSSION AND ANALYSIS
Early in 1998, the bond market exhibited surprising stability. This stability
was the result of two opposing forces, severely weakened foreign economies
countered by a domestic economy which continued to exhibit strength. As the year
progressed, a series of global events led to a significant flight to quality
trade. This created a tremendous demand for liquid, high quality securities.
Concerns about defaults in Russia, its contagion effect on other emerging
markets, the continued banking crisis in Japan along with hedge fund
liquidations put enormous downward pressure on risk assets. In late September,
the Federal Reserve Bank initiated a series of interest rate cuts in an effort
to provide calm to the markets. The Federal Reserve actions proved effective, as
risk asset classes regained stability in the fourth quarter.
TO WHAT DO YOU ATTRIBUTE THE PORTFOLIO'S POSITIVE PERFORMANCE?
The conservative nature of the Portfolio aided it greatly in 1998. The
Portfolio's high overall credit quality insulated it from the extreme spread
pressure experienced by portfolios with a higher concentration of risk assets.
The Portfolio had minimal exposure to sectors most adversely affected by the
global financial crisis such as high yield and emerging markets.
WHAT WAS YOUR PRIMARY STRATEGY DURING 1998?
The Portfolio shifted assets from the corporate and mortgage sectors to the U.S.
Treasury sector. We took these actions to take advantage of the flight to
quality trade and to reduce the Portfolio's credit and call risk. The
Portfolio's investments credit quality improved from AA- to AA+ during the
course of the year.
WHERE DO YOU PERCEIVE RISK IN THE PORTFOLIO?
If risk asset classes such as emerging market debt and high yield rebound in
1999, our underweighting in these sectors could hamper our performance relative
to our peer group. The Portfolio's investments overall credit quality and
structure continues to be consistent with our long-term conservative approach to
managing the Portfolio. However, if we see value in riskier asset classes during
the course of the year, we will make Portfolio adjustments to take advantage of
these opportunities.
WHAT IS YOUR OUTLOOK FOR THE FIXED INCOME MARKET IN 1999?
The Federal Reserve's interest rate cuts in 1998 have lowered, but not
eliminated, the risk of a pending recession. The robust stock market along with
recent economic strength should keep the Federal Reserve on hold in the early
part of the year. With spreads at historically wide levels, we see an
opportunity in the corporate bond market.
Trepidation about global economies such as Brazil, along with the Y2K issue and
a potential stock market correction, could put the Federal Reserve back in the
easing mode later this year.
Albert R. Corapi, Jr.
Celia M. Holtzberg
Joseph DePasquale
Portfolio Managers
New York Life Insurance Company
41
<PAGE> 42
$10,000 INVESTED IN THE
MAINSTAY VP BOND PORTFOLIO ON 1/23/84 VS
MERRILL LYNCH CORPORATE AND GOVERNMENT
MASTER INDEX(2) AND THE CONSUMER PRICE INDEX(3)
[Line Chart]
<TABLE>
<CAPTION>
MERRILL LYNCH CORPORATE
AND GOVERNMENT MASTER
INDEX BOND PORTFOLIO CONSUMER PRICE INDEX
----------------------- -------------- --------------------
<S> <C> <C> <C>
1/23/84 10000.0 10000.0 10000.0
1984 11028.0 11422.0 10365.0
1985 13370.4 13583.0 10758.9
1986 15532.3 15706.1 10877.2
1987 17637.0 16035.9 11359.1
1988 17390.0 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 29380.0 29642.7 14351.9
1994 28384.0 28673.4 14735.1
1995 33581.1 34138.5 15065.2
1996 34269.5 35132.0 15563.8
1997 37576.5 38567.9 15828.4
1998 42243.0 41004.0 16083.0
</TABLE>
<TABLE>
<S> <C>
One Year: 9.12%
Five Years: 6.89%
Ten Years: 8.96%
Since Inception:
(1/23/84) 10.02%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) The Merrill Lynch Corporate and Government Master Index is an unmanaged
index consisting of issues of the U.S. Government and agencies as well as
investment-grade corporate securities. Results assume the reinvestment of
all income and capital gains distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
42
<PAGE> 43
MAINSTAY VP GROWTH EQUITY PORTFOLIO
1998 MARKET RECAP
- - International economic weakness caused U.S. corporate profit growth to
decelerate.
- - Global recession fears prompted three interest rate cuts by the Federal
Reserve.
- - The market saw strong inflows into mutual funds and increased demand for U.S.
equities by foreigners.
- - Record levels of merger and acquisition activity helped boost equity
valuations.
1998 PORTFOLIO RECAP
- - For the year ended 12/31/98, the MainStay VP Growth Equity Portfolio returned
26.59%.
- - The Portfolio outperformed the Lipper(1) Variable Products growth fund average
of 24.94%.
- - The Portfolio benefited from its holdings of technology stocks, which
generated extremely strong returns throughout the year.
- - The Portfolio's health care and consumer holdings also provided substantial
gains in 1998.
MANAGEMENT DISCUSSION AND ANALYSIS
The main issue facing investors in 1998 was the debate over the impact of
economic problems of emerging markets on the U.S. economy and financial markets.
The market's perception of emerging market problems grew from being a non-event
early in the year to a full-scale crisis by the end of the third quarter.
Fortunately, the Federal Reserve and foreign central banks were able to enact a
coordinated round of global interest rate cuts. The easing of money supply
provided liquidity for the financial markets and enabled investor confidence to
return.
The market was also impacted by several favorable liquidity factors in 1998.
Mainly, foreign investment into the U.S. equity market was at record levels as
international investors sought out the world's strongest economy in a time of
global economic uncertainty. In addition, over a billion dollars of merger and
acquisition activity helped enhance equity valuations while shrinking supply.
Finally, individual investor demand remained robust as the public continued to
invest through mutual funds.
Market performance was narrow once again in 1998 as larger capitalization issues
outperformed smaller capitalization issues by a wide margin. While the S&P 500
Index(2) was up 28.6% in 1998, the median stock in the index returned
approximately 7.0%. These figures point to the fact that investors wanted to
place their money in larger issues with consistent earnings growth.
CAN YOU DISCUSS THE MAINSTAY VP GROWTH EQUITY PORTFOLIO'S PERFORMANCE?
For the year-ended 12/31/98, the MainStay VP Growth Equity Portfolio had a total
return of 26.59%. Once again this placed us ahead of the Lipper Variable
Products growth fund average return of 24.94%. This marked the sixth time in the
last seven years that we have outperformed the Lipper Variable Products growth
fund average.
WERE THERE ANY MAJOR EVENTS IN 1998, WHICH CAUGHT YOU BY SURPRISE? HOW DID YOU
REACT?
A major surprise of 1998 was not that the Federal Reserve began lowering
interest rates in October but the aggressiveness they displayed in doing so.
Earlier in the year, there were many conflicting signals on the direction of the
economy. The Federal Reserve chose to retain a neutral posture. However, as it
became clear that emerging market problems were starting to affect the U.S.
economy and financial markets, the Federal Reserve had no other option than to
lower interest rates. Another surprise was the speed in which the equity market
responded to the Federal Reserve's easings. The old saying "Never fight the Fed"
really held in the fourth quarter of 1998.
We responded to the Federal Reserve's action by quickly moving more cash into
the market, although the Portfolio kept a higher position in cash than normal
given our concerns about the tenacity of the market rally. We decided to
increase the Portfolio's technology holdings as they appeared to have the best
relative growth prospects in the market while also focusing on certain companies
such as United States Filter which saw its stock price inordinately hurt by the
third quarter's correction.
WHAT WERE THE PORTFOLIO'S BEST OVERALL PERFORMERS IN 1998?
The Portfolio's best overall performers were mainly technology issues. This
comes as no surprise as this sector was the equity market's performance leader
by a wide margin. In particular, Internet related stocks were the best
performers. America Online was by far the Portfolio's best performing stock of
the year with an astonishing return of 586%. The stock appreciated as many
investors began to believe in the viability of the Internet. Despite the fact
that America Online is one of the few Internet companies with operating profits,
we are
43
<PAGE> 44
somewhat concerned with the valuation of the stock and the Portfolio has taken
some gains as its stock price has moved up. The stock of EMC was another strong
performer with a return of 209% for the year.
Cisco Systems stock continued to display strong gains in 1998 with a return of
149%. The company continues to be a preeminent provider of networking and
communications equipment.
WHAT WERE THE PORTFOLIO'S WORST OVERALL PERFORMERS IN 1998?
The Portfolio's worst performing stocks were its holdings of Halliburton and
Schlumberger which were both down approximately 41% for the year. Both companies
are involved in the oil drilling and equipment industry, which has fallen on
tough times of late with the severe downturn seen in energy prices.
Unfortunately, we underestimated the effect that falling energy prices would
have on these stocks. Currently, we view each of these stocks as value holdings
while we await a turnaround in the energy sector. Another stock that negatively
impacted the Portfolio was Equifax, which decreased 11%. The company, a provider
of credit information, pre-announced an earnings disappointment in late
December, which caused a steep decline in the price of the stock. The adverse
reaction was a result of operating problems in the company's European operations
which interrupted the company's record of consistent earnings growth.
CAN YOU GO OVER SOME OF THE BEST DECISIONS YOU MADE?
The best decision we made was to keep the Portfolio with a growth stock
orientation, which proved most beneficial as growth stocks continued to
outperform value stocks by a wide margin. We also let the Portfolio's cash
position build up during the summer correction, which helped offset some
potential losses. In particular, we were timely in lowering the Portfolio's
exposure to the financial sector at that time. Another decision which proved
beneficial was increasing the Portfolio's technology exposure in late November.
This was a timely call as this sector surged in the month of December. The
Portfolio's three new holdings that month, Sun Microsytems, Texas Instruments
and Hewlett-Packard were positive contributors to year-end results.
WHAT WERE SOME OF THE WORST DECISIONS YOU MADE?
Probably one of the worst decisions was not having a higher weighting in
technology holdings. While the Portfolio was moderately overweighted in
technology throughout the year, it would have benefited to a greater extent with
a higher weighting. In addition, the Portfolio's investment position in the
energy sector, while underweighted, was too high. In particular, the Portfolio's
oil service positions were especially weak performers. While the Portfolio's
holdings in this sector did not perform up to our expectations, the relative
performance was exacerbated by the extremely strong performance of the equity
market in the fourth quarter.
WERE YOU SIGNIFICANTLY OVERWEIGHTED OR UNDERWEIGHTED IN ANY SECTORS?
The Portfolio does not significantly overweight or underweight any major market
sectors as we manage the Portfolio as a relatively sector balanced portfolio. We
keep the Portfolio's sector weightings between 0.5 times and 1.5 times the
appropriate S&P 500 sector weighting. The Portfolio's sector weightings have
been an important component in its excellent performance. These weightings are
determined from our global outlook on the macroeconomic environment.
WHAT IS YOUR STRATEGIC OUTLOOK GOING FORWARD?
We remain somewhat optimistic on the equity market, but with some reservations.
Our optimism is based primarily on our positive outlook for low inflation and
interest rates. However, corporate earnings growth should be restrained in the
5-7% range. In such an environment, we expect traditional growth stocks to
continue to lead the market.
Our positive stance on the market could be seriously tested by the potential
problems resulting from the Y2K or millenium bug, which could seriously impact
our economy if remediations are not completed by year-end. We will closely
monitor the progress of the government and business community in regard to their
Y2K compliance.
James Agostisi
Patricia Rossi
Portfolio Managers
New York Life Insurance Company
44
<PAGE> 45
$10,000 INVESTED IN THE
MAINSTAY VP GROWTH EQUITY PORTFOLIO
ON 1/23/84 VS S&P 500 AND
THE CONSUMER PRICE INDEX(3)
[LINE CHART]
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO S&P 500 CONSUMER PRICE INDEX
----------------------- ------- --------------------
<S> <C> <C> <C>
1/23/84 10000.00 10000.00 10000.00
1984 9824.00 10755.00 10365.00
1985 12162.10 14199.80 10758.90
1986 12648.60 16833.90 10877.20
1987 13035.60 17712.60 11359.10
1988 14791.50 20691.90 11861.10
1989 18632.90 27216.00 12412.70
1990 17535.40 26350.60 13171.10
1991 23472.90 34405.90 13574.10
1992 26423.50 37051.80 13967.80
1993 30046.10 40753.20 14351.90
1994 30406.70 41278.90 14735.10
1995 39273.30 56791.50 15065.20
1996 48895.20 69829.60 15563.80
1997 61975.00 93111.00 15828.40
1998 78454.00 119723.00 16083.00
</TABLE>
<TABLE>
<S> <C>
One Year: 26.59%
Five Years: 21.16%
Ten Years: 18.16%
Since Inception:
(1/23/84) 14.78%
</TABLE>
(1) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(2) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not reflective of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
45
<PAGE> 46
MAINSTAY VP INDEXED EQUITY PORTFOLIO
1998 MARKET RECAP
- - The U.S. economy continued to expand in a favorable environment of generally
solid corporate earnings growth, low interest rates, and extraordinarily tame
inflation.
- - In the third quarter, however, the Russian economic collapse, a weakening
economic outlook in Latin America and ongoing economic woes in Asia combined
with lower corporate profits and expectations of slower growth in the U.S.,
caused equity markets to tumble.
- - Fears of global recession and financial market instability prompted the
Federal Reserve Board to move to lower interest rates 0.25% three separate
times beginning in late September, providing an enormous psychological boost
that set the stage for the equity markets' unexpectedly speedy rebound in the
fourth quarter.
1998 PORTFOLIO RECAP
- - For the one-year period ended 12/31/98, the MainStay VP Indexed Equity
Portfolio returned 28.49%.
- - The Portfolio closely tracked the S&P 500 Index's(1) return of 28.58% and
exceeded the 14.52% return of the Lipper(2) general equity average for the
one-year period ended 12/31/98.
- - Buoyed by positive investor sentiment toward their higher liquidity and
relative safe haven status, the large-capitalization stocks of which the
Portfolio is composed outperformed their mid- and small-capitalization
counterparts, the S&P 400 Mid Cap(3) and S&P 600 Small Cap(4) Indices by a
wide margin.
- - The Portfolio outperformed the average Lipper Variable Products S&P 500 Index
objective portfolio, which returned 28.25% for the one-year period ended
12/31/98.
MANAGEMENT DISCUSSION AND ANALYSIS
Overall in 1998, tame inflation and a corresponding drop in interest rates had
an impact on stock prices, with the S&P 500 Index gaining 28.58% for the
one-year period ended 12/31/98. Against a backdrop of above-average corporate
productivity, falling producer prices (i.e. the cost of raw materials), and
heavy consumer spending, the market for large-capitalization stocks managed to
post its fourth consecutive annual gain in excess of 20%. Giant mergers among
the telecommunications, financial services, and heavy industry sectors made
headlines throughout the year.
During the first six months of the year, the S&P 500 climbed even as volatility
increased, crossing the 1,000 mark for the first time in February 1998. As fears
of a tightening by the Federal Reserve Board mounted during the second quarter,
the markets began a roller-coaster ride of volatility that began in April and
continued through June. Lower corporate profits, expectations of slower U.S.
corporate growth, and the General Motors strike helped to push stocks to tumble
in a July sell-off. Bad news continued in August, as Russia devalued its
currency and defaulted on its domestic debt; weak commodity prices helped to
dampen the economic outlook for Latin America; and ongoing economic instability
in Asia generally impacted markets worldwide. Declining consumption in these
geographic regions and their ability to export to the U.S. less expensively, put
considerable downward pressure on corporate profitability. An impending credit
crunch, political infighting, and the collapse of a high profile hedge fund only
added to investor concerns. The result of all this -- the S&P 500's return in
August was one of the ten worst since the Index's inception on 12/31/25.
The S&P 500 Index scored tremendous gains early in September, which helped it to
quickly recover more than half of its August losses before faltering toward the
end of the month. Frustrated by a smaller-than-expected 0.25% interest rate cut
by the Federal Reserve Board at the end of September, the markets tumbled once
again, only to roar back as the Federal Reserve rapidly cut rates 0.25% twice
more in the fourth quarter. This demonstrated commitment to maintain global
financial stability -- along with a lack of panic amongst small market investors
after the summer plunge -- was all the markets needed to spark a powerful rally
that fueled the strongest fourth quarter returns in some twenty years for most
of the major U.S. large-cap equity indices. The quarter was led by the
technology sector in general and Internet-related stocks in particular.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY VP INDEXED EQUITY PORTFOLIO PERFORM IN
1998?
The MainStay VP Indexed Equity Portfolio returned 28.49% for the year-ended
12/31/98, outperforming the average Lipper Variable Products S&P 500 Index
objective portfolio which returned 28.25% for the same period.
46
<PAGE> 47
DID THE PORTFOLIO'S COMPOSITION CHANGE OVER THE YEAR?
Yes. The S&P 500 Index is not static. Mergers, acquisitions, spin-offs, and the
success and failure of some companies can impact which companies are included in
the Index -- and their relative weightings. During 1998, there was an abundance
of corporate giant mergers that changed the composition of the S&P 500 Index,
and thus the Portfolio. Specifically, at year-end, there were 48 changes to the
Index, over 75% of which were due to mergers and acquisitions.
WHICH WERE THE PORTFOLIO'S MOST SIGNIFICANT PURCHASES AND SALES DURING THE
ANNUAL PERIOD?
All purchases and sales were executed in an attempt to invest in stocks in the
same proportions as they are represented in the Index. Significant purchases
included securities of America Online, General Electric, Microsoft, Coca-Cola,
Exxon, Intel, AT&T, Merck, Pfizer and Safeway. Significant sales included
securities of Amoco, Chrysler, General Re, General Electric, MCI WorldCom,
Exxon, International Business Machines, Microsoft, and Intel.
WHICH OF THE PORTFOLIO'S INDIVIDUAL STOCKS SHOWED THE BEST PERFORMANCE DURING
1998?
America Online generated the single highest gain for the year, rising 586%.
Other strong performers included Dell Computer, up 249%; Apple Computer, up
212%; EMC, up 210%; Lucent Technologies, up 175%; Ascend Communications, up
168%; Providian Financial, up 149%; Unisys, up 148%; and Compuware, which rose
144%.
WHICH INDIVIDUAL STOCKS RECORDED THE WORST PERFORMANCE DURING 1998?
Harnischfeger Industries was the worst-performing stock in the S&P 500, with a
decline of 71%. IKON Office Solutions fell 70%; Rowan fell 68%; Case was down
64%; and Union Pacific Resources Group declined 63% for the year.
WHAT IS YOUR OUTLOOK FOR THE FUTURE?
Stocks are inherently risky investments. While they historically have provided
investors with attractive returns and outperformed all other major asset classes
over the long term, investors must be aware that over shorter periods of time,
their prices may fluctuate in value, often dramatically.
The objective of the MainStay VP Indexed Equity Portfolio is to provide
investment results that correspond to the total return performance of its
benchmark index, the S&P 500 (reflecting reinvestment of dividends). As a
result, we do not respond to nor evaluate changing market and economic
conditions. Nor do we manage according to a given outlook for the equity markets
or the economy in general.
However, it seems unlikely that stock market returns can continue at the levels
we have seen in recent years. As 1998 has once again proven, equity markets are
unpredictable, particularly in the short term, and no one can know with absolute
certainty whether the markets will rise or fall in 1999. That's why we feel it
is important for investors to keep focused on their long-term goals despite
short-term volatility.
James A. Mehling
Portfolio Manager
Monitor Capital Advisors, Inc.
47
<PAGE> 48
$10,000 INVESTED IN THE
MAINSTAY VP INDEXED EQUITY PORTFOLIO ON
1/29/93 VS S&P 500 AND
THE CONSUMER PRICE INDEX(5)
[LINE CHART]
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO S&P 500 CONSUMER PRICE
---------------------- ------- INDEX
--------------
<S> <C> <C> <C>
1/29/93 10000.00 10000.00 10000.00
1993 10853.00 11008.00 10275.00
1994 10935.50 11149.00 10549.30
1995 14969.60 15338.80 10785.60
1996 18325.80 18857.50 11142.60
1997 24344.00 25148.00 11332.00
1998 31280.00 32336.00 11515.00
</TABLE>
<TABLE>
<S> <C>
One Year: 28.49%
Since Inception:
(1/29/93) 21.23%
Five Years: 23.58%
</TABLE>
(1) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Monitor Capital Advisors, Inc. The product is not
sponsored, endorsed, sold or promoted by Standard & Poor's Corporation and
Standard & Poor's makes no representation regarding the advisability of
purchasing the product.
(2) The Lipper Variable Insurance Products Performance Analysis Service
(L-VIPPAS) ranks the portfolios that invest in the separate accounts of
insurance companies. Its rankings are based on total returns with capital
gains and dividends reinvested. Results do not reflect any deduction of
sales charges.
(3) S&P 400 Mid Cap Index is an unmanaged index consisting of 400 domestic
stocks chosen for market size, liquidity, and industry group representation.
It is a market-value weighted index that represents approximately 10% of the
aggregate market value of U.S. domestic companies.
(4) S&P 600 Small Cap Index is an unmanaged capitalization-weighted index that
measures the performance of selected stocks with small market
capitalization.
(5) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges. Please refer to the Performance
Summary for returns reflective of these charges.
Unlike other portfolios that generally seek to beat market averages, often with
unpredictable results, index portfolios seek to match the return of their
respective indexes.
48
<PAGE> 49
AMERICAN CENTURY INCOME & GROWTH PORTFOLIO(1)
DURING THE PERIOD YOU MANAGED THE PORTFOLIO, WHAT WERE THE MOST SIGNIFICANT
FACTORS THAT INFLUENCED THE SPECIFIC MARKET IN WHICH YOUR PORTFOLIO OPERATED?
In a year dominated by narrow market leadership and dramatic volatility, U.S.
stock performance was widely divergent but generally positive in 1998. After
steamrolling to all-time highs in the first half of the year, the stock market
entered one of its most volatile periods since the end of World War II. A series
of financial crises in Asia, Russia and Latin America wreaked havoc on market
psychology, and wide day-to-day swings became common.
Between mid-July and the end of August, the S&P 500(2) fell almost 20%.
The market's decline and subsequent rebound provided a tangible lesson about
long-term investing and staying the course. Those who panicked and sold their
stock holdings in August or September missed the opportunity to recoup their
losses, while patient investors were rewarded by year-end.
SIZE MATTERED
On the face of it, the solid returns of many stock indices suggest that it was
another great year for equities. However, index performance was deceptive -- the
robust returns of a handful of large, blue-chip companies masked price declines
in the rest of the market. The vast majority of the 9,000 stocks traded in the
U.S. began to decline earlier -- and fell further -- than the major market
indices.
For example, the 25 largest stocks in the S&P 500 returned 66%; the remaining
475 returned just 5%.
Small-company stocks repeatedly lagged the shares of larger companies, peaking
earlier in the year and suffering more during the market decline in the third
quarter of 1998. Despite better values and faster earnings growth than most
large-company stocks, small-company stocks were ignored as investors favored the
shares of large, seasoned, well-known companies that they could buy or sell at a
moment's notice.
One notable exception to this general trend was the speculative focus on
Internet stocks. Huge demand for "Net-related businesses" -- many of which have
yet to turn a profit -- pushed their stock prices to dizzying heights.
CHASING GROWTH
Another major market trend was the significant outperformance of growth stocks
over value stocks. Growth stocks are those whose earnings are growing at a
faster rate than the overall market. They tend to have high price/earnings (P/E)
ratios because investors are willing to pay high prices for their earnings
growth. In contrast, value stocks are those considered to be relatively
inexpensive, so they tend to have low P/E ratios.
The economic crises in various parts of the world caused concerns about weaker
profits for U.S. corporations. As a result, there was heavy demand for big-name
stocks with relatively stable earnings growth, while investors punished stocks
that failed to meet earnings expectations.
INDUSTRY WINNERS AND LOSERS
U.S. stock returns varied widely by industry. Telecommunications stocks were
among the big winners, posting huge returns for the year. Substantial merger
activity -- especially among long-distance carriers and regional Bell operating
companies -- helped boost stock prices, and more open competition in local and
long-distance markets enabled many firms to expand their domestic services.
Retail firms were very successful in 1998. Strong consumer spending throughout
the year led to increased profits for many retailers, such as Wal-Mart Stores
and Home Depot. In addition, products made in Asia cost less because of the
currency weakness in the region.
While some technology companies were hurt by weak demand in Asia, a number of
large technology stocks like Microsoft and Dell Computer more than made up for
Asian losses with strong demand in the U.S. and Europe.
On the downside, many financial services stocks suffered sizable overseas losses
when the problems in Russia and Latin America were most severe. As a result,
these stocks were among the primary casualties when the market went into a
tailspin in August, though many recovered in the fourth quarter.
Energy stocks and others that depend on natural resources also struggled.
Commodity prices declined dramatically in 1998, and that hurt profit margins for
many of these companies.
49
<PAGE> 50
HOW WAS THE PORTFOLIO AFFECTED BY THE SIGNIFICANT FACTORS JUST MENTIONED? WHAT
ACTIONS DID YOU TAKE AND WHAT WAS THE FINAL RESULT?
By and large, it was a pretty good year for the Portfolio. The Portfolio
benefited from large-cap stocks in the pharmaceutical, telecommunications and
computer software industries. An underweighted position in energy stocks was
another positive factor. Falling oil and commodities prices hurt this sector of
the market, so the underweighted helped limit the negative impact on Portfolio
performance.
The Portfolio held the stocks of companies that were, on average, smaller than
those in the S&P 500. This was a negative factor since larger-company stocks
outperformed smaller stocks. In addition, the Portfolio has more of a value
component than the index does, and in 1998, growth stocks beat value stocks by a
wide margin. The most significant negative impact on performance, however, came
from the Portfolio's overweighting in financial services stocks, which suffered
substantial losses in the third quarter.
Despite staggering price declines in the financial services sector during the
third quarter, the Portfolio did not give up on them. Management felt that the
financial stocks in the Portfolio were good, quality companies that were "guilty
by association" -- investors were punishing the whole sector without even
looking at the individual companies. Management thought that the market
overreacted dramatically and that many of these stocks took more of a beating
than they deserved, so the Portfolio held onto them.
The Portfolio did trim the position slightly late in the year, but remained
overweighted in financial stocks, especially banks like First Union and Chase
Manhattan. Investor confidence in the banking sector revived in the fourth
quarter, and these stocks bounced back with strong returns.
WHAT WERE SOME OF THE SIGNIFICANT PURCHASES DURING THE REPORTING PERIOD? WHY DID
YOU MAKE THEM? HOW DID THEY AFFECT THE PORTFOLIO'S PERFORMANCE?
The Portfolio added to positions in Intel, Ford Motor, and AT&T during the
period. All three added positively to the Portfolio returns with AT&T and Intel
being two of the top four contributors to performance.
Ford Motor benefited from strong consumer spending throughout the period. AT&T
appreciated from the relatively strong telecommunications market, steady
earnings, and expanding services. Intel, a huge semiconductor company, produced
revenues and earnings that continued to outpace analyst's expectations.
DURING THE PERIOD WHICH YOU MANAGED THE PORTFOLIO, WHICH SECURITIES CONTRIBUTED
MOST POSITIVELY TO THE PORTFOLIO'S PERFORMANCE? WHY DID THEY DO SO WELL?
One beneficial position was an overweighting in the stocks of big technology
companies. Microsoft, a core holding since inception, produced great returns.
Modest holdings in high-flying Internet firms such as America Online and Yahoo!
also boosted the Portfolio's performance. Technology stocks were among the
market leaders for the period.
Another overweighted sector that enhanced the Portfolio's returns was
telecommunications. Long-distance and local-service phone companies -- such as
holdings AT&T and BellSouth -- produced steady earnings and benefited from
services expansion and heavy merger activity. The mania for Internet stocks also
lifted share prices because of the wireless and Internet franchises held by many
telecommunications companies.
The Portfolio maintained a large position in pharmaceutical stocks, with a
slight overweighting at year-end, because it is the largest industry in the S&P
500, the Portfolio's benchmark. Holdings in large companies like Schering-Plough
and Merck are useful as "risk reducers" -- their steady revenues and earnings
growth typically give them less price volatility than the overall market. The
larger drug companies also have relatively high dividend yields, which benefit
the Portfolio's income component.
DURING THE PERIOD WHICH YOU MANAGED THE PORTFOLIO, WHICH SECURITIES IN THE
PORTFOLIO WERE THE WORST PERFORMERS? WHAT WAS THEIR RETURN? WHAT WERE THE
REASONS FOR THEIR UNDERPERFORMANCE? DO WE STILL OWN THESE SECURITIES? WHY?
Morgan Stanley Dean Witter, Bankers Trust, and Citigroup, all financial services
companies, were down for the period and affected performance negatively. In the
third quarter, the collapse of Russia's currency and financial markets resulted
in losses at many investment firms, and a general slowdown in economic growth
worldwide led to concerns about the U.S. economy's strength. Losses at several
high-profile hedge funds -- private, often-speculative funds for large
investors -- added to the damage because many financial companies did business
with them. In the end, the entire financial sector suffered, with many stocks
falling 40% or more in the third quarter. As mentioned previously, management
thought that the market overreacted dramatically and that many of these stocks
took more of a beating than they deserved. As of 12/31/98, the Portfolio still
held small positions in Morgan Stanley Dean Witter and Citigroup.
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<PAGE> 51
WHAT WERE THE PORTFOLIO'S SIGNIFICANT SECTOR OVERWEIGHTS AND UNDERWEIGHTS DURING
THE PERIOD? WHY? HOW DID THIS AFFECT PERFORMANCE? HOW IS THE PORTFOLIO CURRENTLY
POSITIONED?
Relative to the S&P 500, the Portfolio's benchmark, the Portfolio was
overweighted in the following industries: computer software, computer hardware,
telecommunications, and financial services. With the exception of the last
group, all these groups contributed to positive performance during the period.
An underweighted position in energy stocks was another positive factor. Falling
oil and commodities prices hurt this sector of the market, so the underweighting
helped limit the negative impact on the Portfolio's performance.
The Portfolio remains fully invested in a diversified portfolio of U.S. stocks.
The Portfolio still favors telecommunications and technology stocks, and they
remain among the biggest portfolio holdings. Although financial services stocks
are vulnerable to further trouble overseas, the Portfolio is maintaining
positions in banking and brokerage stocks they feel are strong, growing
companies.
The Portfolio is underweighted in large-cap growth stocks, maintaining a bias
toward value stocks and smaller-company stocks compared with the Portfolio's
benchmark. This should enhance Portfolio performance if the economy strengthens.
John Schneidwind
Kurt Borgwardt
Portfolio Managers
American Century Investment Management Inc.
$10,000 INVESTED IN THE
AMERICAN CENTURY INCOME & GROWTH PORTFOLIO ON
5/1/98 VS S&P 500, AND
THE CONSUMER PRICE INDEX(3)
[Line Chart]
<TABLE>
<CAPTION>
AMERICAN CENTURY S&P 500 CONSUMER PRICE
INCOME & GROWTH ------- INDEX
--------------- --------------
<S> <C> <C> <C>
5/1/98 10,000 10,000 10,000
12/31/98 11,171 10,960 10,084
</TABLE>
<TABLE>
<CAPTION>
Since Inception:
<S> <C>
(5/1/98) 9.60%
</TABLE>
(1) American Century Income & Growth Portfolio is a Portfolio of the MainStay VP
Series Fund, Inc. American Century Investment Management Inc. serves as
sub-advisor to this Portfolio.
(2) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not 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.
51
<PAGE> 52
DREYFUS LARGE COMPANY VALUE PORTFOLIO(1)
DURING THE PERIOD WHICH YOU MANAGED THE PORTFOLIO, WHAT WERE THE MOST
SIGNIFICANT FACTORS THAT INFLUENCED THE SPECIFIC MARKET IN WHICH YOUR PORTFOLIO
OPERATED?
The Dreyfus Large Company Value Portfolio commenced operations on May 1, 1998.
During this abbreviated 8-month period ended December 31, 1998, the U.S. stock
market moved through a series of contrasting phases. There was strength during
most of the early part of the period, as stocks continued to recover from the
Asian-induced sell-off that occurred during the fourth quarter of 1997. By
mid-July, as large company security valuations either neared or exceeded
all-time highs, there was a sharp U.S. stock market decline sparked by the
implosion of the Russian financial markets. The U.S. stock market declined again
in late September due in part to the collapse of a major U.S. hedge fund.
Finally, there was a strong market rally from mid-October until the end of the
year in response to the Federal Reserve Board's lowering of short-term interest
rates.
Large company value stocks underperformed large company growth stocks during
1998. The difference was the greatest since separate value and growth indices
were first officially calculated in 1977.(2) Looking back even further in
history to unofficial value and growth breakdowns since the 1920's, there
appears to never have been such a wide advantage by growth over value.
HOW WAS THE PORTFOLIO AFFECTED BY THE SIGNIFICANT FACTORS JUST MENTIONED? WHAT
ACTIONS DID YOU TAKE AND WHAT WAS THE FINAL RESULT?
After commencing operations, the Portfolio was fully invested in fairly short
order so that it could participate fully in the positive market environment.
During the mid- and late-summer stock market corrections, the Portfolio was
quickly and aggressively repositioned out of industries that were fundamentally
impacted by the events (money center banks, for example), and into industries
which were not fundamentally impacted (regional banks and insurance companies,
for example). As valuations bottomed, and as it became clear that the
fundamental impact from the summer's events was minimal, we rebalanced industry
exposure (repositioning into money center banks, for example).
The Portfolio returned 2.83% for the 8-month annual period compared to 0.75% for
the Wilshire Large Company Value Index(3), a favorable comparison. Given that
there are a number of securities of size in the large company value index that
currently exceed our valuation disciplines, this performance should be
considered impressive. It was achieved with reasonably valued securities in a
low risk style of investing.
WHAT WERE SOME OF THE MOST SIGNIFICANT PURCHASES DURING THE REPORTING PERIOD?
WHY DID YOU MAKE THEM (CATALYSTS, ETC.)? HOW DID THEY AFFECT THE PORTFOLIO'S
PERFORMANCE?
International Business Machines (IBM) has made a remarkable comeback, both in
its operations and in its stock price, since mid-1993 when the stock hit a split
adjusted low of nearly $20 per share. When it was purchased for the Portfolio,
IBM's earnings yield (forecast earnings divided by current stock price) was
greater than the yield on the 5-Year U.S. Treasury Bond, qualifying it as a
value stock. The company also spends more money on research and development than
any other technology company, which should bode well for its future. One of the
better performers for the year, it remained a holding at year-end.
Aluminum Co. of America, an underperforming security on a relative basis for the
year, was purchased during September. Not only did its forecast earnings
relative to its current price qualify it as a value stock, the security also
scored well on our multi-factor computer model that analyzes 21 different
fundamental factors. As one of the few basic materials sector holdings in the
Portfolio, this aluminum producer was initially buffeted by changes in
investors' economic outlooks. In late 1998, the stock began to perform well,
however, and the company announced strong earnings early in January 1999 which
significantly improved the share price.
WHAT WERE SOME OF THE MOST SIGNIFICANT SALES DURING THE REPORTING PERIOD? WHY
DID YOU MAKE THEM? HOW DID THEY FALL OUT OF OUR STYLE? HOW DID THEY AFFECT THE
PORTFOLIO'S PERFORMANCE?
Several securities were sold by the Portfolio during the period when one of our
sell disciplines was triggered. Often these securities had been significant
winners for the Portfolio. Securities sold for valuation reasons included
Allergan, ConAgra, Tyco International and American Home Products. Securities
sold because of changes in company or industry fundamentals included IKON Office
Solutions, BankBoston, Georgia-Pacific, Cooper Cameron and Crown Cork & Seal.
Sales because of our stop loss rule included Meditrust, Bankers Trust, Tosco and
Sears, Roebuck. We believe that, in total, security sales benefited Portfolio
returns by reducing risk and by freeing up assets for new investments that
further improved returns.
52
<PAGE> 53
DURING THE REPORTING PERIOD, WHICH SECURITIES CONTRIBUTED MOST POSITIVELY TO THE
PORTFOLIO'S PERFORMANCE? WHAT WAS THEIR RETURN? WHY DID THEY DO SO WELL?
The five best performing securities in the Portfolio during this performance
period included Intel (total return approximately 66%), MCI WorldCom (55%), Bank
of New York (54%), International Business Machines (53%), and Shaw Industries
(45%). Intel and IBM benefited from a boom in technology stocks driven by a
recovery in semiconductor demand. MCI WorldCom has the dominant data network, in
particular for carrying Internet traffic, and the largest Internet service
provider business. Bank of New York led the resurgence of financial stocks
during the fall months given its lack of exposure to foreign economies. Shaw
Industries announced several restructuring moves, including the exiting of the
carpet retailing business.
DURING THE REPORTING PERIOD, WHICH SECURITIES IN THE PORTFOLIO WERE THE WORST
PERFORMERS? WHAT WAS THE RETURN? DO WE STILL OWN THE SECURITIES? WHY?
The five poorest performing securities in the Portfolio during this performance
period included Meditrust (total return approximately -40%), Bankers Trust
(-39%), Tosco (-21%), DuPont (E.I.) De Nemours (-20%), and Sears, Roebuck
(-16%). Only DuPont (E.I.) De Nemours remained in the Portfolio at the end of
the year in order to provide some exposure to basic materials and in
anticipation of restructuring moves at the company.
WHAT WERE THE BEST AND WORST DECISIONS YOU MADE FOR THE PORTFOLIO DURING THE
REPORTING PERIOD? WHY DID YOU MAKE THEM AND HOW DID THEY AFFECT THE PORTFOLIO?
The best decision for the Portfolio was to become fully invested in stocks as
quickly as possible given the strength of the stock market.
The worst decision was to increase the Portfolio's weight in financial stocks
during late July and early August. Financial securities were by far the best
performing securities among value stocks during the first two and one-half
months of the Portfolio's existence. We had been looking for market
opportunities to increase the Portfolio's weight in the sector. After the July
correction in financial stocks, we moved the Portfolio from about a 20% weight
in financials to about 35%, this economic sector's weight in the Wilshire Large
Company Value Index at the time. Unfortunately, the financial sector continued
to correct and Portfolio performance was impacted. When financials rallied back
during the fall months, however, the Portfolio continued to have this high level
of exposure in the sector and fully participated in the recovery.
WHAT WERE THE PORTFOLIO'S SIGNIFICANT SECTOR OVERWEIGHTS AND UNDERWEIGHTS DURING
THE PERIOD? WHY? HOW DID THIS AFFECT PERFORMANCE? HOW IS THE PORTFOLIO CURRENTLY
POSITIONED?
The Portfolio's current strategy is to be positioned within each economic sector
generally between the economic sector weights of the Standard & Poor's 500
Index(4) and the Wilshire Large Company Value Index. For example, financial
stocks are currently about 16% and 32% of each of these indices, respectively.
The Portfolio will, therefore, generally have between 16% and 32% of its total
assets in financial stocks. We believe that, over time, being positioned within
each economic sector between these two benchmarks better provides the Portfolio
with the opportunity to outperform both indices over the long term.
In general, throughout the period, the Portfolio was slightly overweighted in
healthcare, technology and consumer staples relative to the Wilshire Large
Company Value Index. Underweighted positions were held in the utility sector.
WHAT IS YOUR OUTLOOK GOING FORWARD? WHAT SECURITIES/SECTORS ARE YOU FOCUSING ON?
Historically high levels of valuation keep us cautious towards the Standard &
Poor's 500 Index and its major growth stock component members. We remain
optimistic, however, on financial assets in general, and especially toward value
stocks. Eventually, investors will focus again on valuation when making
investment decisions, and
53
<PAGE> 54
we would expect the Portfolio to benefit. Value investing would certainly appear
to be today's prudent equity investment choice. We continue to find value in all
sectors of the stock market.
Timothy M. Ghriskey
Portfolio Manager
The Dreyfus Corporation
$10,000 INVESTED IN THE
DREYFUS LARGE COMPANY VALUE PORTFOLIO
ON 5/1/98 VS WILSHIRE LARGE
COMPANY VALUE INDEX AND THE
CONSUMER PRICE INDEX(5)
[Line Chart]
<TABLE>
<CAPTION>
DREYFUS LARGE COMPANY THE WILSHIRE LARGE
VALUE PORTFOLIO COMPANY VALUE INDEX CONSUMER PRICE INDEX
--------------------- ------------------- --------------------
<S> <C> <C> <C>
5/1/98 10000.00 10000.00 10000.00
12/31/98 10283.00 10075.00 10084.00
</TABLE>
<TABLE>
<S> <C>
Since Inception:
(5/1/98) 2.83%
</TABLE>
(1) Dreyfus Large Company Value Portfolio is a Portfolio of the MainStay VP
Series Fund, Inc. The Dreyfus Corporation serves as sub-advisor to this
Portfolio.
(2) Source: S&P Barra Index.
(3) Source: Wilshire Associates: The Wilshire Large Company Value Index is
constructed using a blend of price-to-book and forecast price-to-earnings
ratios. The largest 750 stocks in the Wilshire 5000 are ranked based on a
style score that is 75% price-to-book and 25% forecast price-to-earnings
ratio. The universe is divided so that companies that represent half of the
total capitalization fall into growth and the remainder are placed into
value.
(4) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(5) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges.
54
<PAGE> 55
EAGLE ASSET MANAGEMENT GROWTH EQUITY PORTFOLIO(1)
DURING THE CURRENT REPORTING PERIOD, WHAT WERE THE MOST SIGNIFICANT FACTORS THAT
INFLUENCED THE SPECIFIC MARKET IN WHICH YOUR PORTFOLIO OPERATED?
The global financial turmoil stemming from currency devaluation in Asia and
Russia hit the U.S. equity markets particularly hard during the third quarter of
1998. As a result of such market turmoil, many U.S. and foreign investors sought
refuge in U.S. dollars, U.S. Treasuries and, to the extent they were brave
enough to stay invested in the equity markets, only the largest, most liquid
U.S. companies. Almost every other investment category suffered as a consequence
of the resulting flight to quality. The interest rate cuts by the Federal
Reserve in September and October added liquidity to the market and had the
desired effect of reducing the impact of the trouble overseas on the U.S.
economy.
HOW WAS THE PORTFOLIO AFFECTED BY THE SIGNIFICANT FACTORS JUST MENTIONED, WHAT
ACTIONS DID YOU TAKE AND WHAT WAS THE FINAL RESULT?
The Portfolio clearly benefited from the flight to quality trend both toward the
end of the third quarter and throughout the fourth quarter. Performance was
close to that of the S&P 500(2) during the third quarter (-12% vs. -10% for the
S&P 500) and was very strong during the fourth quarter (25% vs. 21% for the S&P
500). Once the equity market volatility subsided somewhat in the fourth quarter,
the overweighting of the Portfolio in the technology, healthcare and financial
services sectors and its underweighting in the energy and consumer cyclical
sectors also boosted relative performance.
WHAT WERE SOME OF THE MOST SIGNIFICANT PURCHASES DURING THE PERIOD YOU MANAGED
THE PORTFOLIO?
MCI WorldCom is a global telecommunications leader with established operations
in over 50 countries. We believe earnings are accelerating due to revenue and
cost synergy from the recent merger.
Paychex is a leading provider of paychecks, earnings statements and internal
accounting for small businesses. The company is a very consistent grower.
Paychex also has a high degree of visibility as contracts are signed annually.
We believe the future growth prospects are high, as the company has done a great
job of leveraging its core customers and products.
Cardinal Health is one of the top three U.S. wholesalers of pharmaceuticals,
surgical and hospital supplies and specialty pharmaceutical products. Aging
demographics, HMOs and new products have increased drug volumes, which directly
benefit wholesalers like this company. In our opinion, Cardinal Health has been
a very consistent grower with potential upside due to earnings revisions.
EMC is the pioneer in the world of enterprise storage. Enterprise storage gives
users the ability to centrally store data regardless of the operating platform.
We believe EMC has a tremendous opportunity to accelerate earnings over the next
two to three years.
WHAT WERE SOME OF THE MOST SIGNIFICANT SALES DURING THE PERIOD YOU MANAGED THE
PORTFOLIO? WHY DID YOU MAKE THEM? HOW DID THEY FALL OUT OF OUR STYLE? HOW DID
THEY AFFECT PORTFOLIO PERFORMANCE?
Gillette was sold during the third quarter because it lagged the U.S. stock
market by more than 15% for the three months prior to its sale. Once a stock
trails the market by 15% in any three month period, our sell discipline forces
us to reexamine the original stock purchase thesis and to closely evaluate the
future growth prospects for the company. This sell discipline stems from the
belief that if a company trails the market to such an extent, the market is
telling us that there is something happening with the company that needs to be
closely scrutinized. After conducting such a reevaluation we may ultimately
decide to hold onto a particular position, but this reevaluation discipline
ensures that we remain in any such position only after very careful
consideration. In the case of Gillette, the Portfolio's position was sold
following our reevaluation because Gillette's 1999 projected earnings were
reduced by Wall Street analysts and we did not see any near-term catalyst for
incremental growth due to Gillette's heavy dependence on unpredictable
international markets.(3)
Chase Manhattan Bank was sold due to its significant foreign exposure,
particularly in emerging markets. We viewed this exposure as a risk to current
and future earnings. In addition, we wanted to reduce the Portfolio's overall
exposure to the financial services sector as this area came under tremendous
pressure due to international market risk and a flat yield curve.
BankAmerica was also sold due to our concern about its international exposure
and the prospects of a slowing economy. There was also some concern over the
potential impact of the merger between NationsBank and Bank of America.
55
<PAGE> 56
Peoplesoft was sold as the third quarter proved a far tougher quarter than
feared given the following factors: macroeconomics, Y2K, competition, pricing
and market saturation. Total revenue of $351 million and EPS of $0.17 met our
expectations during the fourth quarter; however, the underlying growth of the
business was weakening.
DURING THE PERIOD YOU MANAGED THE PORTFOLIO, WHICH SECURITIES CONTRIBUTED MOST
POSITIVELY TO THE PORTFOLIO'S PERFORMANCE? WHAT WAS THEIR RETURN? WHY DID THEY
DO SO WELL?
The securities which made the most significant contribution to the Portfolio's
performance in the third quarter were Dell Computer (+42%), Schering-Plough
(+13%) and Warner-Lambert (+9%). The average holding in the
pharmaceutical/medical sector increased 4% for the third quarter versus a 10%
decline in the S&P 500. This sector outperformed because it is one of the few
areas that continued to experience robust growth even during the third quarter's
economic uncertainty. The pharmaceutical sector tends to be somewhat defensive
as people need their medications, pain relievers, etc. even in a declining
economy.
Lucent Technologies (+60%) was the best performing stock for the fourth quarter.
Retail stocks like Kohl's (+58%), Home Depot (+55%) and Wal-Mart Stores (+49%)
also performed extremely well during the quarter as investors anticipated strong
fourth quarter results from holiday sales.
DURING THE PERIOD YOU MANAGED THE PORTFOLIO, WHICH SECURITIES IN THE PORTFOLIO
WERE THE WORST PERFORMERS? WHAT WAS THEIR RETURN? WHAT WERE THE REASONS FOR
THEIR UNDERPERFORMANCE? DO WE STILL OWN THE SECURITIES? WHY?
The third quarter brought poor performance in the financial services sector,
down an average of 15%, and consumer products, down an average of 23%. The
financial services sector, which includes American Express (-32%) and Travelers
Group (-38%), declined due to concerns over an anticipated economic slowdown and
turmoil in foreign markets. The only financial stocks that performed well during
the third quarter were Fannie Mae and Freddie Mac, which may have benefited from
declining domestic interest rates which increase refinancings and create
attractive interest rate spreads to help them grow their loan portfolios.
During the fourth quarter, healthcare stocks like Cardinal Health (+11%),
Schering-Plough (+6%) and Warner-Lambert (0%) underperformed the 21% return for
the S&P 500 for the quarter. This is not surprising, however, given how well
this group performed during the difficult summer months.
We have kept most of the securities mentioned above, because we still believe
they can provide reliable long-term returns. Since we employ a "bottom-up" style
of investing, we focus on specific stocks rather than the economy or market
cycle. We consistently follow our disciplined strategy by owning the highest
quality growth stocks no matter which industries or sectors appear to be coming
into or out of favor.
WHAT WERE THE BEST AND WORST DECISIONS YOU MADE FOR THE PORTFOLIO DURING THE
PERIOD YOU MANAGED THE PORTFOLIO? WHY DID YOU MAKE THEM AND HOW DID THEY AFFECT
THE PORTFOLIO?
The best decision made during the period was our decision to adhere to our
discipline despite the tremendous volatility in the global financial markets and
the temptation to seek refuge in cash and its equivalents. By remaining focused
on large, blue chip companies with consistent earnings, the Portfolio was able
to weather the volatile third quarter in good shape and was well-positioned for
the fourth quarter rebound. The worst decision made during the period may have
been an overreaction to the perceived impact of the international economic
turmoil on the financial services sector. By reducing the Portfolio's exposure
to the financial services sector in the third quarter, the Portfolio lost some
of the benefit of the significant rebound in this sector during the fourth
quarter.
WHAT WERE THE PORTFOLIO'S SIGNIFICANT SECTOR OVERWEIGHTS AND UNDERWEIGHTS DURING
THE PERIOD? WHY? HOW DID THIS AFFECT PERFORMANCE? HOW IS THE PORTFOLIO CURRENTLY
POSITIONED?
During both the third and fourth quarters, the communication, capital goods and
consumer sectors were underweighted versus the S&P 500, while the Portfolio was
overweighted in the technology, pharmaceutical/health care and financial service
sectors. There was, however, a shift in the Portfolio during the third quarter,
as we reduced our exposure in the financial services sector. This decision was
made due to deteriorating fundamentals caused from global turmoil and an
anticipated U.S. economic slowdown. There were no significant changes in the
fourth quarter. Any changes in the Portfolio during the quarter were
fundamentally "swaps" within the same sector.
The Portfolio was overweighted in the technology sector because the U.S. has the
many of the advanced technology companies in the world. With the various
breakthroughs in computer software and hardware, the
56
<PAGE> 57
Internet and data storage, we believe this sector will continue to perform well
in the long-term as companies are required to invest in new technology in order
to remain competitive. The Portfolio was overweighted in the healthcare sector
to take advantage of the increasing hospitalization/pharmaceutical needs of the
baby boomer generation which will be living longer than previous generations and
will, therefore, have ever-increasing hospitalization and pharmaceutical needs.
Despite reducing the Portfolio's exposure to the financial services sector
during the summer, we still remain somewhat overweighted in this area because
the U.S. has many of the best capitalized and best managed banks, investment
banks and insurance companies in the world. Given the increasing globalization
of the world's capital markets, we believe these companies will continue to
perform well in the long run.
The Portfolio's overweighted sectors, particularly its exposure to the
pharmaceutical/health care sector, helped its performance during the period as
it is one of the few areas that held up reasonably well even during the extreme
volatility. The Portfolio continues to be positioned in a very similar manner.
WHAT IS YOUR OUTLOOK GOING FORWARD? WHAT SECURITIES/SECTORS ARE YOU FOCUSING ON?
We have positioned the Portfolio to be more domestically focused and less
exposed to potential further financial turmoil overseas. The Portfolio's
investments are focused on companies that continue to exhibit a high degree of
visibility and certainty in their earnings, which most securities from the
technology, healthcare and financial services sectors have shown.
We remain confident that large company growth stocks will continue their market
leadership as investors' preference is to own companies with certainty of
earnings and relative earnings growth. In addition, a stable to declining
interest rate environment is very favorable for growth stocks. Although we are
optimistic about the relative performance of growth stocks, we are also
expecting market returns that are below the 20+% returns that we have
experienced the previous four years. Although we are confident in the projected
earnings growth of the companies in the Portfolio for 1999, it is difficult to
forecast a further expansion in P/E multiples from these historic valuations.
Kenneth W. Corba(4)
Portfolio Manager
Eagle Asset Management, Inc.
$10,000 INVESTED IN THE
EAGLE ASSET MANAGEMENT GROWTH EQUITY PORTFOLIO ON
5/1/98 VS S&P 500 AND
THE CONSUMER PRICE INDEX(5)
[Line Chart]
<TABLE>
<CAPTION>
EAGLE ASSET MANAGEMENT S&P 500 CONSUMER PRICE
GROWTH EQUITY PORTFOLIO ------- INDEX
----------------------- --------------
<S> <C> <C> <C>
5/1/98 10,000 10,000 10,000
12/31/98 11,785 11,171 10,084
</TABLE>
<TABLE>
<CAPTION>
Since Inception:
<S> <C>
(5/1/98) 17.85%
</TABLE>
(1) Eagle Asset Management Growth Equity Portfolio is a Portfolio of the
MainStay VP Series Fund, Inc. Eagle Asset Management, Inc. serves as
sub-advisor to this Portfolio.
(2) "Standard and Poor's 500 Composite Stock Price Index(R)" and "S&P 500(R)"
are registered trademarks of The McGraw-Hill Companies, Inc. The product is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
The S&P 500 is an unmanaged index considered generally representative of the
U.S. stock market. Results assume the reinvestment of all income and capital
gains distributions.
(3) Source: Donaldson, Lufkin & Jenrette -- August 18, 1998.
(4) Beginning January 1, 1999, Growth Equity portfolio manager Ken Corba is a
dual employee of Eagle Asset Management and PIMCO Equity Advisors. This
status will end March 31, 1999.
