NEW YORK LIFE MFA SERIES FUND INC, 497, 1996-09-26

NEW YORK LIFE MFA SERIES FUND INC
497, 1996-09-26

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<PAGE>

PROSPECTUS FOR
MAINSTAY VP SERIES FUND, INC.
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
TELEPHONE (212) 576-7000

MainStay VP Series Fund, Inc. (formerly, the New York Life MFA Series Fund,
Inc.), (the "Fund") is a diversified, open-end management investment company
(commonly known as a "mutual fund") that is designed to meet a wide range of
investment objectives. The Fund has eleven separate portfolios, which are
available for investment by, among others, New York Life Insurance and Annuity
Corporation ("NYLIAC") Variable Annuity Separate Account-I, NYLIAC Variable
Annuity Separate Account-II, NYLIAC Variable Universal Life Separate Account-I
and NYLIAC LifeStages Annuity Separate Account (collectively with NYLIAC
Variable Universal Life Separate Account II, the "Separate Accounts"). NYLIAC
Variable Universal Life Separate Account-II may be available for investment in
the future. The portfolios are: the MainStay VP Capital Appreciation
Portfolio, the MainStay VP Cash Management Portfolio, the MainStay VP
Convertible Portfolio, the MainStay VP Government Portfolio, the MainStay VP
High Yield Corporate Bond Portfolio, the MainStay VP International Equity
Portfolio, the MainStay VP Total Return Portfolio, the MainStay VP Value
Portfolio, the MainStay VP Bond Portfolio, the MainStay VP Growth Equity
Portfolio and the MainStay VP Indexed Equity Portfolio (hereinafter,
collectively the "Portfolios" or individually a "Portfolio").
MacKay-Shields Financial Corporation ("MacKay-Shields") serves as the
investment adviser for the MainStay VP Capital Appreciation, Cash Management,
Convertible, Government, High Yield Corporate Bond, International Equity,
Total Return and Value Portfolios. New York Life Insurance Company ("New York
Life") serves as the investment adviser for the MainStay VP Bond and Growth
Equity Portfolios. Monitor Capital Advisers, Inc. ("Monitor") serves as the
investment adviser for the MainStay VP Indexed Equity Portfolio.
The MainStay VP Capital Appreciation Portfolio seeks long-term growth of
capital. It seeks to achieve its primary investment objective by maintaining a
flexible approach towards investing in various types of companies as well as
types of securities, depending upon the economic environment and the relative
attractiveness of the various securities markets. Generally, the Portfolio
will seek to invest in securities issued by companies with investment
characteristics such as participation in expanding markets, increasing unit
sales volume, growth in revenues and earnings per share superior to that of
the average common stocks comprising indices such as the Standard & Poor's 500
Composite Price Index ("S&P 500") and increasing return on investment.
Dividend income, if any, is a consideration incidental to the Portfolio's
objective of growth of capital.
The MainStay VP Cash Management Portfolio seeks as high a level of current
income as is consistent with preservation of capital and maintenance of
liquidity. It invests primarily in short-term U.S. Government securities,
obligations of banks, commercial paper, short-term corporate obligations and
obligations of U.S. and non-U.S. issuers denominated in U.S. dollars. An
investment in the Portfolio is neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.

The MainStay VP Convertible Portfolio seeks capital appreciation together
with current income. The Portfolio will invest primarily in convertible
securities consisting of bonds, debentures, corporate notes, preferred stocks
or other securities which are convertible into common stock. Certain of the
Portfolio's investments may be in high yield debt securities which have
speculative characteristics as discussed under the MainStay VP High Yield
Corporate Bond Portfolio below.
The MainStay VP Government Portfolio seeks a high level of current income,
consistent with safety of principal. It will invest primarily in U.S.
Government securities, which include U.S. Treasury obligations and obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

The MainStay VP High Yield Corporate Bond Portfolio seeks maximum current
income through investment in a diversified portfolio of high yield debt
securities. This Portfolio seeks to achieve its primary objective by investing
in a diversified portfolio of high yield, high risk debt securities which are
ordinarily in the lower rating categories of recognized rating agencies; that
is, rated Baa to B by Moody's Investors Services, Inc. ("Moody's") or BBB to B
by Standard & Poor's ("S&P"). Securities rated lower than Baa by Moody's or
BBB by S&P, or, if not rated, of equivalent quality, are sometimes referred to
as "high yield" securities or "junk bonds." The potential for high yield is
accompanied by higher risk. Certain of the Portfolio's investments have
speculative characteristics, as further discussed in the prospectus. Capital
appreciation is a secondary objective which will be sought only when
consistent with this Portfolio's primary objective.

The MainStay VP International Equity Portfolio seeks long-term growth of
capital by investing in a portfolio consisting primarily of non-U.S. equity
securities. Current income is a secondary objective. In pursuing its
investment objective, the Portfolio will seek to invest in securities that
provide the potential for strong return but that do not, in MacKay-Shields'
judgment, present undue or imprudent risk. The Portfolio pursues its
objectives by investing its assets in a diversified portfolio of common
stocks, preferred stocks, warrants and comparable equity securities in a
minimum of five countries, exclusive of the U.S. Foreign investing involves
certain risks which are discussed in greater detail in the prospectus.
The MainStay VP Total Return Portfolio seeks to realize current income
consistent with reasonable opportunity for future growth of capital and
income. The Portfolio maintains a flexible approach by investing in a broad
range of securities, which may be diversified by company, by industry and by
type. The Portfolio may invest in common stocks, convertible securities,
warrants and fixed-income securities such as bonds, preferred stocks and other
debt obligations, including money market instruments.
The MainStay VP Value Portfolio seeks maximum long-term total return from a
combination of capital growth and income. It seeks to achieve this objective
by following flexible investment policies emphasizing investment in common
stocks which are, in the opinion of MacKay-Shields, undervalued at the time of
purchase. This Portfolio will normally invest in dividend-paying common stocks
that are listed on a national securities exchange or traded in the over-the-
counter market, but may also invest in non-dividend paying stocks in
accordance with MacKay-Shields' judgment.
The MainStay VP Bond Portfolio seeks the highest income possible over the
long term consistent with preservation of principal by investing primarily in
marketable debt securities of an investment grade.
The MainStay VP Growth Equity Portfolio seeks long-term growth of capital
with income as a secondary consideration. It seeks to achieve this goal by
investing principally in common stocks and securities convertible into or with
rights to purchase common stocks of well established, well managed companies
which appear to have better than average growth potential.
The MainStay VP Indexed Equity Portfolio seeks 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.
Using a full replication method, the Portfolio invests in all 500 stocks in
the S&P 500 in the same proportion as their representation in the S&P 500. The
S&P 500 is an unmanaged index considered representative of the U.S. stock
market. The Portfolio is neither sponsored by nor affiliated with Standard &
Poor's ("S&P").
There can be no assurance that any of the Portfolios' investment objectives
will be realized. For a discussion of the investment risks associated with
each Portfolio, see "Investment Objectives and Policies."

This Prospectus sets forth concisely the essential information that a
prospective investor should know before investing in the Portfolios, and it
should be read and kept for future reference. A Statement of Additional
Information dated October 1, 1996, which contains more information about the
Portfolios, has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by calling the Fund at
(212) 576-7000 or by writing the Fund at 51 Madison Avenue, New York, New York
10010.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

THE DATE OF THIS PROSPECTUS IS OCTOBER 1, 1996
<PAGE>

MAINSTAY VP SERIES FUND, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND AND THE SEPARATE ACCOUNTS......................................... 3
Financial Highlights...................................................... 4
Performance and Yield Information......................................... 8
INVESTMENT OBJECTIVES AND POLICIES......................................... 8
Capital Appreciation Portfolio............................................ 9
Cash Management Portfolio................................................. 10
Convertible Portfolio..................................................... 11
Government Portfolio...................................................... 12
High Yield Corporate Bond Portfolio....................................... 13
International Equity Portfolio............................................ 15
Total Return Portfolio.................................................... 17
Value Portfolio........................................................... 18
Bond Portfolio............................................................ 18
Growth Equity Portfolio................................................... 19
Indexed Equity Portfolio.................................................. 20
Investments and Investment Practices Common to Two or More Portfolios..... 21
Other Information......................................................... 32
THE FUND AND ITS MANAGEMENT................................................ 33
Investment Advisers....................................................... 33
Portfolio Managers........................................................ 34
Administrator............................................................. 35
Capital Stock............................................................. 37
PURCHASE AND REDEMPTION OF SHARES.......................................... 37
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 37
Taxes..................................................................... 37
Dividends and Distributions............................................... 38
GENERAL INFORMATION........................................................ 38
Custodian................................................................. 38
Reports to Shareholders................................................... 38
Other Information......................................................... 39
APPENDIX A................................................................. A-1
</TABLE>

----------------

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN, OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE
INVESTMENT ADVISERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

2
<PAGE>

THE FUND AND THE SEPARATE ACCOUNTS

This Prospectus describes the shares offered by MainStay VP Series Fund,
Inc. (the "Fund"). The Fund, a diversified open-end management investment
company, is a Maryland corporation organized on June 3, 1983.

The Fund issues for investment by the Separate Accounts eleven separate
classes of capital stock, each of which represents a separate portfolio of
investments--the MainStay VP Capital Appreciation Portfolio ("Capital
Appreciation"), the MainStay VP Cash Management Portfolio ("Cash Management"),
the MainStay VP Convertible Portfolio ("Convertible"), the MainStay VP
Government Portfolio ("Government"), the MainStay VP High Yield Corporate Bond
Portfolio ("High Yield Corporate Bond"), the MainStay VP International Equity
Portfolio ("International Equity"), the MainStay VP Total Return Portfolio
("Total Return"), the MainStay VP Value Portfolio ("Value"), the MainStay VP
Bond Portfolio ("Bond"), the MainStay VP Growth Equity Portfolio ("Growth
Equity") and the MainStay VP Indexed Equity Portfolio ("Indexed Equity"). In
many respects, each Portfolio resembles a separate fund. At the same time, in
certain important respects, the Fund is treated as a single entity.

Shares of the Portfolios are currently offered to the Separate Accounts to
fund multifunded retirement annuity policies and variable life insurance
policies issued by NYLIAC (collectively, "Policies" and individually,
"Policy"). Certain of the Portfolios also offer their shares to other separate
accounts of NYLIAC to fund other annuity policies and variable life insurance
policies.

The terms "shareholder" or "shareholders" in this Prospectus refer to the
Separate Accounts, and the rights of the Separate Accounts as shareholders are
different from the rights of an owner ("Owner") of a Policy. The rights of an
Owner are described in the Policy. The current prospectus for the Policy
(which is attached at the front of this Prospectus) describes the rights of
the Separate Accounts as shareholders and the rights of an Owner. The Separate
Accounts invest in shares of the Portfolios in accordance with allocation
instructions received from Owners.

The current prospectus for the Policy describes the Policy and the
relationship between changes in the value of shares of the Portfolios and the
benefits payable under a Policy.