(5) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges, or administrative charges.
57
<PAGE> 58
LORD ABBETT DEVELOPING GROWTH PORTFOLIO(1)
Small-cap investors saw positive early returns erased by a sharp downturn in the
first half of the year. This downturn was caused in part by a "flight to
quality" stemming from international monetary and economic crises as well as
political problems that led investors to seek more liquid investments, such as
larger-company stocks and higher-quality bonds. While all major asset classes of
the U.S. equity market experienced weakness during the year's third quarter,
small-cap equities had the lowest returns.
The month of October, however, saw some price recovery for small-cap stocks
after August's severe declines. The October upswing turned out to be a harbinger
of extremely strong performance during the fourth quarter as economic and
political uncertainties that had previously affected investor confidence
subsided and a more optimistic outlook emerged. An important factor leading to
this turnaround was the Federal Reserve's decisive move to lower U.S. interest
rates through a series of autumn rate cuts.
Most sectors of the U.S. equity market participated in the fourth quarter rally.
However, as the market reached its previous highs, certain sectors, such as
technology and consumer non-cyclicals, that had provided price leadership
earlier in the year, once again moved ahead of the broad market. Large-cap
stocks continued to outperform mid- and small-cap investments. The Russell 2000
Growth Index(2) returned 23.64% during the fourth quarter and 1.23% for the
year.
Our focus on bottom-up stock selection allowed the Portfolio to overcome
industry-specific difficulties throughout most of the period under review. Our
strategy and philosophy remain constant. We concentrate on selecting those
companies that we believe will offer our investors superior long-term stock
price appreciation regardless of industry-specific problems or large-scale
economic trends.
In our view, the current backdrop of growth in the economy, low levels of
inflation and interest rates, paired with adequate liquidity supported by the
Federal Reserve's policy, should enable the U.S. equity market to show progress
in the next year. However, a slowing U.S. economy could spur small-cap price
volatility due to lower corporate earnings and employment growth. We believe our
focus on identifying financially strong companies that can be purchased at
attractive prices will enable the Portfolio to uncover investment opportunities
even during a slowing economy. Since small-cap stocks remain significantly
undervalued with respect to relative earnings versus large-caps, we also expect
that a period of strong performance by small-caps is likely during 1999.
Stephen McGruder
Senior Portfolio Manager
Lord, Abbett & Co.
$10,000 INVESTED IN THE
LORD ABBETT DEVELOPING GROWTH PORTFOLIO
ON 5/1/98 VS RUSSELL 2000
GROWTH INDEX AND THE
CONSUMER PRICE INDEX(3)
[Line Chart]
<TABLE>
<CAPTION>
LORD ABBETT DEVELOPING RUSSELL 2000 CONSUMER PRICE
GROWTH PORTFOLIO GROWTH INDEX INDEX
---------------------- ------------- --------------
<S> <C> <C> <C>
5/1/98 10,000 10,000 10,000
12/31/98 10,084 9,210 8,993
</TABLE>
<TABLE>
<CAPTION>
Since Inception:
<S> <C>
(5/1/98) -7.90%
</TABLE>
(1) Lord Abbett Developing Growth Portfolio is a Portfolio of the MainStay VP
Series Fund, Inc. Lord, Abbett & Co. serves as sub-advisor to this
Portfolio.
(2) The Russell 2000 Growth Index measures the performance of those companies in
the Russell 2000 with higher price-to-book ratios and higher forecasted
earnings growth values. The Index is unmanaged, does not reflect fees or
expenses, and is not available for direct investment.
(3) The Consumer Price Index (CPI) is a commonly used measure of the rate of
inflation.
Included is the reinvestment of all distributions at net asset value and the
change in share price for the stated period. Total returns for the Portfolio
shown indicate past performance and are not indicative of future results.
Investment return and principal value will fluctuate so that shares, upon
redemption, may be worth more or less than their original cost. These results do
not reflect any deduction of sales charges, mortality and expense charges,
contract charges or administrative charges.
58
<PAGE> 59
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.
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.
BULL MARKET/BEAR MARKET: A bull market occurs when security prices are rising;
a bear market occurs when security prices decline. A bullish attitude therefore
suggests a positive outlook, while a bearish attitude represents a negative view
of the market or the opportunities it may present.
CALL RISK: A bondholder's risk that the bond may be redeemed by the issuer
prior to maturity.
CAPITALIZATION: The amount of outstanding equity and debt a company has issued.
Companies may vary greatly in the amount of equity capital they have raised, and
their capitalization may change with new issues or stock repurchases.
CASH FLOW: The amount of income or earnings available to cover outstanding
liabilities and other obligations, including debt service.
COLLATERALIZED MORTGAGE OBLIGATION (CMO): Mortgage-backed bond that separates
mortgage pools into different maturity classes, called tranches. This is
accomplished by applying income from mortgages in the pool in the order that the
CMOs pay out. Tranches pay different rates of interest and typically mature in
2, 5, 10 or 20 years. CMOs are issued by the Federal Home Loan Mortgage
Corporation (Freddie Mac) and by private issuers. They are usually backed by
government-guaranteed or other top-grade mortgages and have AAA bond ratings.
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 is trading at $50, 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 RISK: The risk that the issuer of a security may go into bankruptcy or
default on payments, causing the investor to lose all or part of the investment.
CYCLICALS (CYCLICAL STOCK): A security or stock that tends to rise quickly with
economic upturns and fall quickly when the economy slows. Noncyclical
industries, such as food, insurance, and pharmaceuticals, are likely to have
more consistent performance regardless of economic changes.
DEVALUATION: A lowering of the value of a country's currency relative to gold
and/or the currencies of other nations. Devaluation can also result from a rise
in the value of other currencies relative to the currency of a particular
country.
DURATION: A measure of price sensitivity, which adjusts for the time value of
the payments investors will receive and which takes into account interest
payments as well as principal payments. Duration is a better gauge of
interest-rate sensitivity than average maturity alone.
EARNINGS PER SHARE: The portion of a company's profit allocated to each share
of outstanding common stock.
ECONOMIES OF SCALE: Production and purchasing efficiencies enjoyed by larger
organizations, by spreading costs over a larger base or purchasing items at
volume discounts.
EMERGING MARKETS: Countries with smaller or more recently established capital
markets.
EUROPEAN MONETARY UNION: A system that allows participating European countries
to operate with a common currency or monetary unit.
FEDERAL RESERVE BOARD: The seven member governing board of the Federal Reserve
System, which is the central bank of the United States. The Board sets policies
on reserve requirements, bank regulations, sets the
59
<PAGE> 60
discount rate, tightens or loosens the availability of credit in the economy and
regulates the purchase of securities on margin.
FIRST-TIER/SECOND-TIER: Money market instruments in the highest rating category
by two or more major rating agencies are called first-tier or top-tier
securities, while securities in the second-highest rating category by two or
more major rating agencies are referred to as second-tier securities.
FLIGHT TO QUALITY: When investors in general move to improve the quality or
liquidity of the securities they own, because of economic, industry, market or
credit concerns that suggest lower quality securities or those that are less
liquid are likely to be more vulnerable to negative market events.
GROSS DOMESTIC PRODUCT (GDP): The total value of goods and services produced in
the U.S. economy over a particular period of time, usually one year. The GDP
growth rate measures strictly domestic output and is a primary indicator of the
status of the economy.
GROWTH VERSUS VALUE: Growth investments typically include stocks with rising
prices and positive earnings trends. Value investments typically include
equities that are currently trading below their fair market value, even if they
have the potential to increase in value over time.
HEDGE FUND: A private investment partnership or off-shore investment
corporation that may take both long and short positions, use leverage and
derivative securities, and invest across many markets. Hedge funds may use
high-risk or speculative investment strategies and move billions of dollars in
and out of the markets quickly.
INFLATION/DEFLATION: Inflation is an increase in the cost of goods and services
over time. As prices rise, the purchasing power of the dollar declines.
Deflation is a reduction in the cost of goods over time. When deflation occurs,
the purchasing power of the dollar increases.
LIQUIDITY: Securities are said to be liquid when they can be easily bought or
sold in large volume without substantially affecting their price. Some
securities, such as private placements or stocks that have few shares
outstanding are considered illiquid either because there are few market
participants interested in buying or selling the securities or because purchases
and sales may cause wide price swings.
LOCAL CURRENCY TERMS: Returns expressed in local currency terms show what
investors using that currency would have earned, without any adjustment for
differences in currency values. Returns expressed in U.S. dollar terms reflect
any differences in the relative value of the local currency and the U.S. dollar.
MERGERS AND ACQUISITIONS: A merger is a combination of two companies. An
acquisition is the purchase of a company, division, or business unit. Companies
that engage in mergers and acquisitions often pay shareholders a premium, or an
amount over the current share price, to complete the transaction quickly and
under favorable terms.
MORTGAGE-BACKED SECURITIES: Securities representing interests in "pools" of
mortgages in which principal and interest payments by the holders of underlying
fixed- or adjustable-rate mortgages are, in effect, "passed through" to
investors (net of fees paid to the issuer or guarantor of the securities).
PREMIUM: The amount by which a bond sells above its face or par value. For
example, a bond with a face value of $1,000 would sell for a $100 premium when
it cost $1,100. Different from the conversion premium, which is the amount by
which the price of a convertible exceeds the market price of the underlying
stock.
PREPAYMENT: When mortgage or loan holders 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.
PROXY HEDGE: A transaction in the forwards market that seeks to offset
investment risk by substituting exposure to one foreign currency with exposure
to another.
REAL ESTATE INVESTMENT TRUST (REIT): A publicly traded company that purchases
and manages a portfolio of real estate properties for the benefit of
shareholders.
RECESSION: A downturn in economic activity, typically defined by at least two
consecutive quarters of decline in a country's gross domestic product.
60
<PAGE> 61
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.
SPIN-OFF: A form of corporate divestiture that results in a subsidiary or
division becoming an independent company.
SPLIT ISSUES (SPLIT-RATED 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.
In the stock market, an oversupply of a product or service can reduce demand and
lower stock prices. When demand increases relative to supply, stock prices may
recover.
SWAP: Exchange of one security for another. A swap may be executed to change
the maturities of a bond portfolio or the quality of the issues in a stock or
bond portfolio, or because investment objectives have changed.
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,
market sector or country, i.e., a portfolio is said to be overweighed in a
sector or country when that portion of the portfolio is greater than the
sector's general relationship to the market as a whole or the country's total
equities relative to the international equity markets as a whole.
YANKEE ISSUES: Dollar-denominated income securities issued in the United States
by foreign banks and corporations, usually when conditions in the U.S. are more
favorable than in other markets, including the issuer's domestic market
overseas.
YIELD: The income per share (or current value of a security) paid to investors
over a specified period of time as a percentage of the cost of the security.
Mutual fund yields are expressed as a percentage of the fund's current price per
share.
YIELD CURVE: When interest rates available from various short-, intermediate-,
and long-term securities are plotted on a graph, the resulting line is known as
a yield curve.
YIELD SPREAD: The difference in yield between securities in different market
sectors, such as government and mortgage-backed securities -- or between
different securities in a single sector, such as 2- and 30-year Treasuries or
PRIME-1 and PRIME-2 rated commercial paper.
Y2K: A reference to the Year 2000.
61
<PAGE> 62
(THIS PAGE INTENTIONALLY LEFT BLANK)
62
<PAGE> 63
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
PricewaterhouseCoopers LLP
63
<PAGE> 64
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value............................. $369,240,373 $121,462,704 $ 38,243,492
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.................. 1,262,605 384,115 132,494
------------ ------------ ------------
Total equity.......................................... $367,977,768 $121,078,589 $ 38,110,998
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
15,939,907; 105,842,139; 2,139,153; 3,208,286;
21,960,095; 1,012,107; 11,135,691; 10,003,621;
4,993,163; 8,239,308, respectively.................... $367,977,768 $121,078,589 $ 25,970,463
Equity of New York Life Insurance and
Annuity Corporation:
Variable accumulation units outstanding for the
Convertible Investment Division: 1,000,000............ -- -- 12,140,535
------------ ------------ ------------
Total equity.......................................... $367,977,768 $121,078,589 $ 38,110,998
============ ============ ============
Variable accumulation unit value........................ $ 23.09 $ 1.14 $ 12.14
============ ============ ============
Identified Cost of Investment............................... $255,993,869 $121,463,167 $ 39,757,000
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH VALUE
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value............................. $409,034,255 $ 24,645,549 $ 16,654,494
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.................. 1,446,660 77,336 55,364
------------ ------------ ------------
Total equity.......................................... $407,587,595 $ 24,568,213 $ 16,599,130
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
17,574,978; 1,262,753; 629,338; 407,583;
572,618; 1,904,339; 593,826; 7,021,878;
5,849,671; 6,417,639, respectively.................... $407,587,595 $ 13,710,548 $ 6,411,477
Equity of New York Life Insurance and
Annuity Corporation:
Variable accumulation units outstanding: --; 1,000,000;
1,000,000; 1,000,000; 1,000,000; --; --; --; --; --,
respectively.......................................... -- 10,857,665 10,187,653
------------ ------------ ------------
Total equity.......................................... $407,587,595 $ 24,568,213 $ 16,599,130
============ ============ ============
Variable accumulation unit value........................ $ 23.19 $ 10.86 $ 10.19
============ ============ ============
Identified Cost of Investment............................... $320,208,773 $ 22,406,222 $ 15,899,695
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
64
<PAGE> 65
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 39,801,237 $311,163,398 $ 15,191,588 $204,214,608 $158,221,639 $ 61,983,803 $180,783,507
127,349 1,043,003 55,847 696,968 578,625 195,568 618,234
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 39,673,888 $310,120,395 $ 15,135,741 $203,517,640 $157,643,014 $ 61,788,235 $180,165,273
============ ============ ============ ============ ============ ============ ============
$ 39,673,888 $310,120,395 $ 15,135,741 $203,517,640 $157,643,014 $ 61,788,235 $180,165,273
-- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 39,673,888 $310,120,395 $ 15,135,741 $203,517,640 $157,643,014 $ 61,788,235 $180,165,273
============ ============ ============ ============ ============ ============ ============
$ 12.37 $ 14.12 $ 14.95 $ 18.28 $ 15.76 $ 12.37 $ 21.87
============ ============ ============ ============ ============ ============ ============
$ 39,938,942 $340,608,990 $ 13,411,058 $162,769,251 $169,377,814 $ 63,549,793 $164,365,944
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY GROWTH CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 16,489,610 $ 14,396,044 $ 22,879,777 $ 10,081,066 $117,500,242 $ 85,283,345 $105,067,024
56,022 46,911 77,922 34,250 387,541 299,079 332,409
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 16,433,588 $ 14,349,133 $ 22,801,855 $ 10,046,816 $117,112,701 $ 84,984,266 $104,734,615
============ ============ ============ ============ ============ ============ ============
$ 4,758,550 $ 5,224,775 $ 22,801,855 $ 10,046,816 $117,112,701 $ 84,984,266 $104,734,615
11,675,038 9,124,358 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 16,433,588 $ 14,349,133 $ 22,801,855 $ 10,046,816 $117,112,701 $ 84,984,266 $104,734,615
============ ============ ============ ============ ============ ============ ============
$ 11.68 $ 9.12 $ 11.97 $ 16.92 $ 16.68 $ 14.53 $ 16.32
============ ============ ============ ============ ============ ============ ============
$ 14,069,923 $ 14,432,850 $ 21,128,348 $ 9,756,793 $ 95,340,737 $ 79,462,183 $ 87,092,753
============ ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
65
<PAGE> 66
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
As of December 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES RESEARCH SERIES
-------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value......................... $125,041,287 $ 4,609,931 $ 2,736,163
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.............. 427,236 12,070 7,307
------------ ------------ ------------
Total equity...................................... $124,614,051 $ 4,597,861 $ 2,728,856
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
7,855,397; 435,136; 251,870, respectively......... $124,614,051 $ 4,597,861 $ 2,728,856
============ ============ ============
Variable accumulation unit value.................... $ 15.86 $ 10.57 $ 10.83
============ ============ ============
Identified Cost of Investment........................... $107,531,683 $ 4,190,602 $ 2,478,822
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value......................... $ 6,239,614 $ 10,108,780 $ 425,282
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation
for mortality and expense risk charges.............. 23,613 27,051 1,474
------------ ------------ ------------
Total equity...................................... $6,216,001 $ 10,081,729 $ 423,808
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
840,557; 995,465; 52,854, respectively............ $ 6,216,001 $ 10,081,729 $ 423,808
============ ============ ============
Variable accumulation unit value.................... $ 7.40 $ 10.13 $ 8.02
============ ============ ============
Identified Cost of Investment........................... $ 9,207,190 $ 9,858,641 $ 422,795
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
66
<PAGE> 67
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
67
<PAGE> 68
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
---------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income........................................... $ 322,876 $ 4,101,582 $ 1,798,354
Mortality and expense risk charges........................ (3,586,846) (1,126,088) (465,272)
------------ ------------ ------------
Net investment income (loss).......................... (3,263,970) 2,975,494 1,333,082
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments......................... 12,394,452 167,003,109 3,510,198
Cost of investments sold.................................. (7,562,274) (167,002,400) (3,159,579)
------------ ------------ ------------
Net realized gain on investments...................... 4,832,178 709 350,619
Realized gain distribution received....................... 3,372,386 -- 1,219,130
Change in unrealized appreciation (depreciation) on
investments............................................. 80,264,752 (526) (2,295,772)
------------ ------------ ------------
Net gain (loss) on investments........................ 88,469,316 183 (726,023)
------------ ------------ ------------
Increase (decrease) attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account............................ (227,414) (9,626) (1,174)
------------ ------------ ------------
Net increase (decrease) in total equity resulting from
operations.......................................... $ 84,977,932 $ 2,966,051 $ 605,885
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH(a) VALUE(a)
---------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income........................................... $ 3,986,130 $ 113,894 $ 79,261
Mortality and expense risk charges........................ (4,006,571) (141,162) (111,611)
------------ ------------ ------------
Net investment income (loss).......................... (20,441) (27,268) (32,350)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments......................... 9,178,549 340,580 236,080
Cost of investments sold.................................. (5,440,758) (375,953) (257,838)
------------ ------------ ------------
Net realized gain (loss) on investments............... 3,737,791 (35,373) (21,758)
Realized gain distribution received....................... 3,479,147 -- --
Change in unrealized appreciation (depreciation) on
investments............................................. 61,206,441 2,239,326 754,799
------------ ------------ ------------
Net gain (loss) on investments........................ 68,423,379 2,203,953 733,041
------------ ------------ ------------
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account.... (209,334) (6,952) (3,408)
------------ ------------ ------------
Net increase (decrease) in total equity resulting from
operations.......................................... $ 68,193,604 $ 2,169,733 $ 697,283
============ ============ ============
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
68
<PAGE> 69
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,672,373 $ 28,166,123 $ 345,340 $ 3,693,529 $ 2,489,083 $ 3,183,051 $ 1,307,242
(322,280) (3,710,696) (187,409) (2,109,253) (2,093,392) (549,159) (1,801,130)
------------ ------------ ------------ ------------ ------------ ------------ ------------
1,350,093 24,455,427 157,931 1,584,276 395,691 2,633,892 (493,888)
------------ ------------ ------------ ------------ ------------ ------------ ------------
4,245,011 11,428,582 1,601,128 1,573,147 5,644,367 1,068,740 2,384,087
(3,945,264) (10,653,482) (1,533,795) (1,189,391) (4,365,232) (1,036,248) (2,027,162)
------------ ------------ ------------ ------------ ------------ ------------ ------------
299,747 775,100 67,333 383,756 1,279,135 32,492 356,925
-- 779,456 -- 5,245,257 12,582,107 1,562,448 13,289,553
(88,614) (25,710,885) 2,291,030 28,857,896 (25,490,442) (1,391,302) 16,134,563
------------ ------------ ------------ ------------ ------------ ------------ ------------
211,133 (24,156,329) 2,358,363 34,486,909 (11,629,200) 203,638 29,781,041
------------ ------------ ------------ ------------ ------------ ------------ ------------
(3,824) (422) (10,483) (95,981) 15,885 (7,219) (88,398)
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 1,557,402 $ 298,676 $ 2,505,811 $ 35,975,204 $(11,217,624) $ 2,830,311 $ 29,198,755
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY(a) GROWTH(a) CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10,215 $ -- $ -- $ 224,360 $ 306,142 $ 472,906 $ 2,426,150
(113,276) (94,657) (221,783) (97,039) (1,004,905) (818,178) (771,391)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(103,061) (94,657) (221,783) 127,321 (698,763) (345,272) 1,654,759
------------ ------------ ------------ ------------ ------------ ------------ ------------
344,831 365,414 10,566,541 578,840 525,913 876,965 377,495
(350,068) (496,369) (10,822,400) (500,929) (426,592) (790,810) (305,485)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(5,237) (130,955) (255,859) 77,911 99,321 86,155 72,010
-- -- 1,965,062 503,162 2,252,334 1,682,987 347,759
2,419,687 (36,805) 1,178,171 300,085 18,490,256 3,410,204 16,353,009
------------ ------------ ------------ ------------ ------------ ------------ ------------
2,414,450 (167,760) 2,887,374 881,158 20,841,911 5,179,346 16,772,778
------------ ------------ ------------ ------------ ------------ ------------ ------------
(6,423) (3,676) (9,820) (2,809) (56,749) (20,934) (50,484)
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 2,304,966 $ (266,093) $ 2,655,771 $ 1,005,670 $ 20,086,399 $ 4,813,140 $ 18,377,053
============ ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
69
<PAGE> 70
STATEMENT OF OPERATIONS (CONTINUED)
For the year ended December 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES(a) RESEARCH SERIES(a)
------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income................................... $ 2,419,077 $ -- $ --
Mortality and expense risk charges................ (1,224,410) (15,005) (9,472)
----------- ----------- -----------
Net investment income (loss).................. 1,194,667 (15,005) (9,472)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................. 6,516,664 302,835 150,437
Cost of investments sold.......................... (4,659,864) (321,329) (168,415)
----------- ----------- -----------
Net realized gain (loss) on investments....... 1,856,800 (18,494) (17,978)
Realized gain distribution received............... 961,481 -- --
Change in unrealized appreciation (depreciation)
on investments.................................. 14,600,486 419,329 257,341
----------- ----------- -----------
Net gain on investments....................... 17,418,767 400,835 239,363
----------- ----------- -----------
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account.................... (63,694) (829) (595)
----------- ----------- -----------
Net increase in total equity resulting
from operations............................. $18,549,740 $ 385,001 $ 229,296
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME(a) ASSETS(a)
-----------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income................................... $ 35,188 $ 81,894 $ --
Mortality and expense risk charges................ (102,229) (36,282) (2,516)
----------- ----------- -----------
Net investment income (loss).................. (67,041) 45,612 (2,516)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................. 1,990,930 756,879 348,884
Cost of investments sold.......................... (2,656,232) (793,532) (401,441)
----------- ----------- -----------
Net realized loss on investments.............. (665,302) (36,653) (52,557)
Realized gain distribution received............... -- 258,411 --
Change in unrealized appreciation (depreciation)
on investments.................................. (1,402,784) 250,139 2,487
----------- ----------- -----------
Net gain (loss) on investments................ (2,068,086) 471,897 (50,070)
----------- ----------- -----------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account.................... 3,898 (1,005) 34
----------- ----------- -----------
Net increase (decrease) in total equity
resulting
from operations............................. $(2,131,229) $ 516,504 $ (52,552)
=========== =========== ===========
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
70
<PAGE> 71
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
71
<PAGE> 72
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
----------------------------- -----------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ (3,263,970) $ (2,004,809) $ 2,975,494 $ 1,557,178
Net realized gain (loss) on investments.......... 4,832,178 1,461,967 709 384
Realized gain distribution received.............. 3,372,386 2,490,645 -- --
Change in unrealized appreciation (depreciation)
on investments................................. 80,264,752 24,856,920 (526) 89
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account............................... (227,414) (54,419) (9,626) (3,261)
------------- ------------- ------------- -------------
Net increase in total equity resulting from
operations................................... 84,977,932 26,750,304 2,966,051 1,554,390
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 13,162,525 10,878,222 913,610,826 533,387,885
Policyowners' surrenders......................... (9,195,564) (3,833,164) (2,866,672) (593,348)
Policyowners' annuity and death benefits......... (1,384,891) (570,014) (110,206) (89,388)
Net transfers from (to) Fixed Account............ (1,075,455) 139,248 (4,500,370) (2,565,258)
Transfers between Investment Divisions........... 95,055,794 56,355,081 (835,614,042) (518,855,377)
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 96,562,409 62,969,373 70,519,536 11,284,514
------------- ------------- ------------- -------------
Increase in total equity..................... 181,540,341 89,719,677 73,485,587 12,838,904
TOTAL EQUITY:
Beginning of year................................ 186,437,427 96,717,750 47,593,002 34,754,098
------------- ------------- ------------- -------------
End of year...................................... $ 367,977,768 $ 186,437,427 $ 121,078,589 $ 47,593,002
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
----------------------------- -----------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ 157,931 $ 748,310 $ 1,584,276 $ 1,111,058
Net realized gain (loss) on investments.......... 67,333 52,686 383,756 338,596
Realized gain distribution received.............. -- -- 5,245,257 2,007,938
Change in unrealized appreciation (depreciation)
on investments................................. 2,291,030 (522,105) 28,857,896 9,625,259
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account................... (10,483) 386 (95,981) (28,939)
------------- ------------- ------------- -------------
Net increase (decrease) in total equity
resulting from operations.................... 2,505,811 279,277 35,975,204 13,053,912
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 442,310 652,833 8,659,295 6,536,163
Policyowners' surrenders......................... (301,242) (221,697) (5,204,970) (2,714,075)
Policyowners' annuity and death benefits......... (91,591) (24,509) (766,712) (620,414)
Net transfers from (to) Fixed Account............ (63,428) 2,289 (707,925) (367,210)
Transfers between Investment Divisions........... 1,168,012 2,565,306 54,347,173 30,635,555
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 1,154,061 2,974,222 56,326,861 33,470,019
------------- ------------- ------------- -------------
Increase in total equity..................... 3,659,872 3,253,499 92,302,065 46,523,931
TOTAL EQUITY:
Beginning of year................................ 11,475,869 8,222,370 111,215,575 64,691,644
------------- ------------- ------------- -------------
End of year...................................... $ 15,135,741 $ 11,475,869 $ 203,517,640 $ 111,215,575
============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
72
<PAGE> 73
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,333,082 $ 689,559 $ 1,350,093 $ 664,227 $ 24,455,427 $ 11,015,928
350,619 69,551 299,747 (36,044) 775,100 250,557
1,219,130 1,382,924 -- -- 779,456 8,027,954
(2,295,772) 524,116 (88,614) 215,099 (25,710,885) (4,636,421)
(1,174) (8,739) (3,824) (2,274) (422) (45,438)
------------- ------------- ------------- ------------- ------------- -------------
605,885 2,657,411 1,557,402 841,008 298,676 14,612,580
------------- ------------- ------------- ------------- ------------- -------------
1,768,847 859,834 893,428 656,652 19,432,879 15,824,644
(619,313) (244,202) (1,102,640) (396,389) (11,532,193) (4,527,694)
(129,950) (72,117) (186,772) (48,462) (1,549,873) (1,111,802)
(114,198) 37,227 (152,490) (159,195) (2,618,743) 460,931
10,614,613 9,809,745 25,977,645 2,680,687 102,753,150 96,235,470
------------- ------------- ------------- ------------- ------------- -------------
11,519,999 10,390,487 25,429,171 2,733,293 106,485,220 106,881,549
------------- ------------- ------------- ------------- ------------- -------------
12,125,884 13,047,898 26,986,573 3,574,301 106,783,896 121,494,129
25,985,114 12,937,216 12,687,315 9,113,014 203,336,499 81,842,370
------------- ------------- ------------- ------------- ------------- -------------
$ 38,110,998 $ 25,985,114 $ 39,673,888 $ 12,687,315 $ 310,120,395 $ 203,336,499
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 395,691 $ 386,063 $ 2,633,892 $ 1,176,988 $ (493,888) $ (220,472)
1,279,135 101,581 32,492 (62,669) 356,925 54,420
12,582,107 5,111,434 1,562,448 63,187 13,289,553 11,231,183
(25,490,442) 9,929,931 (1,391,302) 256,928 16,134,563 1,410,618
15,885 (33,267) (7,219) (3,926) (88,398) (29,274)
------------- ------------- ------------- ------------- ------------- -------------
(11,217,624) 15,495,742 2,830,311 1,430,508 29,198,755 12,446,475
------------- ------------- ------------- ------------- ------------- -------------
8,504,850 7,389,878 2,962,500 1,711,859 7,854,006 5,229,461
(4,951,446) (2,348,977) (1,415,205) (541,597) (3,939,312) (1,146,808)
(1,204,738) (381,578) (172,811) (137,890) (665,675) (121,552)
(1,354,692) 100,929 (56,985) (22,994) (259,908) 150,624
47,245,084 53,907,058 34,854,154 7,660,804 60,766,288 38,749,467
------------- ------------- ------------- ------------- ------------- -------------
48,239,058 58,667,310 36,171,653 8,670,182 63,755,399 42,861,192
------------- ------------- ------------- ------------- ------------- -------------
37,021,434 74,163,052 39,001,964 10,100,690 92,954,154 55,307,667
120,621,580 46,458,528 22,786,271 12,685,581 87,211,119 31,903,452
------------- ------------- ------------- ------------- ------------- -------------
$ 157,643,014 $ 120,621,580 $ 61,788,235 $ 22,786,271 $ 180,165,273 $ 87,211,119
============= ============= ============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
73
<PAGE> 74
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
AMERICAN
CENTURY
MAINSTAY VP INCOME
INDEXED EQUITY & GROWTH
----------------------------- -------------
1998 1997 1998(a)
---------------------------------------------
<S> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ (20,441) $ 638,114 $ (27,268)
Net realized gain (loss) on investments.......... 3,737,791 513,469 (35,373)
Realized gain distribution received.............. 3,479,147 4,074,683 --
Change in unrealized appreciation (depreciation)
on investments................................. 61,206,441 22,999,711 2,239,326
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account............................... (209,334) (52,444) (6,952)
------------- ------------- -------------
Net increase (decrease) in total equity
resulting from operations.................... 68,193,604 28,173,533 2,169,733
------------- ------------- -------------
Contributions and withdrawals:
Equity contribution by New York Life Insurance
and Annuity Corporation........................ -- -- 10,000,000
Policyowners' premium payments................... 20,576,362 12,909,902 634,838
Policyowners' surrenders......................... (9,009,769) (2,242,151) (79,172)
Policyowner's annuity and death benefits......... (1,003,566) (495,418) --
Net transfers from (to) Fixed Account............ (82,202) 158,473 46,387
Transfers between Investment Divisions........... 146,203,904 83,737,908 11,796,427
------------- ------------- -------------
Net contributions and withdrawals.............. 156,684,729 94,068,714 22,398,480
------------- ------------- -------------
Increase in total equity..................... 224,878,333 122,242,247 24,568,213
TOTAL EQUITY:
Beginning of year................................ 182,709,262 60,467,015 --
------------- ------------- -------------
End of year...................................... $ 407,587,595 $ 182,709,262 $ 24,568,213
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIAL VIP II
BALANCED CONTRAFUND
----------------------------- -----------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ 127,321 $ 56,155 $ (698,763) $ (228,447)
Net realized gain on investments................. 77,911 122,929 99,321 32,698
Realized gain distribution received.............. 503,162 198,489 2,252,334 115,953
Change in unrealized appreciation (depreciation)
on investments................................. 300,085 41,821 18,490,256 3,633,056
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation retained
by
Separate Account............................... (2,809) (963) (56,749) (8,761)
------------- ------------- ------------- -------------
Net increase in total equity resulting from
operations................................... 1,005,670 418,431 20,086,399 3,544,499
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policy owners' premium payments.................. 448,798 229,133 6,539,351 3,143,721
Policyowners' surrenders......................... (178,847) (50,664) (2,091,645) (339,799)
Policyowner's annuity and death benefits......... (74,437) -- (193,257) (51,672)
Net transfers from (to) Fixed Account............ (105,315) (27,090) 54,147 232,305
Transfers between Investment Divisions........... 4,790,643 2,062,746 52,658,032 30,973,881
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 4,880,842 2,214,125 56,966,628 33,958,436
------------- ------------- ------------- -------------
Increase in total equity..................... 5,886,512 2,632,556 77,053,027 37,502,935
TOTAL EQUITY:
Beginning of year................................ 4,160,304 1,527,748 40,059,674 2,556,739
------------- ------------- ------------- -------------
End of year...................................... $ 10,046,816 $ 4,160,304 $ 117,112,701 $ 40,059,674
============= ============= ============= =============
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
74
<PAGE> 75
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
Dreyfus Eagle Asset Lord Alger
Large Management Abbett American
Company Growth Developing Small
Value Equity Growth Capitalization
------------- ------------- ------------- -----------------------------
1998(a) 1998(a) 1998(a) 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ (32,350) $ (103,061) $ (94,657) $ (221,783) $ (84,204)
(21,758) (5,237) (130,955) (255,859) 12,244
-- -- -- 1,965,062 181,977
754,799 2,419,687 (36,805) 1,178,171 575,759
(3,408) (6,423) (3,676) (9,820) (1,898)
------------- ------------- ------------- ------------- -------------
697,283 2,304,966 (266,093) 2,655,771 683,878
------------- ------------- ------------- ------------- -------------
10,000,000 10,000,000 10,000,000 -- --
641,398 278,603 354,560 1,298,003 836,724
(95,950) (13,083) (50,429) (667,185) (186,892)
-- -- -- (123,482) (5,920)
10,210 37,328 42,726 83,274 126,538
5,346,189 3,825,774 4,268,369 8,414,198 8,490,851
------------- ------------- ------------- ------------- -------------
15,901,847 14,128,622 14,615,226 9,004,808 9,261,301
------------- ------------- ------------- ------------- -------------
16,599,130 16,433,588 14,349,133 11,660,579 9,945,179
-- -- -- 11,141,276 1,196,097
------------- ------------- ------------- ------------- -------------
$ 16,599,130 $ 16,433,588 $ 14,349,133 $ 22,801,855 $ 11,141,276
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY JANUS ASPEN SERIES
VIP SERIES WORLDWIDE
EQUITY-INCOME BALANCED GROWTH
----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ (345,272) $ (131,338) $ 1,654,759 $ 282,861 $ 1,194,667 $ (63,335)
86,155 29,096 72,010 29,884 1,856,800 41,873
1,682,987 235,647 347,759 15,180 961,481 135,117
3,410,204 2,411,326 16,353,009 1,622,795 14,600,486 2,881,305
(20,934) (4,837) (50,484) (5,264) (63,694) (8,481)
------------- ------------- ------------- ------------- ------------- -------------
4,813,140 2,539,894 18,377,053 1,945,456 18,549,740 2,986,479
------------- ------------- ------------- ------------- ------------- -------------
5,720,100 2,301,288 5,898,289 2,080,572 7,060,394 5,065,954
(1,598,980) (233,692) (1,550,539) (252,056) (2,524,290) (689,464)
(309,345) (16,054) (253,681) (29,064) (281,189) (100,782)
15,447 139,382 177,556 112,186 (39,738) 502,000
46,428,934 23,623,399 56,910,948 20,033,507 47,042,242 44,252,676
------------- ------------- ------------- ------------- ------------- -------------
50,256,156 25,814,323 61,182,573 21,945,145 51,257,419 49,030,384
------------- ------------- ------------- ------------- ------------- -------------
55,069,296 28,354,217 79,559,626 23,890,601 69,807,159 52,016,863
29,914,970 1,560,753 25,174,989 1,284,388 54,806,892 2,790,029
------------- ------------- ------------- ------------- ------------- -------------
$ 84,984,266 $ 29,914,970 $ 104,734,615 $ 25,174,989 $ 124,614,051 $ 54,806,892
============= ============= ============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
75
<PAGE> 76
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
MFS
GROWTH
WITH MFS
INCOME SERIES RESEARCH SERIES
------------- ---------------
1998(a) 1998(a)
-------------------------------
<S> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment loss.............................. $ (15,005) $ (9,472)
Net realized loss on investments................. (18,494) (17,978)
Change in unrealized appreciation (depreciation)
on investments................................. 419,329 257,341
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account............................... (829) (595)
------------- -------------
Net increase in total equity resulting from
operations................................... 385,001 229,296
------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 245,609 193,769
Policyowners' surrenders......................... (23,721) (5,144)
Net transfers from Fixed Account................. 42,863 5,543
Transfers between Investment Divisions........... 3,948,109 2,305,392
------------- -------------
Net contributions and withdrawals.............. 4,212,860 2,499,560
------------- -------------
Increase in total equity..................... 4,597,861 2,728,856
TOTAL EQUITY:
Beginning of year................................ -- --
------------- -------------
End of year...................................... $ 4,597,861 $ 2,728,856
============= =============
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
----------------------------- ------------- -------------
1998 1997 1998(a) 1998(a)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)..................... $ (67,041) $ (24,058) $ 45,612 $ (2,516)
Net realized gain (loss) on investments.......... (665,302) 138,123 (36,653) (52,557)
Realized gain distribution received.............. -- 245,953 258,411 --
Change in unrealized appreciation (depreciation)
on investments................................. (1,402,784) (1,574,419) 250,139 2,487
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account................... 3,898 1,437 (1,005) 34
------------- ------------- ------------- -------------
Net increase (decrease) in total equity
resulting from operations.................... (2,131,229) (1,212,964) 516,504 (52,552)
------------- ------------- ------------- -------------
Contributions and withdrawals:
Policyowners' premium payments................... 544,180 1,173,626 737,336 23,746
Policyowners' surrenders......................... (303,684) (79,912) (86,228) (3,416)
Policyowners' annuity and death benefits......... (28,128) -- -- --
Net transfers from (to) Fixed Account............ (222,426) 75,384 218,947 (44,240)
Transfers between Investment Divisions........... 177,768 7,422,353 8,695,170 500,270
------------- ------------- ------------- -------------
Net contributions and withdrawals.............. 167,710 8,591,451 9,565,225 476,360
------------- ------------- ------------- -------------
Increase (decrease) in total equity.......... (1,963,519) 7,378,487 10,081,729 423,808
TOTAL EQUITY:
Beginning of year................................ 8,179,520 801,033 -- --
------------- ------------- ------------- -------------
End of year...................................... $ 6,216,001 $ 8,179,520 $ 10,081,729 $ 423,808
============= ============= ============= =============
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
76
<PAGE> 77
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
NYLIAC Variable Annuity Separate Account-III ("Separate Account" formerly,
"LifeStages(SM) Annuity Separate Account") was established on November 30,
1994, under Delaware law by New York Life Insurance and Annuity Corporation, a
wholly-owned subsidiary of New York Life Insurance Company. This account was
established to receive and invest premium payments under Non-Qualified and
Qualified Flexible Premium Variable Retirement Annuity Policies issued by New
York Life Insurance and Annuity Corporation. The non-qualified policies are
designed to establish retirement benefits to provide individuals with
supplemental retirement income. The qualified 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., certain banking and financial institutions which have entered
into selling agreements with New York Life Insurance and Annuity Corporation
and registered representatives of unaffiliated broker-dealers. NYLIFE
Securities Inc. and NYLIFE Distributors Inc. are wholly-owned subsidiaries of
NYLIFE Inc., which is a wholly-owned subsidiary of New York Life Insurance
Company. The Separate Account is registered under the Investment Company Act of
1940, as amended, as a unit investment trust.
The assets of the Separate Account are invested in the shares of the MainStay
VP Series Fund, Inc., the Alger American Fund, the Calvert Variable Series Inc.
(formerly, "Acacia Capital Corporation"), the Fidelity Variable Insurance
Products Fund II, the Fidelity Variable Insurance Products Fund, the Janus Aspen
Series, the MFS Variable Insurance Trust, the Morgan Stanley Universal Funds,
Inc., the T. Rowe Price Equity Series, Inc., the Van Eck Worldwide Insurance
Trust and certain other funds (collectively, "Funds"). These assets are clearly
identified and distinguished from the other assets and liabilities of New York
Life Insurance and Annuity Corporation.
The Separate Account offers thirty variable Investment Divisions, with their
respective fund portfolios, for Policyowners to invest premium payments. These
financial statements and notes relate only to the following twenty-six
investment divisions: 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, American Century Income & Growth, Dreyfus Large Company
Value, Eagle Asset Management Growth Equity, Lord Abbett Developing Growth,
Alger American Small Capitalization, Calvert Social Balanced (formerly "Calvert
Socially Responsible"), Fidelity VIP II Contrafund, Fidelity VIP Equity-Income,
Janus Aspen Series Balanced, Janus Aspen Series Worldwide Growth, MFS Growth
With Income Series, MFS Research Series, Morgan Stanley Emerging Markets Equity,
T. Rowe Price Equity Income and Van Eck Worldwide Hard Assets. Each Investment
Division of the Separate Account 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
the Separate Account in accordance with the Policyowner's instructions. In
addition, the Policyowner has the option to transfer amounts between the
Investment Divisions of the Separate Account 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 the
Separate Account 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.
77
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1998, the investments of the Separate Account are as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 12,062 121,463 3,700
Identified cost*........................................ $255,994 $121,463 $ 39,757
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH VALUE
------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 15,800 2,259 1,627
Identified cost*........................................ $320,209 $ 22,406 $ 15,900
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $109,475 $240,702 $ 17,624
Proceeds from sales..................................... 12,394 167,003 3,510
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH(a) VALUE(a)
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $169,969 $ 22,782 $ 16,158
Proceeds from sales..................................... 9,179 341 236
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
78
<PAGE> 79
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3,877 28,503 1,225 10,216 11,337 4,686 7,655
$ 39,939 $340,609 $ 13,411 $162,769 $169,378 $ 63,550 $164,366
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY GROWTH CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1,400 1,563 520 4,717 4,808 3,355 4,670
$ 14,070 $ 14,433 $ 21,128 $ 9,757 $ 95,341 $ 79,462 $ 87,093
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 31,105 $143,524 $ 2,920 $ 64,954 $ 67,062 $ 41,550 $ 79,179
4,245 11,429 1,601 1,573 5,644 1,069 2,384
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY(a) GROWTH(a) CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 14,420 $ 14,929 $ 21,348 $ 6,109 $ 59,256 $ 52,664 $ 63,768
345 365 10,567 579 526 877 377
</TABLE>
79
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES RESEARCH SERIES
---------------------------------------------------------------
<S> <C> <C> <C>
Number of shares................................ 4,298 229 144
Identified cost*................................ $107,532 $ 4,191 $ 2,479
</TABLE>
<TABLE>
<CAPTION>
MORGAN
STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
---------------------------------------------------------------
<S> <C> <C> <C>
Number of shares................................ 878 525 46
Identified cost*................................ $ 9,207 $ 9,859 $ 423
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES(a) RESEARCH SERIES(a)
---------------------------------------------------------------
<S> <C> <C> <C>
Purchases....................................... $ 60,119 $ 4,512 $ 2,647
Proceeds from sales............................. 6,517 303 150
</TABLE>
<TABLE>
<CAPTION>
MORGAN
STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME(a) ASSETS(a)
---------------------------------------------------------------
<S> <C> <C> <C>
Purchases....................................... $ 2,093 $ 10,652 $ 824
Proceeds from sales............................. 1,991 757 349
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
80
<PAGE> 81
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
The Separate Account is 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 1.40% 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:
- --------------------------------------------------------------------------------
The Separate Account does 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.
81
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Cost to Policyowners and New York Life Insurance and Annuity
Corporation (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1998, the cost to Policyowners and New York Life Insurance and
Annuity Corporation 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>
Cost to Policyowners and New York Life Insurance and Annuity
Corporation (net of withdrawals).......................... $248,670 $115,663 $ 34,476
Accumulated net investment income (loss).................... (5,915) 5,429 2,114
Accumulated net realized gain on investments and realized
gain distributions received............................... 12,267 -- 3,044
Unrealized appreciation (depreciation) on investments....... 113,246 -- (1,513)
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account...... (290) (13) (10)
-------- -------- --------
Net amount applicable to Policyowners and New York Life
Insurance and Annuity Corporation......................... $367,978 $121,079 $ 38,111
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
MAINSTAY VP CENTURY LARGE
INDEXED INCOME COMPANY
EQUITY & GROWTH VALUE
------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners and New York Life Insurance and Annuity
Corporation (net of withdrawals).......................... $305,267 $ 22,397 $ 15,901
Accumulated net investment income (loss).................... 1,147 (27) (32)
Accumulated net realized gain (loss) on investments and
realized gain distributions received...................... 12,621 (35) (21)
Unrealized appreciation (depreciation) on investments....... 88,825 2,239 754
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account...... (272) (6) (3)
-------- -------- --------
Net amount applicable to Policyowners and New York Life
Insurance and Annuity Corporation......................... $407,588 $ 24,568 $ 16,599
======== ======== ========
</TABLE>
82
<PAGE> 83
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP GROWTH
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 37,027 $289,628 $ 11,925 $150,504 $148,034 $ 57,166 $135,443
2,630 39,023 1,277 3,651 1,024 4,625 (634)
160 10,972 165 8,049 19,767 1,574 29,062
(137) (29,445) 1,780 41,445 (11,156) (1,565) 16,417
(6) (58) (11) (131) (26) (12) (123)
-------- -------- -------- -------- -------- -------- --------
$ 39,674 $310,120 $ 15,136 $203,518 $157,643 $ 61,788 $180,165
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET LORD ALGER
MANAGEMENT ABBETT AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
GROWTH DEVELOPING SMALL SOCIAL VIP II VIP SERIES
EQUITY GROWTH CAPITALIZATION BALANCED CONTRAFUND EQUITY-INCOME BALANCED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 14,129 $ 14,612 $ 19,466 $ 8,519 $ 93,449 $ 77,633 $ 84,404
(103) (94) (307) 216 (930) (478) 1,948
(5) (130) 1,903 991 2,500 2,033 464
2,419 (36) 1,751 324 22,159 5,821 17,974
(6) (3) (11) (3) (65) (25) (55)
-------- -------- -------- -------- -------- -------- --------
$ 16,434 $ 14,349 $ 22,802 $ 10,047 $117,113 $ 84,984 $104,735
======== ======== ======== ======== ======== ======== ========
</TABLE>
83
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Cost to Policyowners (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUS ASPEN MFS
SERIES GROWTH
WORLDWIDE WITH MFS
GROWTH INCOME SERIES RESEARCH SERIES
------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners (net of withdrawals)................... $103,042 $ 4,212 $ 2,499
Accumulated net investment income (loss).................... 1,140 (15) (9)
Accumulated net realized gain (loss) on investments and
realized gain distributions received...................... 2,995 (18) (18)
Unrealized appreciation (depreciation) on investments....... 17,509 419 257
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account...... (72) -- --
-------- -------- --------
Net amount applicable to Policyowners....................... $124,614 $ 4,598 $ 2,729
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners (net of withdrawals)................... $ 9,549 $ 9,567 $ 476
Accumulated net investment income (loss).................... (90) 45 (2)
Accumulated net realized gain (loss) on investments and
realized gain distributions received...................... (281) 221 (52)
Unrealized appreciation (depreciation) on investments....... (2,967) 250 2
Increase (decrease) attributable to funds of New York Life
Insurance and Annuity Corporation retained by Separate
Account................................................... 5 (1) --
-------- -------- --------
Net amount applicable to Policyowners....................... $ 6,216 $ 10,082 $ 424
======== ======== ========
</TABLE>
84
<PAGE> 85
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
85
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the years ended December 31, 1998 and
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
--------------------------- ---------------------------
1998 1997 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments....................... 686 701 812,628 492,361
Units redeemed on surrenders........................... (476) (242) (2,547) (548)
Units redeemed on annuity and death benefits........... (72) (36) (97) (82)
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (54) 7 (3,989) (2,361)
Units issued (redeemed) on transfers between Investment
Divisions............................................ 4,855 3,622 (743,310) (478,922)
-------- -------- -------- --------
Net increase......................................... 4,939 4,052 62,685 10,448
Units outstanding, beginning of year................... 11,001 6,949 43,157 32,709
-------- -------- -------- --------
Units outstanding, end of year......................... 15,940 11,001 105,842 43,157
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
--------------------------- ---------------------------
1998 1997 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments....................... 33 54 542 482
Units redeemed on surrenders........................... (22) (18) (324) (197)
Units redeemed on annuity and death benefits........... (7) (2) (48) (45)
Units issued (redeemed) on net transfers from (to)
Fixed Account........................................ (5) -- (48) (28)
Units issued on transfers between Investment
Divisions............................................ 81 206 3,385 2,263
-------- -------- -------- --------
Net increase......................................... 80 240 3,507 2,475
Units outstanding, beginning of year................... 932 692 7,629 5,154
-------- -------- -------- --------
Units outstanding, end of year......................... 1,012 932 11,136 7,629
======== ======== ======== ========
</TABLE>
86
<PAGE> 87
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
144 78 76 59 1,361 1,184
(51) (22) (91) (36) (817) (335)
(10) (6) (16) (4) (110) (84)
(11) 2 (12) (14) (199) 34
862 903 2,148 243 7,148 7,239
-------- -------- -------- -------- -------- --------
934 955 2,105 248 7,383 8,038
2,205 1,250 1,103 855 14,577 6,539
-------- -------- -------- -------- -------- --------
3,139 2,205 3,208 1,103 21,960 14,577
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
504 485 246 155 404 329
(302) (152) (118) (49) (204) (70)
(70) (24) (14) (13) (35) (7)
(91) 5 (4) (2) (17) 11
2,727 3,545 2,902 697 3,112 2,440
-------- -------- -------- -------- -------- --------
2,768 3,859 3,012 788 3,260 2,703
7,236 3,377 1,981 1,193 4,979 2,276
-------- -------- -------- -------- -------- --------
10,004 7,236 4,993 1,981 8,239 4,979
======== ======== ======== ======== ======== ========
</TABLE>
87
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN
CENTURY
MAINSTAY VP INCOME
INDEXED EQUITY & GROWTH
------------------- ----------
1998 1997 1998(a)
--------------------------------
<S> <C> <C> <C>
Units issued on equity contribution by New York
Life Insurance and Annuity Corporation........... -- -- 1,000
Units issued on premium payments................... 1,003 776 66
Units redeemed on surrenders....................... (438) (134) (8)
Units redeemed on annuity and death benefits....... (50) (29) --
Units issued (redeemed) on net transfers from (to)
Fixed Account.................................... (8) 10 5
Units issued on transfers between Investment
Divisions........................................ 7,086 5,032 1,200
-------- -------- --------
Net increase..................................... 7,593 5,655 2,263
Units outstanding, beginning of year............... 9,982 4,327 --
-------- -------- --------
Units outstanding, end of year..................... 17,575 9,982 2,263
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIAL VIP II
BALANCED CONTRAFUND
------------------- -------------------
1998 1997 1998 1997
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 29 16 457 259
Units redeemed on surrenders....................... (11) (4) (145) (27)
Units redeemed on annuity and death benefits....... (5) -- (13) (4)
Units issued (redeemed) on net transfers from (to)
Fixed Account.................................... (7) (2) 1 19
Units issued on transfers between Investment
Divisions........................................ 306 149 3,643 2,591
-------- -------- -------- --------
Net increase..................................... 312 159 3,943 2,838
Units outstanding, beginning of year............... 282 123 3,079 241
-------- -------- -------- --------
Units outstanding, end of year..................... 594 282 7,022 3,079
======== ======== ======== ========
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
88
<PAGE> 89
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS EAGLE ASSET LORD ALGER
LARGE MANAGEMENT ABBETT AMERICAN
COMPANY GROWTH DEVELOPING SMALL
VALUE EQUITY GROWTH CAPITALIZATION
-------- ----------- ---------- -------------------
1998(a) 1998(a) 1998(a) 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C>
1,000 1,000 1,000 -- --
68 27 44 121 84
(10) (1) (6) (61) (18)
-- -- -- (11) (1)
1 4 5 6 13
570 378 530 789 857
-------- -------- -------- -------- --------
1,629 1,408 1,573 844 935
-- -- -- 1,060 125
-------- -------- -------- -------- --------
1,629 1,408 1,573 1,904 1,060
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY JANUS ASPEN SERIES
VIP SERIES WORLDWIDE
EQUITY-INCOME BALANCED GROWTH
------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
409 188 424 180 487 418
(116) (19) (109) (22) (174) (56)
(22) (1) (19) (2) (20) (8)
(4) 12 11 10 (6) 41
3,316 1,938 4,068 1,752 3,176 3,728
-------- -------- -------- -------- -------- --------
3,583 2,118 4,375 1,918 3,463 4,123
2,267 149 2,043 125 4,392 269
-------- -------- -------- -------- -------- --------
5,850 2,267 6,418 2,043 7,855 4,392
======== ======== ======== ======== ======== ========
</TABLE>
89
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS
GROWTH
WITH MFS
INCOME RESEARCH
SERIES SERIES
-------- --------
1998(a) 1998(a)
-------------------
<S> <C> <C>
Units issued on premium payments........................ 24 18
Units redeemed on surrenders............................ (2) (1)
Units issued on net transfers to Fixed Account.......... 5 1
Units issued on transfers between Investment
Divisions............................................. 408 234
-------- --------
Net increase.......................................... 435 252
Units outstanding, beginning of year.................... -- --
-------- --------
Units outstanding, end of year.......................... 435 252
======== ========
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
------------------- -------- ---------
1998 1997 1998(a) 1998(a)
------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments........................ 62 105 76 2
Units redeemed on surrenders............................ (36) (7) (9) --
Units redeemed on annuity and death benefits............ (3) -- -- --
Units issued (redeemed) on net transfers from (to) Fixed
Account............................................... (21) 6 22 (5)
Units issued on transfers between Investment
Divisions............................................. 12 643 906 56
-------- -------- -------- --------
Net increase.......................................... 14 747 995 53
Units outstanding, beginning of year.................... 827 80 -- --
-------- -------- -------- --------
Units outstanding, end of year.......................... 841 827 995 53
======== ======== ======== ========
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
90
<PAGE> 91
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
91
<PAGE> 92
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 the Separate Account:
<TABLE>
<CAPTION>
MAINSTAY VP
CAPITAL APPRECIATION
-------------------------------------
1998 1997 1996 1995(a)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $16.95 $13.92 $11.89 $10.00
Net investment income (loss)................................ (0.25) (0.22) (0.17) 0.06
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 6.39 3.25 2.20 1.83
------ ------ ------ ------
Unit value, end of year..................................... $23.09 $16.95 $13.92 $11.89
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
HIGH YIELD
CORPORATE BOND
-------------------------------------
1998 1997 1996 1995(a)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $13.95 $12.52 $10.83 $10.00
Net investment income....................................... 1.31 1.05 1.02 1.15
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. (1.14) 0.38 0.67 (0.32)
------ ------ ------ ------
Unit value, end of year..................................... $14.12 $13.95 $12.52 $10.83
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
BOND
-------------------------------------
1998 1997 1996 1995(a)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $11.50 $10.64 $10.57 $10.00
Net investment income (loss)................................ 0.80 0.76 0.99 2.16
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 0.07 0.10 (0.92) (1.59)
------ ------ ------ ------
Unit value, end of year..................................... $12.37 $11.50 $10.64 $10.57
====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(a) For the period May 1, 1995 (Commencement of Operations) through
December 31, 1995.