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following per share data (for a share outstanding throughout the period)
and selected ratios with respect to each portfolio of the Fund has been
audited by Price Waterhouse LLP, Independent Accountants, whose report on the
Financial Statements containing such information is incorporated by reference
in the Statement of Additional Information. This information should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1995, which appear in the Statement of Additional Information.
Additional information regarding the performance of the Fund is contained in
the Fund's annual report to shareholders which may be obtained without charge
by writing or calling the Fund at the address and telephone number given on
the front cover page of this prospectus. The financial information relating to
the six months ended June 30, 1996 was not audited.

<TABLE>
<CAPTION>
CAPITAL APPRECIATION CASH MANAGEMENT
PORTFOLIO PORTFOLIO
----------------------------------------- ----------------------------------------
SIX SIX
MONTHS FOR YEAR FOR YEAR JAN. 29, MONTHS FOR YEAR FOR YEAR JAN. 29,
ENDED ENDED ENDED 1993** TO ENDED ENDED ENDED 1993** TO
JUNE 30, DEC. 31, DEC. 31, DEC. 31, JUNE 30, DEC. 31, DEC. 31, DEC. 31,
1996+ 1995 1994 1993 1996+ 1995 1994 1993
-------- -------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING OF
PERIOD........... $ 15.49 $ 11.45 $ 12.03 $ 10.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------- ------- ------- -------
Net investment
income........... 0.01 0.06 0.05 0.02 0.03 0.05 0.04 0.02
Net realized and
unrealized gain
(loss) on
investments...... 1.52 4.04 (0.58) 2.03 -- -- -- --
-------- -------- -------- ------- -------- ------- ------- -------
Total from
investment
operations....... 1.53 4.10 (0.53) 2.05 0.03 0.05 0.04 0.02
-------- -------- -------- ------- -------- ------- ------- -------
Less dividends
and
distributions:
From net
investment
income.......... -- (0.06) (0.05) (0.02) (0.03) (0.05) (0.04) (0.02)
-------- -------- -------- ------- -------- ------- ------- -------
NET ASSET VALUE
AT
END OF PERIOD.... $ 17.02 $ 15.49 $ 11.45 $ 12.03 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======== ======= ======= =======
Total investment
return#.......... 9.86% 35.78% (4.38%) 20.54% 2.45% 5.59% 3.82% 2.40%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 0.18%* 0.57% 0.63% 0.46%* 4.93%* 5.44% 3.97% 2.65%*
Net expenses.... 0.73%* 0.73% 0.73% 0.73%* 0.58%* 0.62% 0.62% 0.62%*
Expenses (before
reimbursement).. 0.80%* 0.90% 0.91% 1.15%* 0.58%* 0.94% 0.89% 1.10%*
Portfolio
turnover rate.... 8% 35% 39% 28% -- -- -- --
Average
commission rate
paid............. $ 0.0600 (a) (a) (a) -- -- -- --
Net assets at end
of period
(in 000's)....... $371,136 $244,536 $113,999 $43,485 $107,798 $87,839 $71,116 $26,733
<CAPTION>
GOVERNMENT
PORTFOLIO
------------------------------------------
SIX
MONTHS FOR YEAR FOR YEAR JAN. 29,
ENDED ENDED ENDED 1993** TO
JUNE 30, DEC. 31, DEC. 31, DEC. 31,
1996+ 1995 1994 1993
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING OF
PERIOD........... $ 10.01 $ 9.21 $ 10.15 $ 10.00
---------- --------- ---------- ----------
Net investment
income........... 0.32 0.75 0.75 0.82
Net realized and
unrealized gain
(loss) on
investments...... (0.53) 0.80 (0.94) (0.25)
---------- --------- ---------- ----------
Total from
investment
operations....... (0.21) 1.55 (0.19) 0.57
---------- --------- ---------- ----------
Less dividends
and
distributions:
From net
investment
income.......... -- (0.75) (0.75) (0.42)
---------- --------- ---------- ----------
NET ASSET VALUE
AT
END OF PERIOD.... $ 9.80 $ 10.01 $ 9.21 $ 10.15
========== ========= ========== ==========
Total investment
return#.......... (2.03%) 16.72% (1.84%) 5.63%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 6.79%* 7.80% 8.16% 8.46%*
Net expenses.... 0.67%* 0.67% 0.67% 0.67%*
Expenses (before
reimbursement).. 0.73%* 0.82% 0.87% 1.02%*
Portfolio
turnover rate.... 172% 592% 483% 501%
Average
commission rate
paid............. -- -- -- --
Net assets at end
of period
(in 000's)....... $69,992 $64,812 $61,641 $46,766
</TABLE>
- ----

+ Unaudited.
* Annualized.
** Commencement of operations.
# The total investment return quotations reflected above do not reflect
expenses incurred by the Separate Accounts or in connection with the
Policies. Including such expenses in these quotations would have reduced
such returns for all periods shown. Total return is not annualized.

(a) Disclosure of the amount required for fiscal years beginning on or after
September 1, 1995.

Note: No Financial Information has been provided for the Convertible
Portfolio because as of the date of this prospectus, the Convertible
Portfolio has not yet commenced operations.

4
<PAGE>

<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
CORPORATE EQUITY TOTAL RETURN
BOND PORTFOLIO PORTFOLIO PORTFOLIO
------------------------ ------------------------ -----------------------------------------------
SIX SIX SIX
MONTHS MONTHS MONTHS FOR YEAR FOR YEAR
ENDED MAY 1, 1995** ENDED MAY 1, 1995** ENDED ENDED ENDED JAN. 29, 1993**
JUNE 30, TO JUNE 30, TO JUNE 30, DEC. 31, DEC. 31, TO
1996+ DEC. 31, 1995 1996+ DEC. 31, 1995 1996+ 1995 1994 DEC. 31, 1993
-------- ------------- -------- ------------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 10.55 $ 10.00 $ 10.20 $ 10.00 $ 13.26 $ 10.58 $ 11.32 $ 10.00
-------- ------- ------- ------- -------- -------- -------- -------
Net investment
income........... 0.35 0.37 0.07 0.64 0.14 0.31 0.27 0.16
Net realized and
unrealized gain
(loss) on
investments...... 0.52 0.61 0.20 0.01 0.55 2.69 (0.72) 1.34
Net realized and
unrealized gain
on foreign
currency
transactions..... -- -- 0.44 0.05 -- -- -- --
-------- ------- ------- ------- -------- -------- -------- -------
Total from
investment
operations....... 0.87 0.98 0.71 0.70 0.69 3.00 (0.45) 1.50
-------- ------- ------- ------- -------- -------- -------- -------
Less dividends
and
distributions:
From net
investment
income.......... -- (0.37) (0.08) (0.06) -- (0.32) (0.29) (0.16)
From net
realized gain on
investments and
foreign currency
transactions.... -- (0.04) -- (0.44) -- -- -- --
In excess of net
realized gain on
investments..... -- (0.02) -- -- -- -- -- (0.02)
-------- ------- ------- ------- -------- -------- -------- -------
Total dividends
and
distributions.... -- (0.43) (0.08) (0.50) -- (0.32) (0.29) (0.18)
-------- ------- ------- ------- -------- -------- -------- -------
NET ASSET VALUE
AT
END OF PERIOD.... $ 11.42 $ 10.55 $ 10.83 $ 10.20 $ 13.95 $ 13.26 $ 10.58 $ 11.32
======== ======= ======= ======= ======== ======== ======== =======
Total investment
return#.......... 8.26% 10.06% 7.03% 6.96% 5.24% 28.33% (3.99%) 15.04%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment income. 9.07%* 10.02%* 1.53%* 1.07%* 2.49%* 3.06% 3.50% 3.48%*
Net expenses.... 0.67%* 0.67%* 0.97%* 0.97%* 0.69%* 0.69% 0.69% 0.69%*
Expenses (before
reimbursement).. 0.80%* 1.25%* 1.66%* 2.51%* 0.75%* 0.81% 0.88% 1.07%*
Portfolio
turnover rate.... 105% 95% 12% 14% 102% 253% 297% 197%
Average
commission rate
paid............. $ 0.0643 (a) $0.0429 (a) $ 0.0600 (a) (a) (a)
Net assets at end
of period (in
000's)........... $111,208 $43,314 $25,550 $14,631 $268,445 $194,893 $122,333 $55,548
<CAPTION>
VALUE INDEXED EQUITY
PORTFOLIO PORTFOLIO
------------------------- ----------------------------------------------
SIX
MONTHS SIX
ENDED MONTHS FOR YEAR FOR YEAR
JUNE MAY 1, 1995** ENDED ENDED ENDED JAN. 29, 1993**
30, TO JUNE 30, DEC. 31, DEC. 31, TO
1996+ DEC. 31, 1995 1996+ 1995 1994 DEC. 31, 1993
----------- ------------- ---------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 11.58 $ 10.00 $ 13.53 $ 10.38 $ 10.58 $ 10.00
----------- ------------- ---------- --------- --------- ---------------
Net investment
income........... 0.09 0.10 0.13 0.27 0.24 0.19
Net realized and
unrealized gain
(loss) on
investments...... 0.94 1.58 1.20 3.55 (0.15) 0.67
Net realized and
unrealized gain
on foreign
currency
transactions..... -- -- -- -- -- --
----------- ------------- ---------- --------- --------- ---------------
Total from
investment
operations....... 1.03 1.68 1.33 3.82 0.09 0.86
----------- ------------- ---------- --------- --------- ---------------
Less dividends
and
distributions:
From net
investment
income.......... (0.00)(b) (0.10) -- (0.28) (0.24) (0.19)
From net
realized gain on
investments and
foreign currency
transactions.... (0.01) -- (0.07) (0.39) (0.05) (0.08)
In excess of net
realized gain on
investments..... -- -- -- -- -- (0.01)
----------- ------------- ---------- --------- --------- ---------------
Total dividends
and
distributions.... (0.01) (0.10) (0.07) (0.67) (0.29) (0.28)
----------- ------------- ---------- --------- --------- ---------------
NET ASSET VALUE
AT
END OF PERIOD.... $ 12.60 $ 11.58 $ 14.79 $ 13.53 $ 10.38 $ 10.58
=========== ============= ========== ========= ========= ===============
Total investment
return#.......... 8.95% 16.76% 9.88% 36.89% 0.76% 8.53%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment income. 2.31%* 2.57%* 2.18%* 2.52% 2.61% 2.54%*
Net expenses.... 0.73%* 0.73%* 0.47%* 0.47% 0.47% 0.47%*
Expenses (before
reimbursement).. 0.89%* 1.45%* 0.56%* 0.62% 0.68% 0.96%*
Portfolio
turnover rate.... 17% 20% 1% 5% 8% 7%
Average
commission rate
paid............. $0.0596 (a) $ 0.0500 (a) (a) (a)
Net assets at end
of period (in
000's)........... $66,805 $24,429 $144,984 $105,171 $63,164 $43,081
</TABLE>
- ----

+ Unaudited.

* Annualized.
** Commencement of operations.

# The total investment return quotations reflected above do not reflect
expenses incurred by the Separate Accounts or in connection with the
Policies. Including such expenses in these quotations would have reduced
such returns for all periods shown. Total return is not annualized.

(a) Disclosure of the amount required for fiscal years beginning on or after
September 1, 1995.

(b) Less than one cent per share.

5
<PAGE>

<TABLE>
<CAPTION>
BOND PORTFOLIO
-------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------------------------
1996+ 1995 1994 1993 1992 1991 1990 1989 1988
----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment
income........... 0.42 0.88 0.88 0.95 0.92 1.02 1.12 1.11 1.20
Net realized and
unrealized gain
(loss) on
investments...... (0.74) 1.33 (1.34) 0.53 0.13 0.91 (0.23) 0.30 (0.21)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations....... (0.32) 2.21 (0.46) 1.48 1.05 1.93 0.89 1.41 0.99
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends
and
distributions:
From net
investment
income.......... (0.00)(b) (0.88) (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18)
From net
realized gain on
investments..... -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and
distributions.... (0.00) (0.88) (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE
AT END OF PERIOD. $ 13.10 $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80
======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment
return#.......... (2.40%) 18.31% (3.39%) 11.40% 8.26% 16.27% 7.36% 11.95% 8.26%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 6.35%* 6.55% 6.53% 6.79% 7.54% 8.22% 8.88% 8.83% 8.66%
Net expenses.... 0.62%* 0.62% 0.62%++ 0.27%++ 0.25% 0.25% 0.25% 0.25% 0.26%
Expenses (before
reimbursement).. 0.69%* 0.91% 0.67%++ 0.27%++ 0.25% 0.25% 0.25% 0.25% 0.26%
Portfolio
turnover rate.... 35% 81% 88% 41% 10% 57% 81% 20% 105%
Net assets at end
of period (in
000's)........... $226,309 $235,030 $206,686 $228,683 $203,947 $164,124 $138,826 $134,542 $122,725
</TABLE>

<TABLE>
<CAPTION>
BOND PORTFOLIO
-------------------
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1987 1986
-------- --------
<S> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 13.55 $ 12.21
-------- --------
Net investment
income........... 1.06 1.04
Net realized and
unrealized gain
(loss) on
investments...... (0.91) 0.61
-------- --------
Total from
investment
operations....... 0.15 1.65
-------- --------
Less dividends
and
distributions:
From net
investment
income.......... (1.71) (0.20)
From net
realized gain on
investments..... -- (0.11)
-------- --------
Total dividends
and
distributions.... (1.71) (0.31)
-------- --------
NET ASSET VALUE
AT END OF PERIOD. $ 11.99 $ 13.55
======== ========
Total investment
return#.......... 1.07% 13.55%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 8.15% 7.98%
Net expenses.... 0.25% 0.26%
Expenses (before
reimbursement).. 0.25% 0.26%
Portfolio
turnover rate.... 53% 68%
Net assets at end
of period (in
000's)........... $130,901 $132,942
</TABLE>

- ----

+ Unaudited.

* Annualized.

++ At the Fund's shareholder meeting on December 14, 1993, the shareholders
voted to have the Bond Portfolio assume certain administrative and
operating expenses of the Fund previously borne by New York Life.

(b) Less than one cent per share.

6
<PAGE>

<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
---------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------------------------------------
1996+ 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment
income........... 0.08 0.22 0.22 0.24 0.22 0.27 0.32 0.42 0.46 0.36
Net realized and
unrealized gain
(loss) on
investments...... 2.14 4.06 (0.03) 1.88 1.72 4.10 (1.20) 2.82 1.43 (0.49)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations....... 2.22 4.28 0.19 2.12 1.94 4.37 (0.88) 3.24 1.89 (0.13)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends
and
distributions:
From net
investment
income.......... -- (0.22) (0.22) (0.25) (0.22) (0.29) (0.33) (0.44) (0.41) (0.52)
From net
realized gain on
investments..... -- (1.53) (0.92) (1.76) (1.76) (1.51) (0.01) (1.28) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and
distributions.... -- (1.75) (1.14) (2.01) (1.98) (1.80) (0.34) (1.72) (0.41) (0.52)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE
AT END OF PERIOD. $ 19.44 $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment
return#.......... 12.88% 29.16% 1.20% 13.71% 12.42% 33.62% (6.19%) 25.51% 16.85% (1.13%)
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 0.82%* 1.29% 1.41% 1.42% 1.50% 1.78% 2.33% 2.80% 3.32% 2.71%
Net expenses.... 0.62%* 0.62% 0.62%++ 0.27%++ 0.27% 0.29% 0.29% 0.28% 0.30% 0.26%
Expenses (before
reimbursement).. 0.66%* 0.91% 0.65%++ 0.27%++ 0.27% 0.29% 0.29% 0.28% 0.30% 0.26%
Portfolio
turnover rate.... 63% 104% 108% 121% 82% 100% 114% 108% 111% 71%
Average
commission rate
paid............. $ 0.0593 (a) (a) (a) (a) (a) (a) (a) (a) (a)
Net assets at end
of period (in
000's)........... $495,127 $427,507 $330,161 $319,196 $272,834 $204,147 $152,824 $171,116 $150,538 $156,198

<CAPTION>
GROWTH EQUITY PORTFOLIO
----------------------------------

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1986
--------
<S> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 11.60
--------
Net investment
income........... 0.34
Net realized and
unrealized gain
(loss) on
investments...... 0.03
--------
Total from
investment
operations....... 0.37
--------
Less dividends
and
distributions:
From net
investment
income.......... (0.06)
From net
realized gain on
investments..... (0.04)
--------
Total dividends
and
distributions.... (0.10)
--------
NET ASSET VALUE
AT END OF PERIOD. $ 11.87
========
Total investment
return#.......... 3.21%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 2.76%
Net expenses.... 0.26%
Expenses (before
reimbursement).. 0.26%
Portfolio
turnover rate.... 43%
Average
commission rate
paid............. (a)
Net assets at end
of period (in
000's)........... $122,100
</TABLE>
- ----

+ Unaudited.

* Annualized.

++ At the Fund's shareholder meeting on December 14, 1993, the shareholders
voted to have the Growth Equity Portfolio assume certain administrative and
operating expenses of the Fund previously borne by New York Life.

(a) Disclosure of the amount required for fiscal years beginning on or after
September 1, 1995.

7
<PAGE>

PERFORMANCE AND YIELD INFORMATION

From time to time, the Fund may advertise yields and total returns for the
Portfolios. In addition, the Fund may advertise the effective yield of the
Cash Management Portfolio. These figures will be based on historical
information and are not intended to indicate future performance.

The yield of the Cash Management Portfolio refers to the annualized income
generated by an investment in that Portfolio over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven-day period over a 52-week period and
is shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in that
Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.

The yield of the Convertible, Government, High Yield Corporate Bond and Bond
Portfolios refers to the annualized income generated by an investment in
either Portfolio over a specified thirty-day period. The yield is calculated
by assuming that the income generated by the investment during that thirty-day
period is generated each thirty-day period over a twelve-month period and is
shown as a percentage of the investment.

The total return of the Capital Appreciation, Convertible, Government, High
Yield Corporate Bond, International Equity, Total Return, Value, Bond, Growth
Equity and Indexed Equity Portfolios refers to return quotations assuming an
investment has been held in the Portfolio for various periods of time
including, but not limited to, one year and a period measured from the date
the Portfolio commenced operations. When a Portfolio has been in operation for
five and ten years, respectively, the total return for these periods will be
provided. The total return quotations will represent the average annual
compounded rates of return that would equate an initial investment of $1,000
to the redemption value of that investment as of the last day of each of the
periods for which total return quotations are provided.

The yield and total return calculations do not reflect the effect of the
charges that may be applicable to a particular Policy or Separate Account.
Such charges will reduce the net yield and total return of that Policy.
Performance figures for a Portfolio will only be advertised if the comparable
figures for the Policy are included in the advertisement.

INVESTMENT OBJECTIVES AND POLICIES

Each Portfolio has a different investment objective which is described
below. The investment objectives of each Portfolio are deemed to be
fundamental and may not be changed without the approval of a majority of the
outstanding voting shares of that Portfolio. There is no assurance that any
Portfolio will achieve its investment objective nor is there any assurance
that the investment objective of each Portfolio will result in the
preservation or growth of capital.

Because each Portfolio has different investment objectives and policies, the
investment returns of each Portfolio and the degree of financial and market
risks to which each Portfolio is subject can be expected to differ. Financial
risk refers to the ability of an issuer of a debt

8
<PAGE>

security to pay interest and repay principal, and to the earnings stability
and overall financial soundness of an issuer of an equity security. Market
risk refers to the degree to which the price of a security will react to
changes in conditions in securities markets in general and, particularly for
debt securities, to changes in the overall level of interest rates.

Each Portfolio is also expected to have a different portfolio turnover rate,
which may be higher during periods of significant market volatility. Market
volatility describes the rate of increase or decrease in securities prices.
Significant changes in the level of interest rates, shortages of raw materials
and international monetary dislocations are examples of developments which can
cause significant market volatility. Increased turnover usually results in
higher brokerage costs, which must be borne directly by the Portfolios;
however, a high turnover rate may not have any effect on the tax obligations
of the Fund since the Fund intends to qualify as a "regulated investment
company" under the provisions of Subchapter M of the Internal Revenue Code, as
amended which allows the Fund to avoid federal income tax. (See "Taxes" at
page 37 and the Statement of Additional Information.)

CAPITAL APPRECIATION PORTFOLIO

The Portfolio's investment objective is to seek long-term growth of capital.
Dividend income, if any, is a consideration incidental to the Portfolio's
objective of growth of capital.

The Portfolio maintains a flexible approach towards investing in various
types of companies as well as types of securities, depending upon the economic
environment and the relative attractiveness of the various securities markets.
Generally, the Portfolio will seek to invest in securities issued by companies
with investment characteristics such as participation in expanding markets,
increasing unit sales volume, growth in revenues and earnings per share
superior to that of the average of common stocks comprising indices such as
the S&P 500 and increasing return on investment. However, companies which do
not have some or all of these characteristics will be included when, in the
judgment of MacKay-Shields, the Portfolio's investment adviser, the relative
evaluation of such companies indicates that investment might provide
opportunities for appreciation or when such companies are expected to undergo
an acceleration in growth of earnings because of special factors such as new
management, new products, changes in consumer demand or basic changes in the
economic environment.

The Portfolio may purchase securities carrying above-average risk relative
to common stock indices such as the Dow Jones Industrial Average and the S&P
500. Opportunities for greater gain frequently involve correspondingly greater
risk of loss. The Portfolio is only a suitable investment for those investors
who are in a financial position to assume above-average investment risks in
search of long-term growth of capital.

During periods of unusual market conditions, when MacKay-Shields believes
that investing for temporary defensive purposes is appropriate, all or a
portion of the Portfolio's assets may be invested in cash or cash equivalent
short-term obligations (see page 22).

It is not the Portfolio's policy generally to invest or trade for short-term
profits; however, portfolio securities may be disposed of without regard to
the length of time held whenever MacKay-Shields is of the opinion that a
security no longer has an appropriate appreciation potential or has reached
its anticipated level of performance, or when another security

9
<PAGE>

appears to offer relatively greater appreciation potential or a relatively
greater anticipated level of performance, subject to certain tax requirements
for qualification as a regulated investment company under the Internal Revenue
Code of 1986, as amended ("the Code").