(b) For the period October 1, 1996 (Commencement of Operations) through
December 31, 1996.
(c) For the period May 1, 1998 (Commencement of Operations) through
December 31, 1998.
92
<PAGE> 93
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CASH MANAGEMENT CONVERTIBLE GOVERNMENT
------------------------------------- --------------------------- -------------------------------------
1998 1997 1996 1995(a) 1998 1997 1996(b) 1998 1997 1996 1995(a)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.10 $ 1.06 $ 1.03 $ 1.00 $11.78 $10.35 $10.00 $11.51 $10.66 $10.57 $10.00
0.04 0.04 0.04 0.02 0.49 0.38 0.08 0.70 0.69 0.86 2.49
-- -- (0.01) 0.01 (0.13) 1.05 0.27 0.16 0.16 (0.77) (1.92)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 1.14 $ 1.10 $ 1.06 $ 1.03 $12.14 $11.78 $10.35 $12.37 $11.51 $10.66 $10.57
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN VALUE
------------------------------------- ------------------------------------- -------------------------------------
1998 1997 1996 1995(a) 1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$12.32 $11.88 $10.90 $10.00 $14.58 $12.55 $11.36 $10.00 $16.67 $13.76 $11.32 $10.00
0.16 0.90 0.87 1.36 0.17 0.17 0.27 0.79 0.04 0.07 0.11 0.20
2.47 (0.46) 0.11 (0.46) 3.53 1.86 0.92 0.57 (0.95) 2.84 2.33 1.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$14.95 $12.32 $11.88 $10.90 $18.28 $14.58 $12.55 $11.36 $15.76 $16.67 $13.76 $11.32
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AMERICAN DREYFUS
CENTURY LARGE
MAINSTAY VP MAINSTAY VP INCOME COMPANY
GROWTH EQUITY INDEXED EQUITY & GROWTH VALUE
----------------------------------- ----------------------------------- -------- -------
1998 1997 1996 1995(a) 1998 1997 1996 1995(a) 1998(c) 1998(c)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$17.52 $14.01 $11.42 $10.00 $18.30 $13.97 $11.58 $10.00 $10.00 $10.00
(0.07) (0.06) 0.05 0.35 -- 0.09 0.21 0.62 (0.02) (0.03)
4.42 3.57 2.54 1.07 4.89 4.24 2.18 0.96 0.88 0.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$21.87 $17.52 $14.01 $11.42 $23.19 $18.30 $13.97 $11.58 $10.86 $10.19
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
93
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EAGLE ASSET LORD
MANAGEMENT ABBETT
GROWTH DEVELOPING
EQUITY GROWTH
------------ ------------
1998(c) 1998(c)
---------------------------
<S> <C> <C>
Unit value, beginning of year............................... $10.00 $10.00
Net investment income (loss)................................ (0.09) (0.08)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.77 (0.80)
------ ------
Unit value, end of year..................................... $11.68 $ 9.12
====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
VIP
EQUITY-INCOME
------------------------------------------
1998 1997 1996(b)
------------------------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $13.20 $10.45 $10.00
Net investment income (loss)................................ (0.08) (0.13) (0.02)
Net realized and unrealized gains on security transactions
and realized capital gain distributions received (includes
the effect of capital share transactions)................. 1.41 2.88 0.47
------ ------ ------
Unit value, end of year..................................... $14.53 $13.20 $10.45
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MFS
GROWTH
WITH MFS
INCOME SERIES RESEARCH SERIES
--------------- ---------------
1998(c) 1998(c)
---------------------------------
<S> <C> <C>
Unit value, beginning of year............................... $10.00 $10.00
Net investment income (loss)................................ (0.07) (0.07)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 0.64 0.90
------ ------
Unit value, end of year..................................... $10.57 $10.83
====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(a) For the period May 1, 1995 (Commencement of Operations) through
December 31, 1995.
(b) For the period October 1, 1996 (Commencement of Operations) through
December 31, 1996.
(c) For the period May 1, 1998 (Commencement of Operations) through
December 31, 1998.
94
<PAGE> 95
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER
AMERICAN CALVERT FIDELITY
SMALL SOCIAL VIP II
CAPITALIZATION BALANCED CONTRAFUND
--------------------------- ------------------------------------- ---------------------------
1998 1997 1996(b) 1998 1997 1996 1995(a) 1998 1997 1996(b)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.51 $ 9.57 $10.00 $14.76 $12.46 $11.22 $10.00 $13.01 $10.63 $10.00
(0.15) (0.14) (0.02) 0.29 0.31 0.35 1.60 (0.14) (0.14) (0.03)
1.61 1.08 (0.41) 1.87 1.99 0.89 (0.38) 3.81 2.52 0.66
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.97 $10.51 $ 9.57 $16.92 $14.76 $12.46 $11.22 $16.68 $13.01 $10.63
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
JANUS ASPEN SERIES
SERIES WORLDWIDE
BALANCED GROWTH
--------------------------- ---------------------------
1998 1997 1996(b) 1998 1997 1996(b)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.32 $10.24 $10.00 $12.48 $10.36 $10.00
0.42 0.28 0.17 0.20 (0.03) 0.08
3.58 1.80 0.07 3.18 2.15 0.28
------ ------ ------ ------ ------ ------
$16.32 $12.32 $10.24 $15.86 $12.48 $10.36
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY T. ROWE VAN ECK
EMERGING PRICE WORLDWIDE
MARKETS EQUITY HARD
EQUITY INCOME ASSETS
--------------------------------- --------- ---------
1998 1997 1996(b) 1998(c) 1998(c)
------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9.89 $10.00 $10.00 $10.00 $10.00
(0.08) (0.05) 0.02 0.08 (0.06)
(2.41) (0.06) (0.02) 0.05 (1.92)
------ ------ ------ ------ ------
$ 7.40 $ 9.89 $10.00 $10.13 $ 8.02
====== ====== ====== ====== ======
</TABLE>
95
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance
and Annuity Corporation and the Variable Annuity Separate Account-III
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 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,
American Century Income & Growth, Dreyfus Large Company Value, Eagle Asset
Management Growth Equity, Lord Abbett Developing Growth, Alger American Small
Capitalization, Calvert Social Balanced, formerly known as Calvert Socially
Responsible, Fidelity VIP II Contrafund, Fidelity VIP Equity-Income, Janus Aspen
Series Balanced, Janus Aspen Series Worldwide Growth, MFS Growth With Income
Series, MFS Research Series, Morgan Stanley Emerging Markets Equity, T. Rowe
Price Equity Income and Van Eck Worldwide Hard Assets Investment Divisions
(constituting the NYLIAC Variable Annuity Separate Account-III, formerly known
as LifeStages(SM) Annuity Separate Account) at December 31, 1998, and the
results of each of their operations, the changes in each of their total equity,
and the selected per unit data for each of the periods presented in conformity
with generally accepted accounting principles. These financial statements and
the selected per unit data (herein referred to as the "financial statements")
are the responsibility of management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1998 with the
MainStay VP Series Fund, Inc., the Alger American Fund, the Calvert Variable
Series Inc., the Fidelity Variable Insurance Products Fund II, the Fidelity
Variable Insurance Products Fund, the Janus Aspen Series, the MFS Variable
Insurance Trust, the Morgan Stanley Universal Funds, Inc., the T. Rowe Price
Equity Series, Inc., and the Van Eck Worldwide Insurance Trust, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
96
<PAGE> 97
(THIS PAGE INTENTIONALLY LEFT BLANK)
97
<PAGE> 98
- --------------------------------------------------------------------------------
To Policyowners:
The assets of NYLIAC Variable Annuity Separate Account-I, NYLIAC Variable
Annuity Separate Account-II, NYLIAC Variable Annuity Separate Account-III,
NYLIAC Variable Universal Life Separate Account-I, NYLIAC Corporate Sponsored
Variable Universal Life Separate Account-I, New York Life Insurance and Annuity
Corporation MFA Separate Account-I, New York Life Insurance and Annuity
Corporation MFA Separate Account-II and New York Life Insurance and Annuity
Corporation VLI Separate Account are invested in shares of MainStay VP Series
Fund, Inc. In addition, the assets of NYLIAC Variable Annuity Separate
Account-I, NYLIAC Variable Annuity Separate Account-II, NYLIAC Variable Annuity
Separate Account-III, NYLIAC Variable Universal Life Separate Account-I and
NYLIAC Corporate Sponsored Variable Universal Life Separate Account-I may be
invested in shares of the Calvert Variable Series, Inc., the Alger American
Fund, Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance
Products Fund II, the Janus Aspen Series, MFS Variable Insurance Trust, Morgan
Stanley Dean Witter Universal Funds, Inc., T. Rowe Price Equity Series, Inc.,
and Van Eck Worldwide Insurance Trust, which are not affiliated with MainStay VP
Series Fund, Inc. or NYLIAC and any of its subsidiaries.
At the Annual Meeting of the Board of Directors of the Fund held on November 17,
1998, executive officers of the Fund were elected. On December 29, 1998, a
dividend distribution was paid to NYLIAC Variable Annuity Separate Account-I,
NYLIAC Variable Annuity Separate Account-II, NYLIAC Variable Annuity Separate
Account-III, NYLIAC Variable Universal Life Separate Account-I, NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I, New York Life Insurance
and Annuity Corporation MFA Separate Account-I, New York Life Insurance and
Annuity Corporation MFA Separate Account-II and New York Life Insurance and
Annuity Corporation VLI Separate Account as the sole shareholders of record of
MainStay VP Series Fund, Inc.
/s/ RICHARD M. KERMAN JR.
Chairman of the Board
and Chief Executive Officer
MAINSTAY VP SERIES FUND, INC.
98
<PAGE> 99
MAINSTAY VP SERIES FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
COMMON STOCKS (97.0%)+
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
BANKS (2.1%)
SouthTrust Corp. ............... 182,500 $ 6,741,094
Wells Fargo & Co. .............. 496,700 19,836,956
--------------
26,578,050
--------------
BROADCAST/MEDIA (2.8%)
Chancellor Media Corp. (a)...... 308,000 14,745,500
Clear Channel Communications,
Inc. (a)....................... 261,700 14,262,650
Fox Entertainment Group, Inc.
(a)............................ 247,000 6,221,312
--------------
35,229,462
--------------
CHEMICALS (0.9%)
Monsanto Co. ................... 245,000 11,637,500
--------------
COMMUNICATIONS--EQUIPMENT (6.8%)
Cisco Systems, Inc. (a)......... 434,575 40,333,992
Lucent Technologies Inc. ....... 392,400 43,164,000
--------------
83,497,992
--------------
COMPUTER SOFTWARE & SERVICES
(10.0%)
Computer Associates
International, Inc. ........... 225,512 9,612,449
Compuware Corp. (a)............. 455,200 35,562,500
Equifax Inc. ................... 298,000 10,187,875
HBO & Co. ...................... 597,800 17,149,387
Microsoft Corp. (a)............. 224,800 31,176,950
Oracle Corp. (a)................ 453,000 19,535,625
--------------
123,224,786
--------------
COMPUTER SYSTEMS (6.0%)
EMC Corp. (a)................... 468,600 39,831,000
Sun Microsystems, Inc. (a)...... 401,000 34,335,625
--------------
74,166,625
--------------
CONSUMER FINANCE (1.5%)
Providian Financial Corp. ...... 256,800 19,260,000
--------------
ELECTRONICS--SEMICONDUCTORS
(1.9%)
Intel Corp. .................... 199,100 23,605,794
--------------
FINANCIAL--MISCELLANEOUS (8.7%)
Associates First Capital Corp.
Class A........................ 602,800 25,543,650
CIT Group, Inc. (The)........... 360,000 11,452,500
Citigroup Inc. ................. 319,548 15,817,626
Fannie Mae...................... 189,500 14,023,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
FINANCIAL--
MISCELLANEOUS (Continued)
Freddie Mac..................... 157,600 $ 10,155,350
SunAmerica Inc. ................ 371,300 30,121,713
--------------
107,113,839
--------------
HEALTH CARE DISTRIBUTORS (1.9%)
Cardinal Health Inc. ........... 302,050 22,918,044
--------------
HEALTH CARE--DRUGS (10.2%)
Elan Corp. PLC ADR (a)(b)....... 265,000 18,434,063
Lilly (Eli) & Co. .............. 407,000 36,172,125
Merck & Co., Inc. .............. 135,500 20,011,656
Pfizer Inc. .................... 133,300 16,720,819
Schering-Plough Corp. .......... 635,000 35,083,750
--------------
126,422,413
--------------
HEALTH CARE--MEDICAL PRODUCTS
(5.3%)
Guidant Corp. .................. 298,200 32,876,550
Medtronic, Inc. ................ 443,800 32,952,150
--------------
65,828,700
--------------
HEALTH CARE--MISCELLANEOUS
(2.9%)
HEALTHSOUTH Corp. .............. 615,400 9,500,238
Johnson & Johnson............... 309,062 25,922,575
--------------
35,422,813
--------------
HOUSEHOLD PRODUCTS (1.7%)
Colgate-Palmolive Co. .......... 228,100 21,184,787
--------------
INSURANCE (2.3%)
American International Group,
Inc. .......................... 191,062 18,461,366
Conseco, Inc. .................. 343,000 10,482,937
--------------
28,944,303
--------------
LEISURE TIME (1.8%)
Harley-Davidson, Inc. .......... 482,000 22,834,750
--------------
MANUFACTURING--DIVERSIFIED
(4.4%)
Illinois Tool Works Inc. ....... 190,800 12,044,250
Tyco International Ltd. ........ 558,900 42,162,019
--------------
54,206,269
--------------
POLLUTION CONTROL (1.3%)
Waste Management, Inc. ......... 347,600 16,206,850
--------------
</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.
99
<PAGE> 100
CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
RETAIL (17.6%)
Bed Bath & Beyond, Inc. (a)..... 409,600 $ 13,977,600
CVS Corp. ...................... 456,900 25,129,500
Dollar General Corp. ........... 488,983 11,552,223
Fred Meyer, Inc. (a)............ 334,900 20,177,725
Home Depot, Inc. (The).......... 517,800 31,682,887
Kohl's Corp. (a)................ 481,800 29,600,588
Kroger Co. (a).................. 347,600 21,029,800
Safeway Inc. (a)................ 593,100 36,142,031
Staples, Inc. (a)............... 641,000 28,003,688
--------------
217,296,042
--------------
SPECIALIZED SERVICES (4.0%)
Cendant Corp. (a)............... 918,030 17,499,947
IMS Health Inc. ................ 252,700 19,063,056
Service Corp. International..... 324,500 12,351,281
--------------
48,914,284
--------------
TELECOMMUNICATIONS--LONG
DISTANCE (2.9%)
MCI WorldCom, Inc. (a).......... 497,388 35,687,589
--------------
Total Common Stocks
(Cost $660,427,478)............ 1,200,180,892
--------------
</TABLE>
SHORT-TERM
INVESTMENT (5.7%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
COMMERCIAL PAPER (5.7%)
General Electric Capital Corp.
5.53%, due 1/8/99.............. $ 9,385,000 9,374,887
5.60%, due 1/11/99............. 15,000,000 14,976,637
Halifax PLC
5.65%, due 1/5/99.............. 20,000,000 19,987,417
Wells Fargo & Co.
5.51%, due 1/29/99............. 16,315,000 16,244,974
Xerox Credit Corp.
5.20%, due 1/4/99.............. 9,980,000 9,975,675
--------------
Total Short-Term Investments
(Cost $70,559,590)............. 70,559,590
--------------
Total Investments
(Cost $730,987,068) (c)........ 102.7% 1,270,740,482(d)
Liabilities in Excess of
Cash and Other Assets.......... (2.7) (33,876,132)
---------- --------------
Net Assets...................... 100.0% $1,236,864,350
========== ==============
</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, 1998 net unrealized appreciation was $539,753,414, 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 $548,068,368 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $8,314,954.
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.
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $730,987,068)....... $1,270,740,482
Cash................................... 3,862
Receivables:
Investment securities sold........... 3,454,445
Fund shares sold..................... 1,452,165
Dividends and interest............... 216,658
--------------
Total assets................... 1,275,867,612
--------------
LIABILITIES:
Payables:
Investment securities purchased...... 37,656,869
Fund shares redeemed................. 554,015
Adviser.............................. 353,207
Administrator........................ 196,226
Custodian............................ 25,358
Directors............................ 395
Accrued expenses....................... 217,192
--------------
Total liabilities.............. 39,003,262
--------------
Net assets applicable to outstanding
shares............................... $1,236,864,350
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share)
50 million shares authorized......... $ 404,045
Additional paid-in capital............. 697,058,272
Accumulated distribution in excess of
net
realized gain on investments......... (351,381)
Net unrealized appreciation
on investments....................... 539,753,414
--------------
Net assets applicable to outstanding
shares............................... $1,236,864,350
==============
Shares of capital stock outstanding.... 40,404,549
==============
Net asset value per share
outstanding.......................... $ 30.61
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 4,579,502
Interest............................. 2,539,727
--------------
Total income................... 7,119,229
--------------
Expenses:
Advisory............................. 3,408,702
Administration....................... 1,893,724
Shareholder communication............ 486,847
Professional......................... 94,039
Custodian............................ 76,522
Directors............................ 53,266
Miscellaneous........................ 48,434
--------------
Total expenses................. 6,061,534
--------------
Net investment income.................. 1,057,695
--------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments....... 10,978,637
Net change in unrealized appreciation
on investments....................... 308,212,084
--------------
Net realized and unrealized gain
on investments....................... 319,190,721
--------------
Net increase in net assets resulting
from operations...................... $ 320,248,416
==============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $3,009.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
101
<PAGE> 102
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 1,057,695 $ 30,234
Net realized gain on investments.......................... 10,978,637 17,402,879
Net change in unrealized appreciation on investments...... 308,212,084 113,288,532
-------------- --------------
Net increase in net assets resulting from operations...... 320,248,416 130,721,645
-------------- --------------
Dividends and distributions to shareholders:
From net investment income................................ (1,091,415) (1,000)
From net realized gain on investments..................... (11,013,862) (10,215,853)
In excess of net realized gain on investments............. (351,381) --
-------------- --------------
Total dividends and distributions to shareholders....... (12,456,658) (10,216,853)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares.......................... 246,918,825 151,573,522
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 12,456,658 10,216,853
-------------- --------------
259,375,483 161,790,375
Cost of shares redeemed................................... (93,381,647) (22,838,323)
-------------- --------------
Increase in net assets derived from capital share
transactions............................................ 165,993,836 138,952,052
-------------- --------------
Net increase in net assets.................................. 473,785,594 259,456,844
NET ASSETS:
Beginning of year........................................... 763,078,756 503,621,912
-------------- --------------
End of year................................................. $1,236,864,350 $ 763,078,756
============== ==============
Accumulated undistributed net investment income at end of
year...................................................... $ -- $ 29,913
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 22.39 $ 18.39 $ 15.49 $ 11.45 $ 12.03
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.03 0.00(a) 0.01 0.06 0.05
Net realized and unrealized gain (loss) on
investments............................... 8.51 4.31 2.90 4.04 (0.58)
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 8.54 4.31 2.91 4.10 (0.53)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income................ (0.03) (0.00)(a) (0.01) (0.06) (0.05)
From net realized gain
on investments.......................... (0.29) (0.31) -- -- --
------------ ------------ ------------ ------------ ------------
Total dividends and distributions........... (0.32) (0.31) (0.01) (0.06) (0.05)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 30.61 $ 22.39 $ 18.39 $ 15.49 $ 11.45
============ ============ ============ ============ ============
Total investment return..................... 38.14% 23.49% 18.75% 35.78% (4.38%)
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 0.11% 0.00%(b) 0.09% 0.57% 0.63%
Net expenses.............................. 0.64% 0.65% 0.73% 0.73% 0.73%
Expenses (before reimbursement)........... 0.64% 0.65% 0.75% 0.90% 0.91%
Portfolio turnover rate..................... 27% 34% 16% 35% 39%
Net assets at end of year (in 000's)........ $ 1,236,864 $ 763,079 $ 503,622 $ 244,536 $ 113,999
</TABLE>
- ------------
(a) Less than one cent per share.
(b) Less than one-hundredth of a percent.
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.
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.0%)+
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
ASSET-BACKED SECURITY (1.3%)
Bishop's Gate Residential
Mortgage Trust
Series 1998-2A Class A1
5.75%, due 11/22/99 (b)(c)(d).... $3,000,000 $ 3,000,000
------------
CERTIFICATES OF DEPOSIT (13.8%)
ABN AMRO New York
5.75%, due 3/31/99 (d)........... 2,000,000 2,002,008
Bayerische Hypo-und Vereinsbank AG
5.55%, due 1/4/99 (d)............ 2,000,000 2,000,010
Bayerische Landesbank Girozentrale
5.09%, due 3/23/99 (c)(d)........ 3,000,000 2,999,483
Bayerische Landesbank New York
5.41%, due 5/10/99 (c)(d)........ 2,000,000 1,999,473
Deutsche Bank New York
5.52%, due 1/14/99 (d)........... 3,000,000 2,999,713
5.67%, due 1/8/99 (d)............ 2,000,000 1,999,986
Dresdner Bank AG
5.15%, due 3/29/99 (d)........... 3,000,000 2,999,806
ING Bank N.V.
5.14%, due 3/15/99 (d)........... 2,000,000 1,999,962
Rabobank Nederland N.V. New York
4.83%, due 10/6/99 (d)........... 2,000,000 1,999,990
5.64%, due 7/30/99 (d)........... 2,000,000 2,006,312
5.71%, due 4/16/99 (d)........... 3,000,000 3,003,768
Societe Generale New York
5.68%, due 3/22/99 (d)........... 3,000,000 3,000,232
Svenska Handelsbanken Inc.
5.78%, due 5/28/99 (d)........... 3,000,000 3,002,308
------------
32,013,051
------------
COMMERCIAL PAPER (77.9%)
Abbey National North America
5.15%, due 1/6/99................ 2,000,000 1,998,569
5.20%, due 1/6/99................ 2,000,000 1,998,556
Alliance & Leicester PLC
5.28%, due 3/8/99 (b)............ 2,000,000 1,980,640
5.33%, due 3/8/99 (b)............ 2,000,000 1,980,457
Allianz of America Finance Corp.
5.10%, due 3/24/99 (b)........... 2,000,000 1,976,767
5.17%, due 2/19/99 (b)........... 1,735,000 1,722,791
Allomon Funding Corp.
5.35%, due 1/7/99 (b)............ 2,000,000 1,998,217
5.45%, due 1/4/99 (b)............ 2,000,000 1,999,092
5.45%, due 1/11/99 (b)........... 2,065,000 2,061,874
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
INVESTMENTS (100.0%)+
<S> <C> <C>
COMMERCIAL PAPER (Continued)
American Express Credit Corp.
4.80%, due 2/26/99............... $2,000,000 $ 1,985,067
5.18%, due 3/12/99............... 2,000,000 1,979,856
5.25%, due 2/10/99............... 2,000,000 1,988,333
American General Finance Corp.
5.23%, due 2/1/99................ 2,000,000 1,990,993
ANZ (Delaware) Inc.
5.06%, due 3/12/99............... 2,000,000 1,980,342
Banca CRT Financial Corp.
5.12%, due 3/30/99............... 2,000,000 1,974,969
5.15%, due 4/1/99................ 3,000,000 2,961,375
5.35%, due 3/3/99................ 1,599,000 1,584,505
5.45%, due 1/20/99............... 2,500,000 2,492,809
5.53%, due 2/10/99............... 1,700,000 1,689,555
Bayerische Hypo-und Vereinsbank AG
4.77%, due 6/30/99............... 2,000,000 1,952,300
BCI Funding Corp.
5.09%, due 3/8/99................ 2,000,000 1,981,337
5.12%, due 2/17/99............... 2,500,000 2,483,289
5.23%, due 1/6/99................ 2,000,000 1,998,547
5.25%, due 2/9/99................ 2,000,000 1,988,625
BellSouth Telecommunications Inc.
5.05%, due 2/18/99............... 1,000,000 993,267
5.07%, due 2/5/99................ 1,850,000 1,840,881
BTR Dunlop Finance Inc.
4.80%, due 6/10/99 (b)........... 2,000,000 1,957,333
4.88%, due 6/10/99 (b)........... 2,000,000 1,956,622
Caisse Centrale Desjardins du
Quebec
5.00%, due 4/1/99................ 2,000,000 1,975,000
5.10%, due 1/26/99............... 3,000,000 2,989,375
Commerzbank U.S. Finance Inc.
5.02%, due 3/2/99................ 2,000,000 1,983,267
Cregem North America Inc.
4.82%, due 4/6/99................ 1,000,000 987,281
5.00%, due 4/6/99................ 2,000,000 1,973,611
5.49%, due 1/5/99................ 4,000,000 3,997,560
Deutsche Bank Financial Inc.
5.22%, due 1/5/99................ 2,000,000 1,998,840
Ford Motor Credit Co.
5.08%, due 1/29/99............... 2,000,000 1,992,098
5.15%, due 2/19/99............... 1,600,000 1,588,784
5.16%, due 2/5/99................ 1,600,000 1,591,973
5.25%, due 1/8/99................ 1,800,000 1,798,162
5.31%, due 1/11/99............... 2,000,000 1,997,050
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
103
<PAGE> 104
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Formosa Plastics Corp. U.S.A.
4.95%, due 6/14/99............... $1,500,000 $ 1,466,175
5.15%, due 2/9/99................ 2,000,000 1,988,842
Franklin Resources Inc.
5.12%, due 3/11/99 (b)........... 1,800,000 1,782,336
5.22%, due 2/16/99 (b)........... 1,000,000 993,330
General Electric Capital Corp.
4.85%, due 7/28/99............... 2,000,000 1,943,955
5.07%, due 2/12/99............... 2,000,000 1,988,170
5.16%, due 3/9/99................ 2,000,000 1,980,793
5.30%, due 1/20/99............... 2,000,000 1,994,405
5.49%, due 1/29/99............... 2,400,000 2,389,752
Generale Bank Inc.
4.85%, due 6/15/99............... 2,000,000 1,955,542
Goldman Sachs Group L.P. (The)
4.95%, due 5/27/99............... 1,300,000 1,273,902
5.18%, due 2/23/99............... 2,000,000 1,984,748
5.38%, due 1/7/99................ 2,000,000 1,998,207
ING America Insurance Holdings
Inc.
5.25%, due 2/3/99................ 2,300,000 2,288,931
KFW International Finance Inc.
4.90%, due 5/28/99............... 2,000,000 1,959,983
Lloyds Bank PLC
4.85%, due 6/3/99................ 4,000,000 3,917,550
Merrill Lynch & Co. Inc.
5.08%, due 2/11/99............... 2,000,000 1,988,429
5.12%, due 2/5/99................ 2,000,000 1,990,044
Morgan (J.P.) & Co. Inc.
5.05%, due 3/25/99............... 1,750,000 1,729,625
5.06%, due 1/27/99............... 2,100,000 2,092,326
Morgan Stanley Dean Witter
Discover & Co.
5.13%, due 1/12/99............... 2,000,000 1,996,865
5.15%, due 1/21/99............... 2,000,000 1,994,278
5.15%, due 2/4/99................ 2,000,000 1,990,272
5.26%, due 3/12/99............... 1,350,000 1,336,192
National Rural Utilities
Cooperative Finance Corp.
4.85%, due 4/27/99............... 2,000,000 1,968,744
5.02%, due 3/19/99............... 2,000,000 1,978,526
Norwest Corp.
4.95%, due 2/3/99................ 2,000,000 1,990,925
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
INVESTMENTS (CONTINUED)
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Prudential Finance (Jersey) Ltd.
5.18%, due 2/11/99............... $2,000,000 $ 1,988,201
5.25%, due 1/8/99................ 2,000,000 1,997,958
Prudential Funding Corp.
5.06%, due 3/11/99............... 2,000,000 1,980,603
5.12%, due 1/13/99............... 2,000,000 1,996,587
5.23%, due 2/11/99............... 2,000,000 1,988,087
Receivables Capital Corp.
5.30%, due 2/4/99 (b)............ 1,800,000 1,790,990
5.31%, due 1/11/99 (b)........... 2,000,000 1,997,050
5.38%, due 1/14/99 (b)........... 1,400,000 1,397,280
5.40%, due 1/29/99 (b)........... 2,000,000 1,991,600
Salomon Smith Barney Holdings Inc.
5.12%, due 1/25/99............... 2,000,000 1,993,173
5.15%, due 2/16/99............... 2,100,000 2,086,181
5.23%, due 1/19/99............... 1,025,000 1,022,320
5.42%, due 1/11/99............... 2,000,000 1,996,989
San Paolo U.S. Financial Co.
5.06%, due 1/20/99............... 2,000,000 1,994,659
5.19%, due 2/19/99............... 2,000,000 1,985,872
Societe Generale North America
Inc.
5.00%, due 5/3/99................ 2,000,000 1,966,111
Svenska Handelsbanken Inc.
5.05%, due 3/15/99............... 2,000,000 1,979,519
UBS Finance (Delaware) Inc.
4.98%, due 4/19/99............... 2,000,000 1,970,120
5.12%, due 2/12/99............... 2,000,000 1,988,062
5.22%, due 1/5/99................ 2,000,000 1,998,840
UNIfunding Inc.
5.08%, due 2/19/99............... 2,000,000 1,986,171
5.19%, due 3/9/99................ 2,000,000 1,980,681
5.21%, due 3/9/99................ 1,050,000 1,039,819
Wood Street Funding Corp.
5.27%, due 1/29/99............... 2,000,000 1,991,802
5.37%, due 1/26/99............... 2,000,000 1,992,542
------------
180,434,033
------------
MEDIUM-TERM NOTES (7.0%)
First Union Corp.
5.61%, due 7/1/99 (c)(d)......... 2,000,000 2,000,251
Goldman Sachs Group L.P.
5.63%, due 3/26/99 (c)(d)........ 2,500,000 2,500,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
104
<PAGE> 105
MAINSTAY VP SERIES FUND, INC.
SHORT-TERM
INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
MEDIUM-TERM NOTES (Continued)
International Business Machines
Corp.
5.14%, due 4/1/99 (c)(d)......... $3,000,000 $ 2,999,489
Merrill Lynch & Co. Inc.
Series B
5.20%, due 3/17/99 (c)(d)........ 3,600,000 3,600,377
National Rural Utilities
Cooperative Finance Corp.
5.17%, due 9/21/99 (c)(d)........ 2,000,000 2,000,000
Norwest Corp.
5.27%, due 2/24/99 (c)(d)........ 3,000,000 3,000,504
------------
16,100,621
------------
Total Short-Term Investments
(Amortized Cost $231,547,705)
(e).............................. 100.0% 231,547,705
Cash and Other Assets,
Less Liabilities................. 0.0(a) 4,335
---------- ------------
Net Assets........................ 100.0% $231,552,040
========== ============
</TABLE>
- ------------
(a) Less than one tenth of a percent.
(b) May be sold to institutional investors only.
(c) Floating rate. Rate shown is the rate in effect at December 31, 1998.
(d) Coupon interest bearing security.
(e) The cost stated also represents the aggregate cost for Federal income tax
purposes.
The table below sets forth the diversification of Cash
Management Portfolio investments by industry.
INDUSTRY
DIVERSIFICATION
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
-------------------------
<S> <C> <C>
Auto Finance................ $ 8,968,068 3.9%
Banks #..................... 107,215,048 46.3
Brokerage................... 35,533,911 15.3
Computers & Office Equipment... 2,999,489 1.3
Consumer Financial
Services.................. 5,953,256 2.6
Finance..................... 47,203,077 20.4
Industrial.................. 3,913,956 1.7
Insurance................... 7,979,482 3.4
Residential Mortgage
Loans..................... 3,000,000 1.3
Telecommunication
Services.................. 2,834,148 1.2
Utilities................... 5,947,270 2.6
----------- ---------
231,547,705 100.0
Cash and Other Assets,
Less Liabilities.......... 4,335 0.0*
----------- ---------
Net Assets.................. $231,552,040 100.0%
----------- ---------
----------- ---------
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
# The Portfolio will invest more than 25% of the market value of its total
assets in the securities of banks and bank holding companies, including
certificates of deposit, bankers' acceptances and securities guaranteed by
banks and bank holding companies.
* Less than one tenth of a percent.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
105
<PAGE> 106
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(amortized cost $231,547,705).......... $231,547,705
Cash..................................... 113,361
Interest receivable...................... 950,884
------------
Total assets..................... 232,611,950
------------
LIABILITIES:
Payables:
Adviser................................ 47,164
Administrator.......................... 37,731
Custodian.............................. 8,248
Directors.............................. 83
Accrued expenses......................... 63,799
Dividend payable......................... 902,885
------------
Total liabilities................ 1,059,910
------------
Net assets applicable to outstanding
shares................................. $231,552,040
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 600 million shares authorized... $ 2,315,534
Additional paid-in capital............... 229,236,365
Accumulated undistributed net realized
gain on investments.................... 141
------------
Net assets applicable to outstanding
shares................................. $231,552,040
============
Shares of capital stock outstanding...... 231,553,423
============
Net asset value per share outstanding.... $ 1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 9,987,094
------------
Expenses:
Advisory............................... 446,059
Administration......................... 356,847
Shareholder communication.............. 72,293
Professional........................... 41,458
Custodian.............................. 24,237
Directors.............................. 10,380
Miscellaneous.......................... 16,971
------------
Total expenses................... 968,245
------------
Net investment income.................... 9,018,849
------------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments......... 2,765
------------
Net increase in net assets resulting from
operations............................. $ 9,021,614
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
106
<PAGE> 107
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 9,018,849 $ 6,478,968
Net realized gain on investments.......................... 2,765 1,549
------------- -------------
Net increase in net assets resulting from operations...... 9,021,614 6,480,517
------------- -------------
Dividends and distributions to shareholders:
From net investment income................................ (9,018,849) (6,478,968)
From net realized gain on investments..................... (2,107) --
------------- -------------
Total dividends and distributions to shareholders....... (9,020,956) (6,478,968)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares.......................... 485,909,046 285,479,612
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 8,752,871 6,345,913
------------- -------------
494,661,917 291,825,525
Cost of shares redeemed................................... (403,892,045) (269,392,486)
------------- -------------
Increase in net assets derived from capital share
transactions............................................ 90,769,872 22,433,039
------------- -------------
Net increase in net assets.................................. 90,770,530 22,434,588
NET ASSETS:
Beginning of year........................................... 140,781,510 118,346,922
------------- -------------
End of year................................................. $ 231,552,040 $ 140,781,510
============= =============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Net investment income.......................... 0.05 0.05 0.05 0.05 0.04
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment income................... (0.05) (0.05) (0.05) (0.05) (0.04)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total investment return........................ 5.18% 5.25% 4.95% 5.59% 3.82%
Ratios (to average net assets)/Supplemental
Data:
Net investment income........................ 5.05% 5.13% 4.92% 5.44% 3.97%
Net expenses................................. 0.54% 0.54% 0.62% 0.62% 0.62%
Expenses (before reimbursement).............. 0.54% 0.54% 0.64% 0.94% 0.89%
Net assets at end of year (in 000's)........... $ 231,552 $ 140,782 $ 118,347 $ 87,839 $ 71,116
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
107
<PAGE> 108
CONVERTIBLE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
CONVERTIBLE SECURITIES (93.8%)(+)
BONDS (61.8%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------
<S> <C> <C>
AUTO PARTS (4.5%)
Magna International, Inc.
4.875%, due 2/15/05 (c)........... $ 500,000 $ 513,750
Mark IV Industries, Inc.
4.75%, due 11/1/04 (c)............ 1,100,000 903,375
MascoTech, Inc.
4.50%, due 12/15/03............... 1,500,000 1,207,500
-----------
2,624,625
-----------
BANKS (1.7%)
Mitsubishi Bank Ltd. International
Finance (Bermuda) Trust
3.00%, due 11/30/02............... 1,000,000 975,000
-----------
CAPITAL GOODS (2.2%)
Xilinx, Inc.
5.25%, due 11/1/02................ 1,000,000 1,270,000
-----------
COMPUTERS--NETWORKING (1.8%)
Synoptics Communications, Inc.
5.25%, due 5/15/03 (c)............ 1,000,000 1,042,500
-----------
COMPUTERS & OFFICE EQUIPMENT (1.1%)
Western Digital Corp.
(zero coupon), due 2/18/18........ 2,000,000 612,500
-----------
ELECTRICAL EQUIPMENT (0.9%)
Antec Corp.
4.50%, due 5/15/03 (c)............ 500,000 496,250
-----------
ENERGY (1.7%)
Pennzoil Co.
4.90%, due 8/15/08................ 1,000,000 970,000
-----------
HEALTH CARE (9.6%)
Elan Finance Corp. Ltd.
(zero coupon), due 12/14/18 (c)... 1,000,000 563,750
PhyCor, Inc.
4.50%, due 2/15/03................ 4,200,000 2,577,750
Veterinary Centers of America, Inc.
5.25%, due 5/1/06................. 2,880,000 2,376,000
-----------
5,517,500
-----------
LEISURE (1.2%)
Family Golf Centers, Inc.
5.75%, due 10/15/04............... 750,000 694,688
-----------
OIL SERVICES (1.7%)
Loews Corp.
3.125%, due 9/15/07............... 1,200,000 955,500
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------
<S> <C> <C>
PERSONAL SERVICES (2.1%)
Equity Corp. International
4.50%, due 12/31/04 (c)........... $1,000,000 $ 1,203,750
-----------
POLLUTION & RELATED (1.6%)
Waste Management, Inc.
4.00%, due 2/1/02................. 750,000 900,000
-----------
PUBLISHING (3.0%)
World Color Press, Inc.
6.00%, due 10/1/07................ 1,775,000 1,743,937
-----------
REAL ESTATE (0.2%)
Macerich Co.
7.25%, due 12/15/02 (d)........... 135,000 129,600
-----------
RESTAURANTS & LODGING (0.1%)
Boston Chicken, Inc.
(zero coupon), due 6/1/15
(e)(f)............................ 6,643,000 66,430
-----------
SEMICONDUCTOR
EQUIPMENT (1.9%)
Integrated Process Equipment Corp.
6.25%, due 9/15/04................ 1,500,000 1,096,875
-----------
SEMICONDUCTORS (8.6%)
Advanced Micro Devices, Inc.
6.00%, due 5/15/05................ 1,500,000 1,515,000
Amkor Technologies, Inc.
5.75%, due 5/1/03................. 1,500,000 1,393,125
C-Cube Microsystems, Inc.
5.875%, due 11/1/05............... 900,000 925,875
Cypress Semiconductor Corp.
6.00%, due 10/1/02................ 1,300,000 1,137,500
-----------
4,971,500
-----------
SOFTWARE (2.6%)
System Software Associates, Inc.
7.00%, due 9/15/02................ 1,000,000 740,000
Wind River Systems, Inc.
5.00%, due 8/1/02................. 675,000 783,844
-----------
1,523,844
-----------
SPECIALIZED SERVICES (1.6%)
CUC International, Inc.
3.00%, due 2/15/02................ 1,000,000 955,000
-----------
STEEL, ALUMINUM & OTHER METALS
(0.7%)
Coeur d'Alene Mines Corp.
7.25%, due 10/31/05 (c)........... 700,000 409,500
-----------
</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.
108
<PAGE> 109
MAINSTAY VP SERIES FUND, INC.
BONDS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------
<S> <C> <C>
TECHNOLOGY (4.7%)
Adaptec, Inc.
4.75%, due 2/1/04................. $2,500,000 $ 1,937,500
4.75%, due 2/1/04 (c)............. 1,000,000 775,000
-----------
2,712,500
-----------
TELECOMMUNICATION
SERVICES (8.3%)
Bell Atlantic Financial Services,
Inc.
5.75%, due 4/1/03 (c)............. 850,000 894,625
France Telecom ADN
2.00%, due 1/1/04 (c)............. 1,300,000 1,294,150
Rogers Communications, Inc.
2.00%, due 11/26/05 (g)........... 4,000,000 2,580,000
-----------
4,768,775
-----------
Total Bonds
(Cost $37,182,657)................ 35,640,274
-----------
PREFERRED STOCKS (32.0%)
SHARES
----------
AUTO PARTS (1.7%)
Tower Automotive Capital Trust
6.75% (c)......................... 19,000 969,000
-----------
BIOTECHNOLOGY (1.0%)
Alkermes, Inc.
6.50%............................. 12,500 575,000
-----------
CABLE (3.5%)
United International Holdings, Inc.
4.00%, Series A (a)(h)............ 10,400 2,028,000
-----------
CHEMICALS (1.7%)
Monsanto Co.
6.50%............................. 20,000 980,000
-----------
COMPUTERS & OFFICE EQUIPMENT (2.1%)
Trikon Technologies, Inc.
8.125%, Series H (i).............. 104,348 182,609
Unisys Corp.
$3.75, Series A................... 17,000 998,750
-----------
1,181,359
-----------
CONSUMER STAPLES (0.4%)
Newell Financial Trust I
5.25% (c)......................... 4,000 215,000
-----------
ENERGY (0.8%)
Unocal Capital Trust
6.25%............................. 10,000 477,500
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
FOOD (0.8%)
Suiza Capital Trust II
5.50%............................. 10,000 $ 431,250
-----------
INSURANCE (4.3%)
Merrill Lynch & Co., Inc.
7.25%, Series SAI (j)............. 33,000 2,458,500
-----------
MACHINERY (0.3%)
Ingersoll-Rand Co.
6.75%............................. 8,000 190,000
-----------
MEDIA (1.7%)
Mediaone Group, Inc.
6.25%............................. 15,000 997,500
-----------
PAPER & FOREST
PRODUCTS (2.3%)
International Paper Co.
5.25%............................. 28,000 1,354,500
-----------
PUBLISHING (1.0%)
Tribune Co.
6.25%............................. 23,000 566,375
-----------
REAL ESTATE (6.3%)
General Growth Properties, Inc.
7.25%............................. 95,000 2,446,250
Glenborough Realty Trust, Inc.
7.75%, Series A................... 65,000 1,186,250
-----------
3,632,500
-----------
SOFTWARE (3.7%)
Microsoft Corp.
$2.196, Series A.................. 22,000 2,150,500
-----------
TELECOMMUNICATION
SERVICES (0.4%)
Winstar Communications, Inc.
6.00%, Series A (i)............... 5,700 255,787
-----------
Total Preferred Stocks
(Cost $17,850,105)................ 18,462,771
-----------
Total Convertible Securities
(Cost $55,032,762)................ 54,103,045
-----------
COMMON STOCKS (1.4%)
COMPUTERS & OFFICE
EQUIPMENT (0.1%)
Trikon Technologies, Inc. (a)...... 1,897,326 75,893
-----------
DOMESTIC OIL & GAS (0.6%)
Enron Oil & Gas Co................. 20,800 358,800
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
109
<PAGE> 110
CONVERTIBLE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
ELECTRIC UTILITIES (0.1%)
Potomac Electric Power Co.......... 2,000 $ 52,625
-----------
HEALTH CARE (0.6%)
Integrated Health Services, Inc.... 24,805 350,371
-----------
Total Common Stocks
(Cost $2,310,218)................. 837,689
-----------
PREFERRED STOCK (0.3%)
MINING (0.3%)
Freeport-McMoRan Copper & Gold,
Inc., Series Silver (k)(l)........ 15,000 176,250
-----------
Total Preferred Stock
(Cost $255,750)................... 176,250
-----------
Total Long-Term Investments
(Cost $57,598,730)................ 55,116,984
-----------
</TABLE>
SHORT-TERM
INVESTMENT (4.5%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER (4.5%)
Xerox Credit Corp.
5.20%, due 1/4/99................. $2,585,000 2,583,880
-----------
Total Short-Term Investment
(Cost $2,583,880)................. 2,583,880
-----------
Total Investments
(Cost $60,182,610) (m)............ 100.0% 57,700,864(n)
Cash and Other Assets,
Less Liabilities.................. 0.0(b) 9,860
--------- ---------
Net Assets......................... 100.0% $57,710,724
--------- ---------
--------- ---------
</TABLE>
- ------------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Euro-Dollar bond.
(e) 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.
(f) Issue in bankruptcy.
(g) Yankee bond.
(h) Restricted security.
(i) PIK ("Payment in Kind")--interest or dividend payment is made with
additional securities.
(j) STRYPES--Structured Yield Product Exchangeable for SunAmerica, Inc. common
stock.
(k) Depository Shares--each share represents 0.025 shares of silver denominated
preferred stock.
(l) Dividend equals U.S. dollar equivalent of 0.04125 oz. of silver per share.
(m) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(n) At December 31, 1998 net unrealized depreciation was $2,481,746, 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 $3,700,272 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $6,182,018.
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.
CONVERTIBLE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $60,182,610).......... $ 57,700,864
Cash..................................... 303,419
Receivables:
Dividends and interest................. 510,109
Investment securities sold............. 155,590
Fund shares sold....................... 1,713
------------
Total assets..................... 58,671,695
------------
LIABILITIES:
Payables:
Investment securities purchased........ 882,833
Adviser................................ 17,258
Fund shares redeemed................... 11,117
Administrator.......................... 9,588
Custodian.............................. 6,520
Directors.............................. 25
Accrued expenses......................... 33,630
------------
Total liabilities................ 960,971
------------
Net assets applicable to outstanding
shares................................. $ 57,710,724
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 55,840
Additional paid-in capital............... 59,715,491
Accumulated undistributed net realized
gain on investments.................... 421,139
Net unrealized depreciation on
investments............................ (2,481,746)
------------
Net assets applicable to outstanding
shares................................. $ 57,710,724
============
Shares of capital stock outstanding...... 5,584,009
============
Net asset value per share outstanding.... $ 10.33
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 2,326,704
Dividends.............................. 688,974
------------
Total income..................... 3,015,678
------------
Expenses:
Advisory............................... 183,491
Administration......................... 101,940
Professional........................... 37,513
Shareholder communication.............. 17,341
Custodian.............................. 8,337
Directors.............................. 2,853
Portfolio pricing...................... 2,001
Miscellaneous.......................... 15,881
------------
Total expenses................... 369,357
------------
Net investment income.................... 2,646,321
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments......... 995,633
Net change in unrealized depreciation on
investments............................ (2,011,586)
------------
Net realized and unrealized loss on
investments............................ (1,015,953)
------------
Net increase in net assets resulting from
operations............................. $ 1,630,368
============
</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
CONVERTIBLE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 2,646,321 $ 1,491,304
Net realized gain on investments.......................... 995,633 3,443,999
Net change in unrealized appreciation (depreciation) on
investments............................................. (2,011,586) (722,378)
------------ ------------
Net increase in net assets resulting from operations...... 1,630,368 4,212,925
------------ ------------
Dividends and distributions to shareholders:
From net investment income................................ (2,714,731) (1,479,858)
From net realized gain on investments..................... (1,877,278) (2,100,589)
------------ ------------
Total dividends and distributions to shareholders....... (4,592,009) (3,580,447)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 21,700,659 21,744,883
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 4,592,009 3,580,447
------------ ------------
26,292,668 25,325,330
Cost of shares redeemed................................... (5,388,586) (1,653,885)
------------ ------------
Increase in net assets derived from capital share
transactions............................................ 20,904,082 23,671,445
------------ ------------
Net increase in net assets.................................. 17,942,441 24,303,923
NET ASSETS:
Beginning of year........................................... 39,768,283 15,464,360
------------ ------------
End of year................................................. $ 57,710,724 $ 39,768,283
============ ============
Accumulated undistributed net investment income at end of
year...................................................... $ -- $ 22,890
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
OCTOBER 1,
1996 (a)
YEAR ENDED THROUGH
DECEMBER 31 DECEMBER 31,
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 10.76 $ 10.27 $ 10.00
----------- ----------- -----------
Net investment income....................................... 0.51 0.44 0.10
Net realized and unrealized gain (loss) on investments...... (0.02) 1.12 0.29
----------- ----------- -----------
Total from investment operations............................ 0.49 1.56 0.39
----------- ----------- -----------
Less dividends and distributions:
From net investment income................................ (0.52) (0.44) (0.10)
From net realized gain on investments..................... (0.40) (0.63) (0.02)
----------- ----------- -----------
Total dividends and distributions........................... (0.92) (1.07) (0.12)
----------- ----------- -----------
Net asset value at end of period............................ $ 10.33 $ 10.76 $ 10.27
=========== =========== ===========
Total investment return..................................... 4.49% 15.43% 3.89%(b)
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 5.19% 5.13% 5.14%+
Net expenses.............................................. 0.72% 0.73% 0.73%+
Expenses (before reimbursement)........................... 0.72% 0.78% 1.46%+
Portfolio turnover rate..................................... 209% 217% 15%
Net assets at end of period (in 000's)...................... $ 57,711 $ 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.
112
<PAGE> 113
MAINSTAY VP SERIES FUND, INC.
GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
LONG-TERM BONDS (100.5%)+
ASSET-BACKED SECURITIES (3.4%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AIRPLANE LEASES (1.8%)
AerCo Ltd.
Series 1A Class A1
5.7255%, due 7/15/23 (a)(e)..... $ 575,000 $ 570,935
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19 (d).......... 690,971 729,665
Morgan Stanley Aircraft Finance
Series 1A Class A1
5.7455%, due 3/15/23 (a)(e)..... 825,000 820,380
------------
2,120,980
------------
CONSUMER LOANS (0.1%)
GreenTree Recreational
Equipment & Consumer Trust
Series 1996-C Class A1
5.7755%, due 10/15/17 (d)(e).... 145,259 144,715
------------
EQUIPMENT LOANS (0.3%)
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02 (d)......... 410,000 407,192
------------
HOME EQUITY LOANS (1.2%)
Saxon Asset Securities Trust
Series 1997-3 Class AF1
5.7844%, due 10/25/20 (d)(e).... 248,819 248,421
Southern Pacific Secured Assets
Corp.
Series 1997-1 Class A1
5.8244%, due 4/25/27 (d)(e)..... 1,164,143 1,151,046
------------
1,399,467
------------
Total Asset-Backed Securities
(Cost $4,099,192)............... 4,072,354
------------
MORTGAGE-BACKED SECURITIES (5.0%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (4.8%)
DLJ Commercial Mortgage Corp.
Series 1998-CF2 Class A1B
6.24%, due 11/12/31 (d)......... 1,040,000 1,060,155
LB Commercial Conduit Mortgage
Trust Series 1998-C4 Class A1B
6.21%, due 10/15/08 (d)......... 2,305,000 2,343,171
Merrill Lynch Mortgage Investors,
Inc.
Series 1995-C2 Class A1
7.2778%, due 6/15/21 (d)(e)..... 544,871 554,668
Morgan Stanley Capital I
Series 1998-HF2 Class A1
6.01%, due 11/15/30 (d)......... 497,185 501,923
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS)(Continued)
Mortgage Capital Funding, Inc.
Series 1998-MC3 Class A2
6.337%, due 11/18/31 (d)........ $ 870,000 $ 886,452
Nationslink Funding Corp.
Series 1998-2 Class A1
6.001%, due 11/20/07 (d)........ 402,886 405,907
------------
5,752,276
------------
RESIDENTIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATION) (0.2%)
Structured Asset Securities Corp.
Series 1996-2 Class A1
7.00%, due 8/25/26 (d).......... 189,545 189,803
------------
Total Mortgage-Backed Securities
(Cost $5,907,858)............... 5,942,079
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (92.1%)
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (6.7%)
5.25%, due 1/15/03 (d).......... 4,955,000 4,988,843
5.75%, due 4/15/03.............. 2,965,000 3,043,661
------------
8,032,504
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (22.4%)
6.45%, due 1/1/05............... 579,826 601,743
6.50%, due 5/1/13 - 10/1/28..... 16,378,911 16,508,737
6.50%, due 2/11/29 TBA (c)...... 8,210,000 8,256,222
6.54%, due 1/1/05............... 545,604 569,392
7.00%, due 12/1/12.............. 741,426 757,411
------------
26,693,505
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITIES) (16.6%)
7.00%, due 7/15/25 - 9/15/28
(d)............................. 17,074,581 17,469,516
8.00%, due 11/15/28............. 2,146,421 2,228,930
------------
19,698,446
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (MORTGAGE
PASS-THROUGH SECURITY) (5.4%)
7.50%, due 1/21/29 TBA (c)...... 6,240,000 6,431,131
------------
</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.
113
<PAGE> 114
GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
UNITED STATES TREASURY BONDS
(18.8%)
6.125%, due 11/15/27 (f)........ $ 4,240,000 $ 4,746,129
6.375%, due 8/15/27 (f)......... 2,950,000 3,390,641
7.625%, due 2/15/25 (f)......... 7,055,000 9,275,138
8.875%, due 8/15/17............. 3,500,000 4,930,065
------------
22,341,973
------------
UNITED STATES TREASURY NOTES
(22.2%)
5.375%, due 6/30/03............. 660,000 679,180
5.625%, due 11/30/00 (f)........ 5,105,000 5,195,920
6.50%, due 5/15/05.............. 3,540,000 3,879,628
6.625%, due 5/15/07 (f)......... 6,000,000 6,747,180
6.875%, due 5/15/06 (f)......... 5,470,000 6,184,491
7.875%, due 11/15/99 (b)........ 3,625,000 3,722,404
------------
26,408,803
------------
Total U.S. Government &
Federal Agencies
(Cost $109,116,400)............. 109,606,362
------------
Total Long-Term Bonds
(Cost $119,123,450)............. 119,620,795
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (11.0%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
COMMERCIAL PAPER (1.4%)
American Express Credit Corp.
5.85%, due 1/8/99............... $ 1,700,000 $ 1,698,063
------------
Total Commercial Paper
(Cost $1,698,063)............... 1,698,063
------------
FEDERAL AGENCY (9.6%)
Federal Mortgage Corp. Discount
Note 4.50%, due 1/4/99.......... 11,410,000 11,405,721
------------
Total Federal Agency
(Cost $11,405,721).............. 11,405,721
------------
Total Short-Term Investments
(Cost $13,103,784).............. 13,103,784
------------
Total Investments (Cost
$132,227,234) (g)............... 111.5% 132,724,579(h)
Liabilities in Excess of
Cash and Other Assets........... (11.5) (13,703,685)
---------- ----------
Net Assets....................... 100.0% $119,020,894
========== ============
</TABLE>
- ------------
(a) May be sold to institutional investors only.
(b) Long-term security maturing within the subsequent twelve month period.
(c) 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.
(d) Segregated or partially segregated as collateral for TBA.
(e) Floating rate. Rate shown is the rate in effect at December 31, 1998.
(f) Represent securities out on loan or a portion of which is out on loan.
(g) The cost for Federal income tax purposes is $132,340,897.
(h) At December 31, 1998 net unrealized appreciation was $383,682, 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 $752,685 and aggregate gross unrealized
depreciation for all investments on which there was excess of cost over
market value of $369,003.
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.
GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $132,227,234)......... $132,724,579
Collateral held for securities loaned, at
value.................................. 28,165,515
Receivables:
Interest............................... 1,025,031
Fund shares sold....................... 279,100
Investment securities sold............. 60,602
------------
Total assets..................... 162,254,827
------------
LIABILITIES:
Securities lending collateral, at
value.................................. 28,165,515
Payables:
Investment securities purchased........ 14,648,734
Fund shares redeemed................... 229,970
Custodian.............................. 96,959
Adviser................................ 30,003
Administrator.......................... 20,002
Directors.............................. 40
Accrued expenses......................... 42,710
------------
Total liabilities................ 43,233,933
------------
Net assets applicable to outstanding
shares................................. $119,020,894
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares authorized.... $ 115,925
Additional paid-in capital............... 119,422,807
Accumulated net realized loss on
investments............................ (1,015,183)
Net unrealized appreciation on
investments............................ 497,345
------------
Net assets applicable to outstanding
shares................................. $119,020,894
============
Shares of capital stock outstanding...... 11,592,496
============
Net asset value per share outstanding.... $ 10.27
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 5,565,833
------------
Expenses:
Advisory............................... 272,355
Administration......................... 181,570
Professional........................... 39,449
Shareholder communication.............. 30,222
Custodian.............................. 25,668
Directors.............................. 5,100
Portfolio pricing...................... 2,664
Miscellaneous.......................... 11,695
------------
Total expenses................... 568,723
------------
Net investment income.................... 4,997,110
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments......... 3,761,974
Net change in unrealized appreciation on
investments............................ (1,193,654)
------------
Net realized and unrealized gain on
investments............................ 2,568,320
------------
Net increase in net assets resulting from
operations............................. $ 7,565,430
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
115
<PAGE> 116
GOVERNMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 4,997,110 $ 4,772,472
Net realized gain on investments.......................... 3,761,974 205,612
Net change in unrealized appreciation on investments...... (1,193,654) 1,417,840
------------ ------------
Net increase in net assets resulting from operations...... 7,565,430 6,395,924
------------ ------------
Dividends to shareholders:
From net investment income................................ (4,979,006) (4,698,251)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 58,973,999 9,479,059
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 4,979,006 4,698,251
------------ ------------
63,953,005 14,177,310
Cost of shares redeemed................................... (21,273,046) (15,243,012)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions...................................... 42,679,959 (1,065,702)
------------ ------------
Net increase in net assets.................................. 45,266,383 631,971
NET ASSETS:
Beginning of year........................................... 73,754,511 73,122,540
------------ ------------
End of year................................................. $119,020,894 $ 73,754,511
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 9.83 $ 9.59 $ 10.01 $ 9.21 $ 10.15
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.45 0.67 0.65 0.75 0.75
Net realized and unrealized gain (loss) on
investments............................... 0.44 0.24 (0.42) 0.80 (0.94)
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 0.89 0.91 0.23 1.55 (0.19)
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment income................ (0.45) (0.67) (0.65) (0.75) (0.75)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 10.27 $ 9.83 $ 9.59 $ 10.01 $ 9.21
============ ============ ============ ============ ============
Total investment return..................... 9.00% 9.48% 2.28% 16.72% (1.84%)
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 5.50% 6.71% 6.66% 7.80% 8.16%
Net expenses.............................. 0.63% 0.63% 0.67% 0.67% 0.67%
Expenses (before reimbursement)........... 0.63% 0.63% 0.71% 0.82% 0.87%
Portfolio turnover rate..................... 405% 345% 304% 592% 483%
Net assets at end of year (in 000's)........ $ 119,021 $ 73,755 $ 73,123 $ 64,812 $ 61,641
</TABLE>
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.
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
LONG-TERM BONDS (84.8%)+
CONVERTIBLE BONDS (7.0%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
CELLULAR TELEPHONE (1.2%)
Metro Pacific Capital Ltd.
2.50%, due 4/11/03 (o)........ $ 7,900,000 $ 7,060,625
------------
CONGLOMERATES (2.2%)
First Pacific Capital Ltd.
2.00%, due 3/27/02 (o)........ 6,332,000 5,762,120
Hutchison Delta Finance Ltd.
7.00%, due 11/8/01 (o)........ 4,690,000 5,065,200
Loxley Public Co. Ltd.
2.50%, due 4/4/01 (o)......... 3,250,000 698,750
3.50%, due 4/20/05 (o)........ 3,103,000 806,780
------------
12,332,850
------------
DRUGS (0.1%)
Dura Pharmaceuticals, Inc.
3.50%, due 7/15/02............ 470,000 333,700
------------
HEALTH CARE (0.2%)
Sun Healthcare Group, Inc.
6.00%, due 3/1/04 (c)......... 1,805,000 1,155,200
------------
MINING (1.1%)
Agnico-Eagle Mines Ltd.
3.50%, due 1/27/04............ 1,615,000 960,925
TVX Gold, Inc.
5.00%, due 3/28/02............ 7,390,000 5,280,155
------------
6,241,080
------------
RETAIL (0.7%)
Nine West Group, Inc.
5.50%, due 7/15/03............ 5,000,000 3,950,000
------------
TECHNOLOGY (0.9%)
Cirrus Logic, Inc.
6.00%, due 12/15/03........... 7,125,000 5,201,250
------------
TELECOMMUNICATION SERVICES
(0.6%)
Technology Resources Industries
Berhad
(zero coupon), due 10/31/04... 3,500,000 2,205,000
2.75%, due 11/28/04 (o)....... 2,220,000 1,420,800
------------
3,625,800
------------
Total Convertible Bonds
(Cost $43,961,267)............ 39,900,505
------------
</TABLE>
CORPORATE BONDS (68.7%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
AEROSPACE (2.2%)
DeCrane Aircraft Holdings, Inc.
12.00%, due 9/30/08 (u)....... $ 4,385 $ 4,385,000
Pacific Aerospace &
Electronics, Inc.
11.25%, due 8/1/05 (c)........ 8,190,000 6,388,200
Sequa Corp.
9.625%, due 10/15/99.......... 400,000 406,120
Transdigm, Inc.
10.375%, due 12/1/08 (c)...... 1,200,000 1,206,000
------------
12,385,320
------------
AUTO MANUFACTURING (1.0%)
Titan Tire Corp.
7.00%, due 2/11/00 (j)........ 6,000,000 5,880,000
------------
BANKS (2.5%)
B.F. Saul Real Estate
Investment Trust
Series B
9.75%, due 4/1/08............. 5,950,000 5,533,500
Local Financial Corp.
11.00%, due 9/8/04............ 3,030,000 3,120,900
Tokia Preferred Capital Co.
L.L.C.
9.98%, due 12/29/49
11.0914%,
beginning 6/30/08 (c)(o)...... 6,500,000 5,590,000
------------
14,244,400
------------
BROADCAST/MEDIA (0.2%)
Paxson Communications Corp.
11.625%, due 10/1/02.......... 1,000,000 1,025,000
------------
CABLE (7.4%)
@Entertainment, Inc.
Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03..... 13,605,000 5,986,200
American Telecasting, Inc.
(zero coupon), due 6/15/04
14.50%, beginning 6/15/99..... 11,460,066 1,375,208
People's Choice TV Corp.
(zero coupon), due 6/1/04
13.125%, beginning 6/1/00
(x)........................... 6,465 1,163,700
Poland Communications, Inc.
Series B
9.875%, due 11/1/03........... 3,015,000 2,638,125
Primestar, Inc.
12.3788%, due 4/1/99 (d)(j)... 9,600,000 3,840,000
</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
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
CORPORATE BONDS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
CABLE (Continued)
Supercanal Holding, S.A.
11.50%, due 5/15/05 (c)....... $ 2,270,000 $ 1,362,000
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01..... 28,935,000 15,046,200
United International Holdings,
Inc.
Series B
(zero coupon), due 2/15/08
10.75%, beginning 2/15/03..... 19,830,000 10,708,200
------------
42,119,633
------------
CASINOS (4.3%)
Circus Circus Enterprises, Inc.
6.70%, due 11/15/96........... 1,445,000 1,368,182
El Comandante Capital Corp.
11.75%, due 12/15/03.......... 939,000 845,100
Harrah's Operating Co., Inc.
7.875%, due 12/15/05.......... 4,200,000 4,246,536
Harvey Casinos Resorts
10.625%, due 6/1/06........... 4,960,000 5,356,800
Jazz Casino Co. L.L.C.
(zero coupon), due 11/15/09... 317,520 19,051
5.867%, due 11/15/09 (d)(l)... 3,258,360 1,629,180
Penn National Gaming, Inc.
10.625%, due 12/15/04......... 7,560,000 7,938,000
President Riverboat Casinos,
Inc.
12.00%, due 9/15/01 (c)(j).... 1,180,000 1,180,000
13.00%, due 9/15/01........... 2,348,000 2,019,280
------------
24,602,129
------------
CELLULAR TELEPHONE (1.5%)
Centennial Cellular Corp.
8.875%, due 11/1/01........... 5,335,000 5,655,100
10.125%, due 5/15/05.......... 1,500,000 1,875,000
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01
(f)(j)........................ 7,775,000 777,500
------------
8,307,600
------------
CHEMICALS (0.1%)
Borden Chemical & Plastics L.P.
9.50%, due 5/1/05............. 600,000 498,000
------------
COMPUTERS & OFFICE EQUIPMENT
(0.7%)
American Business
Information, Inc.
9.50%, due 6/15/08 (c)........ 5,050,000 4,141,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
CONSTRUCTION & ENGINEERING
(1.4%)
Cathay International Holdings
Ltd.
13.00%, due 4/15/08 (c)(o).... $ 17,300,000 $ 6,574,000
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)........ 3,350,000 1,541,000
------------
8,115,000
------------
CONSUMER DURABLES (0.6%)
Selmer Co., Inc.
11.00%, due 5/15/05........... 3,000,000 3,210,000
------------
COSMETICS (1.0%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08 (c)........ 6,200,000 5,642,000
------------
DOMESTIC OIL & GAS (2.5%)
Belco Oil & Gas Corp.
Series B
8.875%, due 9/15/07........... 1,500,000 1,372,500
Denbury Management, Inc.
9.00%, due 3/1/08............. 1,600,000 1,440,000
Houston Exploration Co. (The)
Series B
8.625%, due 1/1/08............ 2,250,000 2,182,500
Husky Oil Ltd.
8.90%, due 8/15/28
11.1875%, beginning 8/15/08... 200,000 192,000
KCS Energy, Inc.
8.875%, due 1/15/08........... 500,000 460,000
Queens Sand Resources, Inc.
12.50%, due 7/1/08............ 3,920,000 2,822,400
Snyder Oil Corp.
8.75%, due 6/15/07............ 3,000,000 2,910,000
Vintage Petroleum, Inc.
8.625%, due 2/1/09............ 2,830,000 2,660,200
------------
14,039,600
------------
DRUGS (0.9%)
ICN Pharmaceuticals, Inc.
8.75%, due 11/15/08 (c)....... 5,300,000 5,353,000
------------
ELECTRIC UTILITIES (0.5%)
ESI Tractebel Acquisition Corp.
7.99%, due 12/30/11........... 2,825,000 2,810,875
------------
ENERGY (0.9%)
Conproca, S.A.
12.00%, due 6/16/10 (c)(o).... 5,400,000 5,076,000
------------
</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.
CORPORATE BONDS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
FINANCE (1.6%)
CB Richard Ellis Services, Inc.
8.875%, due 6/1/06............ $ 7,025,000 $ 6,884,500
Cityscape Financial Corp.
Series A
12.75%, due 6/1/04 (g)........ 8,000,000 1,200,000
ContiFinancial Corp.
7.50%, due 3/15/02............ 1,595,000 1,084,600
------------
9,169,100
------------
FOOD, BEVERAGE & TOBACCO (1.4%)
Colorado Prime Corp.
12.50%, due 5/1/04............ 5,210,000 2,084,000
Standard Commercial Corp.
8.875%, due 8/1/05............ 6,065,000 5,822,400
------------
7,906,400
------------
HEALTH CARE (5.7%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95........... 6,885,000 5,993,055
Fountain View, Inc.
Series B
11.25%, due 4/15/08........... 2,900,000 2,523,000
Global Health Sciences, Inc.
11.00%, due 5/1/08............ 5,100,000 3,366,000
Magellan Health Services, Inc.
9.00%, due 2/15/08............ 4,400,000 3,916,000
Medaphis Corp.
9.50%, due 2/15/05............ 11,145,000 8,693,100
MedPartners, Inc.
6.875%, due 9/1/00............ 2,310,000 2,032,800
7.375%, due 10/1/06........... 5,320,000 4,349,100
Sun Healthcare Group, Inc.
Series B
9.50%, due 7/1/07............. 1,870,000 1,514,700
------------
32,387,755
------------
HOUSING (1.0%)
Greystone Homes, Inc.
10.75%, due 3/1/04............ 5,615,000 5,923,825
------------
INDUSTRIAL (1.3%)
Generac Portable Products
L.L.C.
11.25%, due 7/1/06 (c)(o)..... 2,620,000 2,646,200
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03...... 8,125,000 3,575,000
9.875%, due 6/1/08............ 1,510,000 1,374,100
------------
7,595,300
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
LEISURE (1.0%)
Bally Total Fitness Holding
Corp.
Series B
9.875%, due 10/15/07 (c)...... $ 5,950,000 $ 5,831,000
------------
MEDIA (1.7%)
CD Radio, Inc.
(zero coupon), due 12/1/07
15.00%, beginning 12/1/02..... 9,115,000 5,651,300
Fox/Liberty Networks L.L.C.
(zero coupon), due 8/15/07
9.75%, beginning 8/15/02...... 4,200,000 2,856,000
Young America Corp.
Series B
11.625%, due 2/15/06.......... 2,475,000 1,163,250
------------
9,670,550
------------
MEDICAL EQUIPMENT (0.6%)
ALARIS Medical, Inc.
(zero coupon), due 8/1/08
11.125%, beginning 8/1/03
(c)........................... 5,805,000 3,163,725
------------
MINING (0.7%)
Great Central Mines Ltd.
8.875%, due 4/1/08............ 4,200,000 4,200,000
------------
OIL SERVICES (1.5%)
Grey Wolf, Inc.
8.875%, due 7/1/07............ 1,900,000 1,406,000
Northern Offshore ASA
10.00%, due 5/15/05 (c)....... 3,300,000 1,716,000
R&B Falcon Corp.
9.50%, due 12/15/08 (c)....... 5,645,000 5,645,000
------------
8,767,000
------------
OTHER TRANSPORTATION (0.3%)
Ultrapetrol (Bahamas) Ltd.
10.50%, due 4/1/08............ 1,855,000 1,484,000
------------
PUBLISHING (1.6%)
Affiliated Newspapers
Investments, Inc.
(zero coupon), due 7/1/06
13.25%, beginning 7/1/99...... 4,625,000 4,763,750
General Media, Inc.
10.625%, due 12/31/00......... 3,245,000 2,855,600
Regional Independent Media
Group
10.50%, due 7/1/08 (c)........ 1,410,000 1,424,100
------------
9,043,450
------------
REAL ESTATE (6.1%)
Crescent Real Estate Equities
Co.
7.50%, due 9/15/07............ 12,590,000 11,708,700
</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
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
REAL ESTATE (Continued)
EOP Operating L.P.
6.763%, due 6/15/07........... $ 5,400,000 $ 5,322,402
Health Care Properties
Investors, Inc.
6.875%, due 6/8/05............ 890,000 838,269
Highwoods Realty L.P.
8.00%, due 12/1/03............ 3,840,000 3,868,800
8.125%, due 1/15/09........... 5,675,000 5,618,250
Hospitality Properties Trust
7.00%, due 3/1/08............. 1,200,000 1,072,178
LNR Property Corp.
9.375%, due 3/15/08........... 4,585,000 4,401,600
Meditrust Co. (The)
Series MTN
7.77%, due 8/16/02............ 1,940,000 1,812,771
------------
34,642,970
------------
RECREATION & ENTERTAINMENT
(1.1%)
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05 (f)(g).... 5,835,000 58,350
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04.......... 5,870,000 5,987,400
------------
6,045,750
------------
RESTAURANTS & LODGING (3.9%)
Advantica Restaurant Group,
Inc.
11.25%, due 1/15/08........... 8,355,000 8,417,663
FRI-MRD Corp.
(zero coupon), due 1/24/02
14.00%, beginning 7/31/99
(c)(j)........................ 3,000,000 2,745,000
(zero coupon), due 1/24/02
15.00%, beginning 6/30/99
(c)(j)........................ 5,400,000 5,103,000
HMH Properties, Inc.
Series C
8.45%, due 12/1/08............ 5,805,000 5,805,000
------------
22,070,663
------------
STEEL, ALUMINUM & OTHER METALS
(3.0%)
Easco Corp.
Series B
10.00%, due 3/15/01........... 3,200,000 3,232,000
GS Technologies Operating Co.
12.00%, due 9/1/04............ 5,920,000 4,010,800
12.25%, due 10/1/05........... 3,580,000 2,398,600
Republic Engineered Steels,
Inc.
9.875%, due 12/15/01.......... 4,200,000 4,294,500
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05........... 2,600,000 2,730,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
STEEL, ALUMINUM & OTHER METALS
(Continued)
WCI Steel, Inc.
Series B
10.00%, due 12/1/04........... $ 700,000 $ 694,750
------------
17,360,650
------------
TECHNOLOGY (1.2%)
Electronic Retailing Systems
International, Inc.
(zero coupon), due 2/1/04
13.25%, beginning 2/1/00...... 7,170,000 2,581,200
Entex Information Services,
Inc.
12.50%, due 8/1/06 (c)........ 2,700,000 1,863,000
Metawave Communications Corp.
13.75%, due 4/28/00
(d)(j)(l)..................... 2,671,875 2,671,875
------------
7,116,075
------------
TELECOMMUNICATION SERVICES
(4.7%)
ESAT Telecom Group, PLC
11.875%, due 12/1/08 (c)...... 195,000 195,000
Globalstar L.P. Capital Corp.
11.50%, due 6/1/05............ 6,525,000 4,926,375
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05........... 7,360,000 2,355,200
ICG Holdings, Inc.
(zero coupon), due 5/1/06
12.50%, beginning 5/1/01...... 2,605,000 1,940,725
ICG Services, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03...... 5,000,000 2,600,000
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05 (v)........ 2,800 2,086,000
IDT Corp.
8.75%, due 2/15/06............ 2,200,000 2,090,000
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02..... 3,500,000 2,187,500
11.25%, due 1/15/07........... 1,500,000 1,470,000
T/SF Communications Corp.
Series B
10.375%, due 11/1/07.......... 3,290,000 3,314,675
Telehub Communication Corp.
(zero coupon), due 7/31/05
13.875%,
beginning 7/31/01 (c)(w)...... 6,465 3,879,000
------------
27,044,475
------------
</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>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C> <C>
TEXTILE & APPAREL (0.6%)
Delta Mills, Inc.
Series B
9.625%, due 9/1/07............ $ 2,390,000 $ 2,312,325
Norton McNaughton, Inc.
12.50%, due 6/1/05............ 1,400,000 1,190,000
------------
3,502,325
------------
TRANSPORTATION (2.0%)
Cenargo International, PLC
9.75%, due 6/15/08 (c)........ 3,865,000 3,715,231
Pacific & Atlantic (Holdings)
Inc.
11.50%, due 5/30/08........... 4,300,000 3,010,000
Pegasus Shipping (Hellas) Ltd.
11.875%, due 11/15/04......... 4,980,000 4,382,400
------------
11,107,631
------------
Total Corporate Bonds
(Cost $425,470,022)........... 391,482,201
------------
FOREIGN BONDS (2.0%)
CELLULAR TELEPHONE (0.2%)
Dolphin Telecom, PLC
(zero coupon), due 6/1/08
11.625%, beginning 6/1/03
(c)........................... ECU 3,500,000 1,233,017
------------
PUBLISHING (1.8%)
IPC Magazines Group, PLC
(zero coupon), due 3/15/08
10.75%, beginning 3/15/03..... pound sterling 5,090,000 4,446,118
9.625%, due 3/15/08........... 2,030,000 2,955,343
Regional Independent Media
Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03
(c)........................... 3,000,000 2,745,287
------------
10,146,748
------------
Total Foreign Bonds
(Cost $11,346,543)............ 11,379,765
------------
LOAN ASSIGNMENTS & PARTICIPATIONS (2.4%)
CHEMICALS (0.1%)
Kronos International, Inc.
Bank debt
6.0905%, due 9/15/99
(d)(h)(j)..................... DM 166,135 98,997
Bank debt
6.0905%, due 9/15/00
(d)(h)(j)................... 124,039 73,913
------------
172,910
------------
CONGLOMERATES (0.5%)
First Pacific Capital Ltd.
Bank debt
7.625%, due 1/23/00 (d)(j).... $ 3,000,000 2,760,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
CONSUMER SERVICES (0.2%)
Norwood Promotional
Products, Inc.
Bank debt
Tranche B
8.48%, due 10/30/04
(d)(h)(j)..................... $ 1,300,000 $ 1,300,000
------------
FOOD, BEVERAGE, & TOBACCO
(1.0%)
Domino's Pizza, Inc.
Bank debt
Tranche B
8.75%, due 12/31/06
(d)(h)(j)..................... 2,865,000 2,865,000
Bank debt
Tranche C
9.00%, due 12/31/07
(d)(h)(j)................... 2,865,000 2,865,000
------------
5,730,000
------------
RECREATION & ENTERTAINMENT
(0.2%)
Affinity Group, Inc.
Bank debt
Tranche B
9.025%, due 6/30/06
(d)(h)(j)..................... 1,300,000 1,300,000
------------
TRANSPORTATION (0.4%)
Eurotunnel
Bank debt
Tier One
5.28%, due 4/9/04 (d)(h)(j)... FF 16,084,395 2,447,412
------------
Total Loan Assignments &
Participations
(Cost $13,473,204)............ 13,710,322
------------
YANKEE BONDS (4.7%)
BROADCAST/MEDIA (0.3%)
TV Azteca, S.A. de C.V.
Series B
10.50%, due 2/15/07........... $ 1,760,000 1,447,600
------------
CABLE (0.5%)
Kabelmedia Holding GmbH
(zero coupon), due 8/1/06
13.625%, beginning 8/1/01..... 3,500,000 2,940,000
------------
CELLULAR TELEPHONE (0.6%)
Millicom International
Cellular, S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01...... 4,569,000 3,232,568
------------
CHEMICALS (0.6%)
Octel Developments, PLC
10.00%, due 5/1/06............ 3,500,000 3,675,000
------------
</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
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
YANKEE BONDS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
CONSUMER DURABLES (0.2%)
International Semi-Technology
Microelectronics, Inc.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00..... $ 11,860,000 $ 1,186,000
------------
MINING (0.9%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27............ 5,145,000 2,778,300
Glencore Nickel Pty Ltd.
9.00%, due 12/1/14............ 2,740,000 2,219,400
------------
4,997,700
------------
STEEL, ALUMINUM & OTHER METALS
(1.1%)
Ivaco, Inc.
11.50%, due 9/15/05........... 6,505,000 6,505,000
------------
TRANSPORTATION (0.5%)
Alpha Shipping, PLC
Series A
9.50%, due 2/15/08............ 4,280,000 1,219,800
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06........... 4,700,500 1,457,155
------------
2,676,955
------------
Total Yankee Bonds
(Cost $26,492,104)............ 26,660,823
------------
Total Long-Term Bonds
(Cost $520,743,140)........... 483,133,616
------------
COMMON STOCKS (3.6%)
SHARES
-------------
BANKS (0.1%)
Kookmin Bank GDR (n)........... 41,600 336,960
------------
CABLE (0.4%)
United International Holdings,
Inc.
Class A (a)................... 113,500 2,184,875
------------
CASINOS (0.4%)
Grand Casinos, Inc. (a)........ 41,500 334,594
Harrah's Entertainment, Inc.
(a)........................... 88,600 1,389,912
Isle of Capri Casinos, Inc.
(a)........................... 7,053 27,992
JCC Holding Co., Class A (a)... 64,479 290,155
------------
2,042,653
------------
CELLULAR TELEPHONE (0.0%) (b)
Tele Sudeste Celular
Participacoes S.A. ADR
(a)(i)........................ 1,980 40,961
Telesp Celular Participacoes
S.A. ADR (a)(i)............... 3,960 69,300
------------
110,261
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
DOMESTIC OIL & GAS (0.2%)
Union Pacific Resources Group,
Inc. ......................... 112,325 $ 1,017,945
------------
GAS UTILITIES (0.5%)
KeySpan Energy................. 43,600 1,351,600
UGI Corp. ..................... 61,500 1,460,625
------------
2,812,225
------------
HEALTH CARE (0.2%)
Beverly Enterprises, Inc.
(a)(z)........................ 40,000 270,000
General Healthcare Group Ltd.
(a)(q)........................ 572 28,551
Hengan International Group Co.
Ltd. (a)(m)................... 160,000 58,343
Quest Diagnostics, Inc. (a).... 58,550 1,042,922
------------
1,399,816
------------
MEDIA (0.1%)
Rogers Communications, Inc.
Class B (a)(p)................ 40,000 355,469
------------
PAPER & FOREST PRODUCTS (0.6%)
TimberWest Forest Corp.
(p)(y)........................ 635,200 3,701,198
------------
REAL ESTATE (0.7%)
Highwoods Properties, Inc...... 78,800 2,029,100
Hospitality Properties Trust... 82,445 1,988,986
------------
4,018,086
------------
RECREATION & ENTERTAINMENT
(0.1%)
Loews Cineplex Entertainment
Corp. (a)..................... 60,000 607,500
------------
STEEL, ALUMINUM & OTHER METALS
(0.2%)
Placer Dome, Inc............... 87,700 1,008,550
------------
TELECOMMUNICATION SERVICES
(0.1%)
Embratel Participacoes S.A. ADR
(a)(i)........................ 9,900 137,981
Tele Centro Sul Participacoes
S.A. ADR (a)(i)............... 1,980 82,665
Tele Norte Leste Participacoes
S.A. ADR (a)(i)............... 9,900 123,131
Telesp Participacoes S.A. ADR
(a)(i)........................ 9,900 219,038
------------
562,815
------------
</TABLE>
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.
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
TEXTILE & APPAREL (0.0%) (b)
Hosiery Corp. of America, Inc.
(a)........................... 500 $ 20,000
------------
Total Common Stocks
(Cost $21,275,396)............ 20,178,353
------------
PREFERRED STOCKS (5.7%)
BROADCAST/MEDIA (2.3%)
Paxson Communications Corp.
12.50% (e).................... 6,300 5,732,570
Spanish Broadcasting System,
Inc.
14.25% (c)(e)................. 2,381 2,452,832
14.25% (e).................... 4,447 4,580,410
------------
12,765,812
------------
CABLE (1.5%)
United International Holdings,
Inc.
4.00%, Series A (a)(j)(k)..... 44,600 8,697,000
------------
CELLULAR TELEPHONE (0.9%)
Centaur Funding Corp.
9.08%, Series B (c)........... 4,990 5,189,600
------------
EQUIPMENT FINANCING (0.4%)
GPA Group, PLC (a)(j).......... 4,750,000 2,470,000
------------
PAPER & FOREST PRODUCTS (0.4%)
Paperboard Industries
International, Inc.
5.00%, Class A (c)(j)(p)...... 145,000 2,342,326
------------
REAL ESTATE (0.2%)
Crown American Realty Trust
11.00%, Series A.............. 26,120 1,276,615
------------
Total Preferred Stocks
(Cost $30,097,649)............ 32,741,353
------------
WARRANTS (0.4%)
BROADCAST/MEDIA (0.3%)
Spanish Broadcasting System,
Inc.
expire 6/30/99 (a)(r)......... 2,500 1,225,000
expire 6/30/99 (a)(c)(s)...... 2,500 525,000
------------
1,750,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
CABLE (0.0%) (b)
@Entertainment, Inc.
expire 7/15/08 (a)(c)......... 54,420 $ 136,050
People's Choice TV Corp.
expire 6/1/00 (a)............. 380 4
Supercanal Holding, S.A.
Series A expire 11/14/99
(a)(c)(j)..................... 492,587 68,962
------------
205,016
------------
CASINOS (0.0%) (b)
Isle of Capri Casinos, Inc.
expire 5/3/01 (a)............. 1,249 1,249
------------
CELLULAR TELEPHONE (0.0%) (b)
Occidente y Caribe Celular,
S.A.
expire 3/15/04 (a)(c)......... 10,680 80,100
------------
FOOD, BEVERAGE, & TOBACCO
(0.0%) (b)
Colorado Prime Corp.
expire 12/31/03 (a)(c)........ 5,210 52,100
------------
PUBLISHING (0.0%) (b)
General Media, Inc.
expire 12/21/03 (a)........... 900 9
------------
TECHNOLOGY (0.1%)
Metawave Communications Corp.
expire 4/28/00 (a)(j)......... 46,336 324,352
------------
TELECOMMUNICATION SERVICES
(0.0%) (b)
HighwayMaster
Communications, Inc.
expire 9/15/05 (a)(c)......... 5,435 54
------------
Total Warrants
(Cost $1,364,177)............. 2,412,880
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
123
<PAGE> 124
HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
SHORT-TERM
INVESTMENTS (2.6%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
COMMERCIAL PAPER (2.2%)
Xerox Credit Corp.
5.20%, due 1/4/99............. $ 12,720,000 $ 12,714,488
------------
Total Commercial Paper
(Cost $12,714,488)............ 12,714,488
------------
SHORT-TERM
LOAN ASSIGNMENT (0.4%)
FOOD, BEVERAGE & TOBACCO (0.4%)
Buenos Aires Embotelladora
Sociedad Anonima
Bank debt
9.479%, due 8/1/98
(g)(j)(t)..................... 5,000,000 2,050,000
------------
Total Short-Term
Loan Assignment
(Cost $4,260,000)............. 2,050,000
------------
Total Short-Term Investments
(Cost $16,974,488)............ 14,764,488
------------
Total Investments
(Cost $590,454,850) (aa)...... 97.1% 553,230,690(bb)
Cash and Other Assets,
Less Liabilities.............. 2.9 16,582,148
------------- ----------
Net Assets..................... 100.0% $569,812,838
============= ============
</TABLE>
- ------------
(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, 1998.
(e) PIK ("Payment in Kind")--interest or dividend payment is made with
additional securities.
(f) Issuer in bankruptcy.
(g) Issue in default.
(h) Multiple tranche facility.
(i) ADR--American Depository Receipt.
(j) Restricted security.
(k) Convertible preferred stock.
(l) CIK ("Cash in Kind")-interest or dividend payment is made with cash or
additional securities.
(m) Hong Kong security.
(n) GDR--Global Depository Receipt.
(o) Euro-Dollar bond.
(p) Canadian security.
(q) British security.
(r) 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.
(s) 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.
(t) Company defaulted on the payment of principal to its creditors on maturity
date.
(u) 4,385 Units--Each unit reflects $1,000 principal amount of 12.00% Senior
Subordinated Notes plus 1 warrant to acquire 1.55 shares of common stock at
$35.65 per share at a future date.
(v) 2,800 Units--Each unit reflects $1,000 principal amount of 15.00% Senior
Notes plus 1 warrant to acquire 19.85 shares of common stock at $13.20 per
share at a future date.
(w) 6,465 Units--Each unit reflects $1,000 principal amount of 0%/13.875%
Senior Discounted Notes plus warrants to acquire 8% of the Company's common
stock at a future date.
(x) 6,465 Units--Each unit reflects $1,000 principal amount of 0%/13.125%
Senior Discounted Notes plus 1 warrant to acquire 1.427 shares of common
stock at a future date.
(y) Stapled Unit--Each unit consists of 1 common share, 100 preferred shares
and 1 Subordinated Note receipt.
(z) Segregated as collateral for forward foreign currency contracts.
(aa) The cost for Federal income tax purposes is $591,125,639.
(bb) At December 31, 1998 net unrealized depreciation was $37,894,949, 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 $18,271,244 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $56,166,193.
(cc) The following abbreviations are used in the above portfolio:
DM --Deutsche Mark
ECU --European Currency Unit
FF --French Franc
L --Pound Sterling
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.
HIGH YIELD CORPORATE BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $590,454,850)......... $553,230,690
Cash..................................... 300,920
Deposit with broker...................... 139,441
Receivables:
Dividends and interest................. 10,616,102
Investment securities sold............. 6,510,400
Fund shares sold....................... 95,229
Unrealized appreciation on forward
foreign currency contracts............. 168,418
------------
Total assets..................... 571,061,200
------------
LIABILITIES:
Payables:
Investment securities purchased........ 341,468
Fund shares redeemed................... 194,950
Adviser................................ 143,605
Administrator.......................... 95,736
Shareholder communication.............. 60,147
Custodian.............................. 19,763
Directors.............................. 221
Accrued expenses......................... 87,835
Unrealized depreciation on forward
foreign currency contracts............. 304,637
------------
Total liabilities................ 1,248,362
------------
Net assets applicable to outstanding
shares................................. $569,812,838
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 521,841
Additional paid-in capital............... 614,884,239
Accumulated distribution in excess of net
investment income...................... (455,590)
Accumulated net realized loss on
investments............................ (7,772,614)
Net unrealized depreciation on
investments............................ (37,224,160)
Net unrealized depreciation on
translation of other assets and
liabilities in
foreign currencies and forward foreign
currency contracts..................... (140,878)
------------
Net assets applicable to outstanding
shares................................. $569,812,838
============
Shares of capital stock outstanding...... 52,184,133
============
Net asset value per share outstanding.... $ 10.92
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 52,087,455
Dividends (a).......................... 2,262,802
------------
Total income..................... 54,350,257
------------
Expenses:
Advisory............................... 1,550,584
Administration......................... 1,033,723
Shareholder communication.............. 180,248
Professional........................... 173,208
Directors.............................. 29,425
Custodian.............................. 18,018
Portfolio pricing...................... 7,582
Miscellaneous.......................... 11,717
------------
Total expenses................... 3,004,505
------------
Net investment income.................... 51,345,752
------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized loss from:
Security transactions.................. (7,676,643)
Foreign currency transactions.......... (424,119)
------------
Net realized loss on investments and
foreign currency transactions.......... (8,100,762)
------------
Net change in unrealized depreciation on
investments:
Security transactions.................. (34,140,189)
Translation of other assets and
liabilities in
foreign currencies and forward
foreign
currency contracts................... (129,893)
------------
Net unrealized loss on investments and
foreign currency transactions.......... (34,270,082)
------------
Net realized and unrealized loss on
investments and foreign currency
transactions........................... (42,370,844)
------------
Net increase in net assets resulting from
operations............................. $ 8,974,908
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$88,343.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
125
<PAGE> 126
HIGH YIELD CORPORATE BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $51,345,752 $ 27,376,462
Net realized gain (loss) on investments................... (7,676,643) 16,889,043
Net realized gain (loss) on foreign currency
transactions............................................ (424,119) 41,314
Net change in unrealized appreciation (depreciation) on
investments............................................. (34,140,189) (7,548,249)
Net change in unrealized depreciation on translation of
other assets and liabilities in foreign currencies and
forward foreign currency contracts...................... (129,893) (10,985)
------------ ------------
Net increase in net assets resulting from operations...... 8,974,908 36,747,585
------------ ------------
Dividends and distributions to shareholders:
From net investment income................................ (51,219,831) (27,008,388)
From net realized gain on investments..................... (1,567,336) (16,799,012)
In excess of net investment income........................ (455,590) --
------------ ------------
Total dividends and distributions to shareholders....... (53,242,757) (43,807,400)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 171,504,905 202,492,429
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 53,242,757 43,807,400
------------ ------------
224,747,662 246,299,829
Cost of shares redeemed................................... (35,233,498) (19,674,526)
------------ ------------
Increase in net assets derived from capital share
transactions............................................ 189,514,164 226,625,303
------------ ------------
Net increase in net assets.................................. 145,246,315 219,565,488
NET ASSETS:
Beginning of year........................................... 424,566,523 205,001,035
------------ ------------
End of year................................................. $569,812,838 $424,566,523
============ ============
Accumulated undistributed net investment income (excess
distribution) at end of year.............................. $ (455,590) $ 461,672
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1995 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996 1995
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 11.73 $ 11.61 $ 10.55 $ 10.00
------------ ------------ ------------ ------------
Net investment income................................... 1.08 0.85 0.59 0.37
Net realized and unrealized gain (loss) on
investments........................................... (0.76) 0.65 1.22 0.61
Net realized and unrealized loss on foreign currency
transactions.......................................... (0.00)(b) -- -- --
------------ ------------ ------------ ------------
Total from investment operations........................ 0.32 1.50 1.81 0.98
------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income............................ (1.09) (0.84) (0.59) (0.37)
From net realized gain on investments................. (0.04) (0.54) (0.16) (0.04)
In excess of net realized gain on investments......... -- -- -- (0.02)
------------ ------------ ------------ ------------
Total dividends and distributions....................... (1.13) (1.38) (0.75) (0.43)
------------ ------------ ------------ ------------
Net asset value at end of period........................ $ 10.92 $ 11.73 $ 11.61 $ 10.55
============ ============ ============ ============
Total investment return................................. 2.66% 13.03% 17.16% 10.06%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income................................. 9.93% 8.84% 8.59% 10.02%+
Net expenses.......................................... 0.58% 0.59% 0.67% 0.67%+
Expenses (before reimbursement)....................... 0.58% 0.59% 0.71% 1.25%+
Portfolio turnover rate................................. 151% 153% 149% 95%
Net assets at end of period (in 000's).................. $ 569,813 $ 424,567 $ 205,001 $ 43,314
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Less than one cent per share.
(c) 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.
126
<PAGE> 127
MAINSTAY VP SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
COMMON STOCKS (95.5%)+
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
AUSTRALIA (4.1%)
Broken Hill Proprietary Co., Ltd.
(energy sources).................. 25,700 $ 189,460
Cable & Wireless Optus Ltd.
(telecommunications) (a).......... 134,495 282,954
Commonwealth Bank of Australia
(banking)......................... 15,700 223,054
Foster's Brewing Group, Ltd.
(beverages & tobacco)............. 27,820 75,421
Lend Lease Corp., Ltd. (real
estate)........................... 13,400 180,818
News Corp., Ltd. (The)
(broadcasting & publishing)....... 31,539 208,536
Telstra Corp., Ltd.
(telecommunications).............. 69,200 323,852
WMC, Ltd. (metals-nonferrous)...... 20,900 63,071
-----------
1,547,166
-----------
BELGIUM (4.1%)
Delhaize-Le Lion, S.A.
(merchandising)................... 1,330 117,698
Electrabel, S.A.
(utilities-electrical & gas)...... 690 303,297
Fortis AG (insurance).............. 960 347,923
KBC Bancassurance Holding N.V.
(banking)......................... 3,420 270,793
PetroFina, S.A. (energy sources)... 330 151,299
Solvay, S.A. Class A (chemicals)... 1,850 139,480
Tractebel, S.A.
(utilities-electrical & gas)...... 1,120 217,463
-----------
1,547,953
-----------
FINLAND (3.7%)
Merita Oyj (banking)............... 19,600 124,646
Nokia Oyj Class A (electrical &
electronics)...................... 7,735 947,151
Outokumpu Oyj
(metals-nonferrous)............... 12,730 117,663
Sampo Insurance Co. PLC Class A
(insurance)....................... 2,020 77,197
UPM-Kymmene Oyj (forest products &
paper)............................ 5,410 151,724
-----------
1,418,381
-----------
FRANCE (8.3%)
AXA, S.A. (insurance).............. 1,644 238,389
Carrefour, S.A. (merchandising).... 418 315,708
Elf Aquitaine, S.A. (energy
sources).......................... 2,082 240,776
Eridania Beghin-Say, S.A. (food &
household products)............... 550 95,211
France Telecom, S.A.
(telecommunications).............. 2,525 200,698
Groupe Danone, S.A. (food &
household products)............... 746 213,677
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
FRANCE (Continued)
Lafarge, S.A. (building materials &
components)....................... 860 $ 81,751
L'Air Liquide, S.A. (chemicals).... 912 167,347
L'Oreal, S.A. (health & personal
care)............................. 583 421,647
Pernod-Ricard, S.A. (beverages &
tobacco).......................... 1,300 84,479
Pinault-Printemps-Redoute, S.A.
(merchandising)................... 600 114,716
Sanofi, S.A. (health & personal
care)............................. 1,080 177,873
Schneider, S.A. (electrical &
electronics)...................... 1,477 89,635
Societe Generale, S.A. Class A
(banking)......................... 544 88,135
Thomson CSF, S.A. (aerospace &
military technology).............. 2,727 117,164
Total, S.A. Class B (energy
sources).......................... 1,134 114,902
Vivendi, S.A. (business & public
services)......................... 1,571 407,796
-----------
3,169,904
-----------
GERMANY (10.4%)
Allianz AG Registered
(insurance)....................... 950 348,509
Bayer AG (chemicals)............... 6,250 260,992
DaimlerChrysler AG (automobiles)... 4,411 435,665
Deutsche Bank AG (banking)......... 2,850 167,781
Deutsche Telekom AG
(telecommunications).............. 16,300 536,312
Dresdner Bank AG (banking)......... 4,500 189,130
Karstadt AG (merchandising)........ 400 208,943
Mannesmann AG
(telecommunications).............. 2,400 275,229
Metro AG (merchandising)........... 2,650 211,615
Muenchener Rueckversicherungs-
Gesellschaft AG Registered
(insurance)....................... 350 169,586
RWE AG (utilities-electrical &
gas).............................. 6,300 345,162
Schering AG (health & personal
care)............................. 1,920 241,221
VEBA AG (utilities-electrical &
gas).............................. 3,050 182,576
Viag AG (utilities-electrical &
gas).............................. 350 205,311
Volkswagen AG (automobiles)........ 2,000 159,710
-----------
3,937,742
-----------
IRELAND (3.8%)
Allied Irish Banks PLC (banking)... 32,875 589,668
CRH PLC (building materials &
components)....................... 20,363 352,189
Irish Life PLC (insurance)......... 13,254 124,894
Kerry Group PLC Class A (food &
household products)............... 10,805 147,408
Ryanair Holdings PLC
(transportation-airlines) (a)..... 7,459 53,383
Smurfit (Jefferson) Group PLC
(forest products & paper)......... 93,609 168,880
-----------
1,436,422
-----------
</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.
127
<PAGE> 128
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
ITALY (5.1%)
Assicurazioni Generali S.p.A.
(insurance)....................... 4,000 $ 167,256
Banca Commerciale Italiana S.p.A.
(banking)......................... 16,000 110,534
Benetton Group S.p.A. (textile &
apparel).......................... 41,600 83,948
Edison S.p.A. (utilities-electrical
& gas)............................ 4,000 47,183
ENI S.p.A. (energy sources)........ 38,000 248,702
Fiat S.p.A. (automobiles).......... 13,500 46,959
Fiat S.p.A. di Risp
(automobiles)..................... 16,500 32,997
Istituto Nazionale delle
Assicurazioni S.p.A.
(insurance)....................... 26,000 68,775
Italgas S.p.A.
(utilities-electrical & gas)...... 10,000 54,207
Mediobanca S.p.A. (banking)........ 6,000 83,446
Montedison S.p.A.
(multi-industry).................. 40,940 54,457
Olivetti S.p.A.
(telecommunications) (a).......... 16,200 56,449
Parmalat Finanziaria S.p.A. (food &
household products)............... 4,000 7,660
Pirelli S.p.A. (industrial
components)....................... 6,000 19,253
Riunione Adriatica di Sicurta
S.p.A. (insurance)................ 2,200 31,930
San Paolo IMI S.p.A. (banking)..... 2,000 35,390
Sirti S.p.A. (construction &
housing).......................... 7,000 42,293
Telecom Italia S.p.A.
(telecommunications).............. 24,000 205,070
Telecom Italia S.p.A. di Risp
(telecommunications).............. 12,790 80,608
Telecom Italia Mobile S.p.A.
(telecommunications).............. 28,000 207,009
Telecom Italia Mobile S.p.A. di
Risp (telecommunications)......... 23,000 108,438
Unicredito Italiano S.p.A.
(banking)......................... 22,000 130,587
Unione Immobiliare S.p.A. (real
estate)........................... 26,000 13,582
-----------
1,936,733
-----------
JAPAN (11.1%)
Ajinomoto Co., Inc. (food &
household products)............... 10,000 106,392
Bank of Tokyo-Mitsubishi, Ltd.
(banking) (b)..................... 9,000 93,359
Bridgestone Corp. (industrial
components)....................... 4,000 90,965
Denso Corp. (industrial
components)....................... 3,000 55,590
Fanuc, Ltd. (electronic components
& instruments).................... 2,000 68,623
Fujitsu, Ltd. (data processing &
reproduction) (b)................. 1,000 13,343
Hitachi Corp., Ltd. (electrical &
electronics) (b).................. 14,000 86,887
Honda Motor Co., Ltd.
(automobiles)..................... 4,000 131,571
Industrial Bank of Japan, Ltd.
(The) (banking) (b)............... 16,000 73,907
Ito-Yokado Co., Ltd.
(merchandising)................... 1,000 70,041
Kansai Electric Power Co., Inc.
(utilities-electrical & gas)...... 3,000 65,830
Kirin Brewery Co., Ltd. (beverages
& tobacco)........................ 14,000 178,739
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Komatsu, Ltd. (machinery &
engineering)...................... 10,000 $ 52,575
Matsushita Electric Industrial Co.,
Ltd. (appliances & household
durables)......................... 6,000 106,339
Mitsubishi Chemical Corp.
(chemicals)....................... 967 2,041
Mitsubishi Electric Corp.
(electrical & electronics) (a).... 9,000 28,327
Mitsubishi Estate Co., Ltd. (real
estate)........................... 3,000 26,944
Mitsubishi Heavy Industries, Ltd.
(machinery & engineering)......... 8,000 31,208
Mitsui Fudosan Co., Ltd. (real
estate)........................... 6,000 45,483
NEC Corp. (electrical &
electronics)...................... 5,000 46,103
Nintendo Co., Ltd. (recreation &
other consumer goods)............. 1,000 97,083
Nippon Express Co., Ltd.
(transportation-road & rail)...... 13,000 73,304
Nippon Oil Co., Ltd. (energy
sources).......................... 8,000 27,946
Nippon Telegraph & Telephone Corp.
(telecommunications).............. 20 154,615
Nomura Securities Co., Ltd.
(financial services).............. 9,000 78,597
NTT Data Corp. (business & public
services)......................... 20 99,477
NTT Mobile Communication Network,
Inc. (telecommunications)......... 9 371,022
Olympus Optical Co., Ltd.
(electronic components &
instruments)...................... 8,000 92,136
Osaka Gas Co., Ltd. (utilities-
electrical & gas)................. 6,000 20,693
Rohm Co., Ltd. (electronic
components & instruments)......... 1,000 91,231
Sankyo Co., Ltd. (health &
personal care).................... 2,000 43,798
Sanyo Electric Co., Ltd.
(appliances & household
durables)......................... 9,000 27,928
Sekisui Chemical Co., Ltd.
(building materials &
components)....................... 1,000 6,738
Sharp Corp. (appliances &
household durables)............... 5,000 45,172
Shiseido Co., Ltd. (health &
personal care).................... 8,000 102,987
Sony Corp. (appliances &
household durables)............... 1,000 72,967
Sumitomo Bank, Ltd. (banking)...... 9,000 92,561
Sumitomo Electric Industries
(industrial components)........... 5,000 56,343
Sumitomo Forestry Co., Ltd.
(building materials &
components)....................... 14,000 100,541
Takeda Chemical Industries, Ltd.
(health & personal care).......... 3,000 115,701
TDK Corp. (electronic components &
instruments)...................... 1,000 91,586
Tobu Railway Co., Ltd.
(transportation-road & rail)...... 14,000 40,961
Tohoku Electric Power Co., Inc.
(utilities-electrical & gas)...... 1,000 17,732
</TABLE>
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.
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Tokyo Electric Power Co., Inc.
(utilities-electrical & gas)...... 3,000 $ 74,208
Tokyo Seimitsu Co., Ltd.
(electronic components &
instruments)...................... 3,000 119,691
Toppan Printing Co., Ltd. (business
& public services)................ 3,000 36,705
Toshiba Corp. (electrical &
electronics)...................... 16,000 95,469
Tostem Corp. (building materials &
components)....................... 5,000 99,299
Toyota Motor Corp. (automobiles)... 11,000 299,405
Yamanouchi Pharmaceutical Co., Ltd.
(health & personal care).......... 6,000 193,633
-----------
4,213,796
-----------
NETHERLANDS (5.4%)
ABN AMRO Holding N.V. (banking).... 9,600 202,061
Akzo Nobel N.V. (chemicals)........ 2,400 109,343
Elsevier N.V. (broadcasting &
publishing)....................... 1,500 21,021
Heineken N.V. (beverages &
tobacco).......................... 2,700 162,576
ING Groep N.V. (financial
services)......................... 5,270 321,536
Koninklijke KPN N.V.
(telecommunications).............. 2,626 131,533
Royal Dutch Petroleum Co. (energy
sources).......................... 12,000 597,869
TNT Post Group N.V. (business &
public services).................. 2,526 81,433
Unilever CVA N.V. (food &
household products)............... 3,500 299,334
Wolters Kluwer CVA N.V.
(broadcasting & publishing)....... 601 128,676
-----------
2,055,382
-----------
NEW ZEALAND (1.4%)
Fletcher Challenge Building
(building materials &
components)....................... 118,800 183,878
Telecom Corp. of New Zealand Ltd.