CASH MANAGEMENT PORTFOLIO

The Portfolio's investment objective is to seek as high a level of current
income as is considered consistent with the preservation of capital and
liquidity. The Portfolio seeks to maintain a stable net asset value of $1.00
per share. There is no assurance that the Portfolio will be able to achieve
this objective. The Portfolio seeks to achieve its investment objective by
investing in the following instruments:

(a) short-term (maturing in thirteen months or less) U.S. Government
securities;

(b) obligations of banks (including certificates of deposit and bankers'
acceptances) that have capital, surplus, and undivided profits (as of the
date of their most recently published financial statements) in excess of
$100,000,000; and obligations of other banks or savings and loan
associations if such obligations are federally insured, provided that not
more than 10% of the total assets of the Portfolio will be invested in such
other insured obligations;

(c) commercial paper (short-term unsecured promissory notes of
corporations including variable rate master demand notes);

(d) short-term (maturing in one year or less) corporate obligations; and

(e) obligations of U.S. and non-U.S. issuers denominated in U.S. dollars
and in securities of foreign branches of U.S. banks, such as negotiable
certificates of deposit (Eurodollars), and including variable rate master
demand notes and floating rate notes.

Debt securities may have fixed, variable or, to the extent permitted by law,
floating rates of interest.

To facilitate its investment objective, the Portfolio's securities are
valued by the amortized cost method as permitted by Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"). The Rule requires that all
portfolio securities have at the time of purchase a maximum remaining maturity
(as defined in the Rule) of 13 months and that the Portfolio maintain a
dollar-weighted average portfolio maturity of not more than 90 days. Further,
investments by the Portfolio must present minimal credit risk and, if rated,
be rated within one of the two highest rating categories for short-term debt
obligations by at least two major rating agencies assigning a rating to the
securities or issuer, or, if only one rating agency has assigned a rating, by
that agency. Purchases of securities which are unrated or rated by only one
rating agency must be approved or ratified by the Fund's Board of Directors
(the "Directors"). Securities which are rated (or that have been issued by an
issuer that is rated with respect to a class of short-term debt obligations,
or any security within that class, comparable in priority and quality with
such securities) in the highest category by at least two major rating agencies
are designated "First Tier Securities." Securities rated in the top two
categories by at least two major rating agencies, but which are not rated in
the highest category by two or more major rating agencies, are designated
"Second Tier Securities." Securities which are unrated may be purchased only
if they are deemed to be of comparable quality to rated securities. MacKay-
Shields, the Portfolio's investment adviser, shall determine whether a
security presents minimal credit risk under procedures adopted by the
Directors.

10
<PAGE>

The Portfolio may not invest more than 5% of its total assets in the
securities of any one issuer, except this limitation shall not apply to U.S.
Government securities and repurchase agreements thereon. The Portfolio may,
however, invest more than 5% of its total assets in the First Tier Securities
of a single issuer for a period of up to three business days after the
purchase thereof, although the Portfolio may not make more than one such
investment at any one time. Further, the Portfolio will not invest more than
the greater of 1% of its total assets or one million dollars, measured at the
time of investment, in the securities of a single issuer which were Second
Tier Securities when acquired by the Portfolio. In addition, the Portfolio may
not invest more than 5% of its total assets in securities which were Second
Tier Securities when acquired.

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 and bankers' acceptances.

For a description of the ratings referred to above, see Appendix A to this
Prospectus.

CONVERTIBLE PORTFOLIO

The Portfolio's investment objective is to seek capital appreciation
together with current income.

Under normal market conditions the Portfolio will invest at least 65% of the
value of its total assets in "convertible securities", that is, bonds,
debentures, corporate notes, preferred stocks or other securities which are
convertible into common stock. Many convertible securities are rated by
nationally recognized statistical rating organizations. The Portfolio does not
generally restrict by rating category the securities in which it may invest;
however, it will invest less than 5% of its total assets in securities rated
less than B by Standard & Poor's Corporation ("S&P") or B by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, that are judged to be of comparable
quality by MacKay-Shields. Securities rated in categories lower than Baa by
Moody's or BBB by S&P, sometimes referred to as "junk bonds", are not
considered "investment grade" and generally involve more investment risks than
securities rated investment grade, including risks of price volatility,
greater risk of issuer default on payments of interest or repayment of
principal, and other characteristics that may be regarded as speculative. In
addition, Moody's regards securities rated Baa as having speculative
characteristics. While the Portfolio may invest without restriction in
securities rated BB or B by S&P or Ba or B by Moody's, it will invest a very
small percentage of its assets in securities rated less than B subject to the
limitations set forth above. As is discussed below, MacKay-Shields considers
credit risk and other factors in making investment decisions. Nevertheless,
investment in lower rated securities entails greater risk, including the
possibility of default or bankruptcy of the issuer of such securities. Risk of
default or bankruptcy may be greater in periods of economic uncertainty or
recession, as the issuers of high-yield securities may be less able to
withstand general economic downturns. For a further discussion of the risks of
lower rated securities, see "Risks of Investing in High Yield Securities" in
this Prospectus, and for a further description of the S&P and Moody's rating
categories, see Appendix A.

The balance of the portfolio may be invested in non-convertible debt or
equity securities or U.S. Government securities or may be held in cash or cash
equivalents. Debt securities

11
<PAGE>

may have fixed, variable or floating (including inverse floating) rates of
interest. When MacKay-Shields deems it advisable because of unusual economic
or market conditions, all or a portion of the Portfolio's assets may be held
in cash or invested in cash equivalent short-term obligations (see page 22),
including other debt securities that are not convertible into common stock.

The total return for a convertible security will be partly dependent upon
the performance of the underlying common stock into which it can be converted.
In selecting convertible securities for purchase or sale, MacKay-Shields takes
into account a variety of investment considerations, including credit risk,
projected interest return and the premium for the convertible security
relative to the underlying common stock.

GOVERNMENT PORTFOLIO

The Portfolio's investment objective is to seek a high level of current
income, consistent with safety of principal. The Portfolio seeks to achieve
its investment objective by investing primarily in U.S. Government securities,
which include the following:

(a) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance, including U.S. Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one
to ten years) and U.S. Treasury bonds (generally, maturities greater than
ten years); and

(b) obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities which are supported by: (i) the full faith
and credit of the U.S. Government (e.g., Government National Mortgage
Association ("GNMA") certificates, see below); (ii) the right of the
issuer to borrow an amount limited to a specific line of credit from the
U.S. Government; (iii) the credit of the instrumentality (e.g., bonds
issued by the Federal National Mortgage Association ("FNMA")); or (iv) the
discretionary authority of the U.S. Government to purchase certain
obligations of U.S. Government agencies or instrumentalities.

The agencies and instrumentalities that issue U.S. Government securities
include, among others specifically mentioned in this Prospectus: Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Farm Credit Bank, Student Loan Marketing
Association and U.S. Maritime Administration.

The Portfolio anticipates that a significant portion of its portfolio may
consist of U.S. Treasury bonds, GNMA mortgage-backed certificates and other
U.S. Government securities representing ownership interests in mortgage pools,
such as securities issued by FNMA and by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FNMA- and FHLMC-backed securities are issued by the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, respectively, which guarantee payment of interest and principal
on FNMA- and FHLMC-backed securities. FNMA and FHLMC are federally-chartered
corporations supervised by the U.S. Government, acting as government
instrumentalities under authority granted by Congress. Securities issued and
backed by FNMA and FHLMC are not backed by the full faith and credit of the
United States. However, the close relationship between their issuers and the
U.S. Government makes them high quality securities with minimal credit risks.
FNMA is authorized to borrow from the U.S. Treasury to meet its obligations.
Pass-through certificates may include securities backed by adjustable-rate
mortgages which bear interest at a rate which will be adjusted periodically.
Debt securities may have fixed, variable or floating rates of interest.

12
<PAGE>

Although the mortgage loans in the pool underlying a GNMA certificate will
have maturities of up to 30 years, the actual average life of a GNMA
certificate typically will be substantially less because the mortgages will be
subject to normal principal amortization and may be prepaid prior to maturity.
Prepayment rates vary widely and may be affected by changes in mortgage
interest rates. In periods of falling interest rates the rate of prepayment on
higher interest rate mortgages tends to increase, thereby shortening the
actual average life of the GNMA certificate. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the GNMA certificate. Reinvestment of prepayments may
occur at higher or lower rates than the original yield on the certificates.
Due to the prepayment possibility and the need to reinvest prepayments of
principal at current rates, GNMA certificates can be less effective than
typical non-callable bonds of similar maturities at "locking in" higher yields
during periods of declining interest rates, although they may have comparable
risks of decline in value during periods of rising interest rates.

Except during temporary defensive periods, not less then 65% of the value of
the Portfolio's total assets will be invested in U.S. Government securities.
The remaining 35% of the value of the Portfolio's total assets may be invested
in cash or cash equivalent obligations (see page 22). Such assets may also be
invested in securities such as privately-issued collateralized mortgage
obligations which are not U.S. Government securities, but which are backed or
collateralized by U.S. Government securities.

The Portfolio may purchase and write options, enter into futures contracts
and purchase and write options on futures, which are not U.S. Government
securities, in order to attempt to hedge against changes in interest rates and
to seek current income. It is not expected that the Portfolio will permit the
underlying value of its portfolio securities subject to such options and
options on futures to exceed 30% of its net assets. The Portfolio may enter
into futures contracts as permitted by applicable law. Transactions in options
and futures contracts and the realization of short-term gains when it is
deemed advantageous to do so may result in higher brokerage and other
transaction costs.

HIGH YIELD CORPORATE BOND PORTFOLIO

This Portfolio's primary objective is 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 (that is, rated Baa to B by Moody's or BBB to B by S&P). The
potential for higher yields from these securities is accompanied by higher
risk. Securities rated lower than Baa by Moody's or BBB by S&P or, if not
rated, of equivalent quality, are sometimes referred to as "high yield"
securities or "junk bonds." Capital appreciation is a secondary objective
which will be sought only when consistent with the Portfolio's primary
objective. For example, capital appreciation will be sought by lengthening the
maturities of high yield debt securities held in the Portfolio's portfolio
during periods when MacKay-Shields, the Portfolio's investment adviser,
expects interest rates to decline. Debt securities offering the high current
income sought by the Portfolio normally include securities which offer a
current yield above that generally available on debt securities in the three
highest rating categories of the recognized rating agencies. These securities
are considered speculative, lack characteristics of desirable investments, and
involve greater volatility of price and risk of principal and income default
than securities in the higher rating categories. While the Portfolio may
invest without restriction in securities rated Ba or B by Moody's or BB or B
by S&P, (or unrated, but considered to be of comparable quality by MacKay-
Shields), the Portfolio will invest no more than 15% of the value of its net
assets in securities rated

13
<PAGE>

lower than B by Moody's or S&P (or unrated, but considered to be of comparable
quality by MacKay-Shields). For temporary defensive purposes, the Portfolio
may invest without limit in corporate debt securities rated A or higher by
Moody's or S&P whenever this is deemed appropriate by MacKay-Shields in
response to market conditions. For a description of these rating categories,
see Appendix A to this Prospectus. Since available yields and yield
differentials vary over time, no specific level of income or yield
differential can ever be ensured.

Debt securities in which this Portfolio may invest include all types of debt
obligations of both domestic and foreign issuers, such as bonds, debentures,
notes, equipment lease certificates, equipment trust certificates, conditional
sales contracts, commercial paper and U.S. Government securities (including
obligations, such as repurchase agreements, secured by such instruments). Debt
securities may have fixed, variable or floating (including inverse floating)
rates of interest.

Under normal market conditions at least 65% of the value of the Portfolio's
total assets will be invested in corporate debt securities. For temporary
defensive purposes the Portfolio may invest more than 25% of its total assets
in U.S. Government securities during periods of abnormal market conditions.
The Portfolio may invest up to 40% of the value of its total assets in each of
the electric utility and telephone industries, but will not invest more than
25% in either of those industries unless yields available for four consecutive
weeks in the four highest rating categories on new issue bonds in such
industry (issue size of $50 million or more) have averaged in excess of 105%
of yields of new issue long-term industrial bonds similarly rated (issue size
of $50 million or more). Concentration of the Portfolio's assets in these
industries may subject the Portfolio to greater price volatility and lessen
the benefits of reducing risk typically associated with greater asset
diversification. During periods of unusual market conditions, when MacKay-
Shields believes that investing for defensive purposes is appropriate, all or
a portion of the Portfolio's assets may be invested in cash or cash equivalent
short-term obligations (see page 22). The Portfolio may invest up to 10% of
the value of its net assets in securities which are subject to legal or
contractual restrictions on resale (other than restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933) and
securities which are not readily marketable.

Investments in securities offering the high current income sought by the
Portfolio, while generally providing greater income and potential opportunity
for gain than investments in higher rated securities, also entail greater
risk, including the possibility of default or bankruptcy of the issuer of such
securities. Risk of default or bankruptcy may be greater in periods of
economic uncertainty or recession, as the issuers of high yield securities may
be less able to withstand general economic downturns. MacKay-Shields seeks to
reduce risk through diversification, credit analysis and attention to current
developments and trends in both the economy and financial markets. In
addition, investments in foreign securities may serve to provide further
diversification (see page 24). The value of all fixed-income securities, such
as those held by Portfolio, can be expected to change inversely with interest
rates. For a further discussion of the special risks of investing in lower
rated securities, see "Investment Practices Common to Two or More Portfolios--
Risks of Investing in High Yield Securities," at page 30 of this Prospectus.

The Portfolio seeks to maximize the return on its portfolio by taking
advantage of market developments, yield disparities and variations in the
creditworthiness of issuers. This may result in increases or decreases in the
Portfolio's current income available for distribution to the Portfolio's
shareholders, and in the holding by the Portfolio of debt securities which
sell

14
<PAGE>

at moderate to substantial premiums or discounts from face value. Moreover, if
the Portfolio's expectations of changes in interest rates or its evaluation of
the normal yield relationship between two securities proves to be incorrect,
its income, net asset value and potential capital gain may be decreased or its
potential capital loss may be increased.

INTERNATIONAL EQUITY PORTFOLIO

This Portfolio's investment objective is to seek long-term growth of capital
by investing in a portfolio consisting primarily of non-U.S. equity
securities. Current income is a secondary objective.

In pursuing its investment objective, the Portfolio will seek to invest in
securities that provide the potential for strong return but that do not, in
the judgment of MacKay-Shields, the Portfolio's investment adviser, present
undue or imprudent risk. Foreign investing involves certain risks which are
discussed in greater detail in the Statement of Additional Information and
under "Foreign Securities," at page 24 of this Prospectus.

The Portfolio pursues its objectives by investing its assets in a
diversified portfolio of common stocks, preferred stocks, warrants and other
equities, including, without limitation, rights, convertible equities, private
placement equities, ordinary shares, Class A stock, Class B stock, foreign
shares, ADRs, IDRs, EDRs, GDRs and savings shares. Under normal circumstances,
the Portfolio will invest at least 65% of its total assets in equity
securities of foreign corporations. The Portfolio defines a "foreign
corporation" to be an issuer, wherever organized, which does business
primarily outside the United States. The Portfolio intends to diversify across
a variety of countries and will be invested in a minimum of five countries
exclusive of the United States. The Portfolio may invest in the securities of
issuers in Europe, the Far East, Canada, Australia and Africa, as well as in
the securities of issuers located in emerging market countries, including
countries in Latin America and other newly industrialized countries such as
South Korea and Taiwan, which MacKay-Shields believes present favorable
investment opportunities. The Portfolio generally follows the EAFE Index and,
as a result, the Portfolio's assets from time to time may be heavily
concentrated in the securities of one particular foreign country. Because the
Portfolio will be investing in non-U.S. securities, it may be subject to
greater risks and higher brokerage and custodian expenses than funds which
invest in U.S. securities. The International Equity Portfolio is intended for
long-term investors. An investment in the Portfolio should not constitute a
complete investment program. For a description of these and other risks and
considerations, see "Investments and Investment Practices Common to Two or
More Portfolios," beginning at page 21 of this Prospectus.

The Portfolio is an actively managed investment company investing primarily
in international (non-U.S.) stocks but, as described below, the Portfolio may
acquire other securities including cash equivalents. Eligible investments for
the Portfolio include any equity or equity-related investment, domestic or
foreign, whether denominated in foreign currencies or U.S. dollars. The
Portfolio invests for long-term growth of capital; current income is a
secondary objective. Accordingly, the Portfolio expects to have a portfolio
turnover rate not exceeding 99%.

In making investment decisions for this Portfolio, MacKay-Shields will
consider such factors as prospects for relative economic growth, government
policies influencing exchange rates and business considerations, and the
quality of individual issuers. In addition, in managing the Portfolio assets,
MacKay-Shields will determine in its good faith judgment:

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1. The country allocation among the international equity markets;

2. The currency exposure (asset allocation across currencies); and

3. The diversified security holdings within each equity market.

The Portfolio has no present intention of altering its general policy of
investing, under normal conditions, in foreign equity securities. However,
under exceptional conditions abroad or when it is believed that economic or
market conditions warrant, the Portfolio may, for temporary defensive
purposes, invest part or all of its portfolio in equity securities of U.S.
issuers; notes and bonds which at the time of their purchase are rated BBB or
higher by S&P or Baa or higher by Moody's (see "Appendix A to this
Prospectus--Description of Securities Ratings"); and cash, including foreign
currency, or cash equivalents such as obligations of banks, commercial paper
and short-term obligations of U.S. or foreign issuers. Debt securities may
have fixed, variable or floating (including inverse floating) rates of
interest.

The Portfolio also may invest in foreign securities in the form of American
Depository Receipts (ADRs), European Depository Receipts (EDRs), Global
Depository Receipts (GDRs), International Depository Receipts (IDRs) or other
similar securities convertible into securities of foreign issuers. ADRs
(sponsored or unsponsored) are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying foreign securities. Most
ADRs are traded on a U.S. stock exchange. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, there may not be a correlation between such information and the
market value of the unsponsored ADR. EDRs and IDRs are receipts typically
issued by a European bank or trust company evidencing ownership of the
underlying foreign securities. GDRs are receipts issued by either a U.S. or
non-U.S. banking institution evidencing ownership of the underlying foreign
securities.

To hedge the market value of securities held, proposed to be held or sold,
or relating to foreign currency exchange rates, the Portfolio may enter into
or purchase securities or securities index options, foreign currency options,
and futures contracts and related options with respect to securities, indexes
of securities or currencies. The Portfolio also may buy and sell currencies on
a spot or forward basis. Subject to compliance with applicable rules, futures
contracts and related options may be used for any legally permissible purpose,
including as a substitute for acquiring a basket of securities and to reduce
transaction costs. The Portfolio also may purchase securities on a when-issued
or forward commitment basis and engage in portfolio securities lending. The
Portfolio may use all of these techniques (1) in an effort to manage cash flow
and remain fully invested in the stock and currency markets, instead of or in
addition to buying and selling stocks and currencies, or (2) in an effort to
hedge against a decline in the value of securities or currencies owned by it
or an increase in the price of securities which it plans to purchase. See
"Investments and Investment Practices Common to Two or More Portfolios," at
page 21 of this Prospectus for additional information on the Portfolio's
permitted investments.

The Portfolio also may purchase and sell forward foreign exchange contracts
for purposes of seeking to enhance portfolio returns and manage portfolio risk
more efficiently. See "Investments and Investment Practices Common to Two or
More Portfolios" beginning at page 21. MacKay-Shields believes that active
currency management can enhance portfolio returns through opportunities
arising from interest rate differentials between instruments

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<PAGE>

denominated in different currencies and/or changes in value between
currencies. Moreover, MacKay-Shields believes active currency management can
be employed as an overall portfolio risk management tool. For example, in its
view, foreign currency management can provide overall portfolio risk
diversification when combined with a portfolio of foreign securities, and the
market risks of investing in specific foreign markets can at times be reduced
by currency strategies which may not involve the currency in which the foreign
security is denominated.

TOTAL RETURN PORTFOLIO

The Portfolio's investment objective is to realize current income consistent
with reasonable opportunity for future growth of capital and income.

The Portfolio maintains a flexible approach by investing in a broad range of
securities, which may be diversified by company, by industry and by type. The
Portfolio may invest in common stocks, convertible securities, warrants and
fixed-income securities, such as bonds, preferred stocks and other debt
obligations, including money market instruments. Debt securities may have
fixed, variable or floating (including inverse floating) rates of interest.

Under normal market conditions, a minimum of 30% of the Portfolio's total
assets will be invested in equity securities. A majority of the Portfolio's
equity securities will normally consist of stocks of companies with growth in
revenues and earnings per share superior to that of the average of common
stocks comprising indices such as the S&P 500. The Portfolio will also invest
in stocks and other equity securities which it believes to be undervalued
based upon factors such as ratios of market price to book value, estimated
liquidating value and projected cash flow.

A minimum of 30% of net assets will be invested in debt securities. It is
contemplated that the Portfolio's long-term debt investments will consist
primarily of securities which are rated A or better by S&P or Moody's or, if
unrated, deemed to be of comparable creditworthiness by MacKay-Shields, the
Portfolio's investment adviser. Up to 20% of the value of the Portfolio's
investment in debt securities may be in securities rated below A, provided
that they are rated at least Baa or Ba by Moody's, or BBB or BB by S&P, or, if
unrated, deemed to be of comparable creditworthiness by MacKay-Shields.
Investments in securities rated Ba by Moody's or BB by S&P involve special
risks not generally associated with investing in securities rated in higher
rating categories, including greater volatility of price, greater risk of
issuer default, and other characteristics that may be regarded as speculative.
In addition, Moody's regards securities rated Baa as having speculative
characteristics. Securities rated lower than Baa by Moody's or lower than BBB
by S&P or, if not rated, of equivalent quality, are sometimes referred to as
"high yield" (or "junk") bonds. For a further discussion of these special
risks, see "Risks of Investing in High Yield Securities," at page 30 of this
Prospectus, and, for a description of the S&P and Moody's rating categories,
see Appendix A to this Prospectus.

The Portfolio may invest up to 15% of the value of its net assets in
securities which are not readily marketable. To the extent the Portfolio
invests in illiquid securities, it may encounter undesirable delays before
such securities can be sold.