(telecommunications).............. 69,248 301,792
Telecom Corp. of New Zealand Ltd.
(telecommunications) (a)(c)....... 19,600 42,969
-----------
528,639
-----------
PORTUGAL (1.3%)
Banco Comercial Portugues, S.A.
Registered (banking).............. 2,700 83,007
Banco Espirito Santo e Comercial de
Lisboa, S.A. Registered
(banking)......................... 1,600 49,658
Electricidade de Portugal, S.A.
(utilities-electrical & gas)...... 6,300 138,704
Jeronimo Martins & Filho SGPS, S.A.
(merchandising)................... 1,100 60,175
Portugal Telecom, S.A. Registered
(telecommunications).............. 3,100 142,130
-----------
473,674
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
SPAIN (4.6%)
Acerinox, S.A. (metals-steel)...... 700 $ 16,329
Argentaria, Caja Postal y Banco
Hipotecario de Espana, S.A.
Registered (banking).............. 4,560 118,278
Autopistas Concesionaria Espanola,
S.A. (business & public
services)......................... 7,126 118,697
Banco Bilbao Vizcaya, S.A.
Registered (banking).............. 15,630 245,454
Banco Central Hispanoamericano,
S.A. (banking).................... 8,580 102,040
Banco Santander, S.A. Registered
(banking)......................... 7,360 146,490
Corporacion Mapfre, S.A.
(insurance)....................... 620 16,848
Endesa, S.A. (utilities-electrical
& gas)............................ 7,770 206,201
Fomento de Construcciones y
Contratas, S.A. (construction &
housing).......................... 660 49,145
Gas Natural SDG, S.A. (utilities-
electrical & gas)................. 1,110 121,041
Iberdrola, S.A.
(utilities-electrical & gas)...... 7,730 144,852
Repsol, S.A. (energy sources)...... 2,660 142,121
Telefonica, S.A.
(telecommunications).............. 7,090 315,760
Telefonica, S.A. Bonus Rights
(telecommunications) (a).......... 7,090 6,304
-----------
1,749,560
-----------
SWEDEN (3.0%)
Astra AB Series A (health &
personal care).................... 12,100 247,059
ForeningsSparbanken AB (banking)... 3,600 93,269
Hennes & Mauritz AB Series B
(merchandising)................... 1,000 81,672
Skandia Forsakrings AB
(insurance)....................... 4,000 61,193
Svenska Handelsbanken Series A
(banking)......................... 2,100 88,606
Telefonaktiebolaget LM Ericsson
Series B (electrical &
electronics)...................... 21,700 516,694
Volvo AB Series B (automobiles).... 2,700 61,957
-----------
1,150,450
-----------
SWITZERLAND (8.2%)
Credit Suisse Group Registered
(banking)......................... 1,540 241,066
Nestle S.A. Registered (food &
household products)............... 270 587,777
Novartis S.A. Registered (health &
personal care).................... 337 662,477
Roche Holdings AG Genusscheine
(health & personal care).......... 50 610,129
Schweizerische Rueckversicherungs
Gesellschaft Registered
(insurance)....................... 100 260,724
UBS AG Registered (banking)........ 1,753 538,607
Zurich Allied AG Registered
(insurance)....................... 300 222,136
-----------
3,122,916
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
129
<PAGE> 130
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
UNITED KINGDOM (21.0%)
Abbey National PLC (banking)....... 9,860 $ 211,133
Allied Zurich PLC (insurance)...... 6,105 91,367
Barclays PLC (banking)............. 9,565 205,771
Bass PLC (leisure & tourism)....... 27,617 388,500
BG PLC (utilities-electrical &
gas).............................. 35,364 223,440
Boots Co. PLC (merchandising)...... 10,390 176,585
British Airways PLC
(transportation-airlines)......... 25,348 171,648
British American Tobacco PLC
(beverages & tobacco)............. 6,105 54,190
British Petroleum Co. PLC
(energy sources).................. 29,414 438,983
British Telecommunications PLC
(telecommunications).............. 44,820 674,499
Cable & Wireless PLC
(telecommunications).............. 30,763 378,502
CGU PLC (insurance)................ 7,693 120,252
Diageo PLC (beverages & tobacco)... 32,810 368,750
EMI Group PLC (recreation & other
consumer goods)................... 30,814 217,121
General Electric Co. PLC
(electrical & electronics)........ 18,990 170,616
Glaxo Wellcome PLC (health &
personal care).................... 16,149 553,764
Granada Group PLC (leisure &
tourism).......................... 9,080 161,119
Great Universal Stores PLC (The)
(merchandising)................... 12,990 136,052
HSBC Holdings PLC (banking)........ 3,110 84,705
Imperial Chemical Industries PLC
(chemicals)....................... 12,410 107,162
Kingfisher PLC (merchandising)..... 20,262 219,127
Lloyds TSB Group PLC (banking)..... 28,114 399,000
Marks & Spencer PLC
(merchandising)................... 16,242 110,931
National Power PLC (utilities-
electrical & gas)................. 12,540 110,788
National Westminster Bank PLC
(banking)......................... 10,600 204,228
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(The) (transportation-shipping)... 4,355 51,446
Prudential Corp. PLC (insurance)... 14,100 213,130
Reed International PLC
(broadcasting & publishing)....... 12,630 100,551
Rio Tinto PLC Registered (metals-
nonferrous)....................... 6,773 78,206
Royal Bank of Scotland Group PLC
(banking)......................... 12,790 205,778
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
Sainsbury (J.) PLC
(merchandising)................... 11,780 $ 91,677
Scottish Power PLC (utilities-
electrical & gas)................. 7,100 72,709
SmithKline Beecham PLC (health &
personal care).................... 40,460 565,465
Unilever PLC (food &
household products)............... 27,720 311,544
Vodafone Group PLC
(telecommunications).............. 20,215 327,592
-----------
7,996,331
-----------
Total Common Stocks
(Cost $29,032,744)................ 36,285,049
-----------
SHORT-TERM
INVESTMENT (1.0%)
PRINCIPAL
AMOUNT
---------
COMMERCIAL PAPER (1.0%)
UNITED STATES (1.0%)
Associates Corp. of North America
5.08%, due 1/4/99
(financial services).............. $400,000 399,831
-----------
Total Short-Term Investment
(Cost $399,831)................... 399,831
-----------
Total Investments
(Cost $29,432,575) (d)............ 96.5% 36,684,880(e)
Cash and Other Assets,
Less Liabilities.................. 3.5 1,321,303
-------- -----------
Net Assets......................... 100.0% $38,006,183
======== ===========
</TABLE>
- ------------
(a) Non-income producing security.
(b) Segregated or partially segregated as collateral for forward foreign
currency contracts.
(c) Installment receipt is a transaction with a set contract price which is
paid in installments over a period of time.
(d) The cost for Federal income tax purposes is $30,014,787.
(e) At December 31, 1998 net unrealized appreciation for securities was
$6,670,093, 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 $7,732,378 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $1,062,285.
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.
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.................. $ 117,164 0.3%
Appliances & Household
Durables.................... 252,406 0.7
Automobiles................... 1,168,264 3.1
Banking....................... 5,492,141 14.5
Beverages & Tobacco........... 924,155 2.4
Broadcasting & Publishing..... 458,785 1.2
Building Materials &
Components.................. 824,396 2.2
Business & Public Services.... 744,108 2.0
Chemicals..................... 786,364 2.1
Construction & Housing........ 91,438 0.2
Data Processing &
Reproduction................ 13,343 0.0*
Electrical & Electronics...... 1,980,882 5.2
Electronic Components &
Instruments................. 463,266 1.2
Energy Sources................ 2,152,058 5.7
Financial Services............ 799,964 2.1
Food & Household Products..... 1,769,003 4.7
Forest Products & Paper....... 320,604 0.9
Health & Personal Care........ 3,935,756 10.4
Industrial Components......... 222,151 0.6
Insurance..................... 2,560,108 6.7
Leisure & Tourism............. 549,619 1.4
Machinery & Engineering....... 359,013 1.0
Merchandising................. 1,705,997 4.5
Metals-Nonferrous............. 258,940 0.7
Metals-Steel.................. 16,329 0.0*
Multi-Industry................ 54,457 0.1
Real Estate................... 266,827 0.6
Recreation & Other Consumer
Goods....................... 314,204 0.8
Telecommunications............ 5,057,051 13.3
Textile & Apparel............. 83,948 0.2
Transportation-Airlines....... 225,030 0.6
Transportation-Road & Rail.... 114,265 0.3
Transportation-Shipping....... 51,446 0.1
Utilities-Electrical & Gas.... 2,551,398 6.7
----------- ------
36,684,880 96.5
Cash and Other Assets, Less
Liabilities................. 1,321,303 3.5
----------- ------
Net Assets.................... $38,006,183 100.0%
=========== ======
</TABLE>
- ------------
(+) Percentages indicated are based on Portfolio net assets.
* Less than one tenth of a percent.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
131
<PAGE> 132
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $29,432,575).......... $ 36,684,880
Cash denominated in foreign currencies
(identified cost $1,004,718)........... 1,009,138
Cash..................................... 191,695
Receivables:
Investment securities sold............. 153,566
Dividends and interest................. 116,683
Fund shares sold....................... 20,487
Administrator.......................... 2,467
Unrealized appreciation on forward
foreign currency contracts............. 50,540
------------
Total assets..................... 38,229,456
------------
LIABILITIES:
Payables:
Adviser................................ 18,568
Custodian.............................. 15,816
Shareholder communication.............. 7,741
Fund shares redeemed................... 6,098
Directors.............................. 14
Accrued expenses......................... 35,836
Unrealized depreciation on forward
foreign currency contracts............. 139,200
------------
Total liabilities................ 223,273
------------
Net assets applicable to outstanding
shares................................. $ 38,006,183
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 30,652
Additional paid-in capital............... 32,005,945
Accumulated distribution in excess of net
investment income...................... (180,241)
Accumulated net realized loss on
investments............................ (1,019,167)
Net unrealized appreciation on
investments............................ 7,252,305
Net unrealized depreciation on
translation of other assets and
liabilities in foreign currencies and
forward foreign currency contracts..... (83,311)
------------
Net assets applicable to outstanding
shares................................. $ 38,006,183
============
Shares of capital stock outstanding...... 3,065,178
============
Net asset value per share outstanding.... $ 12.40
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 573,725
Interest............................... 151,671
------------
Total income..................... 725,396
------------
Expenses:
Advisory............................... 207,680
Administration......................... 69,227
Professional........................... 40,375
Custodian.............................. 38,062
Shareholder communication.............. 20,852
Portfolio pricing...................... 20,272
Directors.............................. 1,971
Miscellaneous.......................... 6,201
------------
Total expenses before
reimbursement.................. 404,640
Expense reimbursement from
Administrator.......................... (68,891)
------------
Net expenses..................... 335,749
------------
Net investment income.................... 389,647
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Security transactions.................. 364,490
Option transactions.................... (35,720)
Foreign currency transactions.......... 20,112
------------
Net realized gain on investments and
foreign currency transactions.......... 348,882
------------
Net change in unrealized appreciation
(depreciation) on investments:
Security transactions.................. 6,418,225
Translation of other assets and
liabilities in foreign currencies and
forward foreign currency contracts... (175,712)
------------
Net unrealized gain on investments and
foreign currency transactions.......... 6,242,513
------------
Net realized and unrealized gain on
investments and foreign currency
transactions........................... 6,591,395
------------
Net increase in net assets resulting from
operations............................. $ 6,981,042
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$79,054.
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.
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 389,647 $ 399,616
Net realized gain (loss) on investments................... 364,490 (849,274)
Net realized loss on option transactions.................. (35,720) --
Net realized gain on foreign currency transactions........ 20,112 2,485,547
Net change in unrealized appreciation on investments...... 6,418,225 370,622
Net change in unrealized appreciation (depreciation) on
translation of other assets and liabilities in foreign
currencies and forward foreign currency contracts....... (175,712) (1,103,190)
------------ ------------
Net increase in net assets resulting from operations...... 6,981,042 1,303,321
------------ ------------
Dividends to shareholders:
From net investment income................................ (698,611) (2,375,801)
In excess of net investment income........................ (180,241) --
------------ ------------
Total dividends to shareholders......................... (878,852) (2,375,801)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 13,924,150 10,523,926
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 878,852 2,375,801
------------ ------------
14,803,002 12,899,727
Cost of shares redeemed................................... (13,171,173) (16,064,303)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions...................................... 1,631,829 (3,164,576)
------------ ------------
Net increase (decrease) in net assets....................... 7,734,019 (4,237,056)
NET ASSETS:
Beginning of year........................................... 30,272,164 34,509,220
------------ ------------
End of year................................................. $38,006,183 $ 30,272,164
============ ============
Accumulated undistributed net investment income (excess
distribution) at end of year.............................. $ (180,241) $ 14,716
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1995 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period................... $ 10.31 $ 10.65 $ 10.20 $ 10.00
------------ ------------ ------------ ------------
Net investment income.................................... 0.23 1.06 0.44 0.64
Net realized and unrealized gain on investments.......... 2.20 0.27 0.06 0.01
Net realized and unrealized gain (loss) on foreign
currency transactions.................................. (0.05) (0.78) 0.56 0.05
------------ ------------ ------------ ------------
Total from investment operations......................... 2.38 0.55 1.06 0.70
------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income............................. (0.23) (0.89) (0.60) (0.06)
From net realized gain on investments and foreign
currency transactions................................ -- -- (0.01) (0.44)
In excess of net investment income..................... (0.06) -- -- --
------------ ------------ ------------ ------------
Total dividends and distributions........................ (0.29) (0.89) (0.61) (0.50)
------------ ------------ ------------ ------------
Net asset value at end of period......................... $ 12.40 $ 10.31 $ 10.65 $ 10.20
============ ============ ============ ============
Total investment return.................................. 23.11% 5.17% 10.54% 6.96%(b)
Ratios (to average net assets)/Supplemental Data:
Net investment income.................................. 1.13% 1.25% 1.01% 1.07%(+)
Net expenses........................................... 0.97% 0.97% 0.97% 0.97%(+)
Expenses (before reimbursement)........................ 1.17% 1.25% 1.51% 2.51%(+)
Portfolio turnover rate.................................. 57% 61% 16% 14%
Net assets at end of period (in 000's)................... $ 38,006 $ 30,272 $ 34,509 $ 14,631
</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.
133
<PAGE> 134
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
LONG-TERM BONDS (32.9%)(+)
ASSET-BACKED SECURITIES (3.5%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AIRPLANE LEASES (1.1%)
AerCo Ltd.
Series 1A Class A1
5.7255%, due 7/15/23 (c)(f)..... $ 1,245,000 $ 1,236,198
Aircraft Lease Portfolio
Securitization Ltd.
Series 1996-1 Class CX
6.9125%, due 6/15/06 (e)(f)..... 1,077,556 1,076,544
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19 (e).......... 2,812,887 2,970,409
Morgan Stanley Aircraft Finance
Series 1A Class A1
5.7455%, due 3/15/23 (c)(f)..... 1,770,000 1,760,088
------------
7,043,239
------------
AUTO LEASES (0.7%)
Premier Auto Trust
Series 1998-4 Class A3
5.69%, due 6/8/02 (e)........... 2,275,000 2,287,103
Toyota Auto Lease Trust
Series 1998-B Class A1
5.35%, due 7/25/02 (e).......... 2,210,000 2,208,652
------------
4,495,755
------------
CONSUMER LOANS (0.5%)
Green Tree Recreational Equipment
& Consumer Trust
Series 1997-C Class A1
6.49%, due 2/15/18 (e).......... 3,020,336 3,049,633
------------
CREDIT CARD
RECEIVABLES (0.3%)
Chase Credit Card Master Trust
Series 1997-2 Class A
6.30%, due 4/15/03 (e).......... 1,635,000 1,660,522
------------
EQUIPMENT LOANS (0.1%)
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02 (e)......... 680,000 675,342
------------
TRANSPORTATION (0.3%)
Federal Express Corp.
Pass-Through Certificate
Series 98-1A Class A
6.72%, due 1/15/22.............. 1,855,000 1,918,348
------------
UTILITY LOANS (0.5%)
Comed Transitional Funding Trust
Series 1998-1 Class A7
5.74%, due 12/25/10 (e)......... 3,535,000 3,533,904
------------
Total Asset-Backed Securities
(Cost $22,292,512).............. 22,376,743
------------
</TABLE>
CORPORATE BONDS (5.9%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AEROSPACE (0.1%)
Newport News Shipbuilding Inc.
8.625%, due 12/1/06............. $ 295,000 $ 311,594
Wyman-Gordon Co.
8.00%, due 12/15/07............. 310,000 307,675
------------
619,269
------------
BANKS (0.3%)
Bank One Corp.
7.60%, due 5/1/07............... 610,000 684,578
Capital One Bank
Series BKNT
6.375%, due 2/15/03............. 1,440,000 1,421,784
Tokai Preferred Capital
Company L.L.C.
Series A
9.98%, due 12/29/49
11.0914%, beginning 6/30/08
(c)............................. 205,000 176,300
------------
2,282,662
------------
CASINOS (0.1%)
Harrahs Operating Co. Inc.
7.875%, due 12/15/05............ 175,000 176,939
Players International Inc.
10.875%, due 4/15/05............ 275,000 294,938
------------
471,877
------------
CHEMICALS (0.1%)
Agriculture Minerals & Chemicals
10.75%, due 9/30/03............. 100,000 101,500
ISP Holdings, Inc.
Series B
9.00%, due 10/15/03............. 160,000 168,400
Terra Industries Inc.
Series B
10.50%, due 6/15/05............. 150,000 154,500
------------
424,400
------------
CONSUMER SERVICES (0.3%)
Cendant Corp.
7.75%, due 12/1/03.............. 1,835,000 1,866,819
------------
DRUGS (0.0%) (b)
ICN Pharmaceuticals, Inc.
8.75%, due 11/15/08 (c)......... 315,000 318,150
------------
ELECTRIC UTILITIES (0.6%)
CMS Energy Corp.
7.00%, due 1/15/05.............. 325,000 316,875
ESI Tractebel Acquisition Corp.
7.99%, due 12/30/11............. 300,000 298,500
Niagara Mohawk Power Corp.
Series B
7.00%, due 10/1/00.............. 2,340,000 2,363,540
</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.
134
<PAGE> 135
MAINSTAY VP SERIES FUND, INC.
CORPORATE BONDS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
ELECTRIC UTILITIES (Continued)
Public Service Electric & Gas Co.
Series UU
6.75%, due 3/1/06............... $ 1,125,000 $ 1,207,125
------------
4,186,040
------------
FINANCE (0.1%)
CB Richard Ellis Services, Inc.
8.875%, due 6/1/06.............. 350,000 343,000
------------
FINANCIAL SERVICES (0.5%)
Equitable Companies, Inc. (The)
7.00%, due 4/1/28............... 1,145,000 1,197,716
Household Finance Corp.
6.50%, due 11/15/08............. 830,000 863,200
Sears Roebuck Acceptance Corp.
Medium-Term Note
Series IV
6.36%, due 12/4/01.............. 1,165,000 1,189,348
------------
3,250,264
------------
FOOD, BEVERAGE &
TOBACCO (0.5%)
Coca-Cola Enterprises Inc.
6.95%, due 11/15/26............. 680,000 729,184
Philip Morris Cos. Inc.
6.15%, due 3/15/00 (h).......... 2,435,000 2,453,896
Standard Commercial Corp.
8.875%, due 8/1/05.............. 210,000 201,600
------------
3,384,680
------------
HEALTH CARE (0.1%)
Columbia/HCA Healthcare
7.50%, due 11/15/95............. 380,000 330,771
Health Care Properties Investors
Inc.
6.875%, due 6/8/05 (i).......... 170,000 160,119
Quorum Health Group, Inc.
8.75%, due 11/1/05.............. 135,000 128,925
------------
619,815
------------
HOSPITAL MANAGEMENT SERVICES
(0.1%)
Tenet HealthCare Corp.
8.125%, due 12/1/08 (c)......... 375,000 384,375
------------
HOUSING (0.1%)
Greystone Homes, Inc.
10.75%, due 3/1/04.............. 310,000 327,050
------------
INDUSTRIAL (0.0%) (b)
Price Communications Wire Inc.
9.125%, due 12/15/06 (c)........ 285,000 287,850
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
INSURANCE (0.3%)
Conseco, Inc.
6.40%, due 6/15/01 (i).......... $ 1,750,000 $ 1,690,745
------------
MEDIA & ENTERTAINMENT (0.5%)
CSC Holdings, Inc.
7.625%, due 7/15/18............. 200,000 196,120
Disney (Walt) Co. (The)
Medium-Term Note
5.62%, due 12/1/08.............. 1,335,000 1,331,916
Time Warner Inc.
8.375%, due 7/1/13.............. 1,370,000 1,644,781
------------
3,172,817
------------
MINING (0.0%) (b)
Great Central Mines, Ltd.
8.875%, due 4/1/08 (l).......... 80,000 80,000
------------
OIL SERVICES (0.0%) (b)
R & B Falcon Corp.
9.50%, due 12/15/08 (c)......... 275,000 275,000
------------
PAPER & FOREST
PRODUCTS (0.1%)
Georgia-Pacific Corp.
7.25%, due 6/1/28............... 505,000 511,742
Pope & Talbot Inc.
8.375%, due 6/1/13.............. 475,000 451,250
------------
962,992
------------
PUBLISHING (0.0%) (b)
World Color Press Inc.
8.375%, due 11/15/08 (c)........ 280,000 280,000
------------
REAL ESTATE (0.4%)
Crescent Real Estate Equities Co.
7.50%, due 9/15/07.............. 460,000 427,800
EOP Operating LP
6.50%, due 6/15/04.............. 2,230,000 2,188,908
6.763%, due 6/15/07............. 175,000 172,485
Highwoods Realty LP
8.00%, due 12/1/03.............. 160,000 161,200
------------
2,950,393
------------
RETAIL (0.9%)
Albertson's, Inc.
Medium-Term Note
Series C
6.625%, due 6/1/28.............. 3,045,000 3,130,899
Dayton Hudson Corp.
5.875%, due 11/1/08............. 695,000 705,550
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
135
<PAGE> 136
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
CORPORATE BONDS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
RETAIL (Continued)
K Mart Corp.
8.25%, due 1/1/22............... $ 190,000 $ 195,564
8.375%, due 7/1/22.............. 180,000 185,160
Wal-Mart Stores, Inc.
5.65%, due 2/1/00 (h)........... 1,310,000 1,315,869
------------
5,533,042
------------
SPECIALIZED SERVICES (0.2%)
WPP Finance USA Corp.
6.625%, due 7/15/05............. 970,000 965,169
------------
STEEL, ALUMINUM & OTHER METALS
(0.1%)
Carpenter Technology Corp.
Medium-Term Note
Series B
6.275%, due 4/7/03.............. 635,000 638,092
------------
TELECOMMUNICATION SERVICES (0.3%)
MCI WorldCom Inc.
6.125%, due 8/15/01............. 685,000 696,385
Sprint Capital Corp.
6.125%, due 11/15/08............ 1,335,000 1,364,103
------------
2,060,488
------------
TEXTILE & APPAREL (0.2%)
Tommy Hilfiger USA, Inc.
6.50%, due 6/1/03............... 1,480,000 1,460,435
------------
Total Corporate Bonds
(Cost $38,507,437).............. 38,835,424
------------
MORTGAGE-BACKED SECURITIES (1.8%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (1.7%)
DLJ Commercial Mortgage Corp.
Series 1998-CF2 Class A1B
6.24%, due 11/12/31 (e)......... 1,230,000 1,253,837
LB Commercial Conduit
Mortgage Trust
Series 1998-C4 Class A1B
6.21%, due 10/15/08 (e)......... 1,860,000 1,890,802
Merrill Lynch Mortgage Investors,
Inc.
Series 1995-C2 Class A1
7.2778%, due 6/15/21 (e)(f)..... 1,173,726 1,194,830
Morgan Stanley Capital I
Series 1998-HF2 Class A1
6.01%, due 11/15/30 (e)......... 1,491,556 1,505,770
Mortgage Capital Funding, Inc.
Series 1998-MC3 Class A2
6.337%, due 11/18/31 (e)........ 1,450,000 1,477,419
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (Continued)
Nationslink Funding Corp.
Series 1998-2 Class A1
6.001%, due 11/20/07 (e)........ $ 671,477 $ 676,513
SASCO Floating Rate Commercial
Mortgage Trust
Series 1998-C3A Class A1A
6.1744%, due 6/25/15 (c)(f)..... 2,874,931 2,874,931
------------
10,874,102
------------
RESIDENTIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATION) (0.1%)
Structured Asset Securities Corp.
Series 1996-2 Class A1
7.00%, due 8/25/26 (e).......... 440,016 440,614
------------
Total Mortgage-Backed Securities
(Cost $11,276,690 )............. 11,314,716
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (19.9%)
FEDERAL AGENCY (COLLATERALIZED
MORTGAGE OBLIGATION) (0.2%)
Fannie Mae
Series 1998-M1 Class A1
5.96%, due 5/25/07 (e).......... 924,973 932,779
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (0.6%)
5.75%, due 4/15/03 (e)(g)....... 3,770,000 3,870,018
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (5.8%)
6.50%, due 5/1/03-10/1/28....... 26,423,361 26,625,343
6.50%, due 2/11/29 TBA (d)...... 5,650,000 5,681,810
7.00%, due 11/1/12-12/1/12...... 5,008,831 5,116,821
------------
37,423,974
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITIES) (4.0%)
7.00%, due 7/15/25-9/15/28...... 15,630,221 15,991,749
7.50%, due 12/15/23-11/15/28
(e)........................... 5,918,968 6,101,155
8.00%, due 11/15/28............. 3,585,444 3,723,269
------------
25,816,173
------------
</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.
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (MORTGAGE
PASS-THROUGH SECURITY) (0.8%)
7.50%, due 1/21/29 TBA (d)........ $ 5,070,000 $ 5,225,294
UNITED STATES TREASURY BONDS (2.7%)
6.125%, due 11/15/27 (g).......... 4,385,000 4,908,437
6.375%, due 8/15/27 (g)........... 7,580,000 8,712,225
7.625%, due 2/15/25 (g)........... 480,000 631,051
8.875%, due 8/15/17 (g)........... 2,420,000 3,408,788
------------
17,660,501
------------
UNITED STATES TREASURY NOTES (5.8%)
5.25%, due 8/15/03................ 1,020,000 1,045,979
5.375%, due 6/30/03 (g)........... 6,260,000 6,441,916
5.625%, due 11/30/00 (g).......... 14,545,000 14,804,046
6.25%, due 2/28/02................ 3,905,000 4,081,350
6.375%, due 3/31/01............... 1,535,000 1,591,120
6.875%, due 5/15/06............... 855,000 966,680
7.875%, due 11/15/99-11/15/04
(g)............................. 7,541,000 8,228,488
------------
37,159,579
------------
Total U.S. Government & Federal
Agencies
(Cost $128,042,363)............... 128,088,318
------------
YANKEE BONDS (1.8%)
CABLE (0.1%)
Le Groupe Videotron Ltee
10.625%, due 2/15/05.............. 190,000 205,438
Rogers Cablesystem Ltd.
10.125%, due 9/1/12............... 90,000 99,000
------------
304,438
------------
ELECTRIC UTILITIES (0.2%)
United Utilities, PLC
6.45%, due 4/1/08................. 1,475,000 1,518,203
------------
FINANCE (0.3%)
Fairfax Financial Holdings Ltd.
6.875%, due 4/15/08............... 1,775,000 1,752,670
------------
INDUSTRIAL (0.0%) (b)
Stena Line AB
10.50%, due 12/15/05.............. 280,000 289,100
------------
MEDIA (0.1%)
Rogers Communications, Inc.
8.875%, due 7/15/07............... 360,000 370,800
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
MINING (0.0%) (b)
Glencore Nickel Property Ltd.
9.00%, due 12/1/14................ $ 200,000 $ 162,000
------------
MULTI-INDUSTRIAL (0.4%)
Tyco International Group S.A.
7.00%, due 6/15/28................ 2,325,000 2,404,841
------------
OIL SERVICES (0.3%)
Petroleum Geo-Services ASA
7.125%, due 3/30/28............... 2,275,000 2,148,510
------------
TRANSPORTATION (0.4%)
Cenargo International PLC
9.75%, due 6/15/08 (c)............ 340,000 326,825
Ford Capital Co. B.V.
9.50%, due 6/1/10................. 1,735,000 2,231,123
------------
2,557,948
------------
Total Yankee Bonds
(Cost $11,520,377)................ 11,508,510
------------
Total Long-Term Bonds
(Cost $211,639,379)............... 212,123,711
------------
</TABLE>
COMMON STOCKS (64.9%)
<TABLE>
<CAPTION>
SHARES
-----------
<S> <C> <C>
BANKS (1.2%)
SouthTrust Corp.................... 54,800 2,024,175
Wells Fargo & Co................... 137,600 5,495,400
------------
7,519,575
------------
COMPUTERS & OFFICE
EQUIPMENT (4.9%)
EMC Corp. (a)(g)................... 159,100 13,523,500
HBO & Co........................... 208,700 5,987,081
Sun Microsystems, Inc. (a)......... 145,000 12,415,625
------------
31,926,206
------------
CONSUMER DURABLES (1.2%)
Harley-Davidson, Inc............... 169,000 8,006,375
------------
CONSUMER SERVICES (1.5%)
Cendant Corp. (a).................. 305,203 5,817,932
Service Corp. International........ 110,000 4,186,875
------------
10,004,807
------------
COSMETICS (1.1%)
Colgate-Palmolive Co. ............. 77,500 7,197,812
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
137
<PAGE> 138
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
DRUGS (7.3%)
Elan Corp. PLC ADR (a)(g)(j)....... 89,800 $ 6,246,713
Lilly (Eli) & Co. ................. 145,000 12,886,875
Merck & Co., Inc. ................. 39,500 5,833,656
Monsanto Co. ...................... 87,100 4,137,250
Pfizer, Inc. ...................... 46,700 5,857,931
Schering-Plough Corp. ............. 217,200 12,000,300
------------
46,962,725
------------
FINANCIAL SERVICES (7.5%)
Associates First Capital Corp.
Class A........................... 223,800 9,483,525
CIT Group, Inc. (The)
Class A........................... 61,000 1,940,562
Citigroup Inc. (g)................. 112,400 5,563,800
Equifax Inc........................ 107,700 3,681,994
Fannie Mae......................... 66,300 4,906,200
Freddie Mac........................ 61,300 3,950,019
Providian Financial Corp........... 100,650 7,548,750
SunAmerica Inc. (g)................ 136,850 11,101,956
------------
48,176,806
------------
HEALTH CARE (2.5%)
Cardinal Health, Inc. (a)(g)....... 105,550 8,008,606
HEALTHSOUTH Corp. (a)(g)........... 220,300 3,400,881
IMS Health Inc..................... 59,700 4,503,619
------------
15,913,106
------------
INDUSTRIAL (0.7%)
Illinois Tool Works Inc............ 67,500 4,260,938
------------
INSURANCE (1.7%)
American International Group, Inc.
(g)............................... 74,437 7,192,475
Conseco, Inc. (g).................. 119,800 3,661,388
------------
10,853,863
------------
MEDIA (2.1%)
Chancellor Media Corp. (a)(g)...... 104,000 4,979,000
Clear Channel Communications,
Inc. (a).......................... 88,300 4,812,350
Young & Rubicam Inc. (a)........... 125,500 4,063,063
------------
13,854,413
------------
MEDICAL EQUIPMENT (5.1%)
Guidant Corp. (a).................. 105,000 11,576,250
Johnson & Johnson.................. 108,752 9,121,574
Medtronic, Inc..................... 160,200 11,894,850
------------
32,592,674
------------
MULTI-INDUSTRIAL (2.3%)
Tyco International Ltd............. 195,900 14,778,206
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
POLLUTION & RELATED (0.9%)
USA Waste Services, Inc. (a)..... 117,500 $ 5,478,438
------------
RECREATION & ENTERTAINMENT (0.3%)
Fox Entertainment Group, Inc.
Class A......................... 73,500 1,851,281
------------
RETAIL (11.5%)
Bed Bath & Beyond, Inc. (a)...... 155,800 5,316,675
CVS Corp......................... 154,000 8,470,000
Dollar General Corp. (g)......... 174,859 4,131,038
Fred Meyer, Inc. (a)............. 105,200 6,338,300
Home Depot, Inc. (The) (g)....... 184,800 11,307,450
Kohl's Corp. (a)(g).............. 142,800 8,773,275
Kroger Co. (The) (a)............. 126,300 7,641,150
Safeway, Inc. (a)................ 199,600 12,163,125
Staples, Inc. (a)................ 224,900 9,825,319
------------
73,966,332
------------
SOFTWARE (5.3%)
Computer Associates
International, Inc. ............ 78,325 3,338,603
Compuware Corp. (a).............. 156,200 12,203,125
Microsoft Corp. (a).............. 78,200 10,845,362
Oracle Corp. (a)................. 183,037 7,893,471
------------
34,280,561
------------
TECHNOLOGY (3.5%)
Cisco Systems, Inc. (a).......... 152,925 14,193,351
Intel Corp....................... 69,100 8,192,669
------------
22,386,020
------------
TELECOMMUNICATION EQUIPMENT
(2.3%)
Lucent Technologies Inc.......... 137,400 15,114,000
------------
TELECOMMUNICATION SERVICES (2.0%)
MCI WorldCom, Inc. (a)........... 180,432 12,945,996
------------
Total Common Stocks
(Cost $219,019,314)............. 418,070,134
------------
PREFERRED STOCKS (0.1%)
CELLULAR TELEPHONE (0.0%) (b)
Centaur Funding Corp.
Series B
9.08%, 4/21/20 (c).............. 110,000 114,400
------------
</TABLE>
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.
PREFERRED STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
MEDIA &
ENTERTAINMENT (0.0%) (b)
Time Warner Capital I
8.875%, 12/31/25................ 7,700 $ 199,718
------------
PAPER & FOREST
PRODUCTS (0.1%)
Paperboard Industries
International, Inc.
5.00%, Class A (c)(k)(m)........ 15,000 242,310
------------
Total Preferred Stocks
(Cost $558,227)................. 556,428
------------
</TABLE>
SHORT-TERM
INVESTMENTS (4.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
COMMERCIAL PAPER (4.1%)
Associates Corp. of North America
5.08%, due 1/4/99............... $19,240,000 19,231,854
General Electric Capital Corp.
5.60%, due 1/11/99.............. 7,000,000 6,989,098
------------
Total Short-Term Investments
(Cost $26,220,952).............. 26,220,952
------------
Total Investments
(Cost $457,437,872) (n)......... 102.0% 656,971,225(o)
Liabilities in Excess of Cash and
Other Assets.................... (2.0) (12,609,940)
----------- ------------
Net Assets....................... 100.0% $644,361,285
=========== ============
</TABLE>
- ------------
<TABLE>
<S> <C>
(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 as collateral for TBA.
(f) Floating rate. Rate shown is the rate in effect at
December 31, 1998.
(g) Represent securities out on loan or a portion which
is out on loan.
(h) Put Bonds--may be redeemed prior to maturity for
full face value.
(i) MOPPRS--(Mandatory Par Put Remarketed
Securities) -- Subject to mandatory tender on
remarketing dates.
(j) ADR--American Depository Receipt.
(k) Restricted security.
(l) Euro-Dollar bond.
(m) Canadian security.
(n) The cost for Federal income tax purposes is
$457,918,903.
(o) At December 31, 1998 net unrealized appreciation
was $199,052,322, 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 $199,808,182 and aggregate gross unrealized de-
preciation for all investments on which there was
an excess of cost over market value of $755,860.
</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
TOTAL RETURN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $457,437,872)......... $656,971,225
Collateral held for securities loaned, at
value.................................. 78,007,662
Receivables:
Investment securities sold............. 2,406,428
Dividends and interest................. 1,920,244
Fund shares sold....................... 297,021
------------
Total assets..................... 739,602,580
------------
LIABILITIES:
Securities lending collateral, at
value.................................. 78,007,662
Payables:
Investment securities purchased........ 16,672,729
Adviser................................ 166,834
Custodian.............................. 144,506
Administrator.......................... 104,271
Fund shares redeemed................... 33,099
Directors.............................. 221
Accrued expenses......................... 111,973
------------
Total liabilities................ 95,241,295
------------
Net assets applicable to outstanding
shares................................. $644,361,285
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares authorized.... $ 322,352
Additional paid-in capital............... 443,422,078
Accumulated undistributed net investment
income................................. 21,516
Accumulated undistributed net realized
gain on investments.................... 1,061,986
Net unrealized appreciation on
investments............................ 199,533,353
------------
Net assets applicable to outstanding
shares................................. $644,361,285
============
Shares of capital stock outstanding...... 32,235,243
============
Net asset value per share outstanding.... $ 19.99
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 13,170,299
Dividends (a).......................... 1,590,532
------------
Total income..................... 14,760,831
------------
Expenses:
Advisory............................... 1,691,827
Administration......................... 1,057,391
Shareholder communication.............. 202,802
Professional........................... 69,134
Custodian.............................. 66,944
Directors.............................. 30,090
Miscellaneous.......................... 30,519
------------
Total expenses................... 3,148,707
------------
Net investment income.................... 11,612,124
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 15,978,852
Net change in unrealized appreciation on
investments............................ 103,139,834
------------
Net realized and unrealized gain on
investments............................ 119,118,686
------------
Net increase in net assets resulting from
operations............................. $130,730,810
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $2,762.
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.
TOTAL RETURN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 11,612,124 $ 9,613,404
Net realized gain on investments.......................... 15,978,852 13,159,109
Net change in unrealized appreciation on investments...... 103,139,834 40,611,907
------------ ------------
Net increase in net assets resulting from operations...... 130,730,810 63,384,420
------------ ------------
Dividends and distributions to shareholders:
From net investment income................................ (11,697,070) (9,410,905)
From net realized gain on investments..................... (16,858,107) (8,039,987)
------------ ------------
Total dividends and distributions to shareholders....... (28,555,177) (17,450,892)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 89,034,995 67,934,966
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 28,555,177 17,450,892
------------ ------------
117,590,172 85,385,858
Cost of shares redeemed................................... (22,028,105) (17,593,189)
------------ ------------
Increase in net assets derived from capital share
transactions............................................ 95,562,067 67,792,669
------------ ------------
Net increase in net assets.................................. 197,737,700 113,726,197
NET ASSETS:
Beginning of year........................................... 446,623,585 332,897,388
------------ ------------
End of year................................................. $644,361,285 $446,623,585
============ ============
Accumulated undistributed net investment income at end of
year...................................................... $ 21,516 $ 115,108
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year...... $ 16.47 $ 14.56 $ 13.26 $ 10.58 $ 11.32
------------ ------------ ------------ ------------ ------------
Net investment income..................... 0.38 0.37 0.30 0.31 0.27
Net realized and unrealized gain (loss) on
investments............................. 4.07 2.21 1.30 2.69 (0.72)
------------ ------------ ------------ ------------ ------------
Total from investment operations.......... 4.45 2.58 1.60 3.00 (0.45)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income.............. (0.38) (0.36) (0.30) (0.32) (0.29)
From net realized gain
on investments........................ (0.55) (0.31) -- -- --
------------ ------------ ------------ ------------ ------------
Total dividends and distributions......... (0.93) (0.67) (0.30) (0.32) (0.29)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year............ $ 19.99 $ 16.47 $ 14.56 $ 13.26 $ 10.58
============ ============ ============ ============ ============
Total investment return................... 27.13% 17.79% 12.08% 28.33% (3.99%)
Ratios (to average net
assets)/Supplemental Data:
Net investment income................... 2.20% 2.46% 2.52% 3.06% 3.50%
Net expenses............................ 0.60% 0.60% 0.69% 0.69% 0.69%
Expenses (before reimbursement)......... 0.60% 0.60% 0.71% 0.81% 0.88%
Portfolio turnover rate................... 158% 125% 175% 253% 297%
Net assets at end of year (in 000's)...... $ 644,361 $ 446,624 $ 332,897 $ 194,893 $ 122,333
</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
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
COMMON STOCKS (97.2%)(+)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.3%)
Northrop Grumman Corp. ........... 56,600 $ 4,138,875
------------
AIRLINES (1.1%)
Northwest Airlines Corp. Class A
(a).............................. 132,600 3,389,587
------------
ALUMINUM (1.6%)
Reynolds Metals Co. .............. 99,200 5,226,600
------------
AUTO PARTS & EQUIPMENT (2.8%)
LucasVarity PLC ADR (b)........... 119,600 4,006,600
Mark IV Industries, Inc. ......... 377,020 4,901,260
------------
8,907,860
------------
BANKS (7.4%)
Bank One Corp. ................... 134,430 6,864,332
BankAmerica Corp. ................ 92,534 5,563,607
Washington Federal, Inc. ......... 95,100 2,537,981
Washington Mutual, Inc. .......... 227,800 8,699,112
------------
23,665,032
------------
BEVERAGES--ALCOHOLIC (1.9%)
Anheuser-Busch Cos., Inc. ........ 92,000 6,037,500
------------
BUILDING MATERIALS (1.0%)
Sherwin-Williams Co. (The)........ 112,200 3,295,875
------------
CHEMICALS (3.0%)
Agrium Inc. ...................... 168,100 1,460,369
Geon Co. (The).................... 49,600 1,140,800
Georgia Gulf Corp. ............... 170,150 2,733,034
IMC Global Inc. .................. 200,700 4,289,963
------------
9,624,166
------------
COMPUTERS--NETWORKING (2.0%)
Adaptec Inc. (a).................. 364,200 6,396,262
------------
CONSUMER FINANCE (0.6%)
Countrywide Credit Industries,
Inc. ............................ 34,900 1,751,544
------------
CONTAINERS--METAL & GLASS (1.1%)
Owens-Illinois Inc. (a)........... 118,400 3,626,000
------------
ELECTRIC POWER COMPANIES (6.6%)
Energy East Corp. ................ 63,300 3,576,450
Illinova Corp. ................... 133,600 3,340,000
Niagara Mohawk Power Corp. (a).... 239,600 3,863,550
OGE Energy Corp. ................. 62,900 1,820,169
Texas Utilities Co. .............. 179,400 8,375,737
------------
20,975,906
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
ELECTRONICS (0.5%)
Raychem Corp. .................... 49,500 $ 1,599,469
------------
FINANCIAL--
MISCELLANEOUS (5.7%)
Citigroup Inc. ................... 153,849 7,615,525
Equitable Cos., Inc. (The)........ 106,100 6,140,538
SLM Holding Corp. ................ 94,300 4,526,400
------------
18,282,463
------------
HEALTH CARE (5.4%)
Aetna Inc. ....................... 56,100 4,410,863
Columbia/HCA Healthcare Corp. .... 137,300 3,398,175
Tenet Healthcare Corp. (a)........ 135,000 3,543,750
United Healthcare Corp. .......... 140,000 6,028,750
------------
17,381,538
------------
HEAVY DUTY TRUCKS & PARTS (1.2%)
Dana Corp. ....................... 92,279 3,771,904
------------
HOTEL/MOTEL (1.6%)
Harrah's Entertainment, Inc.
(a).............................. 329,100 5,162,756
------------
INSURANCE (10.6%)
Allstate Corp. (The).............. 197,700 7,636,162
Chubb Corp. ...................... 80,000 5,190,000
CIGNA Corp. ...................... 90,000 6,958,125
Conseco, Inc. .................... 203,500 6,219,469
MGIC Investment Corp. ............ 119,700 4,765,556
Transamerica Corp. ............... 26,300 3,037,650
------------
33,806,962
------------
LEISURE TIME (0.2%)
Callaway Golf Co. ................ 72,700 745,175
------------
MACHINERY--
DIVERSIFIED (1.8%)
American Standard Cos. Inc. (a)... 163,000 5,857,813
------------
METALS--MINING (0.4%)
Phelps Dodge Corp. ............... 27,400 1,393,975
------------
NATURAL GAS DISTRIBUTORS &
PIPELINES (4.3%)
Coastal Corp. (The)............... 128,800 4,499,950
Consolidated Natural Gas Co. ..... 57,000 3,078,000
Keyspan Energy.................... 81,312 2,520,672
Williams Cos. Inc. ............... 114,219 3,562,205
------------
13,660,827
------------
</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.
142
<PAGE> 143
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------
<S> <C> <C>
OIL & GAS SERVICES (11.8%)
Apache Corp. ..................... 151,800 $ 3,842,437
Noble Affiliates, Inc. ........... 148,100 3,646,963
Occidental Petroleum Corp. ....... 84,400 1,424,250
Oryx Energy Co. (a)............... 280,900 3,774,594
Santa Fe Energy Resources, Inc.
(a).............................. 365,000 2,691,875
Seagull Energy Corp. (a).......... 424,170 2,677,573
Texaco Inc. ...................... 51,500 2,723,063
Tosco Corp. ...................... 198,500 5,136,187
Union Pacific Resources Group
Inc. ............................ 452,100 4,097,156
Unocal Corp. ..................... 152,100 4,439,419
Valero Energy Corp. .............. 158,100 3,359,625
------------
37,813,142
------------
PAPER & FOREST
PRODUCTS (1.1%)
Bowater Inc. ..................... 81,200 3,364,725
------------
POLLUTION CONTROL (1.7%)
Browning-Ferris Industries
Inc. ............................ 185,100 5,263,781
------------
RAILROADS (0.9%)
CSX Corp. ........................ 68,000 2,822,000
------------
RETAIL (3.3%)
Federated Department Stores, Inc.
(a).............................. 128,000 5,576,000
Penney (J.C.) Co., Inc. .......... 61,000 2,859,375
Venator Group, Inc. (a)........... 323,400 2,081,888
------------
10,517,263
------------
RETAIL STORES--
SPECIALTY (1.9%)
Toys "R" Us, Inc. (a)............. 367,600 6,203,250
------------
STEEL (0.5%)
UCAR International Inc. (a)....... 97,100 1,729,594
------------
TELECOMMUNICATIONS--
LONG DISTANCE (1.9%)
AT&T Corp. ....................... 81,000 6,095,250
------------
TELEPHONE (3.9%)
Nippon Telegraph & Telephone Corp.
ADR (b)(c)....................... 100,500 3,768,750
US West Inc. ..................... 134,000 8,659,750
------------
12,428,500
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
TEXTILES--APPAREL MANUFACTURERS
(2.2%)
Jones Apparel Group, Inc. (a)..... 177,900 $ 3,924,919
Liz Claiborne, Inc. .............. 97,600 3,080,500
------------
7,005,419
------------
TEXTILES--HOME FURNISHINGS (1.3%)
Shaw Industries, Inc. ............ 164,700 3,993,975
------------
TOBACCO (4.6%)
Philip Morris Cos. Inc. .......... 188,800 10,100,800
RJR Nabisco Holdings Corp. ....... 156,700 4,652,031
------------
14,752,831
------------
Total Common Stocks
(Cost $320,706,402).............. 310,687,819
------------
</TABLE>
<TABLE>
SHORT-TERM
INVESTMENT (2.0%)
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER (2.0%)
Associates Corp. of North America
5.08%, due 1/4/99................ $6,450,000 6,447,269
------------
Total Short-Term Investment
(Cost $6,447,269)................ 6,447,269
------------
Total Investments
(Cost $327,153,671) (d).......... 99.2% 317,135,088(e)
Cash and Other Assets,
Less Liabilities................. 0.8 2,607,925
--------- ----------
Net Assets........................ 100.0% $319,743,013
========= ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Segregated as collateral for forward foreign currency contract.
(d) The cost for Federal income tax purposes is $327,423,124.
(e) At December 31, 1998 net unrealized depreciation was $10,288,036, 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 $31,242,928 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $41,530,964.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
143
<PAGE> 144
VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $327,153,671)......... $317,135,088
Cash..................................... 657
Receivables:
Investment securities sold............. 2,379,297
Dividends.............................. 659,572
Fund shares sold....................... 35,584
------------
Total assets..................... 320,210,198
------------
LIABILITIES:
Payables:
Fund shares redeemed................... 154,829
Adviser................................ 96,528
Administrator.......................... 53,626
Shareholder communication.............. 39,951
Custodian.............................. 12,000
Directors.............................. 129
Accrued expenses......................... 31,106
Unrealized depreciation on forward
foreign currency contract.............. 79,016
------------
Total liabilities................ 467,185
------------
Net assets applicable to outstanding
shares................................. $319,743,013
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 229,107
Additional paid-in capital............... 330,683,573
Accumulated distribution in excess of net
realized gain on investments........... (1,072,068)
Net unrealized depreciation on
investments............................ (10,018,583)
Net unrealized depreciation on forward
foreign currency contract.............. (79,016)
------------
Net assets applicable to outstanding
shares................................. $319,743,013
============
Shares of capital stock outstanding...... 22,910,678
============
Net asset value per share outstanding.... $ 13.96
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 5,606,113
Interest............................... 1,447,977
------------
Total income..................... 7,054,090
------------
Expenses:
Advisory............................... 1,127,376
Administration......................... 626,320
Shareholder communication.............. 147,475
Professional........................... 52,029
Custodian.............................. 35,859
Directors.............................. 18,003
Miscellaneous.......................... 23,410
------------
Total expenses................... 2,030,472
------------
Net investment income.................... 5,023,618
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on investments......... 21,769,146
------------
Net change in unrealized appreciation
(depreciation) on investments:
Security transactions.................. (44,777,169)
Forward foreign currency contracts..... (79,016)
------------
Net unrealized loss on investments and
foreign currency transactions.......... (44,856,185)
------------
Net realized and unrealized loss on
investments and foreign currency
transactions........................... (23,087,039)
------------
Net decrease in net assets resulting from
operations............................. $(18,063,421)
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$29,823.
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.
VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 5,023,618 $ 3,314,456
Net realized gain on investments.......................... 21,769,146 13,030,231
Net change in unrealized appreciation (depreciation) on
investments............................................. (44,777,169) 21,662,906
Net unrealized depreciation on forward foreign currency
contract................................................ (79,016) --
------------ ------------
Net increase (decrease) in net assets resulting from
operations.............................................. (18,063,421) 38,007,593
------------ ------------
Dividends and distributions to shareholders:
From net investment income................................ (5,031,657) (3,316,396)
From net realized gain on investments..................... (24,497,929) (11,200,731)
In excess of net realized gain on investments............. (1,072,068) --
------------ ------------
Total dividends and distributions to shareholders....... (30,601,654) (14,517,127)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 90,387,964 114,898,296
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 30,601,654 14,517,127
------------ ------------
120,989,618 129,415,423
Cost of shares redeemed................................... (16,760,962) (9,141,345)
------------ ------------
Increase in net assets derived from capital share
transactions............................................ 104,228,656 120,274,078
------------ ------------
Net increase in net assets.................................. 55,563,581 143,764,544
NET ASSETS:
Beginning of year........................................... 264,179,432 120,414,888
------------ ------------
End of year................................................. $319,743,013 $264,179,432
============ ============
Accumulated undistributed net investment income at end of
year...................................................... $ -- $ 696
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1995 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 16.09 $ 13.90 $ 11.58 $ 10.00
------------ ------------ ------------ ------------
Net investment income................................... 0.24 0.21 0.17 0.10
Net realized and unrealized gain (loss) on
investments........................................... (0.90) 2.94 2.52 1.58
------------ ------------ ------------ ------------
Total from investment operations........................ (0.66) 3.15 2.69 1.68
------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income............................ (0.24) (0.21) (0.17) (0.10)
From net realized gain on investments................. (1.23) (0.75) (0.20) --
------------ ------------ ------------ ------------
Total dividends and distributions....................... (1.47) (0.96) (0.37) (0.10)
------------ ------------ ------------ ------------
Net asset value at end of period........................ $ 13.96 $ 16.09 $ 13.90 $ 11.58
============ ============ ============ ============
Total investment return................................. (4.14%) 22.89% 23.22% 16.76%(b)
</TABLE>
<TABLE>
Ratios (to average net assets)/Supplemental Data:
<S> <C> <C> <C> <C>
Net investment income................................. 1.60% 1.78% 2.10% 2.57%(+)
Net expenses.......................................... 0.65% 0.65% 0.73% 0.73%(+)
Expenses (before reimbursement)....................... 0.65% 0.65% 0.79% 1.45%(+)
Portfolio turnover rate................................. 69% 48% 41% 20%
Net assets at end of period (in 000's).................. $ 319,743 $ 264,179 $ 120,415 $ 24,429
</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.
145
<PAGE> 146
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
LONG-TERM BONDS (95.8%)+
CORPORATE BONDS (50.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AUTO PARTS & EQUIPMENT (1.9%)
Borg-Warner Automotive, Inc.
7.00%, due 11/1/06.............. $ 5,000,000 $ 5,206,250
------------
BANKS (4.0%)
BankAmerica Corp.
7.75%, due 7/15/02.............. 4,000,000 4,270,000
Golden West Financial Corp.
10.25%, due 12/1/00............. 1,000,000 1,086,250
Republic New York Corp.
7.75%, due 5/15/09.............. 5,000,000 5,675,000
------------
11,031,250
------------
CHEMICALS (1.1%)
Praxair, Inc.
6.15%, due 4/15/03.............. 3,000,000 2,996,250
------------
CONGLOMERATES--DIVERSIFIED (0.7%)
Harcourt General, Inc.