When MacKay-Shields deems it advisable because of unusual economic or market
conditions, the Portfolio may invest all or a portion of its assets in cash or
cash equivalent short-term obligations (see page 22).

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<PAGE>

Although the Portfolio does not intend to seek short-term profits,
securities in its portfolio will be sold whenever MacKay-Shields believes it
is appropriate to do so without regard to the length of time the particular
security may have been held, subject to certain tax requirements for
qualification as a regulated investment company under the Code. A high
turnover rate involves greater expenses to the Portfolio and may increase the
possibility of shareholders realizing taxable capital gains. The Portfolio
engages in portfolio trading if it believes a transaction, net of costs
(including custodian charges), will help in achieving its investment
objective.

VALUE PORTFOLIO

This Portfolio's investment objective is to realize maximum long-term total
return from a combination of capital growth and income. The Portfolio is not
designed or managed primarily to produce current income.

The Portfolio seeks to achieve this objective by following flexible
investment policies emphasizing investment in common stocks which are, in the
opinion of MacKay-Shields, the Portfolio's investment adviser, undervalued at
the time of purchase. In analyzing different securities, MacKay-Shields will
consider ratios of market price to book value, estimated liquidating value and
cash flow as significant factors in assessing relative value, while growth
rates and forecasts of future earnings will be factors of lesser significance.
The Portfolio intends to purchase those securities which it believes to be
undervalued in the market relative to comparable securities based on the
foregoing analysis. The Portfolio will normally invest in dividend-paying
common stocks that are listed on a national securities exchange or traded in
the over-the-counter market but may also invest in non-dividend paying stocks
in accordance with MacKay-Shields' judgment. If in MacKay-Shields' opinion a
stock has reached a fully valued position, it will, under most circumstances,
be sold and replaced by securities which are deemed to be undervalued in the
marketplace.

This Portfolio will ordinarily invest at least 65% of the value of its total
assets in common stocks with the characteristics described above. The balance
may be invested in other equity securities, U.S. Government securities or cash
equivalents, or held in cash. However, when, in the opinion of MacKay-Shields,
temporary defensive positions are warranted by market or economic conditions,
the Portfolio may invest all or a portion of its assets in cash or cash
equivalent short-term obligations (see page 22).

BOND PORTFOLIO

The Bond Portfolio seeks the highest income over the long term consistent
with preservation of principal. The Portfolio will seek these objectives by
investing at least 75% of its total assets in debt securities which have a
rating within the four highest grades as determined by either S&P or Moody's,
in obligations (whether or not rated) of the United States Government and its
agencies and instrumentalities or temporarily in money market instruments
(including repurchase agreements) and cash. See Appendix A to this Prospectus
for further details about the ratings given by S&P and Moody's. These debt
securities are "bonds" and may have fixed, variable or floating (including
inverse floating) rates of interest.

Up to 25% of the total assets of the Bond Portfolio may be invested in debt
securities which are rated lower than the four highest grades described above,
but which are rated at

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<PAGE>

least B, or in convertible debt securities, and preferred and convertible
preferred stocks. Securities rated by S&P or Moody's below the four highest
grades are not considered "investment grade" and generally involve more
investment risks than securities rated investment grade, including risks of
price volatility, greater risk of issuer default on payments of interest or
repayment of principal, and other characteristics that may be regarded as
speculative. (See "Risks of Investing in High Yield Securities," at page 30.)
The Portfolio may also make loans of portfolio securities and may invest in
foreign securities. These strategies may involve additional risks. (See
"Lending of Portfolio Securities" at page 26 and "Foreign Securities" at page
24.) The Bond Portfolio will not invest directly in common stocks, but it may
retain up to 10% of its total assets in common stocks acquired by conversion
of fixed income securities or by exercising warrants purchased together with
such securities.

The mix of assets in the Bond Portfolio will vary with prevailing economic
and market conditions. When these conditions or current cash needs so warrant,
the Portfolio may temporarily maintain a portion of its assets in cash and
money market instruments (including repurchase agreements).

The Bond Portfolio, as a whole, is expected to be subject to moderate levels
of market and financial risks.

GROWTH EQUITY PORTFOLIO

The Growth Equity Portfolio seeks long term growth of capital, with income
as a secondary consideration. In order to achieve this objective, the Growth
Equity Portfolio will invest principally in common stocks and securities
convertible into or with rights to purchase common stocks of well established,
well managed companies which appear to have better than average growth
potential. The Portfolio will seek to identify companies which are considered
to represent good value based on historical investment standards, including
price/book value ratios and price/earnings ratios. Investment in common stocks
is subject to the risk of changing economic conditions and the risks inherent
in management's ability to anticipate such changes.

In addition to common stocks, the Portfolio may invest up to 10% of its
total assets in securities convertible into or with rights to purchase common
stocks, such as warrants. The Portfolio may also make loans of portfolio
securities and may invest in foreign securities. These strategies may involve
additional risks. (See "Lending of Portfolio Securities" at page 26 and
"Foreign Securities" at page 24.)

Securities convertible into common stocks consist primarily of debt
securities or preferred stocks which have warrants attached or which are
exchangeable into a specified number of shares of common stock. A warrant is a
security which gives the holder the right, for a specified period of time, to
acquire a specified number of shares of common stock for a specified price per
share. The Growth Equity Portfolio will experience a gain to the extent the
stock price at the time the warrant is exercised exceeds the sum of the
exercise price and the Portfolio's cost of the warrant. However, to the extent
the stock price at the time the warrant expires or is exercised is less than
that sum, the Portfolio will suffer a loss, up to the full cost of the
warrant. Other types of convertible securities, depending on their terms which
vary widely, may involve similar risks of loss.

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<PAGE>

The mix of assets in the Growth Equity Portfolio will vary with prevailing
economic and market conditions. When these conditions or current cash needs so
warrant, the Portfolio may temporarily maintain a portion of its assets in
cash and money market instruments (including repurchase agreements) or invest
in preferred stocks, non-convertible bonds, notes, government securities or
other fixed income securities.

The Growth Equity Portfolio is expected to be subject to moderate levels of
market and financial risks.

INDEXED EQUITY PORTFOLIO

The Indexed Equity Portfolio seeks to provide investment results that
correspond to the total return performance (reflecting reinvestment of
dividends) of common stocks in the aggregate, as presented by the S&P 500. The
Portfolio attempts to achieve this objective by using a full replication
method. Using this method, the Portfolio invests in all 500 stocks in the S&P
500 in the same proportion as their representation in the S&P 500.

The S&P 500 is a capitalization-weighted index of 500 different companies
selected by S&P including companies in the industrial, utility, financial and
transportation sectors. The Portfolio uses the S&P 500 as the standard
performance comparison because it represents approximately two-thirds of the
total market value of all U.S. common stocks and is well known to investors.
Because of the market-value weighing, the 50 largest companies in the S&P 500
currently account for approximately 45% of the Index. Typically, companies
included in the S&P 500 are the largest and most dominant firms in their
respective industries. As of June 30, 1996, the five companies with the
largest weightings in the S&P 500 were: General Electric (2.8%), Coca Cola Co.
(2.5%), Exxon Corporation (2.0%), AT&T (1.8%), and Merck (1.6%).

Inclusion of a security in the S&P 500 in no way implies an opinion by S&P
as to its attractiveness as an investment. The Portfolio is neither sponsored
by nor affiliated with S&P.

Monitor, the Portfolio's investment adviser, seeks to provide investment
results which mirror the performance of the S&P 500. Monitor attempts to
achieve this objective by investing in all stocks in the S&P 500 in the same
proportion as their representation in the S&P 500. The Portfolio will be
managed using mathematical algorithms to determine which stocks are to be
purchased or sold to replicate the S&P 500 to the extent feasible. From time
to time, adjustments may be made in the Portfolio's portfolio because of
changes in the composition of the S&P 500, but such changes should be
infrequent. The correlation between the performance of the Indexed Equity
Portfolio and the S&P 500 is expected to be at least 0.95. A correlation of
1.00 would indicate perfect correlation, which would be achieved when the net
asset value of the Portfolio, including the value of its dividend and capital
gains distributions, increases or decreases in exact proportion to changes in
the S&P 500. Unlike other funds which generally seek to beat market averages,
often with unpredictable results, index funds seek to match their respective
indexes. No attempt is made to manage the Portfolio in the traditional sense
using economic, financial and market analysis.

Monitor believes the indexing approach described above is an effective
method of duplicating percentage changes in the S&P 500. It is a reasonable
expectation that there will be a close correlation between the Portfolio's
performance and that of the S&P 500 in both

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<PAGE>

rising and falling markets. The Portfolio's ability to track the S&P 500,
however, may be affected by, among other things, transaction costs, changes in
either the composition of the S&P 500 or number of shares outstanding for the
components of the S&P 500, and the timing and amount of shareholder
contributions and redemptions, if any.

The Portfolio may utilize stock index options and stock index futures
contracts and options on stock index futures contracts to a limited extent.
Options, futures contracts, and options on futures contracts may be used for
several reasons: to maintain cash reserves while remaining fully invested, to
facilitate trading, or to reduce transactions costs. The Portfolio may enter
into options and futures contracts only to the extent that obligations under
such contracts or transactions represent not more than 20% of the Portfolio's
total assets.

The Portfolio will attempt to be fully invested at all times, and in any
event, at least 80% of its total assets will be invested in stocks listed in
the S&P 500 or derivative securities (options, futures, or options on futures)
related to stocks listed in the S&P 500.

Although the Portfolio normally seeks to remain substantially fully invested
in securities in the S&P 500, the Portfolio may invest temporarily in certain
short-term money market instruments. Such securities may be used to invest
uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions. These securities include: obligations issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities or by any of the
states, repurchase agreements, reverse repurchase agreements, securities of
money market funds, time deposits, certificates of deposit, bankers'
acceptances and commercial paper. The Portfolio also may borrow money for
temporary or emergency purposes, purchase securities on a when-issued basis,
and enter into firm commitments to purchase securities.

INVESTMENTS AND INVESTMENT PRACTICES COMMON TO TWO OR MORE PORTFOLIOS

Information about the following types of investments, investment practices
and related risks appears below: Arbitrage; Brady Bonds; Cash Equivalents;
Commercial Paper; Convertible Securities; Debt Securities; Floaters and
Inverse Floaters; Foreign Currency Transactions; Foreign Securities; Futures
Contracts and Options on Futures Contracts; Lending of Portfolio Securities;
Liquidity; Mortgage Backed Securities; Options on Foreign Currencies; Options
on Securities; Options on Securities Indexes; Repurchase Agreements; Reverse
Repurchase Agreements; Risks of Investing in High Yield Securities; Short
Sales Against the Box; When-Issued Securities; and Zero Coupon Bonds. For more
information about the investments, investment practices and risks described in
this section, please see the Statement of Additional Information ("SAI").