9.50%, due 3/15/00.............. 2,000,000 2,082,500
------------
DIVERSIFIED UTILITIES (2.9%)
New Century Energies, Inc.
6.00%, due 1/1/01............... 3,000,000 3,033,750
Niagara Mohawk Power Corp.
7.125%, due 7/1/01.............. 5,000,000 5,068,750
------------
8,102,500
------------
DRUGS--GENERIC & OVER THE COUNTER
(1.8%)
Merck & Co., Inc.
5.95%, due 12/1/28.............. 5,000,000 5,025,000
------------
ELECTRIC UTILITIES (3.8%)
Cleveland Electric Illuminating
Co.
7.88%, due 11/1/17.............. 5,000,000 5,287,500
Commonwealth Edison
6.95%, due 7/15/18.............. 5,000,000 5,256,250
------------
10,543,750
------------
ELECTRONICS/ELECTRIC (3.3%)
Raytheon Co.
5.95%, due 3/15/01.............. 5,000,000 5,031,250
6.75%, due 3/15/18.............. 4,000,000 4,105,000
------------
9,136,250
------------
FINANCE (11.5%)
Chrysler Financial Corp.
5.875%, due 2/7/01.............. 5,000,000 5,056,250
General Motors Acceptance Corp.
5.625%, due 2/15/01............. 6,000,000 6,015,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FINANCE (Continued)
Household Finance Corp.
6.50%, due 11/15/08............. $ 5,000,000 $ 5,200,000
John Deere Capital Corp.
5.35%, due 10/23/01............. 5,000,000 4,981,250
Mellon Financial Co.
7.625%, due 11/15/99 (a)........ 3,000,000 3,064,065
Norwest Financial, Inc.
6.85%, due 7/15/09.............. 7,000,000 7,586,250
------------
31,902,815
------------
GAS UTILITIES (2.9%)
KN Energy, Inc.
6.45%, due 3/1/03............... 5,000,000 5,006,250
Williams Companies, Inc.
6.125%, due 2/1/01.............. 3,000,000 3,003,750
------------
8,010,000
------------
OIL & GAS (1.6%)
Oryx Energy Co.
9.50%, due 11/1/99 (a).......... 4,235,000 4,346,169
------------
PAPER/PRODUCTS (1.7%)
Champion International Corp.
9.875%, due 6/1/00.............. 4,500,000 4,741,875
------------
POLLUTION CONTROL (1.5%)
USA Waste Services, Inc.
7.00%, due 10/1/04.............. 4,000,000 4,195,000
------------
RAILROADS (4.7%)
CSX Corp.
7.05%, due 5/1/02............... 7,000,000 7,262,500
Norfolk Southern Corp.
7.80%, due 5/15/27.............. 5,000,000 5,825,000
------------
13,087,500
------------
RETAIL STORES (1.8%)
Penney (J.C.) Co., Inc.
6.95%, due 4/1/00............... 5,000,000 5,112,500
------------
TELECOMMUNICATIONS (4.9%)
Sprint Capital Corp.
6.875%, due 11/15/28............ 8,000,000 8,360,000
Worldcom, Inc.
6.40%, due 8/15/05.............. 5,000,000 5,187,500
------------
13,547,500
------------
Total Corporate Bonds
(Cost $134,974,420)............. 139,067,109
------------
</TABLE>
- ------------
(+) Percentages indicated are based on Portfolio net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
146
<PAGE> 147
MAINSTAY VP SERIES FUND, INC.
U.S. GOVERNMENT &
FEDERAL AGENCIES (42.0%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL HOME LOAN BANK (1.8%)
5.625%, due 3/19/01............. $ 5,000,000 $ 5,081,925
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (2.6%)
5.91%, due 8/25/03.............. 7,000,000 7,065,751
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (10.9%)
6.00%, due 12/1/27.............. 3,652,705 3,607,046
6.50%, due 11/1/09.............. 5,714,809 5,825,534
6.50%, due 10/1/27.............. 4,935,162 4,970,636
7.00%, due 2/1/27............... 8,373,203 8,564,221
8.00%, due 5/1/25............... 6,992,541 7,265,691
------------
30,233,128
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITY) (1.0%)
9.00%, due 4/15/26.............. 2,647,940 2,827,504
------------
UNITED STATES TREASURY BONDS
(7.6%)
5.50%, due 8/15/28.............. 8,000,000 8,379,984
6.125%, due 11/15/27............ 7,000,000 7,835,590
7.125%, due 2/15/23............. 4,000,000 4,921,388
------------
21,136,962
------------
UNITED STATES TREASURY NOTES
(18.1%)
5.50%, due 3/31/03.............. 14,000,000 14,415,772
6.125%, due 8/15/07............. 5,000,000 5,470,550
6.25%, due 8/31/02.............. 13,000,000 13,672,386
6.50%, due 8/15/05.............. 15,000,000 16,491,405
------------
50,050,113
------------
Total U.S. Government &
Federal Agencies
(Cost $113,363,063)............. 116,395,383
------------
YANKEE BONDS (3.7%)
COMMERCIAL PRINTING (1.9%)
Quebecor Printing Capital Corp.
7.25%, due 1/15/07.............. 5,000,000 5,268,750
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CRUDE PETROLEUM &
NATURAL GAS (1.8%)
Gulf Canada Resources Ltd.
9.00%, due 8/15/99 (a).......... $ 5,000,000 $ 5,050,000
------------
Total Yankee Bonds
(Cost $10,051,581).............. 10,318,750
------------
Total Long-Term Bonds
(Cost $258,389,064)............. 265,781,242
------------
SHORT-TERM
INVESTMENTS (2.7%)
<CAPTION>
<S> <C> <C>
COMMERCIAL PAPER (2.7%)
Associates Corp. of North America
4.708%, due on demand (b)....... 3,167,000 3,167,000
Avnet, Inc.
5.55%, due 1/22/99.............. 500,000 498,380
Ford Motor Credit Corp.
4.93%, due 1/7/99............... 2,570,000 2,567,888
Fortune Brands, Inc.
5.65%, due 1/11/99.............. 240,000 239,623
South Carolina Electric & Gas
5.40%, due 2/11/99.............. 1,000,000 993,846
------------
Total Short-Term Investments
(Cost $7,466,737)............... 7,466,737
------------
Total Investments
(Cost $265,855,801) (c)......... 98.5% 273,247,979(d)
Cash and Other Assets,
Less Liabilities................ 1.5 4,144,252
---------- ----------
Net Assets....................... 100.0% $277,392,231
========== ============
</TABLE>
- ------------
(a) Long-term security maturing within the subsequent twelve month period.
(b) Adjustable rate. Rate shown is the rate in effect at
December 31, 1998.
(c) The cost for Federal income tax purposes is $265,956,706.
(d) At December 31, 1998 net unrealized appreciation was $7,291,273, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $7,597,149 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $305,876.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
147
<PAGE> 148
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $265,855,801)......... $273,247,979
Cash..................................... 1,501
Receivables:
Interest............................... 4,456,469
Fund shares sold....................... 117,338
------------
Total assets..................... 277,823,287
------------
LIABILITIES:
Payables:
Adviser................................ 169,874
Fund shares redeemed................... 146,548
Administrator.......................... 46,515
Shareholder communication.............. 34,782
Directors.............................. 104
Accrued expenses......................... 33,233
------------
Total liabilities................ 431,056
------------
Net assets applicable to outstanding
shares................................. $277,392,231
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 209,694
Additional paid-in capital............... 269,782,716
Accumulated undistributed net investment
income................................. 7,643
Net unrealized appreciation on
investments............................ 7,392,178
------------
Net assets applicable to outstanding
shares................................. $277,392,231
============
Shares of capital stock outstanding...... 20,969,392
============
Net asset value per share outstanding.... $ 13.23
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 15,813,057
------------
Expenses:
Advisory............................... 619,671
Administration......................... 495,736
Shareholder communication.............. 95,418
Professional........................... 48,701
Directors.............................. 14,365
Portfolio pricing...................... 6,730
Miscellaneous.......................... 17,209
------------
Total expenses................... 1,297,830
------------
Net investment income.................... 14,515,227
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 6,948,226
Net change in unrealized appreciation on
investments............................ 19,352
------------
Net realized and unrealized gain on
investments............................ 6,967,578
------------
Net increase in net assets resulting from
operations............................. $ 21,482,805
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
148
<PAGE> 149
MAINSTAY VP SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 14,515,227 $ 14,358,879
Net realized gain on investments.......................... 6,948,226 2,351,172
Net change in unrealized appreciation on investments...... 19,352 3,848,534
------------ ------------
Net increase in net assets resulting from operations...... 21,482,805 20,558,585
------------ ------------
Dividends and distributions to shareholders:
From net investment income................................ (14,391,518) (14,330,709)
From net realized gain on investments..................... (7,064,292) (640,312)
------------ ------------
Total dividends and distributions to shareholders....... (21,455,810) (14,971,021)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 63,383,438 21,412,921
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 21,455,810 14,971,021
------------ ------------
84,839,248 36,383,942
Cost of shares redeemed................................... (36,423,049) (39,397,355)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions...................................... 48,416,199 (3,013,413)
------------ ------------
Net increase in net assets.................................. 48,443,194 2,574,151
NET ASSETS:
Beginning of year........................................... 228,949,037 226,374,886
------------ ------------
End of year................................................. $277,392,231 $228,949,037
============ ============
Accumulated undistributed net investment income at end of
year...................................................... $ 7,643 $ --
============ ============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 13.14 $ 12.83 $ 13.42 $ 12.09 $ 13.43
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.74 0.88 0.87 0.88 0.88
Net realized and unrealized gain (loss) on
investments............................... 0.46 0.35 (0.59) 1.33 (1.34)
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 1.20 1.23 0.28 2.21 (0.46)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income................ (0.74) (0.88) (0.87) (0.88) (0.88)
From net realized gain
on investments.......................... (0.37) (0.04) -- -- --
------------ ------------ ------------ ------------ ------------
Total dividends and distributions........... (1.11) (0.92) (0.87) (0.88) (0.88)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 13.23 $ 13.14 $ 12.83 $ 13.42 $ 12.09
============ ============ ============ ============ ============
Total investment return..................... 9.12% 9.65% 2.05% 18.31% (3.39%)
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 5.86% 6.42% 6.31% 6.55% 6.53%
Net expenses.............................. 0.52% 0.50% 0.58% 0.62% 0.62%
Expenses (before reimbursement)........... 0.52% 0.50% 0.58% 0.91% 0.67%
Portfolio turnover rate..................... 206% 187% 103% 81% 88%
Net assets at end of year (in 000's)........ $ 277,392 $ 228,949 $ 226,375 $ 235,030 $ 206,686
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
149
<PAGE> 150
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
COMMON STOCKS (92.2%)+
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
BANKS--MAJOR REGIONAL (2.1%)
Bank of New York Co., Inc.
(The)........................... 300,000 $ 12,075,000
Fleet Financial Group, Inc. ..... 192,600 8,606,813
------------
20,681,813
------------
BANKS--MONEY CENTER (1.9%)
BankAmerica Corp. ............... 160,000 9,620,000
First Union Corp. ............... 150,000 9,121,875
------------
18,741,875
------------
BEVERAGES--ALCOHOLIC (1.0%)
Anheuser-Busch Cos., Inc. ....... 160,000 10,500,000
------------
BIOTECHNOLOGY (1.8%)
Centocor, Inc. (a)............... 171,100 7,720,888
Genzyme Corp. (a)................ 200,000 9,950,000
------------
17,670,888
------------
BROADCAST/MEDIA (6.1%)
Capstar Broadcasting Corp. Class
A (a)........................... 475,000 10,865,625
Clear Channel Communications,
Inc. (a)........................ 150,000 8,175,000
Comcast Corp. Special Class A.... 300,000 17,606,250
MediaOne Group Inc. (a).......... 230,000 10,810,000
News Corp. Ltd. (The) ADR (b).... 310,000 8,195,625
USA Networks, Inc. (a)........... 147,000 4,869,375
------------
60,521,875
------------
CHEMICALS (0.4%)
IMC Global Inc. ................. 172,500 3,687,188
------------
COMMUNICATIONS--EQUIPMENT
MANUFACTURERS (5.8%)
ADC Telecommunications, Inc.
(a)............................. 280,000 9,730,000
Ascend Communications, Inc.
(a)............................. 180,000 11,835,000
Cisco Systems, Inc. (a).......... 180,000 16,706,250
Northern Telecom Ltd............. 225,000 11,278,125
Tellabs, Inc. (a)................ 125,000 8,570,313
------------
58,119,688
------------
COMPUTER SOFTWARE & SERVICES
(7.4%)
America Online Inc. (a).......... 160,000 23,160,000
Ceridian Corp. (a)............... 140,000 9,773,750
Equifax Inc. .................... 210,000 7,179,375
Microsoft Corp. (a).............. 100,000 13,868,750
Network Associates, Inc. (a)..... 117,000 7,751,250
SunGard Data Systems Inc. (a).... 300,000 11,906,250
------------
73,639,375
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
COMPUTER SYSTEMS (4.9%)
Comdisco Inc. ................... 600,000 $ 10,125,000
Dell Computer Corp. (a).......... 120,000 8,782,500
EMC Corp. (a).................... 150,000 12,750,000
Hewlett-Packard Co............... 120,000 8,197,500
Sun Microsystems, Inc. (a)....... 100,000 8,562,500
------------
48,417,500
------------
ELECTRIC POWER COMPANIES (0.7%)
CMS Energy Corp. ................ 135,000 6,539,063
------------
ELECTRICAL EQUIPMENT (2.3%)
Checkpoint Systems, Inc. (a)..... 214,400 2,653,200
General Electric Co.............. 200,000 20,412,500
------------
23,065,700
------------
ELECTRONICS--SEMICONDUCTORS
(1.5%)
Motorola, Inc. .................. 110,000 6,716,875
Texas Instruments Inc. .......... 100,000 8,556,250
------------
15,273,125
------------
ENTERTAINMENT (1.2%)
Time Warner Inc. ................ 200,000 12,412,500
------------
FINANCIAL--MISCELLANEOUS (4.5%)
American General Corp. .......... 120,000 9,360,000
Associates First Capital Corp.
Class A......................... 260,000 11,017,500
Fannie Mae....................... 160,000 11,840,000
Freddie Mac...................... 200,000 12,887,500
------------
45,105,000
------------
FOOD (0.8%)
Hershey Foods Corp. ............. 126,700 7,879,156
------------
FOOD & HEALTH CARE DISTRIBUTORS
(2.0%)
Cardinal Health, Inc. ........... 135,000 10,243,125
SYSCO Corp. ..................... 360,000 9,877,500
------------
20,120,625
------------
HEALTH CARE--DIVERSIFIED (5.6%)
Abbott Laboratories.............. 225,000 11,025,000
American Home Products Corp. .... 200,000 11,262,500
Bristol-Myers Squibb Co.......... 95,000 12,712,187
Johnson & Johnson................ 120,000 10,065,000
Warner-Lambert Co................ 150,000 11,278,125
------------
56,342,812
------------
</TABLE>
- ------------
+ Percentages indicated are based on Portfolio net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
150
<PAGE> 151
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
HEALTH CARE--DRUGS (5.7%)
Glaxo Wellcome PLC ADR (b)....... 150,000 $ 10,425,000
Lilly (Eli) & Co................. 160,000 14,220,000
Pharmacia & Upjohn, Inc. ........ 200,000 11,325,000
Schering-Plough Corp............. 180,000 9,945,000
SmithKline Beecham PLC ADR (b)... 157,300 10,932,350
------------
56,847,350
------------
HEALTH CARE--MEDICAL PRODUCTS
(2.9%)
Biomet, Inc. .................... 150,000 6,037,500
Elan Corp. PLC ADR (a)(b)........ 146,900 10,218,731
Medtronic, Inc. ................. 175,000 12,993,750
------------
29,249,981
------------
HEAVY DUTY TRUCKS & PARTS (0.6%)
Dana Corp. ...................... 148,000 6,049,500
------------
INSURANCE--LIFE (1.1%)
Provident Cos., Inc. ............ 260,000 10,790,000
------------
INSURANCE--PROPERTY & CASUALTY
(1.9%)
Allstate Corp. (The)............. 250,000 9,656,250
EXCEL Ltd........................ 119,600 8,970,000
------------
18,626,250
------------
MANUFACTURING--DIVERSIFIED (1.5%)
Tyco International Ltd........... 200,000 15,087,500
------------
MANUFACTURING--MISCELLANEOUS
(0.9%)
United States Filter Corp. (a)... 400,000 9,150,000
------------
NATURAL GAS DISTRIBUTORS &
PIPELINES (0.8%)
Enron Corp. ..................... 135,000 7,703,437
------------
OIL & GAS--EQUIPMENT & SERVICES
(1.1%)
Halliburton Co................... 200,000 5,925,000
Schlumberger Ltd................. 100,000 4,612,500
------------
10,537,500
------------
OIL--INTEGRATED DOMESTIC (0.8%)
USX-Marathon Group............... 250,000 7,531,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
OIL--INTEGRATED INTERNATIONAL
(2.5%)
Amoco Corp. ..................... 175,000 $ 10,565,625
Mobil Corp. ..................... 80,000 6,970,000
Texaco Inc. ..................... 133,100 7,037,662
------------
24,573,287
------------
PAPER & FOREST PRODUCTS (0.6%)
Boise Cascade Corp. ............. 195,000 6,045,000
------------
PUBLISHING (1.1%)
McGraw-Hill Cos., Inc. (The)..... 107,000 10,900,625
------------
REAL ESTATE INVESTMENT/
MANAGEMENT (1.5%)
Chelsea GCA Realty, Inc. ........ 96,300 3,430,688
First Industrial Realty Trust,
Inc. ........................... 175,000 4,692,187
Healthcare Realty Trust, Inc. ... 125,000 2,789,063
Liberty Property Trust........... 166,500 4,100,062
------------
15,012,000
------------
RETAIL STORES--DRUGS (1.1%)
Rite Aid Corp. .................. 225,000 11,151,563
------------
RETAIL STORES--FOOD (3.1%)
Kroger Co. (The) (a)............. 270,000 16,335,000
Safeway Inc. (a)................. 220,000 13,406,250
Smart & Final Inc. .............. 163,000 1,568,875
------------
31,310,125
------------
RETAIL STORES--GENERAL
MERCHANDISE (1.4%)
Wal-Mart Stores, Inc. ........... 170,000 13,844,375
------------
RETAIL STORES--SPECIALTY (1.4%)
Costco Cos., Inc. (a)............ 200,000 14,437,500
------------
SPECIALIZED SERVICES (3.5%)
Fiserv, Inc. (a)................. 200,000 10,287,500
Service Corp. International...... 250,000 9,515,625
ServiceMaster Co. (The).......... 375,000 8,273,438
Sodexho Marriott Services Inc.
(a)............................. 27,500 761,406
Young & Rubicam Inc. (a)......... 175,000 5,665,625
------------
34,503,594
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
151
<PAGE> 152
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
TELECOMMUNICATIONS--
LONG DISTANCE (4.7%)
Global Crossing Ltd. (a)......... 200,000 $ 9,025,000
MCI WorldCom, Inc. (a)........... 205,000 14,708,750
Qwest Communications
International Inc. (a).......... 250,000 12,500,000
Sprint Corp. (FON Group)......... 110,000 9,253,750
Sprint Corp. (PCS Group) (a)..... 55,000 1,271,875
------------
46,759,375
------------
TELEPHONE (3.5%)
ALLTEL Corp. .................... 175,000 10,467,187
Ameritech Corp. ................. 206,000 13,055,250
Bell Atlantic Corp. ............. 200,000 11,362,500
------------
34,884,937
------------
WASTE DISPOSAL (0.5%)
Republic Services, Inc. Class A
(a)............................. 273,500 5,042,656
------------
Total Common Stocks
(Cost $635,443,357)............. 918,755,988
------------
SHORT-TERM
INVESTMENTS (7.9%)
PRINCIPAL
AMOUNT VALUE
-----------------------
COMMERCIAL PAPER (7.9%)
Albertson's Inc.
5.40%, due 1/22/99.............. $ 4,220,000 $ 4,206,703
Alliance Capital Management L.P.
4.90%, due 1/26/99.............. 5,245,000 5,227,150
Associates Corp. of North America
4.71%, due on demand (c)........ 24,400,000 24,400,000
Banca Carito Financial Corp.
5.50%, due 1/19/99.............. 285,000 284,213
Bay State Gas Co.
5.60%, due 1/26/99.............. 6,765,000 6,738,655
Bayerische Vereinsbank AG
7.00%, due 1/5/99............... 10,000,000 9,992,209
Cleco Corp.
5.30%, due 1/19/99.............. 8,000,000 7,978,794
Fortune Brands Inc.
5.65%, due 1/11/99.............. 160,000 159,748
Northern Illinois Gas Co.
5.90%, due 1/8/99............... 3,500,000 3,495,982
South Carolina Electric & Gas Co.
5.40%, due 2/11/99.............. 6,198,000 6,159,859
Wisconsin Gas Co.
5.00%, due 1/29/99.............. 5,000,000 4,980,550
Xerox Credit Corp.
5.25%, due 1/14/99.............. 5,000,000 4,990,489
------------
Total Short-Term Investments
(Cost $78,614,352).............. 78,614,352
------------
Total Investments
(Cost $714,057,709) (d)......... 100.1% 997,370,340(e)
Liabilities In Excess of
Cash and Other Assets........... (0.1) (633,900)
---------- ------------
Net Assets....................... 100.0% $996,736,440
========== ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR-American Depository Receipt.
(c) Adjustable rate. Rate shown is the rate in effect at December 31, 1998.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At December 31, 1998 net unrealized appreciation was $283,312,631, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $295,976,840 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $12,664,209.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
152
<PAGE> 153
MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $714,057,709)......... $997,370,340
Cash..................................... 2,883
Receivables:
Dividends and interest................. 699,907
Fund shares sold....................... 565,941
------------
Total assets..................... 998,639,071
------------
LIABILITIES:
Payables:
Investment securities purchased........ 612,584
Adviser................................ 559,757
Fund shares redeemed................... 404,010
Administrator.......................... 159,854
Shareholder communication.............. 121,817
Directors.............................. 354
Accrued expenses......................... 44,255
------------
Total liabilities................ 1,902,631
------------
Net assets applicable to outstanding
shares................................. $996,736,440
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 422,073
Additional paid-in capital............... 713,001,736
Net unrealized appreciation on
investments............................ 283,312,631
------------
Net assets applicable to outstanding
shares................................. $996,736,440
============
Shares of capital stock outstanding...... 42,207,295
============
Net asset value per share outstanding.... $ 23.62
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 8,831,999
Interest............................... 2,849,861
------------
Total income..................... 11,681,860
------------
Expenses:
Advisory............................... 2,153,029
Administration......................... 1,722,424
Shareholder communication.............. 358,786
Professional........................... 90,664
Directors.............................. 49,927
Miscellaneous.......................... 47,698
------------
Total expenses................... 4,422,528
------------
Net investment income.................... 7,259,332
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments......... 73,678,921
Net change in unrealized appreciation on
investments............................ 123,768,075
------------
Net realized and unrealized gain on
investments............................ 197,446,996
------------
Net increase in net assets resulting from
operations............................. $204,706,328
============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $26,963.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
153
<PAGE> 154
GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 7,259,332 $ 5,317,657
Net realized gain on investments.......................... 73,678,921 97,560,028
Net change in unrealized appreciation on investments...... 123,768,075 52,771,507
------------- -------------
Net increase in net assets resulting from operations...... 204,706,328 155,649,192
------------- -------------
Dividends and distributions to shareholders:
From net investment income................................ (7,247,513) (5,271,609)
From net realized gain on investments..................... (73,678,921) (98,150,349)
------------- -------------
Total dividends and distributions to shareholders....... (80,926,434) (103,421,958)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares.......................... 121,819,072 99,117,945
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 80,926,434 103,421,958
------------- -------------
202,745,506 202,539,903
Cost of shares redeemed................................... (88,843,247) (60,398,261)
------------- -------------
Increase in net assets derived from capital share
transactions............................................ 113,902,259 142,141,642
------------- -------------
Net increase in net assets.................................. 237,682,153 194,368,876
NET ASSETS:
Beginning of year........................................... 759,054,287 564,685,411
------------- -------------
End of year................................................. $ 996,736,440 $ 759,054,287
============= =============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year..... $ 20.31 $ 18.63 $ 17.22 $ 14.69 $ 15.64
------------- ------------- ------------- ------------- -------------
Net investment income.................... 0.19 0.16 0.18 0.22 0.22
Net realized and unrealized gain (loss)
on investments......................... 5.21 4.74 4.06 4.06 (0.03)
------------- ------------- ------------- ------------- -------------
Total from investment operations......... 5.40 4.90 4.24 4.28 0.19
------------- ------------- ------------- ------------- -------------
Less dividends and distributions:
From net investment income............. (0.19) (0.16) (0.18) (0.22) (0.22)
From net realized gain
on investments....................... (1.90) (3.06) (2.65) (1.53) (0.92)
------------- ------------- ------------- ------------- -------------
Total dividends and distributions........ (2.09) (3.22) (2.83) (1.75) (1.14)
------------- ------------- ------------- ------------- -------------
Net asset value at end of year........... $ 23.62 $ 20.31 $ 18.63 $ 17.22 $ 14.69
============= ============= ============= ============= =============
Total investment return.................. 26.59% 26.75% 24.50% 29.16% 1.20%
Ratios (to average net
assets)/Supplemental Data:
Net investment income.................. 0.84% 0.80% 0.98% 1.29% 1.41%
Net expenses........................... 0.51% 0.50% 0.58% 0.62% 0.62%
Expenses (before reimbursement)........ 0.51% 0.50% 0.58% 0.91% 0.65%
Portfolio turnover rate.................. 69% 103% 104% 104% 108%
Net assets at end of year (in 000's)..... $ 996,736 $ 759,054 $ 564,685 $ 427,507 $ 330,161
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
154
<PAGE> 155
MAINSTAY VP SERIES FUND, INC.
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (97.5%)+
SHARES VALUE
------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.1%)
Boeing Co. (The)................ 92,191 $ 3,007,731
General Dynamics Corp. ......... 11,659 683,509
Lockheed Martin Corp. .......... 18,143 1,537,619
Northrop Grumman Corp. ......... 6,236 456,008
Raytheon Co. Class B............ 31,033 1,652,507
Rockwell International Corp. ... 17,684 858,779
United Technologies Corp. ...... 20,859 2,268,416
------------
10,464,569
------------
AIRLINES (0.3%)
AMR Corp. (a)................... 16,811 998,153
Delta Air Lines, Inc. .......... 13,128 682,656
Southwest Airlines Co. ......... 30,992 695,383
US Airways Group, Inc. (a)...... 8,023 417,196
------------
2,793,388
------------
ALUMINUM (0.2%)
Alcan Aluminum Ltd. ............ 21,138 572,047
Aluminum Co. of America......... 16,981 1,266,146
Reynolds Metals Co. ............ 5,991 315,651
------------
2,153,844
------------
AUTO PARTS & EQUIPMENT (0.2%)
Cooper Tire & Rubber Co. ....... 6,951 142,061
Genuine Parts Co. .............. 16,537 552,956
Goodyear Tire & Rubber Co.
(The).......................... 14,611 736,942
------------
1,431,959
------------
AUTOMOBILES (1.2%)
Ford Motor Co. ................. 111,644 6,552,107
General Motors Corp. ........... 60,581 4,335,328
------------
10,887,435
------------
BANKS--MAJOR
REGIONAL (4.5%)
Bank of New York Co., Inc.
(The).......................... 70,212 2,826,033
Bank One Corp. ................. 107,982 5,513,831
BankBoston Corp. ............... 27,198 1,059,022
BB&T Corp. ..................... 27,090 1,092,066
Comerica Inc. .................. 14,563 993,015
Fifth Third Bancorp............. 24,851 1,772,187
Firstar Corp. .................. 15,500 1,445,375
Fleet Financial Group, Inc. .... 52,388 2,341,089
Huntington Bancshares Inc. ..... 19,551 587,752
KeyCorp......................... 41,988 1,343,616
Mellon Bank Corp. .............. 24,173 1,661,894
Mercantile Bancorp Inc. ........ 14,503 668,951
National City Corp. ............ 30,516 2,212,410
Northern Trust Corp. ........... 10,315 900,628
PNC Bank Corp. ................. 27,973 1,514,039
Regions Financial Corp. ........ 20,402 822,456
Republic New York Corp. ........ 9,981 454,759
State Street Corp. ............. 15,007 1,043,924
Summit Bancorp. ................ 16,071 702,102
SunTrust Banks, Inc. ........... 29,081 2,224,697
Synovus Financial Corp. ........ 24,465 596,334
Union Planters Corp. ........... 12,546 568,491
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
BANKS--MAJOR REGIONAL
(Continued)
U.S. Bancorp.................... 66,892 $ 2,374,666
Wachovia Corp. ................. 18,721 1,636,917
Wells Fargo Co. ................ 149,200 5,958,675
------------
42,314,929
------------
BANKS--MONEY CENTER (2.4%)
BankAmerica Corp. .............. 159,612 9,596,672
Bankers Trust Corp. ............ 8,764 748,774
Chase Manhattan Corp. (The)..... 77,981 5,307,582
First Union Corp. .............. 91,365 5,556,134
Morgan (J.P.) & Co., Inc. ...... 16,088 1,690,245
------------
22,899,407
------------
BANKS--SAVINGS & LOANS (0.3%)
Golden West Financial Corp. .... 5,241 480,534
Washington Mutual, Inc. ........ 54,901 2,096,532
------------
2,577,066
------------
BEVERAGES--ALCOHOLIC (0.5%)
Anheuser-Busch Cos., Inc. ...... 44,072 2,892,225
Brown-Forman Corp.
Class B........................ 6,391 483,719
Coors (Adolph) Co.
Class B........................ 3,371 190,251
Seagram Co. Ltd. (The).......... 36,369 1,382,022
------------
4,948,217
------------
BEVERAGES--SOFT DRINKS (2.3%)
Coca-Cola Co. (The) (d)......... 227,360 15,204,700
Coca-Cola Enterprises Inc. ..... 36,184 1,293,578
PepsiCo, Inc. .................. 135,319 5,539,622
------------
22,037,900
------------
BROADCAST/MEDIA (1.1%)
CBS Corp. ...................... 65,181 2,134,678
Clear Channel Communications,
Inc. (a)....................... 22,935 1,249,957
Comcast Corp. Special Class A... 34,241 2,009,519
MediaOne Group Inc. (a)......... 55,984 2,631,248
Tele-Communications, Inc. Series
A
TCI Group (a).................. 49,666 2,747,151
------------
10,772,553
------------
BUILDING MATERIALS (0.2%)
Masco Corp. .................... 31,448 904,130
Owens Corning................... 4,990 176,833
Sherwin-Williams Co. (The)...... 15,817 464,624
------------
1,545,587
------------
CHEMICALS (1.4%)
Air Products & Chemicals,
Inc. .......................... 21,460 858,400
Dow Chemical Co. (The).......... 20,464 1,860,945
Du Pont (E.I.) De Nemours &
Co. ........................... 103,870 5,511,602
Eastman Chemical Co. ........... 7,272 325,422
Goodrich (B.F.) Co. (The)....... 6,719 241,044
Hercules Inc. .................. 9,300 254,587
</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.
155
<PAGE> 156
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
CHEMICALS (Continued)
Monsanto Co. ................... 57,836 $ 2,747,210
Praxair, Inc. .................. 14,630 515,707
Rohm & Haas Co. ................ 15,366 462,901
Union Carbide Corp. ............ 12,295 522,538
------------
13,300,356
------------
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. ........... 10,910 491,632
Engelhard Corp. ................ 13,413 261,554
FMC Corp. (a)................... 3,200 179,200
PPG Industries, Inc. ........... 16,445 957,921
------------
1,890,307
------------
CHEMICALS--SPECIALTY (0.1%)
Grace (W.R.) & Co. (a).......... 6,733 105,624
Great Lakes Chemical Corp. ..... 5,527 221,080
Morton International, Inc. ..... 11,237 275,306
Nalco Chemical Co. ............. 6,130 190,030
Sigma-Aldrich Corp. ............ 9,330 274,069
------------
1,066,109
------------
COMMUNICATIONS--EQUIPMENT
MANUFACTURERS (3.7%)
Andrew Corp. (a)................ 8,151 134,492
Ascend Communications, Inc.
(a)............................ 19,988 1,314,211
Cabletron Systems, Inc. (a)..... 15,235 127,593
Cisco Systems, Inc. (a)......... 145,606 13,514,057
General Instrument Corp. (a).... 15,399 522,604
Lucent Technologies Inc. ....... 121,298 13,342,780
Northern Telecom Ltd. .......... 60,382 3,026,647
Scientific-Atlanta, Inc. ....... 6,981 159,254
Tellabs, Inc. (a)............... 18,059 1,238,170
3Com Corp. (a).................. 32,995 1,478,588
------------
34,858,396
------------
COMPUTER SOFTWARE & SERVICES
(6.1%)
Adobe Systems Inc. ............. 6,187 289,242
America Online Inc. (a)......... 42,000 6,079,500
Autodesk, Inc. ................. 4,282 182,788
Automatic Data Processing,
Inc. .......................... 27,916 2,238,514
BMC Software, Inc. (a).......... 19,906 887,061
Ceridian Corp. (a).............. 6,669 465,580
Computer Associates
International, Inc. ........... 49,606 2,114,456
Computer Sciences Corp. (a)..... 14,484 933,313
Compuware Corp. (a)............. 12,300 960,938
Electronic Data Systems
Corp. ......................... 45,510 2,286,878
Equifax Inc. ................... 13,702 468,437
First Data Corp. ............... 40,789 1,292,501
HBO & Co. ...................... 42,892 1,230,464
Microsoft Corp. (a)............. 230,024 31,901,454
Novell, Inc. (a)................ 32,713 592,923
Oracle Corp. (a)................ 89,600 3,864,000
Parametric Technology Corp.
(a)............................ 25,159 411,979
Paychex, Inc. .................. 15,136 778,558
PeopleSoft, Inc. (a)............ 21,364 404,581
Shared Medical Systems Corp. ... 2,389 119,151
------------
57,502,318
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
COMPUTER SYSTEMS (5.0%)
Apple Computer, Inc. (a)........ 12,321 $ 504,391
Compaq Computer Corp. .......... 156,846 6,577,729
Data General Corp. (a).......... 4,511 74,150
Dell Computer Corp. (a)......... 117,232 8,579,917
EMC Corp. (a)................... 46,142 3,922,070
Gateway 2000, Inc. (a).......... 14,470 740,683
Hewlett-Packard Co. ............ 95,636 6,533,134
International Business Machines
Corp. ......................... 86,113 15,909,377
Seagate Technology, Inc. (a).... 22,435 678,659
Silicon Graphics, Inc. (a)...... 17,501 225,325
Sun Microsystems, Inc. (a)...... 35,155 3,010,147
Unisys Corp. (a)................ 23,372 804,873
------------
47,560,455
------------
CONGLOMERATES (0.2%)
Tenneco Inc. ................... 15,787 537,745
Textron Inc. ................... 14,594 1,108,232
------------
1,645,977
------------
CONSUMER FINANCE (0.4%)
Capital One Financial Corp. .... 6,071 698,165
Countrywide Credit Industries,
Inc. .......................... 10,358 519,842
Household International Inc. ... 44,505 1,763,511
Providian Financial Corp. ...... 13,203 990,262
------------
3,971,780
------------
CONTAINERS--METAL &
GLASS (0.1%)
Ball Corp. ..................... 2,780 127,185
Crown Cork & Seal Co., Inc. .... 11,281 347,596
Owens-Illinois, Inc. (a)........ 14,329 438,825
------------
913,606
------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ................ 4,904 186,046
Temple-Inland Inc. ............. 5,230 310,204
------------
496,250
------------
COSMETICS/PERSONAL CARE (0.7%)
Alberto-Culver Co. Class B...... 5,233 139,656
Avon Products, Inc. ............ 24,408 1,080,054
Gillette Co. (The).............. 102,360 4,945,267
International Flavors &
Fragrances Inc. ............... 9,960 440,108
------------
6,605,085
------------
ELECTRIC POWER COMPANIES (2.3%)
Ameren Corp. ................... 12,676 541,107
American Electric Power Co.,
Inc. .......................... 17,701 833,053
Baltimore Gas & Electric Co. ... 13,642 421,197
Carolina Power & Light Co. ..... 13,940 656,051
Central & South West Corp. ..... 19,653 539,229
Cinergy Corp. .................. 14,617 502,459
Consolidated Edison, Inc. ...... 21,513 1,137,500
Dominion Resources, Inc. ....... 18,196 850,663
DTE Energy Co. ................. 13,462 577,183
Duke Energy Corp. .............. 33,480 2,144,813
Edison International............ 32,755 913,046
Entergy Corp. .................. 22,872 711,891
FirstEnergy Corp. .............. 21,961 715,105
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
156
<PAGE> 157
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
ELECTRIC POWER COMPANIES
(Continued)
FPL Group, Inc. ................ 16,835 $ 1,037,457
GPU, Inc. ...................... 11,916 526,538
Houston Industries Inc. ........ 26,280 844,245
New Century Energies Inc. ...... 10,575 515,531
Niagara Mohawk Power Corp.
(a)............................ 17,438 281,188
Northern States Power Co. ...... 14,093 391,081
PacifiCorp...................... 27,641 582,189
PECO Energy Co. ................ 20,638 859,057
PG&E Corp. ..................... 35,398 1,115,037
PP&L Resources, Inc. ........... 14,042 391,421
Public Service Enterprise Group
Inc. .......................... 21,049 841,960
Southern Co. (The).............. 64,265 1,867,702
Texas Utilities Co. ............ 25,938 1,210,980
Unicom Corp. ................... 20,165 777,612
------------
21,785,295
------------
ELECTRICAL EQUIPMENT (3.9%)
AMP Inc. ....................... 20,242 1,053,849
Emerson Electric Co. ........... 40,843 2,555,240
General Electric Co. (d)........ 302,206 30,843,900
Grainger (W.W.), Inc. .......... 8,782 365,551
Honeywell Inc. ................. 11,758 885,524
Raychem Corp. .................. 7,317 236,431
Solectron Corp. (a)............. 10,900 1,013,019
Thomas & Betts Corp. ........... 5,093 220,590
------------
37,174,104
------------
ELECTRONICS--
DEFENSE (0.0%) (b)
EG&G, Inc. ..................... 4,167 115,895
------------
ELECTRONICS--INSTRUMENTATION
(0.1%)
Perkin-Elmer Corp. (The)........ 4,602 448,982
Tektronix, Inc. ................ 4,317 129,780
------------
578,762
------------
ELECTRONICS--SEMICONDUCTORS
(3.0%)
Advanced Micro Devices, Inc.
(a)............................ 13,296 384,753
Applied Materials, Inc. (a)..... 33,948 1,449,155
Intel Corp. .................... 153,771 18,231,474
KLA-Tencor Corp. (a)............ 8,065 349,819
LSI Logic Corp. (a)............. 13,048 210,399
Micron Technology, Inc. (a)..... 19,715 996,840
Motorola, Inc. ................. 55,448 3,385,794
National Semiconductor Corp.
(a)............................ 15,313 206,726
Texas Instruments Inc. ......... 35,926 3,073,918
------------
28,288,878
------------
ENGINEERING & CONSTRUCTION
(0.0%) (b)
Fluor Corp. .................... 6,950 295,809
Foster Wheeler Corp. ........... 3,799 50,099
------------
345,908
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
ENTERTAINMENT (1.6%)
Disney (Walt) Co. (The)......... 188,960 $ 5,668,800
King World Productions, Inc.
(a)............................ 6,811 200,499
Time Warner Inc. ............... 113,151 7,022,434
Viacom Inc. Class B (a)......... 32,106 2,375,844
------------
15,267,577
------------
FINANCIAL--
MISCELLANEOUS (4.3%)
American Express Co. ........... 41,686 4,262,394
American General Corp. ......... 23,231 1,812,018
Associates First Capital Corp.
Class A........................ 66,558 2,820,396
Citigroup Inc. ................. 209,579 10,374,161
Fannie Mae...................... 95,652 7,078,248
Franklin Resources Inc. ........ 23,375 748,000
Freddie Mac..................... 62,800 4,046,675
MBIA Inc. ...................... 9,035 592,357
MBNA Corp. ..................... 69,384 1,730,263
Morgan Stanley Dean Witter &
Co. ........................... 53,321 3,785,791
SLM Holding Corp. .............. 15,498 743,904
SunAmerica Inc. ................ 20,000 1,622,500
Transamerica Corp. ............. 5,787 668,398
------------
40,285,105
------------
FOOD (2.1%)
Bestfoods....................... 26,383 1,404,895
Campbell Soup Co. .............. 41,311 2,272,105
ConAgra, Inc. .................. 45,174 1,422,981
General Mills, Inc. ............ 14,331 1,114,235
Heinz (H.J.) Co. ............... 33,564 1,900,562
Hershey Foods Corp. ............ 13,199 820,813
Kellogg Co. .................... 37,385 1,275,763
Quaker Oats Co. (The)........... 12,578 748,391
Ralston-Ralston Purina Group.... 28,948 937,192
Sara Lee Corp. ................. 84,242 2,374,571
Unilever N.V. .................. 59,030 4,895,800
Wrigley (Wm.) Jr. Co. .......... 10,765 964,140
------------
20,131,448
------------
FOOD & HEALTH CARE DISTRIBUTORS
(0.3%)
Cardinal Health, Inc. .......... 18,547 1,407,254
SUPERVALU Inc. ................. 11,143 312,004
SYSCO Corp. .................... 30,825 845,761
------------
2,565,019
------------
GOLD & PRECIOUS METALS MINING
(0.2%)
Barrick Gold Corp. ............. 34,396 670,722
Battle Mountain Gold Co. ....... 21,233 87,586
Homestake Mining Co. ........... 22,114 203,172
Newmont Mining Corp. ........... 15,454 279,138
Placer Dome Inc. ............... 23,183 266,605
------------
1,507,223
------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. (The)...... 8,087 453,377
Snap-on Inc. ................... 5,484 190,912
Stanley Works (The)............. 8,225 228,244
------------
872,533
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
157
<PAGE> 158
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
HEALTH CARE--
DIVERSIFIED (4.5%)
Abbott Laboratories............. 139,939 $ 6,857,011
Allergan, Inc. ................. 6,091 394,392
American Home Products Corp. ... 121,569 6,845,854
Bristol-Myers Squibb Co. ....... 91,615 12,259,232
Johnson & Johnson............... 124,053 10,404,945
Mallinckrodt Inc. .............. 6,709 206,721
Warner-Lambert Co. ............. 75,960 5,711,243
------------
42,679,398
------------
HEALTH CARE--DRUGS (5.3%)
Lilly (Eli) & Co. .............. 101,401 9,012,014
Merck & Co., Inc. .............. 109,901 16,231,004
Pfizer Inc. .................... 119,686 15,013,113
Pharmacia & Upjohn, Inc. ....... 46,857 2,653,277
Schering-Plough Corp. .......... 135,584 7,491,016
------------
50,400,424
------------
HEALTH CARE--HMOs (0.2%)
Aetna Inc. ..................... 13,174 1,035,806
Humana Inc. (a)................. 15,453 275,257
United Healthcare Corp. ........ 17,129 737,617
------------
2,048,680
------------
HEALTH CARE--HOSPITAL MANAGEMENT
(0.2%)
Columbia/HCA Healthcare
Corp. ......................... 59,785 1,479,679
Tenet Healthcare Corp. (a)...... 28,607 750,934
------------
2,230,613
------------
HEALTH CARE--MEDICAL PRODUCTS
(1.0%)
Bard (C.R.), Inc. .............. 4,974 246,213
Bausch & Lomb Inc. ............. 5,120 307,200
Baxter International Inc. ...... 26,450 1,701,066
Becton, Dickinson & Co. ........ 22,627 965,890
Biomet, Inc. ................... 10,439 420,170
Boston Scientific Corp. (a)..... 36,140 969,004
Guidant Corp. .................. 13,959 1,538,979
Medtronic, Inc. ................ 45,216 3,357,288
St. Jude Medical, Inc. (a)...... 7,776 215,298
------------
9,721,108
------------
HEALTH CARE--MISCELLANEOUS
(0.4%)
ALZA Corp. (a).................. 8,024 419,254
Amgen Inc. (a).................. 23,558 2,463,283
HCR Manor Care, Inc. (a)........ 10,097 296,599
HEALTHSOUTH Corp. (a)........... 39,061 603,004
------------
3,782,140
------------
HEAVY DUTY TRUCKS &
PARTS (0.2%)
Cummins Engine Co., Inc. ....... 3,822 135,681
Dana Corp. ..................... 15,350 627,431
Eaton Corp. .................... 6,617 467,739
ITT Industries, Inc. ........... 9,561 380,050
Navistar International Corp.
(a)............................ 6,310 179,835
PACCAR Inc. .................... 7,205 296,306
------------
2,087,042
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
HOMEBUILDING (0.1%)
Centex Corp. ................... 5,512 $ 248,385
Kaufman & Broad Home Corp. ..... 3,587 103,126
Pulte Corp. .................... 3,839 106,772
------------
458,283
------------
HOTEL/MOTEL (0.4%)
Carnival Corp. ................. 54,900 2,635,200
Harrah's Entertainment, Inc.
(a)............................ 9,363 146,882
Hilton Hotels Corp. ............ 24,185 462,538
Marriott International, Inc.
Class A........................ 23,157 671,553
------------
3,916,173
------------
HOUSEHOLD--FURNISHINGS &
APPLIANCES (0.1%)
Armstrong World Industries,
Inc. .......................... 3,779 227,921
Maytag Corp. ................... 8,454 526,261
Whirlpool Corp. ................ 6,981 386,573
------------
1,140,755
------------
HOUSEHOLD PRODUCTS (2.0%)
Clorox Co. (The)................ 9,679 1,130,628
Colgate-Palmolive Co. .......... 27,006 2,508,182
Fort James Corp. ............... 20,412 816,480
Kimberly-Clark Corp. ........... 49,937 2,721,567
Procter & Gamble Co. (The)...... 122,390 11,175,737
------------
18,352,594
------------
HOUSEWARES (0.2%)
Fortune Brands, Inc. ........... 16,006 506,190
Newell Co. ..................... 15,092 622,545
Rubbermaid Inc. ................ 13,854 435,535
Tupperware Corp. ............... 5,307 87,234
------------
1,651,504
------------
INSURANCE BROKERS (0.2%)
Aon Corp. ...................... 15,624 865,179
Marsh & McLennan Cos., Inc. .... 23,793 1,390,403
------------
2,255,582
------------
INSURANCE--LIFE (0.4%)
Conseco, Inc. .................. 28,843 881,514
Jefferson-Pilot Corp. .......... 9,868 740,100
Lincoln National Corp. ......... 9,455 773,537
Provident Cos., Inc. ........... 12,575 521,863
Torchmark Corp. ................ 13,052 460,899
UNUM Corp. ..................... 12,844 749,768
------------
4,127,681
------------
INSURANCE--
MULTI-LINE (1.3%)
American International Group,
Inc. .......................... 96,889 9,361,900
CIGNA Corp. .................... 19,021 1,470,561
Hartford Financial Services
Group, Inc. (The).............. 21,517 1,180,745
------------
12,013,206
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
158
<PAGE> 159
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
INSURANCE--PROPERTY & CASUALTY
(0.9%)
Allstate Corp. (The)............ 75,676 $ 2,922,986
Chubb Corp. .................... 15,031 975,136
Cincinnati Financial Corp. ..... 15,497 567,578
Loews Corp. .................... 10,671 1,048,426
MGIC Investments Corp. ......... 10,102 402,186
Progressive Corp. (The)......... 6,701 1,134,982
SAFECO Corp. ................... 12,549 538,822
St. Paul Cos., Inc. (The)....... 21,819 758,210
------------
8,348,326
------------
INVESTMENT BANKS/ BROKERAGE
(0.5%)
Bear Stearns Cos., Inc. (The)... 10,554 394,456
Lehman Brothers Holdings
Inc. .......................... 10,688 470,940
Merrill Lynch & Co., Inc. ...... 32,677 2,181,190
Schwab (Charles) Corp. (The).... 37,144 2,087,028
------------
5,133,614
------------
LEISURE TIME (0.0%) (b)
Brunswick Corp. ................ 8,903 220,349
Mirage Resorts, Inc. (a)........ 16,591 247,828
------------
468,177
------------
MACHINE TOOLS (0.0%) (b)
Milacron Inc. .................. 3,725 71,706
------------
MACHINERY--
DIVERSIFIED (0.4%)
Briggs & Stratton Corp. ........ 2,191 109,276
Case Corp. ..................... 6,926 151,073
Caterpillar Inc. ............... 33,071 1,521,266
Cooper Industries, Inc. ........ 9,534 454,653
Deere & Co. .................... 22,048 730,340
Harnischfeger Industries,
Inc. .......................... 4,415 44,978
Ingersoll-Rand Co. ............. 15,353 720,631
NACCO Industries, Inc. Class
A.............................. 791 72,772
Thermo Electron Corp. (a)....... 14,679 248,626
Timken Co. (The)................ 5,797 109,418
------------
4,163,033
------------
MANUFACTURED
HOUSING (0.0%) (b)
Fleetwood Enterprises, Inc. .... 3,322 115,440
------------
MANUFACTURING--DIVERSIFIED
(1.2%)
Aeroquip-Vickers, Inc. ......... 2,626 78,616
AlliedSignal Inc. .............. 51,693 2,290,646
Crane Co. ...................... 6,438 194,347
Danaher Corp. .................. 12,438 675,539
Dover Corp. .................... 20,635 755,757
Illinois Tool Works Inc. ....... 23,265 1,468,603
Johnson Controls, Inc. ......... 7,816 461,144
Millipore Corp. ................ 3,993 113,551
Pall Corp. ..................... 11,547 292,283
Parker-Hannifin Corp. .......... 10,207 334,279
Sealed Air Corp. (a)............ 7,691 392,722
Tyco International Ltd. ........ 59,536 4,491,247
------------
11,548,734
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
METALS--MINING (0.1%)
ASARCO Inc. .................... 3,680 $ 55,430
Cyprus Amax Minerals Co. ....... 8,371 83,710
Freeport-McMoRan Copper & Gold
Inc. Class B................... 15,289 159,579
Inco Ltd. ...................... 15,484 163,550
Phelps Dodge Corp. ............. 5,477 278,642
------------
740,911
------------
MISCELLANEOUS (1.4%)
AES Corp. (The) (a)............. 16,591 785,999
AirTouch Communications, Inc.
(a)............................ 52,728 3,803,007
American Greetings Corp. Class
A.............................. 6,710 275,529
Archer-Daniels-Midland Co. ..... 54,699 940,139
Corning Inc. ................... 21,536 969,120
Harcourt General, Inc. ......... 6,540 347,846
Harris Corp. ................... 7,405 271,208
Jostens, Inc. .................. 3,388 88,723
Minnesota Mining &
Manufacturing Co. ............. 37,058 2,635,750
Nextel Communications, Inc.
Class A (a).................... 26,447 624,810
Pioneer Hi-Bred International,
Inc. .......................... 22,399 604,773
Sprint Corp. (PCS Group) (a).... 38,343 886,682
TRW, Inc. ...................... 11,000 618,063
------------
12,851,649
------------
NATURAL GAS DISTRIBUTORS
& PIPELINES (0.6%)
Coastal Corp. (The)............. 19,643 686,277
Columbia Energy Group........... 7,756 447,909
Consolidated Natural Gas Co. ... 8,848 477,792
Eastern Enterprises............. 1,885 82,469
Enron Corp. .................... 30,443 1,737,154
NICOR Inc. ..................... 4,439 187,548
ONEOK, Inc. .................... 2,832 102,306
Peoples Energy Corp. ........... 3,220 128,397
Sempra Energy................... 22,188 563,020
Sonat, Inc. .................... 10,203 276,119
Williams Cos., Inc. (The)....... 39,313 1,226,074
------------
5,915,065
------------
OFFICE EQUIPMENT & SUPPLIES
(0.6%)
Moore Corp. Ltd. ............... 8,233 90,563
Pitney Bowes Inc. .............. 25,121 1,659,556
Xerox Corp. .................... 30,491 3,597,938
------------
5,348,057
------------
OIL & GAS DRILLING (0.0%) (b)
Helmerich & Payne, Inc. ........ 4,606 89,241
Rowan Cos., Inc. (a)............ 7,776 77,760
------------
167,001
------------
OIL & GAS--EQUIPMENT & SERVICES
(0.4%)
Baker Hughes Inc. .............. 30,153 533,331
Halliburton Co. ................ 40,632 1,203,723
McDermott International Inc. ... 5,564 137,361
Schlumberger Ltd. .............. 50,374 2,323,501
------------
4,197,916
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
159
<PAGE> 160
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
OIL & GAS--EXPLORATION &
PRODUCTION (0.2%)
Anadarko Petroleum Corp. ....... 11,138 $ 343,886
Apache Corp. ................... 9,087 230,015
Burlington Resources Inc. ...... 16,364 586,036
Oryx Energy Co. (a)............. 9,758 131,123
Union Pacific Resources Group,
Inc. .......................... 23,242 210,630
------------
1,501,690
------------
OIL--INTEGRATED
DOMESTIC (0.7%)
Amerada Hess Corp. ............. 8,436 419,691
Ashland Inc. ................... 7,048 340,947
Atlantic Richfield Co. ......... 29,842 1,947,191
Kerr-McGee Corp. ............... 4,378 167,459
Occidental Petroleum Corp. ..... 31,909 538,464
Phillips Petroleum Co. ......... 23,455 999,769
Sunoco Inc. .................... 8,724 314,609
Unocal Corp. ................... 22,414 654,209
USX-Marathon Group.............. 28,432 856,514
------------
6,238,853
------------
OIL--INTEGRATED INTERNATIONAL
(4.2%)
Chevron Corp. .................. 60,195 4,992,423
Exxon Corp. .................... 224,260 16,399,013
Mobil Corp. .................... 71,887 6,263,155
Royal Dutch Petroleum Co. ...... 197,778 9,468,621
Texaco Inc. .................... 49,276 2,605,468
------------
39,728,680
------------
PAPER & FOREST
PRODUCTS (0.5%)
Boise Cascade Corp. ............ 5,174 160,394
Champion International Corp. ... 8,888 359,964
Georgia-Pacific Group........... 8,095 474,063
International Paper Co. ........ 28,488 1,276,619
Louisiana-Pacific Corp. ........ 10,164 186,128
Mead Corp. (The)................ 9,667 283,364
Potlatch Corp. ................. 2,684 98,973
Union Camp Corp. ............... 6,400 432,000
Westvaco Corp. ................. 9,472 253,968
Weyerhaeuser Co. ............... 18,455 937,745
Willamette Industries, Inc. .... 10,285 344,547
------------
4,807,765
------------
PHOTOGRAPHY/IMAGING (0.2%)
Eastman Kodak Co. .............. 29,903 2,153,016
IKON Office Solutions, Inc. .... 12,581 107,725
Polaroid Corp. ................. 4,157 77,684
------------
2,338,425
------------
POLLUTION CONTROL (0.3%)
Browning-Ferris Industries,
Inc. .......................... 16,080 457,275
Waste Management, Inc. ......... 52,951 2,468,840
------------
2,926,115
------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The).... 9,163 933,481
Meredith Corp. ................. 4,880 184,830
------------
1,118,311
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
PUBLISHING--
NEWSPAPER (0.4%)
Dow Jones & Co., Inc. .......... 8,506 $ 409,351
Gannett Co., Inc. .............. 26,010 1,721,537
Knight-Ridder, Inc. ............ 7,365 376,536
New York Times Co. (The) Class
A.............................. 16,805 582,923
Times Mirror Co. (The) Class
A.............................. 7,364 412,384
Tribune Co. .................... 10,971 724,086
------------
4,226,817
------------
RAILROADS (0.5%)
Burlington Northern Santa Fe
Corp. ......................... 43,232 1,459,080
CSX Corp. ...................... 20,326 843,529
Norfolk Southern Corp. ......... 35,148 1,113,752
Union Pacific Corp. ............ 23,009 1,036,843
------------
4,453,204
------------
RESTAURANTS (0.6%)
Darden Restaurants, Inc. ....... 12,934 232,812
McDonald's Corp. ............... 62,362 4,778,488
Tricon Global Restaurants, Inc.
(a)............................ 14,054 704,457
Wendy's International, Inc. .... 11,432 249,361
------------
5,965,118
------------
RETAIL STORES--
APPAREL (0.5%)
Gap, Inc. (The)................. 53,429 3,005,381
Limited, Inc. (The)............. 21,115 614,974
TJX Cos., Inc. (The)............ 29,692 861,068
------------
4,481,423
------------
RETAIL STORES--
DEPARTMENT (0.5%)
Dillard's, Inc. Class A......... 10,022 284,374
Federated Department Stores,
Inc. (a)....................... 18,883 822,591
Kohl's Corp. ................... 14,608 897,479
May Department Stores Co.
(The).......................... 21,373 1,290,395
Nordstrom, Inc. ................ 13,766 477,508
Penney (J.C.) Co., Inc. ........ 23,327 1,093,453
------------
4,865,800
------------
RETAIL STORES--DRUGS (0.4%)
Longs Drug Stores Corp. ........ 3,534 132,525
Rite Aid Corp. ................. 23,882 1,183,652
Walgreen Co. ................... 46,073 2,698,150
------------
4,014,327
------------
RETAIL STORES--FOOD (0.9%)
Albertson's, Inc. .............. 22,702 1,445,834
American Stores Co. ............ 25,282 933,854
Fred Meyer Inc. (a)............. 14,168 853,622
Great Atlantic & Pacific Tea
Co., Inc. (The)................ 3,543 104,961
Kroger Co. (The) (a)............ 23,728 1,435,544
Safeway Inc. (a)................ 44,993 2,741,761
Winn-Dixie Stores, Inc. ........ 13,784 618,557
------------
8,134,133
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
160
<PAGE> 161
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
RETAIL STORES--GENERAL
MERCHANDISE (2.3%)
Dayton Hudson Corp. ............ 40,506 $ 2,197,451
Kmart Corp. (a)................. 45,642 698,893
Sears, Roebuck & Co. ........... 35,327 1,501,397
Wal-Mart Stores, Inc. .......... 207,758 16,919,292
------------
21,317,033
------------
RETAIL STORES--
SPECIALTY (1.9%)
AutoZone, Inc. (a).............. 14,217 468,272
Circuit City Stores-
Circuit City Group............. 9,188 458,826
Consolidated Stores Corp. (a)... 10,022 202,319
Costco Cos., Inc. (a)........... 19,984 1,442,595
CVS Corp. ...................... 36,024 1,981,320
Dollar General Corp. ........... 17,156 405,311
Home Depot, Inc. (The).......... 144,225 8,824,767
Lowe's Cos., Inc. .............. 32,479 1,662,519
Pep Boys-Manny, Moe & Jack
(The).......................... 5,903 92,603
Staples Inc. (a)................ 28,921 1,263,486
Tandy Corp. .................... 9,094 374,559
Toys "R" Us, Inc. (a)........... 24,146 407,464
------------
17,584,041
------------
SHOES (0.1%)
NIKE, Inc. Class B.............. 26,434 1,072,229
Reebok International Ltd. (a)... 5,171 76,919
------------
1,149,148
------------
SPECIALIZED SERVICES (0.8%)
Block (H&R), Inc. .............. 9,321 419,445
Cendant Corp. (a)............... 78,689 1,500,009
Dun & Bradstreet Corp. (The).... 15,393 485,842
Ecolab Inc. .................... 11,971 433,201
IMS Health Inc. ................ 14,800 1,116,475
Interpublic Group of Cos., Inc.
(The).......................... 12,609 1,005,568
Laidlaw Inc. ................... 30,572 307,631
National Service Industries,
Inc. .......................... 3,932 149,416
Omnicom Group Inc. ............. 15,542 901,436
Service Corp. International..... 23,806 906,115
------------
7,225,138
------------
SPECIALTY PRINTING (0.1%)
Deluxe Corp. ................... 7,493 273,963
Donnelley (R.R.) & Sons Co. .... 12,479 546,736
------------
820,699
------------
STEEL (0.1%)
Allegheny Teledyne Inc. ........ 18,231 372,596
Bethlehem Steel Corp. (a)....... 11,882 99,512
Nucor Corp. .................... 8,137 351,925
USX-U.S. Steel Group............ 8,021 184,483
Worthington Industries, Inc. ... 8,497 106,213
------------
1,114,729
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
TELECOMMUNICATIONS--LONG
DISTANCE (3.0%)
AT&T Corp. ..................... 166,623 $ 12,538,381
MCI WorldCom, Inc. (a).......... 169,086 12,131,920
Sprint Corp. (FON Group)........ 39,976 3,362,981
------------
28,033,282
------------
TELEPHONE (4.7%)
ALLTEL Corp. ................... 25,461 1,522,886
Ameritech Corp. ................ 101,954 6,461,335
Bell Atlantic Corp. ............ 143,213 8,136,289
BellSouth Corp. ................ 180,480 9,001,440
Frontier Corp. ................. 15,845 538,730
GTE Corp. ...................... 89,153 6,012,255
SBC Communications Inc. ........ 180,469 9,677,650
US West Inc. ................... 46,302 2,992,267
------------
44,342,852
------------
TEXTILES--APPAREL MANUFACTURERS
(0.1%)
Fruit of the Loom, Inc. Class A
(a)............................ 6,774 93,566
Liz Claiborne, Inc. ............ 6,124 193,289
Russell Corp. .................. 3,386 68,778
Springs Industries, Inc. Class
A.............................. 1,820 75,416
V.F. Corp. ..................... 11,273 528,422
------------
959,471
------------
TOBACCO (1.4%)
Philip Morris Cos. Inc. ........ 224,548 12,013,318
RJR Nabisco Holdings Corp. ..... 30,105 893,742
UST Inc. ....................... 17,141 597,792
------------
13,504,852
------------
TOYS (0.1%)
Hasbro, Inc. ................... 12,032 434,656
Mattel, Inc. ................... 26,547 605,603
------------
1,040,259
------------
TRANSPORTATION--MISCELLANEOUS
(0.1%)
FDX Corp. (a)................... 13,550 1,205,950
Ryder System, Inc. ............. 6,849 178,074
------------
1,384,024
------------
Total Common Stocks
(Cost $648,449,923)............ 922,766,241(c)
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
161
<PAGE> 162
INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (1.5%)
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
COMMERCIAL PAPER (1.0%)
B.A.T. Capital Corp.
6.00%, due 1/8/99 (d).......... $ 500,000 $ 499,417
FPL Fuels Inc.
5.75%, due 1/15/99 (d)......... 1,200,000 1,197,317
Hertz Corp.
6.75%, due 1/7/99 (d).......... 1,900,000 1,897,862
International Lease Finance
Corp.
6.50%, due 1/5/99 (d).......... 2,900,000 2,897,905
Petrofina Delaware Inc.
5.00%, due 1/8/99 (d).......... 3,200,000 3,196,889
------------
Total Commercial Paper
(Cost $9,689,390).............. 9,689,390
------------
U.S. GOVERNMENT (0.5%)
United States Treasury Bills
4.43%, due 4/8/99 (d).......... 1,000,000 988,459
4.50%, due 4/1/99 (d).......... 4,000,000 3,957,852
------------
Total U.S. Government
(Cost $4,944,933).............. 4,946,311
------------
Total Short-Term Investments
(Cost $14,634,323)............. 14,635,701
------------
Total Investments
(Cost $663,084,246) (f)........ 99.0% 937,401,942(g)
Cash and Other Assets,
Less Liabilities............... 1.0 9,383,018
---------- ------------
Net Assets...................... 100.0% $946,784,960
========== ============
<CAPTION>
FUTURES CONTRACTS (0.1%)
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION)(e)
<S> <C> <C>
-------------------------
Standard & Poor's 500
March 1999..................... 42 $ 467,856
Mini March 1999................ 1 (107)
------------
Total Futures Contracts
(Settlement Value $13,140,025)
(c).......................... $ 467,749
============
</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 98.9% 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, 1998.
(f) The cost for Federal income tax purposes is $663,343,907.
(g) At December 31, 1998 net unrealized appreciation was $274,058,035, 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 $290,274,517 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $16,216,482.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
162
<PAGE> 163
MAINSTAY VP SERIES FUND, INC.
INDEXED EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $663,084,246)......... $937,401,942
Receivables:
Fund shares sold....................... 10,424,422
Dividends and interest................. 841,829
Investment securities sold............. 125,344
Variation margin receivable on futures
contracts.............................. 36,895
------------
Total assets..................... 948,830,432
------------
LIABILITIES:
Payables:
Investment securities purchased........ 1,453,017
Custodian.............................. 198,104
Administrator.......................... 152,100
Shareholder communication.............. 112,218
Adviser................................ 76,050
Directors.............................. 304
Accrued expenses......................... 53,679
------------
Total liabilities................ 2,045,472
------------
Net assets applicable to outstanding
shares................................. $946,784,960
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares authorized.... $ 365,724
Additional paid-in capital............... 665,050,433
Accumulated undistributed net realized
gain on investments.................... 6,583,358
Net unrealized appreciation on
investments and futures transactions... 274,785,445
------------
Net assets applicable to outstanding
shares................................. $946,784,960
============
Shares of capital stock outstanding...... 36,572,435
============
Net asset value per share outstanding.... $ 25.89
============
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 9,873,539
Interest............................... 1,969,840
------------
Total income..................... 11,843,379
------------
Expenses:
Administration......................... 1,413,592
Advisory............................... 706,796
Shareholder communication.............. 303,873
Custodian.............................. 102,197
Professional........................... 80,012
Directors.............................. 38,522
Portfolio pricing...................... 2,257
Miscellaneous.......................... 40,437
------------
Total expenses................... 2,687,686
------------
Net investment income.................... 9,155,693
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from:
Security transactions.................. 10,640,174
Futures transactions................... (692,222)
------------
Net realized gain on investments......... 9,947,952
------------
Net change in unrealized appreciation on
investments:
Security transactions.................. 157,892,304
Futures transactions................... 358,357
------------
Net unrealized gain on investments....... 158,250,661
------------
Net realized and unrealized gain on
investments............................ 168,198,613
------------
Net increase in net assets resulting from
operations............................. $177,354,306
============
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $60,409.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
163
<PAGE> 164
INDEXED EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 9,155,693 $ 6,190,031
Net realized gain on investments.......................... 9,947,952 15,123,092
Net change in unrealized appreciation on investments and
futures transactions.................................... 158,250,661 72,131,454
------------- -------------
Net increase in net assets resulting from operations...... 177,354,306 93,444,577
------------- -------------
Dividends and distributions to shareholders:
From net investment income................................ (9,192,904) (6,158,063)
From net realized gain on investments..................... (8,579,470) (11,301,944)
------------- -------------
Total dividends and distributions to shareholders....... (17,772,374) (17,460,007)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares.......................... 373,005,680 184,972,008
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 17,772,374 17,460,007
------------- -------------
390,778,054 202,432,015
Cost of shares redeemed................................... (100,347,307) (5,588,851)
------------- -------------
Increase in net assets derived from capital share
transactions............................................ 290,430,747 196,843,164
------------- -------------
Net increase in net assets.................................. 450,012,679 272,827,734
NET ASSETS:
Beginning of year........................................... 496,772,281 223,944,547
------------- -------------
End of year................................................. $ 946,784,960 $ 496,772,281
============= =============
Accumulated undistributed net investment income at end of
year...................................................... $ -- $ 32,358
============= =============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year..... $ 20.58 $ 16.10 $ 13.53 $ 10.38 $ 10.58
------------- ------------- ------------- ------------- -------------
Net investment income.................... 0.26 0.27 0.24 0.27 0.24
Net realized and unrealized gain (loss)
on investments......................... 5.58 4.99 2.79 3.55 (0.15)
------------- ------------- ------------- ------------- -------------
Total from investment operations......... 5.84 5.26 3.03 3.82 0.09
------------- ------------- ------------- ------------- -------------
Less dividends and distributions:
From net investment income............. (0.26) (0.27) (0.24) (0.28) (0.24)
From net realized gain
on investments....................... (0.27) (0.51) (0.22) (0.39) (0.05)
------------- ------------- ------------- ------------- -------------
Total dividends and distributions........ (0.53) (0.78) (0.46) (0.67) (0.29)
------------- ------------- ------------- ------------- -------------
Net asset value at end of year........... $ 25.89 $ 20.58 $ 16.10 $ 13.53 $ 10.38
============= ============= ============= ============= =============
Total investment return.................. 28.49% 32.84% 22.42% 36.89% 0.76%
Ratios (to average net assets)
/Supplemental Data:
Net investment income.................. 1.30% 1.75% 2.14% 2.52% 2.61%
Net expenses........................... 0.38% 0.39% 0.47% 0.47% 0.47%
Expenses (before reimbursement)........ 0.38% 0.39% 0.50% 0.62% 0.68%
Portfolio turnover rate.................. 4% 5% 3% 5% 8%
Net assets at end of year (in 000's)..... $ 946,785 $ 496,772 $ 223,945 $ 105,171 $ 63,164
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
164
<PAGE> 165
MAINSTAY VP SERIES FUND, INC.
AMERICAN CENTURY
INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (93.5%)+
SHARES VALUE
---------------------
<S> <C> <C>
AEROSPACE/DEFENSE (3.1%)
Boeing Co. (The)................... 1,300 $ 42,412
Cordant Technologies Inc. ......... 2,200 82,500
General Dynamics Corp. ............ 2,300 134,838
Gulfstream Aerospace Corp. (a)..... 500 26,625
Sundstrand Corp. .................. 2,800 145,250
United Technologies Corp. ......... 4,600 500,250
-----------
931,875
-----------
AGRICULTURAL PRODUCTS (0.2%)
Universal Corp. ................... 1,400 49,175
-----------
AIRLINES (0.1%)
AMR Corp. (a)...................... 300 17,812
Delta Air Lines, Inc. ............. 200 10,400
US Airways Group, Inc. (a)......... 100 5,200
-----------
33,412
-----------
AUTO PARTS (3.4%)
Arvin Industries, Inc. ............ 300 12,506
DaimlerChrysler AG (a)............. 2,100 201,731
Ford Motor Co. .................... 13,600 798,150
Navistar International Corp. (a)... 800 22,800
-----------
1,035,187
-----------
BANKS (6.7%)
Bank One Corp. .................... 7,202 367,752
BankAmerica Corp. ................. 5,484 329,726
BankBoston Corp. .................. 1,700 66,194
Chase Manhattan Corp. (The)........ 6,700 456,019
First Union Corp. ................. 8,600 522,987
Fleet Financial Group, Inc. ....... 2,600 116,188
PNC Bank Corp. .................... 1,100 59,537
Wells Fargo & Co................... 2,700 107,831
-----------
2,026,234
-----------
BEVERAGES (0.2%)
Anheuser-Busch Cos., Inc. ......... 300 19,687
Coca-Cola Co. (The)................ 500 33,438
-----------
53,125
-----------
BIOTECHNOLOGY (0.9%)
Amgen Inc. (a)..................... 2,400 250,950
Human Genome Sciences, Inc. (a).... 200 7,113
-----------
258,063
-----------
BROADCAST/MEDIA (0.0%) (b)
United Video Satellite Group, Inc.
(a)............................... 600 14,175
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
BUILDING MATERIALS (0.7%)
Lafarge Corp. ..................... 2,400 $ 97,200
Owens Corning...................... 400 14,175
Southdown, Inc. ................... 700 41,431
USG Corp. ......................... 1,100 56,031
-----------
208,837
-----------
CHEMICALS (2.2%)
Dexter Corp. ...................... 2,000 62,875
Dow Chemical Co. (The)............. 1,700 154,594
Du Pont (E.I.) De Nemours & Co. ... 2,900 153,881
Goodrich (B.F.) Co. (The).......... 6,200 222,425
Grace (W. R.) & Co. (a)............ 100 1,569
Monsanto Co. ...................... 1,000 47,500
Morton International, Inc. ........ 100 2,450
Nalco Chemical Co. ................ 200 6,200
-----------
651,494
-----------
COMMUNICATIONS--
EQUIPMENT (3.2%)
Cisco Systems, Inc. (a)............ 3,600 334,125
Comverse Technology, Inc. (a)...... 1,000 71,000
Lucent Technologies, Inc. ......... 3,400 374,000
Northern Telecom Ltd............... 2,100 105,263
QUALCOMM Inc. (a).................. 300 15,544
Tellabs, Inc. (a).................. 1,100 75,419
-----------
975,351
-----------
COMPUTER SOFTWARE &
SERVICES (7.5%)
America Online, Inc. (a)........... 1,200 173,700
Autodesk, Inc. .................... 1,500 64,031
BMC Software, Inc. (a)............. 400 17,825
Computer Associates International,
Inc. ............................. 700 29,838
Computer Horizons Corp. (a)........ 2,200 58,575
Compuware Corp. (a)................ 700 54,687
Electronic Data Systems Corp. ..... 1,400 70,350
HBO & Co. ......................... 4,200 120,488
Hyperion Solutions Corp. (a)....... 400 7,200
Keane, Inc. (a).................... 1,700 67,894
Microsoft Corp. (a)................ 8,200 1,137,238
Networks Associates, Inc. (a)...... 700 46,375
Oracle Corp. (a)................... 4,300 185,438
Peoplesoft, Inc. (a)............... 600 11,363
Platinum Technology, Inc. (a)...... 700 13,388
Shared Medical Systems Corp. ...... 500 24,937
Siebel Systems, Inc. (a)........... 1,000 33,937
Sterling Software, Inc. (a)........ 3,400 92,012
Synopsys, Inc. (a)................. 400 21,700
Yahoo! Inc. (a).................... 100 23,506
-----------
2,254,482
-----------
</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.
165
<PAGE> 166
AMERICAN CENTURY
INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
COMPUTER SYSTEMS (5.3%)
Apple Computer, Inc. (a)........... 5,500 $ 225,156
Compaq Computer Corp. ............. 1,500 62,906
Dell Computer Corp. (a)............ 4,000 292,750
EMC Corp. (a)...................... 1,200 102,000
Gateway 2000, Inc. (a)............. 700 35,831
Hewlett-Packard Co. ............... 3,900 266,419
International Business Machines
Corp. ............................ 2,100 387,975
NCR Corp. (a)...................... 1,400 58,450
Sun Microsystems, Inc. (a)......... 700 59,938
Unisys Corp. (a)................... 3,400 117,088
-----------
1,608,513
-----------
COSMETICS/PERSONAL CARE (0.1%)
Herbalife International, Inc. Class
A................................. 700 9,975
Nature's Sunshine Products,
Inc. ............................. 400 6,100
Rexall Sundown, Inc. (a)........... 800 11,200
-----------
27,275
-----------
DISTRIBUTORS--HEALTH CARE (0.4%)
Cardinal Health, Inc. ............. 700 53,112
McKesson Corp. .................... 800 63,250
-----------
116,362
-----------
ELECTRICAL EQUIPMENT (2.1%)
DSP Group, Inc. (a)................ 200 4,175
General Electric Co. .............. 6,100 622,581
Thomas & Betts Corp. .............. 200 8,663
-----------
635,419
-----------
ELECTRONICS--DEFENSE (0.2%)
EG&G, Inc. ........................ 2,100 58,406
-----------
ELECTRONICS--INSTRUMENTS (0.0%) (b)
Thermo Instrument Systems Inc.
(a)............................... 300 4,519
-----------
ELECTRONICS--
SEMICONDUCTORS (2.5%)
Intel Corp. ....................... 5,900 699,519
Texas Instruments Inc.............. 400 34,225
Vitesse Semiconductor Corp. (a).... 300 13,687
-----------
747,431
-----------
ENERGY--OIL/GAS (2.8%)
Ashland Inc. ...................... 100 4,837
Diamond Offshore Drilling, Inc. ... 2,200 52,113
Ensco International Inc. .......... 1,500 16,031
Exxon Corp. ....................... 3,000 219,375
Halliburton Co. ................... 1,900 56,288
Occidental Petroleum Corp. ........ 800 13,500
Schlumberger Ltd. ................. 2,800 129,150
Sunoco, Inc. ...................... 4,100 147,856
Tidewater Inc. .................... 2,400 55,650
Transocean Offshore Inc. .......... 3,100 83,119
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
ENERGY--OIL/GAS (Continued)
Ultramar Diamond Shamrock Corp. ... 1,600 $ 38,800
Varco International, Inc. (a)...... 2,000 15,500
-----------
832,219
-----------
ENGINEERING & CONSTRUCTION (0.3%)
Fluor Corp. ....................... 1,800 76,613
-----------
ENTERTAINMENT (0.2%)
Viacom Inc. Class B (a)............ 600 44,400
-----------
FINANCIAL--MISCELLANEOUS (3.7%)
Citigroup Inc. .................... 5,000 247,500
Countrywide Credit Industries,
Inc. ............................. 1,300 65,244
Equitable Cos., Inc. (The)......... 1,000 57,875
Fannie Mae......................... 5,200 384,800
Freddie Mac........................ 1,700 109,544
Morgan Stanley Dean Witter &
Co. .............................. 3,600 255,600
-----------
1,120,563
-----------
FOOD (2.2%)
General Mills, Inc. ............... 2,400 186,600
Hormel Foods Corp. ................ 900 29,475
Interstate Bakeries Corp. ......... 1,600 42,300
Lance, Inc. ....................... 1,000 19,937
Quaker Oats Co. (The).............. 3,000 178,500
Sara Lee Corp...................... 1,000 28,188
Unilever NV........................ 2,200 182,463
-----------
667,463
-----------
HEALTH CARE--DRUGS (5.0%)
Genentech, Inc. (a)................ 2,500 199,219
Lilly (Eli) and Co. ............... 3,100 275,513
Medicis Pharmaceutical Corp. Class
A (a)............................. 400 23,850
Merck & Co., Inc. ................. 2,000 295,375
Pfizer Inc. ....................... 2,200 275,962
Schering-Plough Corp. ............. 8,100 447,525
-----------
1,517,444
-----------
HEALTH CARE--MEDICAL PRODUCTS (0.4%)
Arterial Vascular Engineering, Inc.
(a)............................... 1,400 73,500
Bausch & Lomb Inc. ................ 300 18,000
VISX, Inc. (a)..................... 300 26,231
-----------
117,731
-----------
HEALTH CARE--MISCELLANEOUS (4.2%)
Abbott Laboratories................ 3,000 147,000
Aetna Inc. ........................ 100 7,862
American Home Products Corp. ...... 400 22,525
Bristol-Myers Squibb Co. .......... 2,200 294,387
Hooper Holmes, Inc. ............... 100 2,900
Humana Inc. (a).................... 1,200 21,375
Integrated Health Services, Inc.
(a)............................... 1,700 24,012
Johnson & Johnson.................. 3,800 318,725
Mallinckrodt Inc. ................. 2,200 67,788
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
166
<PAGE> 167
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
HEALTH CARE--MISCELLANEOUS
(Continued)
PacifiCare Health Systems, Inc.
Class B (a)....................... 1,700 $ 135,150
RehabCare Group, Inc. (a).......... 100 1,869
Trigon Healthcare, Inc. Class A
(a)............................... 500 18,656
Warner-Lambert Co. ................ 2,800 210,525
-----------
1,272,774
-----------
HOMEBUILDING (1.1%)
Centex Corp. ...................... 1,200 54,075
Fleetwood Enterprises, Inc. ....... 4,300 149,425
Horton (D.R.), Inc. ............... 3,200 73,600
Pulte Corp. ....................... 1,900 52,843
-----------
329,943
-----------
HOUSEHOLD PRODUCTS (1.6%)
Fort James Corp. .................. 200 8,000
Kimberly-Clark Corp. .............. 900 49,050
Procter & Gamble Co. (The)......... 2,600 237,412
Tupperware Corp. .................. 2,200 36,162
Whirlpool Corp. ................... 2,700 149,513
-----------
480,137
-----------
INSURANCE (4.0%)
Allstate Corp. (The)............... 7,100 274,237
Conseco, Inc. ..................... 4,400 134,475
Fidelity National Financial,
Inc. ............................. 3,740 114,070
First American Financial Corp.
(The)............................. 2,700 86,738
Gallagher (Arthur J.) & Co. ....... 1,200 52,950
LandAmerica Financial Group,
Inc. ............................. 1,500 83,719
Lincoln National Corp. ............ 3,300 269,981
Loews Corp. ....................... 900 88,425
Marsh & McLennan Cos., Inc. ....... 1,800 105,188
-----------
1,209,783
-----------
INVESTMENT BANKS/BROKERAGE (0.6%)
Bear Stearns Cos., Inc. (The)...... 1,200 44,850
Lehman Brothers Holdings Inc. ..... 1,500 66,094
Merrill Lynch & Co., Inc. ......... 1,100 73,425
-----------
184,369
-----------
LEISURE TIME (0.1%)
Anchor Gaming (a).................. 400 22,550
International Game Technology...... 500 12,156
-----------
34,706
-----------
MACHINERY--DIVERSIFIED (1.3%)
Caterpillar Inc. .................. 1,800 82,800
Deere & Co. ....................... 1,800 59,625
Ingersoll-Rand Co. ................ 2,500 117,344
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
MACHINERY--DIVERSIFIED (Continued)
NACCO Industries, Inc. Class A..... 300 $ 27,600
Premark International, Inc. ....... 3,300 114,262
-----------
401,631
-----------
MANUFACTURING--DIVERSIFIED (2.2%)
AlliedSignal Inc. ................. 1,300 57,606
Department 56, Inc. (a)............ 300 11,269
Diebold, Inc. ..................... 200 7,138
Fortune Brands, Inc. .............. 2,000 63,250
Harsco Corp. ...................... 1,700 51,744
Hillenbrand Industries, Inc. ...... 3,300 187,688
Minnesota Mining and Manufacturing
Co. .............................. 900 64,012
National Service Industries,
Inc. ............................. 1,100 41,800
Pentair, Inc. ..................... 500 19,906
Russ Berrie and Co., Inc. ......... 400 9,400
Teleflex Inc. ..................... 400 18,250
Tyco International Ltd. ........... 1,500 113,156
YORK International Corp. .......... 500 20,406
-----------
665,625
-----------
METALS--DIVERSIFIED (0.2%)
Aluminum Co. of America............ 300 22,369
ASARCO Inc. ....................... 100 1,506
Bethlehem Steel Corp. (a).......... 200 1,675
Kennametal Inc. ................... 800 17,000
Nucor Corp. ....................... 200 8,650
USX-U.S. Steel Group............... 200 4,600
-----------
55,800
-----------
NATURAL GAS DISTRIBUTORS &
PIPELINES (2.2%)
CTG Resources, Inc. ............... 100 2,625
Eastern Enterprises................ 400 17,500
Enron Corp. ....................... 1,100 62,769
KeySpan Energy..................... 6,600 204,600
K N Energy, Inc. .................. 1,700 61,837
MCN Energy Group Inc. ............. 3,400 64,813
Piedmont Natural Gas Co., Inc. .... 400 14,450
Sempra Energy...................... 7,500 190,312
Southwest Gas Corp. ............... 200 5,375
UGI Corp. ......................... 1,500 35,625
-----------
659,906
-----------
PAPER & FOREST PRODUCTS (0.0%) (b)
Weyerhaeuser Co. .................. 200 10,163
-----------
PHOTOGRAPHY/IMAGING (1.1%)
Eastman Kodak Co. ................. 4,600 331,200
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
167
<PAGE> 168
AMERICAN CENTURY
INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
PUBLISHING (0.2%)
Hollinger International Inc. Class
A................................. 2,000 $ 27,875
Knight Ridder, Inc. ............... 600 30,675
-----------
58,550
-----------
REAL ESTATE (0.1%)
CarrAmerica Realty Corp. .......... 1,800 43,200
-----------
RENTALS (0.1%)
Hertz Corp. (The) Class A.......... 900 41,062
-----------
RESTAURANTS (0.1%)
CKE Restaurants, Inc. ............. 1,210 35,619
-----------
RETAIL (3.3%)
Best Buy Co., Inc. (a)............. 900 55,237
Cato Corp. Class A................. 200 1,969
Dayton Hudson Corp. ............... 400 21,700
Dress Barn, Inc. (The) (a)......... 400 6,075
Enesco Group, Inc. ................ 200 4,650
Home Depot, Inc. (The) ............ 2,800 171,325
Kmart Corp. (a).................... 2,500 38,281
Limited, Inc. (The)................ 400 11,650
Lowe's Cos., Inc. ................. 200 10,237
Miller (Herman), Inc. ............. 300 8,063
Payless ShoeSource, Inc. (a)....... 300 14,213
Penney (J. C.) Co., Inc. .......... 1,800 84,375
Ross Stores, Inc. ................. 800 31,500
Sears, Roebuck and Co. ............ 200 8,500
Wal-Mart Stores, Inc. ............. 6,000 488,625
Zale Corp. (a)..................... 1,300 41,925
-----------
998,325
-----------
SPECIALIZED SERVICES (1.0%)
Block (H & R), Inc. ............... 1,200 54,000
Cendant Corp. (a).................. 600 11,437
Gartner Group, Inc. Class A (a).... 1,100 23,375
Kelly Services, Inc. Class A....... 1,100 34,925
Laidlaw Inc. ...................... 600 6,038
Ogden Corp. ....................... 3,100 77,694
Omnicom Group Inc. ................ 1,000 58,000
True North Communications Inc. .... 1,000 26,875
Viad Corp. ........................ 400 12,150
-----------
304,494
-----------
SPECIALTY PRINTING (1.0%)
Deluxe Corp. ...................... 8,200 299,813
-----------
TELECOMMUNICATIONS (8.5%)
AirTouch Communications, Inc.
(a)............................... 500 36,062
Ameritech Corp. ................... 3,000 190,125
AT&T Corp. (e)..................... 10,200 767,550
Bell Atlantic Corp. ............... 3,200 181,800
BellSouth Corp. (e)................ 11,600 578,550
GTE Corp. ......................... 3,600 242,775
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
TELECOMMUNICATIONS (Continued)
MCI WorldCom, Inc. (a)............. 100 $ 7,175
SBC Communications Inc. ........... 3,800 203,775
U S West, Inc. .................... 5,600 361,900
-----------
2,569,712
-----------
TEXTILES (0.8%)
Jones Apparel Group, Inc. (a)...... 800 17,650
Kellwood Co. ...................... 200 5,000
Liz Claiborne, Inc. ............... 600 18,937
Nautica Enterprises, Inc. (a)...... 1,100 16,500
Tommy Hilfiger Corp. (a)........... 1,300 78,000
V. F. Corp. ....................... 1,900 89,063
-----------
225,150
-----------
TOBACCO (1.1%)
Philip Morris Cos. Inc. ........... 5,000 267,500
RJR Nabisco Holdings Corp. ........ 2,300 68,281
-----------
335,781
-----------
UTILITIES--ELECTRIC POWER (5.3%)
Ameren Corp. ...................... 900 38,419
Baltimore Gas and Electric Co. .... 2,600 80,275
BEC Energy......................... 300 12,356
Central and South West Corp. ...... 3,400 93,288
Conectiv Inc. ..................... 3,200 78,400
Conectiv Inc. Class A.............. 300 11,850
Dominion Resources, Inc. .......... 2,700 126,225
Duke Energy Corp. ................. 3,400 217,813
FirstEnergy Corp. ................. 4,400 143,275
FPL Group, Inc. ................... 900 55,462
Hawaiian Electric Industries,
Inc. ............................. 1,700 68,425
Houston Industries Inc. ........... 3,900 125,287
LG&E Energy Corp. ................. 3,000 84,938
MDU Resources Group, Inc. ......... 250 6,578
Minnesota Power Inc. .............. 2,200 96,800
Public Service Co. of New Mexico... 800 16,350
Southern Co. (The)................. 5,700 165,656
Utilicorp United Inc. ............. 3,900 143,081
Western Resources, Inc. ........... 700 23,275
-----------
1,587,753
-----------
Total Common Stocks
(Cost $25,193,192)................ 28,201,264(d)
-----------
<CAPTION>
PREFERRED STOCK (0.1%)
<S> <C> <C>
UTILITIES--ELECTRIC POWER (0.1%)
Washington Water Power Co. (The)... 1,400 27,125
-----------
Total Preferred Stock
(Cost $24,690).................... 27,125
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
168
<PAGE> 169
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENT (5.6%)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
TIME DEPOSIT (5.6%)
Bank of New York (The)--
Grand Cayman
4.38%, due on demand (c).......... $1,710,000 $ 1,710,000
-----------
Total Short-Term Investment
(Cost $1,710,000)................. 1,710,000
-----------
Total Investments
(Cost $26,927,882) (g)............ 99.2% 29,938,389(h)
Cash and Other Assets,
Less Liabilities.................. 0.8 228,897
--------- -----------
Net Assets......................... 100.0% $30,167,286
========= ===========
<CAPTION>
FUTURE CONTRACTS (0.4%)
CONTRACTS UNREALIZED
LONG APPRECIATION(f)
----------------------
<S> <C> <C>
Standard & Poor's 500
March 1999........................ 3 $ 126,653
-----------
Total Futures Contracts
(Settlement Value $934,125) (d)... $ 126,653
===========
</TABLE>
- ------------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Adjustable rate. Rate shown is the rate in effect at December 31, 1998.
(d) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts represents 96.6% of net assets.
(e) Segregated or partially segregated as collateral for futures contracts.
(f) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1998.
(g) The cost for Federal income tax purposes is $26,966,469.
(h) At December 31, 1998 net unrealized appreciation was $2,971,920, 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 $3,834,242 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $862,322.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
169
<PAGE> 170
AMERICAN CENTURY
INCOME & GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $26,927,882).......... $ 29,938,389
Cash..................................... 7,346
Receivables:
Fund shares sold....................... 795,403
Dividends and interest................. 34,868
Administrator.......................... 14,754
Unamortized organization expense......... 18,532
Variation margin receivable on futures
contracts.............................. 2,550
------------
Total assets..................... 30,811,842
------------
LIABILITIES:
Payables:
Investment securities purchased........ 588,449
Custodian.............................. 31,420
Adviser................................ 11,451
Directors.............................. 35
Accrued expenses......................... 13,201
------------
Total liabilities................ 644,556
------------
Net assets applicable to outstanding
shares................................. $ 30,167,286
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 27,657
Additional paid-in capital............... 27,386,903
Accumulated undistributed net investment
income................................. 957
Accumulated net realized loss on
investments............................ (385,391)
Net unrealized appreciation on
investments............................ 3,137,160
------------
Net assets applicable to outstanding
shares................................. $ 30,167,286
============
Shares of capital stock outstanding...... 2,765,694
============
Net asset value per share outstanding.... $ 10.91
============
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (Commencement of Operations) through December 31,
1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 203,358
Interest............................... 32,831
------------
Total income..................... 236,189
------------
Expenses:
Advisory............................... 57,696
Custodian.............................. 31,421
Administration......................... 23,079
Professional........................... 16,474
Shareholder communication.............. 3,733
Amortization of organization expense... 2,874
Portfolio pricing...................... 1,167
Directors.............................. 451
Miscellaneous.......................... 13,494
------------
Total expenses before
reimbursement.................. 150,389
Expense reimbursement from
Administrator.......................... (52,305)
------------
Net expenses..................... 98,084
------------
Net investment income.................... 138,105
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss from:
Securities transactions................ (327,832)
Futures transactions................... (57,559)
------------
Net realized loss on investments......... (385,391)
------------
Net unrealized appreciation on
investments:
Securities transactions................ 3,010,507
Futures transactions................... 126,653
------------
Net unrealized gain on investments....... 3,137,160
------------
Net realized and unrealized gain on
investments............................ 2,751,769
------------
Net increase in net assets resulting from
operations............................. $ 2,889,874
============
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $159.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
170
<PAGE> 171
MAINSTAY VP SERIES FUND, INC.
AMERICAN CENTURY
INCOME & GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (Commencement of Operations)
through December 31, 1998
<TABLE>
<CAPTION>
1998
------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 138,105
Net realized loss on investments.......................... (385,391)
Net unrealized appreciation on investments................ 3,137,160
------------
Net increase in net assets resulting from operations...... 2,889,874
------------
Dividends to shareholders:
From net investment income................................ (139,956)
------------
Capital share transactions:
Net proceeds from sale of shares.......................... 28,012,889
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 139,956
------------
28,152,845
Cost of shares redeemed................................... (735,477)
------------
Increase in net assets derived from capital share
transactions............................................ 27,417,368
------------
Net increase in net assets.................................. 30,167,286
NET ASSETS:
Beginning of period......................................... 0
------------
End of period............................................... $ 30,167,286
============
Accumulated undistributed net investment income at end of
period.................................................... $ 957
============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1998 (a)
THROUGH
DECEMBER 31,
1998
------------
<S> <C>
Net asset value at beginning of period...................... $ 10.00
------------
Net investment income....................................... 0.05
Net realized and unrealized gain on investments............. 0.91
------------
Total from investment operations............................ 0.96
------------
Less dividends:
From net investment income................................ (0.05)
------------
Net asset value at end of period............................ $ 10.91
============
Total investment return..................................... 9.60%(b)
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 1.20%+
Net expenses.............................................. 0.85%+
Expenses (before reimbursement)........................... 1.30%+
Portfolio turnover rate..................................... 34%
Net assets at end of period (in 000's)...................... $ 30,167
</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.
171
<PAGE> 172
DREYFUS LARGE COMPANY
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (99.9%)+
SHARES VALUE
---------------------
<S> <C> <C>
AUTO PARTS (3.1%)
Ford Motor Co. .................... 4,500 $ 264,094
General Motors Corp. .............. 4,400 314,875
-----------
578,969
-----------
BANKS (15.2%)
Bank of New York Co., Inc. (The)... 8,200 330,050
Bank One Corp. .................... 5,736 292,895
BankAmerica Corp. ................. 5,200 312,650
Chase Manhattan Corp. (The)........ 4,400 299,475
First Union Corp. ................. 4,800 291,900
Fleet Financial Group, Inc. ....... 6,700 299,406
KeyCorp............................ 8,900 284,800
National City Corp. ............... 3,100 224,750
PNC Bank Corp. .................... 4,300 232,738
Wells Fargo & Co. ................. 7,600 303,525
-----------
2,872,189
-----------
BEVERAGES (1.7%)
Whitman Corp. ..................... 12,700 322,262
-----------
BUILDING MATERIALS (1.6%)
Lafarge Corp. ..................... 7,300 295,650
-----------
CHEMICALS (1.6%)
Du Pont (E.I.) De Nemours & Co. ... 5,600 297,150
-----------
COMPUTER HARDWARE (6.8%)
Compaq Computer Corp. ............. 7,775 326,064
International Business Machines
Corp. ............................ 1,700 314,075
Storage Technology Corp. (a)....... 9,200 327,175
Sun Microsystems, Inc. (a)......... 3,700 316,812
-----------
1,284,126
-----------
CONTAINERS--METAL & GLASS (1.5%)
Owens-Illinois, Inc. (a)........... 9,600 294,000
-----------
ELECTRICAL EQUIPMENT (1.7%)
General Electric Co. .............. 3,200 326,600
-----------
ELECTRONICS (1.5%)
Perkin-Elmer Corp. (The)........... 2,900 282,931
-----------
ELECTRONICS--
SEMICONDUCTORS (1.8%)
Intel Corp. ....................... 2,800 331,975
-----------
ENERGY--OIL/GAS (11.2%)
Atlantic Richfield Co. ............ 3,100 202,275
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
ENERGY--OIL/GAS (Continued)
British Petroleum PLC ADR (b)...... 3,100 $ 277,838
Coastal Corp. (The)................ 8,400 293,475
Conoco Inc. Class A (a)............ 3,600 75,150
Exxon Corp. ....................... 2,800 204,750
Mobil Corp. ....................... 2,900 252,662
Texaco Inc. ....................... 5,000 264,375
USX-Marathon Group................. 10,200 307,275
YPF Sociedad Anonima ADR Class D
(b)............................... 8,600 240,263
-----------
2,118,063
-----------
FINANCIAL--MISCELLANEOUS (8.1%)
American General Corp. ............ 4,900 382,200
Citigroup Inc. .................... 6,000 297,000
Freddie Mac........................ 4,600 296,413
Morgan Stanley Dean Witter &
Co. .............................. 3,800 269,800
SunAmerica Inc. ................... 3,600 292,050
-----------
1,537,463
-----------
HEALTH CARE--DRUGS (3.2%)
Pharmacia & Upjohn, Inc. .......... 5,500 311,437
Zeneca Group PLC ADR (b)........... 6,700 300,663
-----------
612,100
-----------
HOUSEHOLD PRODUCTS (1.7%)
Kimberly-Clark Corp. .............. 5,800 316,100
-----------
INSURANCE (6.6%)
Everest Reinsurance Holdings,
Inc. ............................. 8,500 321,937
EXEL Limited Class A............... 4,200 315,000
St. Paul Cos., Inc. (The).......... 8,900 309,275
Torchmark Corp. ................... 8,700 307,219
-----------
1,253,431
-----------
METALS (1.6%)
Aluminum Co. of America............ 4,200 313,163
-----------
OFFICE EQUIPMENT (1.6%)
Xerox Corp. ....................... 2,500 295,000
-----------
POLLUTION CONTROL (1.5%)
Waste Management, Inc. ............ 6,200 289,075
-----------
RAILROADS (1.7%)
Union Pacific Corp. ............... 7,000 315,437
-----------
RESTAURANTS (2.9%)
McDonald's Corp. .................. 2,700 206,887
Wendy's International, Inc. ....... 15,800 344,638
-----------
551,525
-----------
</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.
172
<PAGE> 173
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
RETAIL (3.2%)
American Stores Co. ............... 8,200 $ 302,887
Intimate Brands, Inc. Class A...... 10,000 298,750
-----------
601,637
-----------
SPECIALIZED SERVICES (1.9%)
Cendant Corp. (a).................. 19,000 362,188
-----------
TELECOMMUNICATIONS (7.9%)
Ameritech Corp. ................... 4,600 291,525
Bell Atlantic Corp. ............... 4,600 261,338
Cincinnati Bell Inc. .............. 9,100 344,094
MCI WorldCom, Inc. (a)............. 4,500 322,875
U S West Communications, Inc. ..... 4,300 277,887
-----------
1,497,719
-----------
TEXTILES (1.7%)
Shaw Industries, Inc. ............. 13,500 327,375
-----------
TOBACCO (1.2%)
Philip Morris Cos. Inc. ........... 4,400 235,400
-----------
TRANSPORTATION (1.8%)
CNF Transportation Inc. ........... 9,000 338,062
-----------
UTILITIES--ELECTRIC POWER (5.6%)
Central and South West Corp. ...... 9,200 252,425
Cinergy Corp. ..................... 7,600 261,250
Niagara Mohawk Power Corp. (a)..... 16,900 272,513
Texas Utilities.................... 5,800 270,787
-----------
1,056,975
-----------
Total Common Stocks
(Cost $16,862,742)................ 18,906,565
-----------
<CAPTION>
SHORT-TERM
INVESTMENT (6.2%)
PRINCIPAL
AMOUNT VALUE
---------------------
<S> <C> <C>
FEDERAL AGENCY (6.2%)
Federal Home Loan Bank
4.30%, due 1/4/99................. $1,168,581 $ 1,168,581
-----------
Total Short-Term Investment
(Cost $1,168,581)................. 1,168,581
-----------
Total Investments
(Cost $18,031,323) (c)............ 106.1% 20,075,146(d)
Liabilities in Excess of
Cash and Other Assets............. (6.1) (1,156,700)
--------- -----------
Net Assets......................... 100.0% $18,918,446
========= ===========
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for Federal income tax purposes is $18,052,345.
(d) At December 31, 1998 net unrealized appreciation was $2,022,801, 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 $2,322,908 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $300,107.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
173
<PAGE> 174
DREYFUS LARGE COMPANY
VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $18,031,323).......... $ 20,075,146
Receivables:
Investment securities sold............. 280,171
Dividends and interest................. 19,033
Fund shares sold....................... 1,228
Unamortized organization expense......... 18,532
------------
Total assets..................... 20,394,110
------------
LIABILITIES:
Payables:
Investment securities purchased........ 1,405,548
Custodian.............................. 25,717
Funds shares redeemed.................. 15,643
Adviser................................ 9,067
Shareholder communication.............. 4,673
Administrator.......................... 1,491
Directors.............................. 141
Accrued expenses......................... 13,384
------------
Total liabilities................ 1,475,664
------------
Net assets applicable to outstanding
shares................................. $ 18,918,446
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 18,486
Additional paid-in capital............... 18,025,710
Accumulated undistributed net investment
income................................. 452
Accumulated net realized loss on
investments............................ (1,170,025)
Net unrealized appreciation on
investments............................ 2,043,823
------------
Net assets applicable to outstanding
shares................................. $ 18,918,446
============
Shares of capital stock outstanding...... 1,848,572
============
Net asset value per share outstanding.... $ 10.23
============
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (Commencement of Operations) through December 31,
1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).......................... $ 142,704
Interest............................... 26,470
------------
Total income..................... 169,174
------------
Expenses:
Advisory............................... 51,477
Professional........................... 19,072
Administration......................... 17,159
Custodian.............................. 7,949
Shareholder communication.............. 5,633
Amortization of organization expense... 2,874
Portfolio pricing...................... 1,167
Directors.............................. 451
Miscellaneous.......................... 13,488
------------
Total expenses before
reimbursement.................. 119,270
Expense reimbursement from
Administrator.......................... (37,765)
------------
Net expenses..................... 81,505
------------
Net investment income.................... 87,669
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on investments......... (1,170,025)
Net unrealized appreciation on
investments............................ 2,043,823
------------
Net realized and unrealized gain on
investments............................ 873,798
------------
Net increase in net assets resulting from
operations............................. $ 961,467
============
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $1,394.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
174
<PAGE> 175
MAINSTAY VP SERIES FUND, INC.
DREYFUS LARGE COMPANY
VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (Commencement of Operations)
through December 31, 1998
<TABLE>
<CAPTION>
1998
------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 87,669
Net realized loss on investments.......................... (1,170,025)
Net unrealized appreciation on investments................ 2,043,823
------------
Net increase in net assets resulting from operations...... 961,467
------------
Dividends to shareholders:
From net investment income................................ (90,091)
------------
Capital share transactions:
Net proceeds from sale of shares.......................... 18,607,364
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 90,091
------------
18,697,455
Cost of shares redeemed................................... (650,385)
------------
Increase in net assets derived from capital share
transactions............................................ 18,047,070
------------
Net increase in net assets.................................. 18,918,446
NET ASSETS:
Beginning of period......................................... 0
------------
End of period............................................... $ 18,918,446
============
Accumulated undistributed net investment income at end of
period.................................................... $ 452
============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1998 (a)
THROUGH
DECEMBER 31,
1998
------------
<S> <C>
Net asset value at beginning of period...................... $ 10.00
------------
Net investment income....................................... 0.05
Net realized and unrealized gain on investments............. 0.23
------------
Total from investment operations............................ 0.28
------------
Less dividends:
From net investment income................................ (0.05)
------------
Net asset value at end of period............................ $ 10.23
============
Total investment return..................................... 2.83%(b)
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 1.02%+
Net expenses.............................................. 0.95%+
Expenses (before reimbursement)........................... 1.39%+
Portfolio turnover rate..................................... 98%
Net assets at end of period (in 000's)...................... $ 18,918
</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.
175
<PAGE> 176
EAGLE ASSET MANAGEMENT
GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (96.0%)+
SHARES VALUE
--------------------
<S> <C> <C>
BANKS (2.6%)
First Union Corp.................... 8,000 $ 486,500
-----------
COMMUNICATIONS EQUIPMENT (11.2%)
Cisco Systems, Inc. (a)............. 10,000 928,125
Lucent Technologies Inc............. 6,000 660,000
Nokia Corp. ADR Class A (b)......... 4,000 481,750
-----------
2,069,875
-----------
COMPUTER HARDWARE (6.9%)
Dell Computer Corp. (a)............. 8,000 585,500
EMC Corp. (a)....................... 8,000 680,000
-----------
1,265,500
-----------
COMPUTER SOFTWARE & SERVICES (3.0%)
Microsoft Corp. (a)................. 4,000 554,750
-----------
ELECTRICAL EQUIPMENT (3.3%)
General Electric Co................. 6,000 612,375
-----------
FINANCIAL--MISCELLANEOUS (12.9%)
American Express Co................. 5,000 511,250
Citigroup Inc....................... 10,000 495,000
Fannie Mae.......................... 10,000 740,000
Freddie Mac......................... 10,000 644,375
-----------
2,390,625
-----------
HEALTH CARE (8.6%)
Bristol-Myers Squibb Co............. 4,000 535,250
Cardinal Health, Inc................ 6,000 455,250
Warner-Lambert Co................... 8,000 601,500
-----------
1,592,000
-----------
HEALTH CARE--DRUGS (5.7%)
Pfizer Inc.......................... 4,000 501,750
Schering-Plough Corp................ 10,000 552,500
-----------
1,054,250
-----------
HEALTH CARE--MEDICAL PRODUCTS (3.6%)
Guidant Corp........................ 6,000 661,500
-----------
HOUSEHOLD PRODUCTS (2.2%)
Clorox Co. (The).................... 3,500 408,844
-----------
INSURANCE (2.6%)
American International Group,
Inc................................ 5,000 483,125
-----------
MANUFACTURING--DIVERSIFIED (2.6%)
Illinois Tool Works Inc............. 7,500 473,437
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
RETAIL (20.3%)
Gap, Inc. (The)..................... 15,000 $ 843,750
Home Depot, Inc. (The).............. 12,000 734,250
Kohl's Corp. (a).................... 8,000 491,500
Safeway Inc. (a).................... 10,000 609,375
Walgreen Co......................... 10,000 585,625
Wal-Mart Stores, Inc................ 6,000 488,625
-----------
3,753,125
-----------
SPECIALIZED SERVICES (6.6%)
Omnicom Group Inc................... 12,000 696,000
Paychex, Inc........................ 10,000 514,375
-----------
1,210,375
-----------
TELECOMMUNICATIONS (3.9%)
MCI WorldCom, Inc. (a).............. 10,000 717,500
-----------
Total Common Stocks
(Cost $13,799,789)................. 17,733,781
-----------
</TABLE>
<TABLE>
SHORT-TERM
INVESTMENT (4.1%)
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
TIME DEPOSIT (4.1%)
Bank of New York (The)--
Grand Cayman
4.38%, due on demand (c)........... $747,000 747,000
-----------
Total Short-Term Investment
(Cost $747,000).................... 747,000
-----------
Total Investments
(Cost $14,546,789) (d)............. 100.1% 18,480,781(e)
Liabilities in Excess of
Cash and Other Assets.............. (0.1) (13,807)
-------- -----------
Net Assets.......................... 100.0% $18,466,974
======== ===========
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Adjustable rate. Rate shown is the rate in effect at December 31, 1998.