ARBITRAGE

Each Portfolio may sell in one market a security which it owns and
simultaneously purchase the same security in another market or it may buy a
security in one market and simultaneously sell it in another market, in order
to take advantage of differences between the prices of the security in the
different markets. Although the Portfolios do not actively engage in
arbitrage, such transactions may be entered into only with respect to debt
securities and will occur only in a dealer's market where the buying and
selling dealers involved confirm their prices to the Portfolio at the time of
the transaction, thus eliminating any risk to the assets of a Portfolio. Such
transactions, which involve costs to a Portfolio, may

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<PAGE>

be limited by the policy of each Portfolio to qualify as a "regulated
investment company" under the Code.

BRADY BONDS

The Convertible, High Yield Corporate Bond and Total Return Portfolios may
each invest a portion of its assets in Brady Bonds, which are securities
created through the exchange of existing commercial bank loans to sovereign
entities for new obligations in connection with debt restructurings under a
debt restructuring plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady. Brady Bonds have been issued only recently, and for that
reason do not have a long payment history. Brady Bonds may be collateralized
or uncollateralized, are issued in various currencies (primarily the U.S.
dollar) and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered U.S. Government securities. In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.

There can be no assurance that Brady Bonds acquired by a Portfolio will not
be subject to restructuring arrangements or to requests for new credit, which
may cause the Portfolio to suffer a loss of interest or principal on any of
its holdings. For further information see "Brady Bonds" in the SAI.

CASH EQUIVALENTS

Each of the Portfolios may invest in cash or cash equivalents, which
include, but are not limited to: short-term obligations issued or guaranteed
as to interest and principal by the U.S. Government or any agency or
instrumentality thereof (including repurchase agreements collateralized by
such securities); obligations of banks (certificates of deposit, bankers'
acceptances and time deposits) which at the date of investment have capital,
surplus, and undivided profits (as of the date of their most recently
published financial statements) in excess of $100,000,000, and obligations of
other banks or savings and loan associations if such obligations are federally
insured; commercial paper which at the date of investment is rated A-1 by S&P,
or P-1 by Moody's or, if not rated, is issued or guaranteed as to payment of
principal and interest by companies which at the date of investment have an
outstanding debt issue rated AA or better by S&P or Aa or better by Moody's;
short-term corporate obligations which at the date of investment are rated AA
or better by S&P or Aa or better by Moody's; and other debt instruments not
specifically described if such instruments are deemed by the Directors to be
of comparable high quality and liquidity. In addition, the International
Equity Portfolio may invest in foreign cash and cash equivalents.

COMMERCIAL PAPER

Each Portfolio may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 (the "1933 Act"). Section 4(2) commercial paper is restricted as to
disposition under the federal securities laws and is generally sold to
institutional investors, such as the Portfolios, who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) commercial paper is normally resold to other institutional
investors like the Portfolios through or with the

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assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity.

CONVERTIBLE SECURITIES

The Capital Appreciation, Convertible, High Yield Corporate Bond,
International Equity, Total Return, Value and Growth Equity Portfolios may
invest in securities convertible into common stock. Such investments may be
made, for example, if the Adviser believes that a company's convertible
securities are undervalued in the market. Convertible securities eligible for
inclusion in the Portfolios include convertible bonds, convertible preferred
stocks, or warrants.

DEBT SECURITIES

Debt securities may have fixed, variable or floating (including inverse
floating) rates of interest. To the extent that a Portfolio invests in debt
securities, it will be subject to certain risks. The value of the debt
securities held by a Portfolio, and thus the net asset value of the shares of
a Portfolio, generally will fluctuate depending on a number of factors,
including, among others, changes in the perceived creditworthiness of the
issuers of those securities, movements in interest rates, the average maturity
of a Portfolio's investments, changes in relative values of the currencies in
which a Portfolio's investments are denominated relative to the U.S. dollar,
and the extent to which a Portfolio hedges its interest rate, credit and
currency exchange rate risks. Generally, a rise in interest rates will reduce
the value of fixed income securities held by a Portfolio, and a decline in
interest rates will increase the value of fixed income securities held by a
Portfolio.

FLOATERS AND INVERSE FLOATERS

Each Portfolio, other than the Capital Appreciation, Value, Growth Equity
and Indexed Equity Portfolios, may, to the extent permitted by law, invest in
floating rate debt instruments ("floaters"). The interest rate on a floater is
a variable rate which is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater resets
periodically, typically every six months. While, because of the interest rate
reset feature, floaters provide a Portfolio with a certain degree of
protection against rises in interest rates, a Portfolio will participate in
any declines in interest rates as well.

Each Portfolio, other than the Capital Appreciation, Cash Management,
Government, Value, Growth Equity and Indexed Equity Portfolios may, to the
extent permitted by law, invest in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater
resets in the opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered to be
leveraged if, as interest rates change, interest payments on the floater
change by a greater proportion. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Duration is the sensitivity of the price of a security to changes in
interest rates. Certain inverse floaters may be deemed to be illiquid
securities for purposes of the Portfolios' limitation on investments in such
securities.

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FOREIGN CURRENCY TRANSACTIONS

Each Portfolio, except the Cash Management and Government Portfolios may, to
the extent it invests in foreign securities, enter into a variety of foreign
currency transactions, including forward foreign currency exchange contracts
in order to protect or hedge against the adverse effect that changes in future
foreign currency exchange rates may have on its investment portfolio or on its
investment activities that are undertaken in foreign currencies.

The Portfolios cannot assure that these techniques will always be
successful. Successful use of forward contracts depends on the investment
manager's skill in analyzing and predicting relative currency values. Forward
contracts alter a Portfolio's exposure to currency exchange rate activity and
could result in losses to the Portfolio if currencies do not perform as
investment managers anticipate. A Portfolio may also incur significant costs
when converting assets from one currency to another. Contracts to sell foreign
currency would limit any potential gain which might be realized by a Portfolio
if the value of the hedged currency increases.

The Advisers believe active currency management can be employed as an
overall portfolio risk management tool. For example, in their view, foreign
currency management can provide overall portfolio risk diversification when
combined with a portfolio of foreign securities, and the market risks of
investing in specific foreign markets can at times be reduced by currency
strategies which may not involve the currency in which the foreign security is
denominated.

FOREIGN SECURITIES

Each Portfolio, except the Government Portfolio, may purchase foreign
securities. The Bond and Growth Equity Portfolios may purchase foreign
securities up to a maximum of 10% of the Portfolio's total assets. The Indexed
Equity Portfolio will invest in foreign securities to the extent that foreign
securities are included in the S&P 500. Securities of foreign issuers,
particularly nongovernmental issuers, involve risks which are not ordinarily
associated with investing in securities of domestic issuers. These risks
include changes in interest rates, in currency exchange rates, and currency
exchange control regulations. In addition, investments in foreign countries
could be affected by other factors, including the unavailability of financial
information or the difficulty of interpreting financial information prepared
under foreign accounting standards, less liquidity and more volatility in
foreign securities markets, the possibility of expropriation, the possibility
of heavy taxation, the impact of political, social or diplomatic developments,
limitations on the movement of funds or other assets of a Portfolio between
different countries, difficulties in invoking legal process abroad and
enforcing contractual obligations, and the difficulty of assessing economic
trends in foreign countries.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Convertible, Government, High Yield Corporate Bond, International Equity
and Total Return Portfolios may each enter into contracts for the future
delivery of debt securities, or an index of debt securities that are
sufficiently correlated to its respective portfolio, in order to attempt to
protect against the effects of adverse changes in interest rates, to lengthen
or shorten the average maturity or duration of a Portfolio's portfolio
(practices sometimes known as "hedging") and for other appropriate risk
management purposes. Such futures contracts would obligate the Portfolio to
make or take delivery of certain debt securities or an amount

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<PAGE>

of cash upon expiration of the futures contract, although most futures
positions typically are closed out through an offsetting transaction prior to
expiration.

Similarly, the Capital Appreciation, Convertible, High Yield Corporate Bond,
International Equity, Total Return, Value, and Indexed Equity Portfolios may
enter into contracts for the future delivery of securities, and stock index
futures contracts to protect against changes in stock market prices. In
addition, each Portfolio, except the Cash Management, Government, Bond and
Growth Equity Portfolios may, to the extent it invests in foreign securities,
enter into contracts for the future delivery of foreign currencies to protect
against changes in currency exchange rates.

Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, may purchase and write put and call options on futures contracts
of the type into which such Portfolio is authorized to enter, which give a
Portfolio the right to sell or purchase the underlying futures contract for a
specified price upon exercise at any time during the option period. It is the
current policy of the Fund that the Portfolios will purchase or write only
options on futures contracts that are traded on a U.S. or foreign exchange or
board of trade.

These Portfolios will engage in transactions in futures contracts only in an
effort to protect against a decline in the value of a Portfolio's securities,
to offset an increase in the price of securities that a Portfolio intends to
acquire, or as a substitute for the purchase of longer-term securities to
lengthen the average maturity or duration of a Portfolio's portfolio. A
Portfolio will enter into futures contracts on securities, securities indexes
or currencies for defensive purposes only to provide a hedge against market
fluctuations or for duration management and other appropriate risk management
purposes and not for the purpose of speculation. The initial margin deposits
for futures contracts and premiums paid for related options may not exceed 5%
of the value of the Portfolio's total assets. Futures transactions involve
brokerage costs and require a Portfolio to segregate assets to cover contracts
or options. A Portfolio may lose the expected benefit of the transactions if
interest rates, currency exchange rates or securities prices change in an
unanticipated manner. Such unanticipated changes in interest rates, currency
exchange rates or securities prices may also result in poorer overall
performance of a Portfolio than if the Portfolio had not entered into futures
transactions.

There are several risks associated with the use of futures and options on
futures as hedging and risk management techniques. There may be an imperfect
correlation between changes in the prices of futures and changes in the prices
of securities or currencies which are the subject of the hedge. If the price
of a futures contract changes less than the price of the securities or
currencies which are the subject of the hedge, the hedge will not be fully
effective.

It is also possible that, when a Portfolio has sold stock index futures to
hedge its portfolio against a decline in the market, the market may advance
while the value of the particular securities held in the Portfolio's portfolio
may decline. If this occurred, the Portfolio would incur a loss on the futures
contracts and also experience a decline in the value of its portfolio
securities. The Portfolios do not intend to use U.S. stock index futures to
hedge positions in securities of non-U.S. companies. In the case of a futures
contract on an index, the amount of cash is equal to a specific dollar amount
times the difference between the price at which

25
<PAGE>

the agreement is made and the value of an index at the close of the last
trading day of the contract. No physical delivery of the underlying securities
in the index is made.

In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid market in the options. It is not
certain that such a market will develop. Although the Portfolios generally
will purchase only those options for which there appears to be an active
market, there is no assurance that a liquid market on an exchange will exist
for any particular option or at any particular time. In the event no such
market exists for particular options, it might not be possible to effect
closing transactions in such options with the result that a Portfolio would
have to exercise options it has purchased in order to realize any profit and
would be less able to limit its exposure to losses on options it has written.