(d) The cost for Federal income tax purposes is $14,616,688.
(e) At December 31, 1998 net unrealized appreciation was $3,864,093, 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 $3,991,431 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $127,338.
- ------------
+ 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.
176
<PAGE> 177
MAINSTAY VP SERIES FUND, INC.
EAGLE ASSET MANAGEMENT
GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $14,546,789).......... $ 18,480,781
Cash..................................... 2,221
Receivables:
Fund shares sold....................... 29,692
Dividends and interest................. 6,466
Unamortized organization expense......... 18,532
------------
Total assets..................... 18,537,692
------------
LIABILITIES:
Payables:
Fund shares redeemed................... 36,522
Custodian.............................. 7,724
Adviser................................ 7,270
Shareholder communication.............. 4,594
Administrator.......................... 1,298
Directors.............................. 45
Accrued expenses......................... 13,265
------------
Total liabilities................ 70,718
------------
Net assets applicable to outstanding
shares................................. $ 18,466,974
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 15,679
Additional paid-in capital............... 15,773,549
Accumulated undistributed net
investment income...................... 831
Accumulated net realized loss on
investments............................ (1,257,077)
Net unrealized appreciation on
investments............................ 3,933,992
------------
Net assets applicable to outstanding
shares................................. $ 18,466,974
============
Shares of capital stock outstanding...... 1,567,941
============
Net asset value per share outstanding.... $ 11.78
============
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (Commencement of Operations) through December 31,
1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends.............................. $ 54,152
Interest............................... 28,269
------------
Total income..................... 82,421
------------
Expenses:
Advisory............................... 42,942
Professional........................... 18,960
Administration......................... 17,177
Custodian.............................. 7,724
Shareholder communication.............. 5,633
Amortization of organization expense... 2,874
Portfolio pricing...................... 1,167
Directors.............................. 365
Miscellaneous.......................... 13,491
------------
Total expenses before
reimbursement.................. 110,333
Expense reimbursement from
Administrator........................ (37,332)
------------
Net expenses..................... 73,001
------------
Net investment income.................... 9,420
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on investments......... (1,257,077)
Net unrealized appreciation on
investments............................ 3,933,992
------------
Net realized and unrealized gain on
investments............................ 2,676,915
------------
Net increase in net assets resulting from
operations............................. $ 2,686,335
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
177
<PAGE> 178
EAGLE ASSET MANAGEMENT
GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (Commencement of Operations)
through December 31, 1998
<TABLE>
<CAPTION>
1998
------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 9,420
Net realized loss on investments.......................... (1,257,077)
Net unrealized appreciation on investments................ 3,933,992
------------
Net increase in net assets resulting from operations...... 2,686,335
------------
Dividends to shareholders:
From net investment income................................ (11,463)
------------
Capital share transactions:
Net proceeds from sale of shares.......................... 16,271,934
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 11,463
------------
16,283,397
Cost of shares redeemed................................... (491,295)
------------
Increase in net assets derived from capital share
transactions............................................ 15,792,102
------------
Net increase in net assets.................................. 18,466,974
NET ASSETS:
Beginning of period......................................... 0
------------
End of period............................................... $ 18,466,974
============
Accumulated undistributed net investment income at end of
period.................................................... $ 831
============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1998 (a)
THROUGH
DECEMBER 31,
1998
------------
<S> <C>
Net asset value at beginning of period...................... $ 10.00
------------
Net investment income....................................... 0.01
Net realized and unrealized gain on investments............. 1.78
------------
Total from investment operations............................ 1.79
------------
Less dividends:
From net investment income................................ (0.01)
------------
Net asset value at end of period............................ $ 11.78
============
Total investment return..................................... 17.85%(b)
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 0.11%+
Net expenses.............................................. 0.85%+
Expenses (before reimbursement)........................... 1.28%+
Portfolio turnover rate..................................... 31%
Net assets at end of period (in 000's)...................... $ 18,467
</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.
178
<PAGE> 179
MAINSTAY VP SERIES FUND, INC.
LORD ABBETT
DEVELOPING GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (93.5%)+
SHARES VALUE
---------------------
<S> <C> <C>
AEROSPACE/DEFENSE (5.4%)
Armor Holdings, Inc. (a)........... 13,200 $ 150,975
Orbital Sciences Corp. (a)......... 15,900 703,575
-----------
854,550
-----------
BANKS (2.2%)
Dain Rauscher Corp................. 2,500 73,750
Net.B@nk, Inc. (a)................. 3,800 104,500
TeleBanc Financial Corp. (a)....... 5,000 170,000
-----------
348,250
-----------
CHEMICALS--SPECIALTY (1.1%)
Eco Soil Systems, Inc. (a)......... 9,700 84,875
OM Group, Inc...................... 2,500 91,250
-----------
176,125
-----------
COMMUNICATIONS-- EQUIPMENT (1.5%)
Aspect Telecommunications Corp.
(a)............................... 6,000 103,500
CellStar Corp. (a)................. 20,600 140,338
-----------
243,838
-----------
COMPUTER HARDWARE (4.0%)
Artesyn Technologies, Inc. (a)..... 9,100 127,400
In Focus Systems, Inc. (a)......... 9,200 81,650
MicroTouch Systems, Inc. (a)....... 5,500 72,188
Radisys Corp. (a).................. 7,300 219,000
Sequent Computer Systems, Inc.
(a)............................... 7,000 84,437
Smallworldwide PLC ADR (a)(b)...... 4,000 50,000
-----------
634,675
-----------
COMPUTER SOFTWARE & SERVICES
(17.2%)
Best Software, Inc. (a)............ 3,000 71,250
Brightstar Information Technology
Group, Inc. (a)................... 9,100 71,663
CACI International Class A (a)..... 1,500 25,312
Caere Corp. (a).................... 9,900 138,600
Cambridge Technology Partners
(Massachusetts), Inc. (a)......... 3,500 77,437
CheckFree Holdings Corp. (a)....... 3,000 70,125
CMGI, Inc. (a)..................... 1,800 191,700
Cognicase Inc. (a)................. 8,300 184,546
Computer Horizons Corp. (a)........ 1,800 47,925
Computer Management Sciences, Inc.
(a)............................... 3,500 60,812
Computer Task Group, Inc........... 2,000 54,250
Harbinger Corp. (a)................ 8,000 64,000
IMRglobal Corp. (a)................ 9,900 291,431
Infinium Software, Inc. (a)........ 3,000 18,750
Landmark Systems Corp. (a)......... 11,400 126,825
Learning Co., Inc. (The) (a)....... 6,600 171,187
Mastech Corp. (a).................. 4,100 117,363
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES
(Continued)
Mercury Interactive Corp. (a)...... 2,800 $ 177,100
Micros Systems, Inc. (a)........... 4,500 147,938
Phoenix Technology Ltd. (a)........ 5,400 46,575
SCB Computer Technology, Inc.
(a)............................... 8,000 79,000
Security First Technologies, Corp.
(a)............................... 7,800 237,900
TAVA Technologies, Inc. (a)........ 14,900 113,613
USWeb Corp. (a).................... 5,300 139,787
-----------
2,725,089
-----------
COSMETICS/PERSONAL CARE (0.7%)
Steiner Leisure Ltd. (a)........... 3,200 102,400
-----------
ELECTRICAL EQUIPMENT (1.2%)
Technitrol, Inc.................... 6,200 197,625
-----------
ELECTRONICS (1.2%)
Analogic Corp...................... 2,500 94,063
LeCroy Corp. (a)................... 5,400 89,100
-----------
183,163
-----------
ELECTRONICS--SEMICONDUCTORS (0.2%)
American Xtal Technology, Inc.
(a)............................... 4,100 37,412
-----------
ENERGY--OIL/GAS (5.8%)
Core Laboratories N.V. (a)......... 9,700 185,512
Dawson Geophysical Co. (a)......... 3,000 21,562
Edge Petroleum Corp. (a)........... 9,100 39,813
Evergreen Resources, Inc. (a)...... 4,500 79,875
Exco Resources, Inc. (a)........... 8,000 58,000
Gulf Island Fabrication, Inc.
(a)............................... 4,800 37,200
Harken Energy Corp. (a)............ 25,700 49,794
Sietel, Inc. (a)................... 7,700 95,769
Stone Energy Corp. (a)............. 5,000 143,750
Superior Energy Services, Inc.
(a)............................... 10,000 28,438
TransMontaigne Inc. (a)............ 7,700 116,463
Vintage Petroleum, Inc............. 7,900 68,137
-----------
924,313
-----------
ENTERTAINMENT (0.7%)
Activision, Inc. (a)............... 7,500 83,438
Harvey Entertainment Co. (The)
(a)............................... 3,900 30,225
-----------
113,663
-----------
FOOD (2.3%)
Dreyer's Grand Ice Cream, Inc...... 3,300 49,913
Horizon Organic Holding Corp.
(a)............................... 3,500 54,250
Northland Cranberries, Inc. Class
A................................. 8,000 72,250
Smithfield Foods, Inc. (a)......... 5,400 182,925
-----------
359,338
-----------
</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.
179
<PAGE> 180
LORD ABBETT
DEVELOPING GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
GOLD & PRECIOUS METALS--MINING
(1.2%)
Stillwater Mining Co. (a).......... 4,700 $ 192,700
-----------
HEALTH CARE (3.9%)
Counsel Corp. (a).................. 8,000 63,000
Express Scripts, Inc. Class A
(a)............................... 3,800 255,075
Hooper Holmes, Inc................. 7,600 220,400
Horizon Health Corp. (a)........... 4,600 36,225
Matria Healthcare, Inc. (a)........ 17,400 50,025
-----------
624,725
-----------
HEALTH CARE--DRUGS (2.6%)
Columbia Laboratories, Inc. (a).... 3,500 10,719
ICOS Corp. (a)..................... 5,300 157,675
KOS Pharmaceuticals, Inc. (a)...... 6,400 37,600
PharMercia, Inc. (a)............... 30,000 180,000
Twinlab Corp. (a).................. 2,500 32,812
-----------
418,806
-----------
HEALTH CARE--MEDICAL PRODUCTS
(3.2%)
Arrow International Inc............ 3,900 122,363
ATS Medical, Inc. (a).............. 16,000 112,000
Maxxim Medical, Inc. (a)........... 4,300 127,925
Orthofix International N.V. (a).... 4,400 61,600
Theragenics Corp. (a).............. 4,500 75,656
-----------
499,544
-----------
HOMEBUILDING (0.5%)
Crossman Communities, Inc. (a)..... 3,100 85,637
-----------
HOUSEHOLD--FURNISHINGS & APPLIANCES
(0.4%)
Meadowcraft, Inc. (a).............. 5,700 63,769
-----------
LEISURE TIME (2.1%)
Championship Auto Racing Teams,
Inc. (a).......................... 8,000 237,000
Family Golf Centers, Inc. (a)...... 4,500 88,875
-----------
325,875
-----------
MACHINE TOOLS (0.5%)
Flow International Corp. (a)....... 7,500 72,656
-----------
MANUFACTURING--DIVERSIFIED (7.2%)
Dionex Corp. (a)................... 1,000 36,625
Identix Inc. (a)................... 8,000 66,500
JLG Industries, Inc................ 4,200 65,625
Matthews International Corp. Class
A................................. 5,800 182,700
Park-Ohio Holdings Corp. (a)....... 4,600 69,575
Plantronics, Inc. (a).............. 8,300 713,800
-----------
1,134,825
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
REAL ESTATE (0.6%)
Healthcare Realty Trust Inc........ 4,300 $ 95,944
-----------
RENTALS (1.3%)
McGrath Rentcorp................... 9,100 200,200
-----------
RETAIL (11.6%)
Ames Department Stores, Inc. (a)... 9,000 243,000
Beyond.com Corp. (a)............... 4,000 83,000
Cost Plus, Inc. (a)................ 5,100 160,012
CyberShop International, Inc.
(a)............................... 4,000 45,500
Eagle Hardware & Garden, Inc.
(a)............................... 3,200 104,000
Kenneth Cole Productions, Inc.
(a)............................... 4,800 90,000
Pacific Sunwear of California, Inc.
(a)............................... 8,000 131,000
Shoe Carnival, Inc. (a)............ 6,000 66,750
SLI, Inc. (a)...................... 3,200 88,800
Stage Stores, Inc. (a)............. 12,600 118,125
Tarrant Apparel Group (a).......... 10,000 397,500
Timberland Co. (The) Class A (a)... 2,700 123,019
Vans, Inc. (a)..................... 9,000 61,875
Wild Oats Markets, Inc. (a)........ 3,800 119,700
-----------
1,832,281
-----------
SPECIALIZED SERVICES (10.2%)
Aegis Communications Group, Inc.
(a)............................... 22,000 17,875
Butler International, Inc. (a)..... 5,100 134,831
Caribiner International, Inc.
(a)............................... 11,000 100,375
CIBER, Inc. (a).................... 3,500 97,781
Cornell Corrections, Inc. (a)...... 4,000 76,000
G&K Services, Inc. Class A......... 2,400 127,800
Healthcare Services Group, Inc.
(a)............................... 10,800 98,550
Iron Mountain Inc. (a)............. 5,200 187,525
Kroll-O'Gara Co. (The) (a)......... 12,300 485,081
Labor Ready, Inc. (a).............. 4,400 86,625
M/A/R/C Inc........................ 4,700 49,938
Norrell Corp....................... 3,200 47,200
Professional Staff PLC ADR
(a)(b)............................ 4,900 38,588
SOS Staffing Services, Inc. (a).... 2,900 21,025
Strategic Distribution, Inc (a).... 7,500 18,281
York Group, Inc. (The)............. 3,700 35,150
-----------
1,622,625
-----------
TELECOMMUNICATIONS (1.1%)
Boston Communications Group, Inc.
(a)............................... 3,500 45,500
PairGain Technologies, Inc. (a).... 4,000 30,750
TeleTech Holdings, Inc. (a)........ 9,300 95,325
-----------
171,575
-----------
TEXTILES (2.0%)
Quicksilver, Inc. (a).............. 6,000 180,000
St. John Knits, Inc. .............. 5,500 143,000
-----------
323,000
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
180
<PAGE> 181
MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
TOYS (0.3%)
Play By Play Toys & Novelties, Inc.
(a)............................... 3,300 $ 23,100
Toymax International, Inc. (a)..... 6,100 30,881
-----------
53,981
-----------
TRANSPORTATION (1.1%)
MotivePower Industries, Inc. ...... 5,500 177,031
-----------
UTILITIES--ELECTRIC
POWER (0.2%)
Independent Energy Holdings ADR
(a)(b)............................ 3,800 34,200
-----------
Total Common Stocks
(Cost $14,263,062)................ 14,829,815
-----------
SHORT-TERM
INVESTMENT (5.9%)
PRINCIPAL
AMOUNT
----------
TIME DEPOSIT (5.9%)
Bank of New York (The)-- Grand
Cayman
4.38%, due on demand (c).......... $ 935,000 935,000
-----------
Total Short-Term Investment
(Cost $935,000)................... 935,000
-----------
Total Investments
(Cost $15,198,062) (d)............ 99.4% 15,764,815(e)
Cash and Other Assets,
Less Liabilities.................. 0.6 102,559
--------- -----------
Net Assets......................... 100.0% $15,867,374
========= ===========
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Adjustable rate. Rate shown is the rate in effect at December 31, 1998.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At December 31, 1998 net unrealized appreciation was $566,753, 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 $2,692,625 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,125,872.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
181
<PAGE> 182
LORD ABBETT
DEVELOPING GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $15,198,062).......... $ 15,764,815
Cash..................................... 5,352
Receivables:
Fund shares sold....................... 124,596
Investment securities sold............. 7,347
Dividends and interest................. 1,882
Unamortized organization expense......... 18,532
------------
Total assets..................... 15,922,524
------------
LIABILITIES:
Payables:
Investment securities purchased........ 22,125
Custodian.............................. 7,499
Adviser................................ 7,176
Shareholder communication.............. 4,731
Administrator.......................... 403
Directors.............................. 20
Accrued expenses......................... 13,196
------------
Total liabilities................ 55,150
------------
Net assets applicable to outstanding
shares................................. $ 15,867,374
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares authorized... $ 17,227
Additional paid-in capital............... 15,812,541
Accumulated net realized loss on
investments............................ (529,147)
Net unrealized appreciation on
investments............................ 566,753
------------
Net assets applicable to outstanding
shares................................. $ 15,867,374
============
Shares of capital stock outstanding...... 1,722,749
============
Net asset value per share outstanding.... $ 9.21
============
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (Commencement of Operations) through December 31,
1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................... $ 30,519
Dividends.............................. 12,464
------------
Total income..................... 42,983
------------
Expenses:
Advisory............................... 42,697
Professional........................... 18,845
Administration......................... 14,232
Custodian.............................. 7,498
Shareholder communication.............. 5,633
Amortization of organization expense... 2,874
Portfolio pricing...................... 1,167
Directors.............................. 281
Miscellaneous.......................... 13,485
------------
Total expenses before
reimbursement.................. 106,712
Expense reimbursement from
Administrator.......................... (39,109)
------------
Net expenses..................... 67,603
------------
Net investment loss...................... (24,620)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on investments....... (529,147)
Net unrealized appreciation
on investments....................... 566,753
------------
Net realized and unrealized gain on
investments.......................... 37,606
------------
Net increase in net assets resulting
from operations...................... $ 12,986
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
182
<PAGE> 183
MAINSTAY VP SERIES FUND, INC.
LORD ABBETT
DEVELOPING GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (Commencement of Operations)
through December 31, 1998
<TABLE>
<CAPTION>
1998
------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (24,620)
Net realized loss on investments.......................... (529,147)
Net unrealized appreciation on investments................ 566,753
------------
Net increase in net assets resulting from operations...... 12,986
------------
Capital share transactions:
Net proceeds from sale of shares.......................... 16,317,722
Cost of shares redeemed................................... (463,334)
------------
Increase in net assets derived from capital share
transactions............................................ 15,854,388
------------
Net increase in net assets.................................. 15,867,374
NET ASSETS:
Beginning of period......................................... 0
------------
End of period............................................... $ 15,867,374
============
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
1998 (a)
THROUGH
DECEMBER 31,
1998
------------
<S> <C>
Net asset value at beginning of period...................... $ 10.00
------------
Net investment loss......................................... (0.01)
Net realized and unrealized loss on investments............. (0.78)
------------
Total from investment operations............................ (0.79)
------------
Net asset value at end of period............................ $ 9.21
============
Total investment return..................................... (7.90%)(b)
Ratios (to average net assets)/Supplemental Data:
Net investment loss....................................... (0.35%)+
Net expenses.............................................. 0.95%+
Expenses (before reimbursement)........................... 1.50%+
Portfolio turnover rate..................................... 12%
Net assets at end of period (in 000's)...................... $ 15,867
</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.
183
<PAGE> 184
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Business:
- --------------------------------------------------------------------------------
MainStay VP Series Fund, Inc. (the "Fund") was incorporated under Maryland law
on June 3, 1983. The Fund is registered under the Investment Company Act of
1940, as amended, ("Investment Company Act") as an open-end diversified
management investment company. American Century Income & Growth, Dreyfus Large
Company Value, Eagle Asset Management Growth Equity and Lord Abbett Developing
Growth Portfolios, which commenced operations on May 1, 1998, 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 "Portfolios"; each separately a "Portfolio") are separate
Portfolios of the Fund. Shares of the Portfolios are currently offered only to
New York Life Insurance and Annuity Corporation ("NYLIAC"), a wholly owned
subsidiary of New York Life Insurance Company ("New York Life"). NYLIAC
allocates shares of the Portfolios to, among others, New York Life Insurance
and Annuity Corporation's Variable Annuity Separate Account-III. The Separate
Account is used to fund flexible premium retirement annuity policies.
The investment objectives for each of the Portfolios of the Fund 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.
American Century Income & Growth: to seek dividend growth, current income and
capital appreciation, primarily by investing in common stocks.
Dreyfus Large Company Value: to seek capital appreciation by investing
principally in publicly-traded equity securities of domestic and foreign issuers
which are characterized as value companies by the sub-advisor.
Eagle Asset Management Growth Equity: to seek growth through long-term capital
appreciation.
Lord Abbett Developing Growth: to seek long-term growth of capital through a
diversified and actively-managed portfolio consisting of developing growth
companies, many of which are traded over the counter.
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.
184
<PAGE> 185
MAINSTAY VP SERIES FUND, INC.
NOTE 2--Significant Accounting Policies:
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies followed by the
Fund:
(A)
VALUATION OF FUND SHARES. The net asset value per share of each Portfolio is
calculated on each day the New York Stock Exchange (the "Exchange") is open for
trading as of the close of regular trading on the Exchange. The net asset value
per share is calculated for each Portfolio by dividing the current market value
(amortized cost, in the case of Cash Management Portfolio) of the Portfolio's
total assets, less liabilities, by the total number of outstanding shares of
that Portfolio.
(B)
SECURITIES VALUATION. Portfolio securities of Cash Management Portfolio are
valued at amortized cost, which approximates market value. The amortized cost
method involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of the difference
between such cost and the value on maturity date.
Securities of each of the other Portfolios are stated at value determined (a) by
appraising common and preferred stocks which are traded on the Exchange at the
last sale price on that day or, if no sale occurs, at the mean between the
closing bid and asked prices, (b) by appraising common and preferred stocks
traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities not quoted on
the National Association of Securities Dealers NASDAQ system and securities
listed or traded on certain foreign exchanges whose operations are similar to
the U.S. over-the-counter market, at prices supplied by the pricing agent or
brokers selected by the Adviser (see Note 3) if these prices are deemed to be
representative of market values at the regular close of business of 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
185
<PAGE> 186
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, International Equity and Value 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.
HIGH YIELD CORPORATE BOND PORTFOLIO
Forward foreign currency contracts open at December 31, 1998:
<TABLE>
<CAPTION>
CONTRACT CONTRACT UNREALIZED
AMOUNT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
-------------- ------------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
- ------------------------------------------------------------
Hong Kong Dollar vs. U.S. Dollar, expiring 2/8/99........... HKD 79,774,000 $ 10,000,000 $(294,382)
Pound Sterling vs. U.S. Dollar, expiring 4/6/99............. Pound Sterling 797,123 $ 1,341,000 18,208
Pound Sterling vs. U.S. Dollar, expiring 4/6/99-9/8/99...... Pound Sterling 4,007,900 $ 6,635,526 (10,255)
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
PURCHASED SOLD
-------------- -------------
<S> <C> <C> <C>
FOREIGN CURRENCY BUY CONTRACTS
- ------------------------------------------------------------
Hong Kong Dollar vs. U.S. Dollar, expiring 2/8/99........... HKD 79,774,000 $ 10,144,173 150,210
---------
Net unrealized depreciation on forward foreign currency
contracts................................................. $(136,219)
=========
</TABLE>
INTERNATIONAL EQUITY PORTFOLIO
Forward foreign currency contracts open at December 31, 1998:
<TABLE>
<CAPTION>
CONTRACT CONTRACT UNREALIZED
AMOUNT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
-------------- ------------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
- ------------------------------------------------------------
Australian Dollar vs. U.S. Dollar, expiring 1/13/99......... A$ 857,000 $ 538,021 $ 12,264
Deutsche Mark vs. Irish Punt, expiring 1/4/99............... DM 4,554,139 IP 1,830,998 (4,184)
Deutsche Mark vs. U.S. Dollar, expiring 3/31/99............. DM 10,315,000 $ 6,198,360 (22,318)
Irish Punt vs. Deutsche Mark, expiring 1/4/99............... IP 1,830,998 DM 4,560,000 7,703
Japanese Yen vs. U.S. Dollar, expiring 1/19/99.............. Yen 413,219,880 $ 3,560,000 (112,698)
New Zealand Dollar vs. U.S. Dollar, expiring 1/15/99........ N$ 990,000 $ 530,994 7,843
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
PURCHASED SOLD
-------------- -------------
<S> <C> <C> <C>
FOREIGN CURRENCY BUY CONTRACTS
- ------------------------------------------------------------
Canadian Dollar vs. U.S. Dollar, expiring 1/25/99........... C$ 3,410,000 $ 2,197,466 22,730
---------
Net unrealized depreciation on forward foreign currency
contracts................................................. $ (88,660)
=========
</TABLE>
186
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MAINSTAY VP SERIES FUND, INC.
VALUE PORTFOLIO
Forward foreign currency contracts open at December 31, 1998:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT UNREALIZED
SOLD PURCHASED DEPRECIATION
-------------- ------------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
- ------------------------------------------------------------
Japanese Yen vs. U.S. Dollar, expiring 3/16/99.............. Yen 422,040,500 $ 3,700,000 $ (79,016)
---------
Net unrealized depreciation on forward foreign currency
contracts................................................. $ (79,016)
=========
</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 and American
Century Income & Growth Portfolios invest in stock index futures contracts to
gain full exposure to changes in stock market prices to fulfill their investment
objectives.
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 Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage related and other
asset-backed securities. Dividend income is recognized on the ex-dividend date
and interest income is accrued daily except when collection is not expected.
Discounts on securities purchased for all Portfolios are accreted on the
constant yield method over the life of the respective securities or, if
applicable, over the period to the first call date. Premiums on securities
purchased are not amortized for any Portfolio except Cash Management Portfolio
which amortizes the premium on the constant yield method over the life of the
respective securities.
187
<PAGE> 188
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(G)
FOREIGN CURRENCY INVESTING. The books and records of the Fund 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).
INTERNATIONAL EQUITY PORTFOLIO
Foreign currency held at December 31, 1998:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- ------------------------------------------------------ ---------- ----------
<S> <C> <C> <C> <C>
Australian Dollar A$ (170,837) $ (103,898) $ (104,791)
Austrian Schilling AS 32 3 3
Belgian Franc BF 1,100 32 32
Canadian Dollar C$ 4,005 2,628 2,607
Deutsche Mark DM 1,438,911 859,963 863,897
Dutch Guilder NLG 271,423 144,016 144,628
French Franc FF 1,744 310 312
Irish Punt IP 4,706 7,037 7,017
Italian Lira IL 1,154,372 684 699
Japanese Yen Yen 1,118,387 9,492 9,914
New Zealand Dollar N$ 10,221 5,334 5,400
Pound Sterling Pound Sterling 42,841 71,187 71,280
Spanish Peseta SP 1,151,504 7,916 8,126
Swedish Krona SK 116 14 14
---------- ----------
$1,004,718 $1,009,138
========== ==========
</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
188
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MAINSTAY VP SERIES FUND, INC.
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, High Yield
Corporate Bond and Total Return Portfolios do not have the right to demand that
such securities be registered. The Portfolios may not invest more than 15%, 10%
and 15%, respectively, of their net assets in illiquid securities.
CONVERTIBLE PORTFOLIO
Restricted security held at December 31, 1998:
<TABLE>
<CAPTION>
PERCENT
ACQUISITION 12/31/98 OF
SECURITY DATE SHARES COST VALUE NET ASSETS
- ---------------------------------------- ------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
United International Holdings, Inc.
Convertible Preferred Stock
4.00%, Series A....................... 8/1/97 10,400 $ 1,416,743 $ 2,028,000 3.5%
=========== =========== ====
</TABLE>
HIGH YIELD CORPORATE BOND PORTFOLIO
Restricted securities held at December 31, 1998:
<TABLE>
<CAPTION>
PRINCIPAL PERCENT
ACQUISITION AMOUNT/ 12/31/98 OF
SECURITY DATE(S) SHARES COST VALUE NET ASSETS
- ---------------------------------------- ------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Affinity Group, Inc.
Bank debt
Tranche B
9.025%, due 6/30/06................... 12/17/98 $ 1,300,000 $ 1,300,000 $ 1,300,000 0.2%
Buenos Aires Embotelladora
Sociedad Anonima
Bank debt
9.479%, due 8/1/98.................... 9/19/97 - 4/17/98 $ 5,000,000 4,260,000 2,050,000 0.4
Domino's Pizza, Inc.
Bank debt
Tranche B
8.75%, due 12/31/06................... 12/24/98 $ 2,865,000 2,865,000 2,865,000 0.5
Bank debt
Tranche C
9.00%, due 12/31/07................... 12/24/98 $ 2,865,000 2,865,000 2,865,000 0.5
Eurotunnel
Bank debt
Tier One
5.28%, due 4/9/04..................... 10/28/98 - 11/17/98 FF 16,084,395 2,359,395 2,447,412 0.4
First Pacific Capital Ltd.
Bank debt
7.625%, due 1/23/00................... 8/13/98 $ 3,000,000 2,625,453 2,760,000 0.5
FRI-MRD Corp.
(zero coupon), due 1/24/02
14.00%, beginning 7/31/99............. 10/30/98 $ 3,000,000 2,782,080 2,745,000 0.5
(zero coupon), due 1/24/02
15.00%, beginning 6/30/99............. 8/12/97 - 4/3/98 $ 5,400,000 4,945,625 5,103,000 0.9
</TABLE>
189
<PAGE> 190
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL PERCENT
ACQUISITION AMOUNT/ 12/31/98 OF
SECURITY DATE(S) SHARES COST VALUE NET ASSETS
- ---------------------------------------- ------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
GPA Group, PLC
Preferred Stock....................... 3/7/96 - 11/20/97 4,750,000 $ 2,353,175 $ 2,470,000 0.4%
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01............ 6/17/98 $ 7,775,000 1,812,064 777,500 0.1
Kronos International, Inc.
Bank debt
6.0905%, due 9/15/99.................. 2/25/97 DM 166,135 90,665 98,997 0.1
Bank debt
6.0905%, due 9/15/00.................. 2/25/97 - 3/31/98 DM 124,039 67,692 73,913 0.0(b)
Metawave Communications Corp.
13.75%, due 4/28/00 (a)............... 4/28/98 - 10/28/98 $ 2,671,875 2,671,875 2,671,875 0.5
Warrants, expire 4/28/00.............. 4/28/98 46,336 0(c) 324,352 0.1
Norwood Promotional Products, Inc.
Bank debt
Tranche B
8.48%, due 10/30/04................... 10/30/98 $ 1,300,000 1,300,000 1,300,000 0.2
Paperboard Industries
International, Inc.
Preferred Stock
5.00%, Class A........................ 5/4/98 145,000 2,413,129 2,342,326 0.4
President Riverboat Casinos, Inc.
12.00%, due 9/15/01................... 12/3/98 $ 1,180,000 1,180,000 1,180,000 0.2
Primestar, Inc.
12.3788%, due 4/1/99.................. 4/1/98 $ 9,600,000 9,600,000 3,840,000 0.7
Supercanal Holding, S.A.
Warrants, Series A, expire 11/14/99... 11/20/97 492,587 39,407 68,962 0.0(b)
Titan Tire Corp.
7.00%, due 2/11/00.................... 6/24/97 $ 6,000,000 5,813,168 5,880,000 1.0
United International Holdings, Inc.
Convertible Preferred Stock
4.00%, Series A....................... 8/1/97 44,600 6,075,648 8,697,000 1.5
----------- ----------- ---
$57,419,376 $51,860,337 9.1%
=========== =========== ===
</TABLE>
- ---------------
(a) CIK ("Cash in Kind")-interest payment is made with cash or additional
securities.
(b) Less than one tenth of a percent.
(c) These warrants have no cost.
DM--Deutsche Mark
FF--French Franc
TOTAL RETURN PORTFOLIO
Restricted security held at December 31, 1998:
<TABLE>
<CAPTION>
PERCENT
ACQUISITION 12/31/98 OF
SECURITY DATE SHARES COST VALUE NET ASSETS
- ---------------------------------------- ------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Paperboard Industries International,
Inc. Preferred Stock, 5.00%, Class
A..................................... 5/4/98 15,000 $ 249,634 $ 242,310 0.1%
=========== =========== ===
</TABLE>
(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
190
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MAINSTAY VP SERIES FUND, INC.
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, 1998, 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................................... $139,441
========
</TABLE>
(L)
PURCHASED AND WRITTEN OPTIONS. International Equity Portfolio may write covered
call and put options on its portfolio securities or foreign currencies. Premiums
are received and are recorded as liabilities. The liabilities are subsequently
adjusted to reflect the current value of the options written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are canceled in closing
purchase transactions are added to the proceeds or netted against the amount
paid on the transaction to determine the realized gain or loss. By writing a
covered call option, a Portfolio foregoes in exchange for the premium the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security or foreign currency increase. By writing a
covered put option, a Portfolio, in exchange for the premium, accepts the risk
of a decline in the market value of the underlying security or foreign currency
below the exercise price.
The Portfolio may purchase call and put options on its portfolio securities or
foreign currencies. The Portfolio may purchase call options to protect against
an increase in the price of the security or foreign currency it anticipates
purchasing. The Portfolio may purchase put options on its securities or foreign
currencies to protect against a decline in the value of the security or foreign
currency or to close out covered written put positions. Risks may arise from an
imperfect correlation between the change in market value of the securities or
foreign currencies held by the Portfolio and the prices of options relating to
the securities or foreign currencies purchased or sold by the Portfolio and from
the possible lack of a liquid secondary market for an option. The maximum
exposure to loss for any purchased option is limited to the premium initially
paid for the option.
INTERNATIONAL EQUITY PORTFOLIO
Purchased option activity for the year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
---------- --------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- $ --
Options--assigned........................................... (3,423,000) (46,211)
Options--purchased.......................................... 9,263,000 102,976
Options--sold............................................... (1,202,500) (12,133)
Options--expired............................................ (4,637,500) (44,632)
---------- --------
Options outstanding at December 31, 1998.................... -- $ --
========== ========
</TABLE>
191
<PAGE> 192
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Short sale option activity for the year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
---------- --------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- $ --
Options--short sale......................................... (3,423,000) (20,538)
Options--buybacks........................................... 3,423,000 20,538
---------- --------
Options outstanding at December 31, 1998.................... -- $ --
========== ========
</TABLE>
(M)
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.
(N)
FEDERAL INCOME TAXES. Each of the Portfolios is treated as a separate entity for
Federal income tax purposes. The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of the taxable income to the shareholders of
each Portfolio within the allowable time limits. Therefore, no Federal income
tax provision is required.
Investment income received by a Portfolio from foreign sources may be subject to
foreign income taxes withheld at the source.
(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.
These "book/tax differences" are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their Federal tax basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for Federal tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains.
(P)
STATEMENT OF POSITION 93-2. The following table discloses the current year
reclassifications between accumulated undistributed net investment income (loss)
and accumulated undistributed net realized gain (loss) on investments and paid-
in capital arising from permanent differences; net assets are not affected.
192
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MAINSTAY VP SERIES FUND, INC.
<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>
Capital Appreciation Portfolio................ $ 3,807 $ 0 $ 0 $(3,807)
Convertible Portfolio......................... 45,520 (45,520) 0 0
Government Portfolio.......................... (18,104) 40,667 0 (22,563)
High Yield Corporate Bond Portfolio........... (587,593) 1,070 424,119 162,404
International Equity Portfolio................ 294,248 (274,136) (20,112) 0
Total Return Portfolio........................ (8,646) 8,646 0 0
Value Portfolio............................... 7,343 0 0 (7,343)
Bond Portfolio................................ (116,066) 116,066 0 0
Growth Equity Portfolio....................... (11,819) 0 0 11,819
Indexed Equity Portfolio...................... 4,853 (4,853) 0 0
American Century Income & Growth Portfolio.... 2,808 0 0 (2,808)
Dreyfus Large Company Value Portfolio......... 2,874 0 0 (2,874)
Eagle Asset Management Growth Equity
Portfolio................................... 2,874 0 0 (2,874)
Lord Abbett Developing Growth Portfolio....... 24,620 0 0 (24,620)
</TABLE>
The reclassifications for the Portfolios are primarily due to foreign currency
gain (loss), nondeductible organization expenses, distributions in excess of net
investment income, gain on sales of passive foreign investment companies,
investments in real estate investment trusts, paydown gain (loss), and net
operating losses.
(Q)
ORGANIZATION COSTS. Costs incurred in connection with the initial organization
and registration of a Portfolio of the Fund are amortized over a maximum period
of 60 months beginning with the commencement of operations of the respective
Portfolio. Organization costs for American Century Income & Growth, Dreyfus
Large Company Value, Eagle Asset Management Growth Equity and Lord Abbett
Developing Growth Portfolios, paid by, and reimbursable to, NYLIAC, aggregated
approximately $86,000. Such costs are being amortized beginning with the
commencement of operations of the respective Portfolios on May 1, 1998. 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.
(R)
EXPENSES. Expenses with respect to the Fund are allocated to the individual
Portfolios in proportion to the net assets of the respective Portfolios when the
expenses are incurred except when direct allocations of expenses can be made.
(S)
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.
193
<PAGE> 194
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,
Growth Equity, American Century Income & Growth, Dreyfus Large Company Value,
Eagle Asset Management Growth Equity and Lord Abbett Developing Growth
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. New York Life selects and employs Sub-Advisers for some of
the Portfolios. American Century Investment Management Inc. serves as
Sub-Adviser to the American Century Income & Growth Portfolio; The Dreyfus
Corporation serves as Sub-Adviser to the Dreyfus Large Company Value Portfolio;
The Eagle Asset Management, Inc. serves as Sub-Adviser to the Eagle Asset
Management Growth Equity Portfolio; and Lord, Abbett & Co. serves as
Sub-Adviser to the Lord Abbett Developing Growth Portfolio.
NYLIAC is Administrator for the Fund.
The Fund, on behalf of each Portfolio, pays the Advisers and Administrator a
monthly fee for the services performed and the facilities furnished at an
approximate annual rate of the average daily net assets of each Portfolio as
follows:
<TABLE>
<CAPTION>
ADVISER ADMINISTRATOR
------- -------------
<S> <C> <C>
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%
American Century Income & Growth Portfolio.................. 0.50% 0.20%
Dreyfus Large Company Value Portfolio....................... 0.60% 0.20%
Eagle Asset Management Growth Equity Portfolio.............. 0.50% 0.20%
Lord Abbett Developing Growth Portfolio..................... 0.60% 0.20%
</TABLE>
The Administrator has voluntarily agreed to assume the operating expenses of
Convertible and International Equity Portfolios through December 31, 1998, and
American Century Income & Growth, Dreyfus Large Company Value, Eagle Asset
Management Growth Equity and Lord Abbett Developing Growth Portfolios through
December 31, 1999, which on an annualized basis exceed the percentage indicated
below.
<TABLE>
<S> <C>
Convertible Portfolio....................................... 0.73%
International Equity Portfolio.............................. 0.97%
American Century Income & Growth Portfolio.................. 0.85%
Dreyfus Large Company Value Portfolio....................... 0.95%
Eagle Asset Management Growth Equity Portfolio.............. 0.85%
Lord Abbett Developing Growth Portfolio..................... 0.95%
</TABLE>
In connection with such expense limitation, the Administrator assumed certain of
the expenses of the above listed Portfolios for the year ended December 31, 1998
as shown on the Statement of Operations.
194
<PAGE> 195
MAINSTAY VP SERIES FUND, INC.
The Capital Appreciation, Cash Management, Government, High Yield Corporate
Bond, Total Return, Value, Bond, Growth Equity and Indexed Equity Portfolios did
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 Fund's distributor and principal underwriter (the
"Distributor") pursuant to a Distribution agreement. NYLIFE Distributors is not
obligated to sell any specific amount of the Fund's shares, and receives no
compensation from the Fund pursuant to the Distribution Agreement.
(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 Fund allocates
this expense in proportion to the net assets of the respective Portfolios.
(D)
CAPITAL. At December 31, 1998 NYLIAC was the beneficial owner of shares of the
following Portfolios with net asset values as follows:
<TABLE>
<S> <C>
Convertible Portfolio....................................... $10,334,998
American Century Income & Growth Portfolio.................. 10,907,667
Dreyfus Large Company Value Portfolio....................... 10,234,514
Eagle Asset Management Growth Equity Portfolio.............. 11,777,852
Lord Abbett Developing Growth Portfolio..................... 9,210,580
</TABLE>
These values represent 17.9%, 36.2%, 54.1%, 63.8% and 58.0%, respectively, of
the net assets of each respective Portfolio at December 31, 1998.
(E)
OTHER. Fees for the cost of legal services provided to the Fund by the Office of
General Counsel of New York Life are charged to the Portfolios. For the year
ended December 31, 1998 these fees, in the following amounts, were included in
Professional fees shown on the Statement of Operations:
<TABLE>
<S> <C>
Capital Appreciation Portfolio.............................. $36,938
Cash Management Portfolio................................... 7,147
Convertible Portfolio....................................... 1,992
Government Portfolio........................................ 3,539
High Yield Corporate Bond Portfolio......................... 20,414
International Equity Portfolio.............................. 1,378
Total Return Portfolio...................................... 20,933
Value Portfolio............................................. 12,532
Bond Portfolio.............................................. 10,035
Growth Equity Portfolio..................................... 34,851
Indexed Equity Portfolio.................................... 26,520
American Century Income & Growth Portfolio.................. 246
Dreyfus Large Company Value Portfolio....................... 183
Eagle Asset Management Growth Equity Portfolio.............. 188
Lord Abbett Developing Growth Portfolio..................... 153
</TABLE>
195
<PAGE> 196
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--Federal Income Tax:
- --------------------------------------------------------------------------------
At December 31, 1998, 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, 1998 as if they arose on January 1, 1999.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S) DEFERRED (000'S)
----------------- -------------- ----------------
<S> <C> <C> <C>
Capital Appreciation Portfolio.............................. $ 0 $ 351
====== ======
Convertible Portfolio....................................... $ 0 $ 9
====== ======
Government Portfolio........................................ 2004 $ 810 $ 92
====== ======
High Yield Corporate Bond Portfolio......................... 2006 $4,243 $2,859
====== ======
International Equity Portfolio.............................. 2005 $ 268
2006 159
------
$ 427 $ 465
====== ======
Value Portfolio............................................. $ 0 $ 803
====== ======
American Century Income & Growth Portfolio.................. 2006 $ 220 $ 0
====== ======
Dreyfus Large Company Value Portfolio....................... 2006 $1,149 $ 0
====== ======
Eagle Asset Management Growth Equity Portfolio.............. 2006 $1,028 $ 159
====== ======
Lord Abbett Developing Growth Portfolio..................... 2006 $ 268 $ 261
====== ======
</TABLE>
International Equity and Value Portfolios intend to elect to treat for Federal
income tax purposes approximately $54,148 and $79,016, respectively, of
qualifying foreign exchange losses that arose during the year after October 31,
1998 as if they arose on January 1, 1999. Cash Management and Government
Portfolios utilized $460 and $3,832,073, respectively, of capital loss
carryforwards during the current year.
- --------------------------------------------------------------------------------
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.
196
<PAGE> 197
MAINSTAY VP SERIES FUND, INC.
NOTE 6--Portfolio Securities Loaned:
- --------------------------------------------------------------------------------
At December 31, 1998, Government and Total Return Portfolios had portfolio
securities with a fair market value of $27,373,061 and $76,256,517,
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.
GOVERNMENT PORTFOLIO
Investments made with cash collateral at December 31, 1998:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Associates First Capital
5.622%, due 4/5/99........................................ $5,000,000 $ 5,000,000
Bankers Trust
5.15%, due 2/3/99......................................... 5,000,000 4,996,090
Broadway Capital
5.158%, due 1/11/99....................................... 2,030,000 2,026,805
Greenwich Funding
5.677%, due 1/20/99....................................... 2,000,000 1,990,583
Lexington Parker
5.17%, due 1/27/99........................................ 1,400,000 1,394,593
Variable Funding
5.403%, due 1/4/99........................................ 4,260,000 4,257,444
-----------
19,665,515
-----------
REPURCHASE AGREEMENTS
Prudential Securities Inc.
5.60%, due 12/31/99
(Collateralized by
$634,796 Wilshire Mortgage Loan Trust,
6.985%, due 10/5/29 Market Value $634,796
$502,408 USX Corporation
9.125%, due 1/15/13 Market Value $596,918
$510,204 Midland Realty Acceptance Corp.
7.475%, due 8/25/28 Market Value $558,495
$158,061 GE Capital Mortgage Services, Inc.
7.59%, due 6/25/28 Market Value $157,058
$979,694 Amresco Commercial Mortgage Funding
7.64%, due 6/17/29 Market Value $979,694
$630,102 Amresco Residential Securities Mortgage Loans
6.09%, due 6/25/28 Market Value $612,949)............... 3,500,000 3,500,000
Goldman, Sachs & Co.
5.64%, due 12/31/99
(Collateralized by
$4,625,000 Cummins Engine Co. Inc.
7.125%, due 3/1/28 Market Value $4,376,406
$898,000 GCB Northrop
7.875%, due 3/1/26 Market Value $990,045
$4,000,000 Tenaga Nasional
7.50%, due 11/1/25 Market Value $2,115,080)............. 5,000,000 5,000,000
-----------
8,500,000
-----------
$28,165,515
===========
</TABLE>
197
<PAGE> 198
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TOTAL RETURN PORTFOLIO
Investments made with cash collateral at December 31, 1998:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Associates First Capital
5.622%, due 4/5/99........................................ $ 5,000,000 $ 5,000,000
Bankers Trust
5.15%, due 2/3/99......................................... 4,000,000 3,996,872
Bankers Trust
5.667%, due 2/16/99....................................... 7,400,000 7,404,440
Countrywide Home
5.053%, due 1/4/99........................................ 3,330,000 3,328,131
Greenwich Funding
5.677%, due 1/20/99....................................... 10,000,000 9,952,917
Variable Funding
5.403%, due 1/4/99........................................ 7,830,000 7,825,302
-----------
37,507,662
-----------
REPURCHASE AGREEMENTS
Prudential Securities Inc.
5.60%, due 12/31/99
(Collateralized by
$3,718,090 Wilshire Mortgage Loan Trust,
6.985%, due 10/5/29 Market Value $3,718,090
$2,942,678 USX Corporation
9.125%, due 1/15/13 Market Value $3,496,234
$2,988,338 Midland Realty Acceptance Corp.
7.475%, due 8/25/28 Market Value $3,271,184
$925,787 GE Capital Mortgage Services, Inc.
7.59%, due 6/25/28 Market Value $919,911
$5,738,207 Amresco Commercial Mortgage Funding
7.64%, due 6/17/29 Market Value $5,738,207
$3,690,598 Amresco Residential Securities Mortgage Loans
6.09%, due 6/25/28 Market Value $3,590,129)............. 20,500,000 20,500,000
Goldman, Sachs & Co.
5.60%, due 12/31/99
(Collateralized by
$23,225,000 Cummins Engine Co. Inc.
7.125%, due 3/1/28 Market Value $21,976,656
$1,000,000 Union Oil Co. of California
9.125%, due 2/15/06 Market Value $1,141,729)............ 20,000,000 20,000,000
-----------
40,500,000
-----------
$78,007,662
===========
</TABLE>
Net income earned on securities lending amounted to $54,758 and $161,940, net of
broker fees and rebates, respectively, for the year ended December 31, 1998,
which is included as interest income on the Statement of Operations.
- --------------------------------------------------------------------------------
NOTE 7--Line of Credit:
- --------------------------------------------------------------------------------
Capital Appreciation, Convertible, Government, High Yield Corporate Bond,
International Equity, Total Return, Value Bond, Growth Equity and Indexed
Equity Portfolios maintain a line of credit of $375,000,000 with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The Portfolios pay
a commitment fee, at an annual rate of 0.06% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the Portfolios
based upon net assets. Interest on any such borrowings is charged based upon
the Federal Funds Advances rate. There were no borrowings on this line of
credit at December 31, 1998.
198
<PAGE> 199
MAINSTAY VP SERIES FUND, INC.
(THIS PAGE INTENTIONALLY LEFT BLANK)
199
<PAGE> 200
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the year ended December 31, 1998, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION CONVERTIBLE GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES PURCHASES SALES
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities......................... $ -- $ -- $ -- $ -- $389,155 $343,334
All others......................................... 425,305 246,349 118,113 92,057 13,053 10,687
------------------------------------------------------------------
Total.............................................. $425,305 $246,349 $118,113 $ 92,057 $402,208 $354,021
==================================================================
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CENTURY
GROWTH EQUITY INDEXED EQUITY INCOME & GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO(a)
PURCHASES SALES PURCHASES SALES PURCHASES SALES
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities......................... $ -- $ -- $ -- $ -- $ -- $ --
All others......................................... 555,638 556,285 299,899 27,488 31,150 5,604
------------------------------------------------------------------
Total.............................................. $555,638 $556,285 $299,899 $ 27,488 $ 31,150 $ 5,604
==================================================================
</TABLE>
- ------------
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
- --------------------------------------------------------------------------------
NOTE 9--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in capital shares throughout each year ended December 31, 1998 and
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION CASH MANAGEMENT CONVERTIBLE
PORTFOLIO PORTFOLIO PORTFOLIO
1998 1997 1998 1997 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................................ 9,454 7,339 485,911 285,484 1,946 2,001
Shares issued in reinvestment of dividends and
distributions.................................... 410 470 8,753 6,346 434 335
-----------------------------------------------------------------
9,864 7,809 494,664 291,830 2,380 2,336
Shares redeemed.................................... (3,542) (1,119) (403,894) (269,397) (491) (148)
-----------------------------------------------------------------
Net increase (decrease)............................ 6,322 6,690 90,770 22,433 1,889 2,188
=================================================================
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CENTURY
GROWTH EQUITY INDEXED EQUITY INCOME & GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
1998 1997 1998 1997 1998(a)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................................ 5,372 4,700 16,025 9,651 2,833
Shares issued in reinvestment of dividends and
distributions.................................... 3,440 5,219 702 872 13
---------------------------------------------------------------
8,812 9,919 16,727 10,523 2,846
Shares redeemed.................................... (3,977) (2,855) (4,296) (294) (80)
---------------------------------------------------------------
Net increase....................................... 4,835 7,064 12,431 10,229 2,766
===============================================================
</TABLE>
- ------------
(a) For the period May 1, 1998 (Commencement of Operations) through December 31,
1998.
200
<PAGE> 201
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 SALES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 6,873 $ -- $ -- $609,187 $574,329 $ -- $ -- $248,870 $195,508
899,285 708,608 21,833 17,317 292,966 219,595 299,344 196,747 288,019 292,604
- --------------------------------------------------------------------------------------------------------------------
$899,285 $715,481 $ 21,833 $ 17,317 $902,153 $793,924 $299,344 $196,747 $536,889 $488,112
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET
DREYFUS MANAGEMENT LORD ABBETT
LARGE COMPANY VALUE GROWTH EQUITY DEVELOPING GROWTH
PORTFOLIO(a) PORTFOLIO(a) PORTFOLIO(a)
PURCHASES SALES PURCHASES SALES PURCHASES SALES
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ --
30,208 12,175 18,966 3,909 16,002 1,210
- -----------------------------------------------------------------------
$ 30,208 $ 12,175 $ 18,966 $ 3,909 $ 16,002 $ 1,210
=======================================================================
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
GOVERNMENT CORPORATE BOND EQUITY TOTAL RETURN VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5,655 954 14,171 16,421 1,187 958 4,903 4,296 5,442 7,460
486 478 4,862 3,743 72 227 1,446 1,080 2,175 920
- ---------------------------------------------------------------------------------------------------------------
6,141 1,432 19,033 20,164 1,259 1,185 6,349 5,376 7,617 8,380
(2,051) (1,553) (3,031) (1,638) (1,129) (1,489) (1,234) (1,116) (1,122) (626)
- ---------------------------------------------------------------------------------------------------------------
4,090 (121) 16,002 18,526 130 (304) 5,115 4,260 6,495 7,754
===============================================================================================================
<CAPTION>
BOND
PORTFOLIO
1998 1997
- -------------------------
<S> <C> <C>
4,582 1,611
1,627 1,140
- -------------------------
6,209 2,751
(2,659) (2,980)
- -------------------------
3,550 (229)
=========================
</TABLE>
<TABLE>
<CAPTION>
EAGLE ASSET
DREYFUS Management Lord Abbett
LARGE COMPANY VALUE Growth Equity Developing Growth
PORTFOLIO Portfolio Portfolio
1998(a) 1998(a) 1998(a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,911 1,616 1,786
9 1 --
- ----------------------------------------------------------------------------------------------------
1,920 1,617 1,786
(71) (49) (63)
- ----------------------------------------------------------------------------------------------------
1,849 1,568 1,723
====================================================================================================
</TABLE>
201
<PAGE> 202
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, Indexed
Equity Portfolio, American Century Income & Growth Portfolio, Dreyfus Large
Company Value Portfolio, Eagle Asset Management Growth Equity Portfolio and Lord
Abbett Developing Growth Portfolio (separate portfolios constituting MainStay VP
Series Fund, Inc., hereafter referred to as the "Fund") at December 31, 1998,
and the results of their operations, the changes in their net assets and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 26, 1999
202