LENDING OF PORTFOLIO SECURITIES

Each Portfolio, except the Cash Management Portfolio, may also seek to
increase its income by lending portfolio securities. Under present regulatory
policies, such loans may be made to institutions, such as broker-dealers, and
are required to be secured continuously by collateral in cash, cash
equivalents, or U.S. Government securities maintained on a current basis in an
amount at least equal to the market value of the securities loaned. If the
Adviser determines to make securities loans, it is intended that the value of
the securities loaned would not exceed one-third of the value of the total
assets of the lending Portfolio if the loan is from the International Equity
Portfolio, would not exceed 30% of the value of the total assets of the
lending Portfolio if the loan is from the Capital Appreciation, Convertible,
Government, High Yield Corporate Bond, Total Return, Value and Indexed Equity
Portfolios and would not exceed 20% of the value of the total assets of the
lending Portfolio if such Portfolio is the Bond or Growth Equity Portfolio.

The primary risk involved in lending securities is that the borrower will
fail financially when the collateral is insufficient to replace the full
amount of the loaned securities. The borrower would be liable for the
shortage, but the Portfolio would be an unsecured creditor with respect to
such shortage and might not be able to recover all or any of it. In order to
minimize this risk, each Portfolio will make loans of securities only to firms
it deems creditworthy.

Although the borrower is entitled to exercise voting rights with respect to
securities on loan, a Portfolio may recall such securities so that the Board
of Directors of the Fund may exercise its fiduciary duties to vote on any
material questions brought before the shareholders or creditors.

LIQUIDITY

In order to assure that each Portfolio of the Fund has sufficient liquidity,
as a matter of operating policy the Capital Appreciation, Convertible,
Government, International Equity, Total Return and Indexed Equity Portfolios
may not invest more than 15% of their respective net assets in securities
which cannot be readily sold at their current value within seven days. The
Cash Management, High Yield Corporate Bond, Value, Bond and Growth Equity
Portfolios are limited to an investment of no more than 10% of their
respective net assets in

26
<PAGE>

such securities. Market disposition may not be readily available for
repurchase agreements maturing in more than seven days and for securities
having restrictions on resale. The ability of the Directors of the Fund to
determine the liquidity of certain restricted securities is permitted under a
Securities and Exchange Commission ("SEC") Staff position set forth in the
adopting release for Rule 144A under the 1933 Act (the "Rule"). The Rule is a
nonexclusive safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws.
The Rule provides an exemption from registration for resales of otherwise
restricted securities to qualified institutional buyers. The Fund believes
that the Staff of the SEC has left the question of determining the liquidity
of all restricted securities to the Directors, who will consider established
factors in making such a determination.

MORTGAGE BACKED SECURITIES

Each Portfolio, except the Indexed Equity Portfolio, may purchase mortgage
backed securities. Mortgage backed securities are securities representing
interests in "pools" of mortgages in which payments of both interest and
principal on the securities are generally made monthly, in effect "passing
through" monthly payments made by the individual borrowers on the residential
mortgage loans which underlie the securities (net of fees paid to the issuer
or guarantor of the securities). Early repayment of principal on mortgage
backed securities (arising from prepayments of principal due to sale of the
underlying property, refinancing, or foreclosure, net of fees and costs which
may be incurred) may expose a Portfolio to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, the value of the premium would be lost in the event of
prepayment. Like other fixed-income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when
interest rates are declining, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.

Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and pre-paid principal on a CMO are
paid monthly, quarterly or semiannually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are
structured into multiple classes, with each class bearing a different stated
maturity. Monthly payments of principal, including prepayments, are first
returned to investors holding the shortest maturity class; investors holding
the longer maturity classes receive principal only after the first class has
been retired.

FNMA and FHLMC (Fannie Mae and Freddie Mac) guarantee payment of interest
and principal on FNMA--and FHLMC--backed securities, respectively. FNMA is
authorized to borrow from the U.S. Treasury to meet its obligations. Pass-
through certificates may include securities backed by adjustable-rate
mortgages which bear interest at a rate which will be adjusted periodically.
Securities issued and backed by FNMA and FHLMC are not backed by the full
faith and credit of the United States. The close relationship between these
issuers and the U.S. government, however, makes them high quality with minimal
credit risk.

The value of some mortgage- or asset-backed securities in which the
Portfolios may invest may be particularly sensitive to changes in prevailing
interest rates, and, like other investments of the Portfolios, the ability of
a Portfolio to successfully utilize these instruments

27
<PAGE>

may depend in part upon the ability of the Adviser to forecast interest rates
and other economic factors correctly.

OPTIONS ON FOREIGN CURRENCIES

Each Portfolio, except the Cash Management, Government, Bond and Growth
Equity Portfolios, may, to the extent it invests in foreign securities,
purchase and write put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. As with other kinds of options transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge
up to the amount of the premium received and a Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations, although, in the event
of rate movements adverse to a Portfolio's position, a Portfolio may forfeit
the entire amount of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by a Portfolio will be traded on
U.S. and foreign exchanges or over-the-counter. A Portfolio also may use
foreign currency options to protect against potential losses in positions
denominated in one foreign currency against another foreign currency in which
the Portfolio's assets are or may be denominated. There can be no assurance
that a liquid market will exist when a Portfolio seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are imposed on
the options markets, a Portfolio may be unable to close out a position.

Currency options traded on U.S. or other exchanges may be subject to
position limits which may limit the ability of a Portfolio to reduce foreign
currency risk using such options. Over-the-counter options differ from traded
options in that they are two-party contracts with price and other terms
negotiated between buyer and seller and generally do not have as much market
liquidity as exchange-traded options. Foreign currency exchange-traded options
generally settle in cash, whereas options traded over-the-counter may settle
in cash or result in delivery of the underlying currency upon exercise of the
option.

OPTIONS ON SECURITIES

Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, may sell (write) covered put and call options and purchase put and
call options on any securities in which it may invest that are traded on U.S.
and foreign securities and options exchanges and in the over-the-counter
market, each in accordance with its respective investment objectives and
policies.

Call options sold by a Portfolio are agreements by a Portfolio, for a
premium received by the Portfolio, to sell a particular security in its
portfolio at a specified price if the option is exercised during the option
period. Put options sold by a Portfolio are agreements by a Portfolio, for a
premium received by the Portfolio, to purchase specified securities at a
specified price if the option is exercised during the option period.

The Government Portfolio may not write any covered put options on U.S.
Government securities if, as a result, more than 50% of its total assets
(taken at current value) would be subject to put options written by such
Portfolio. The Fund has adopted a nonfundamental

28
<PAGE>

policy that each of the Capital Appreciation, Convertible, Government, High
Yield Corporate Bond, Total Return and Value Portfolios may write covered call
or put options with respect to no more than 25% of the value of its net
assets, may purchase protective puts (in which the security to be sold is
identical or substantially identical to a security already held by the
Portfolio or to a security which the Portfolio has the right to purchase) with
a value up to 25% of its net assets and may purchase calls and puts other than
protective puts, with a value of up to 5% of the Portfolio's net assets.

The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium received
on the option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price, but, as long as its
obligations as a writer continue, has retained the risk of loss should the
price of the underlying security decline. A covered put writer assumes the
risk that the market price for the underlying security will fall below the
exercise price, in which case the writer could be required to purchase the
security at a higher price than the then-current market price of the security.
In both cases, the writer has no control over the time when it may be required
to fulfill its obligation as a writer of the option. Once an option writer has
received an exercise notice, it cannot elect a closing purchase transaction in
order to terminate its obligation under the option and must deliver or
purchase the underlying securities at the exercise price.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets.

OPTIONS ON SECURITIES INDEXES

Each Portfolio except the Bond and Growth Equity Portfolios may purchase put
and call options, including European and American options, on securities
indexes to hedge against risks of market-wide price fluctuations. Options on
securities indexes are similar to options on securities except that settlement
is in cash.

Unlike a securities option, which gives the holder the right to purchase or
sell a specified security at a specified price, an option on a securities
index gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the difference between the exercise price of the option
and the value of the underlying securities index on the exercise date,
multiplied by (ii) a fixed "index multiplier." In exchange for undertaking the
obligation to make such a cash payment, the writer of the securities index
option receives a premium.

Gains or losses on a Portfolio's transactions in securities index options
depend on price movements in the securities market generally (or, for narrow
market indexes, in a particular industry or segment of the market) rather than
the price movements of individual securities held by a Portfolio. In this
respect, purchasing a securities index put (or call) option is analogous to
the purchase of a put (or call) on a securities index futures contract.

A Portfolio may sell securities index options prior to expiration in order
to close out its positions in securities index options which it has purchased.
A Portfolio may also allow options to expire unexercised.

29
<PAGE>

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements, including foreign
repurchase agreements, to earn income, provided less than 15% of the net
assets of a portfolio (10% with respect to the Cash Management, Bond and
Growth Equity Portfolios) would be, in the aggregate, invested in repurchase
agreements maturing in more than seven days and illiquid securities which are
not readily marketable. (See "Liquidity," at page 26 of this Prospectus). A
repurchase agreement is an agreement whereby a Portfolio purchases securities
and the seller agrees to repurchase the securities within a particular time at
a specified price. Such price will exceed the original purchase price, the
difference being income to the Portfolio, and will be unrelated to the
interest rate on the purchased security. The Directors have reviewed and
approved certain sellers who they believe to be creditworthy and have
authorized the Portfolios to enter into repurchase agreements with such
sellers. 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.

REVERSE REPURCHASE AGREEMENTS

Each Portfolio may enter into reverse repurchase agreements, including
foreign reverse repurchase agreements. These agreements involve the sale of
debt securities (obligations) held by a Portfolio, with an agreement to
repurchase the obligations at an agreed upon price, date and interest payment.
If the buyer of the debt securities pursuant to the reverse repurchase
agreement becomes bankrupt, realization upon the underlying securities may be
delayed and there is a risk of loss due to any decline in their value. Reverse
repurchase agreements will not extend for more than 30 days nor will such
agreements involve more than 10% of the net assets of a Portfolio.

RISKS OF INVESTING IN HIGH YIELD SECURITIES

The Convertible Portfolio may, as previously described under "Investment
Objectives and Policies," invest without restriction in securities rated BB or
B by S&P or Ba or B by Moody's, but will invest less than 5% of its total
assets in securities rated less than B by S&P or Moody's. The Total Return and
Bond Portfolios may, to varying degrees as previously described under
"Investment Objectives and Policies," invest in debt securities rated Baa or
lower by Moody's or BBB or lower by S&P, but will not invest in debt
securities rated lower than Ba by Moody's or BB by S&P, or, if unrated, deemed
to be of comparable creditworthiness by MacKay-Shields or New York Life. The
High Yield Corporate Bond Portfolio may, as previously described under
"Investment Objectives and Policies," invest without restriction in securities
rated Ba or B by Moody's or BB or B by S&P, (or unrated, but considered to be
of comparable quality by MacKay-Shields). However, as previously noted, this
Portfolio will invest no more than 15% of the value of its net assets in
securities rated lower than B by Moody's or S&P (or unrated, but considered to
be of comparable quality by MacKay-Shields). Securities rated lower than Baa
by Moody's or lower than BBB by S&P or, if not rated, of equivalent quality,
are sometimes referred to as "high yield" (or "junk") bonds. In addition,
securities rated Baa are considered by Moody's to have some speculative
characteristics. Owners should consider the following risks associated with
high yield bonds before investing in the Convertible, High Yield Corporate
Bond, Total Return and Bond Portfolios.

30
<PAGE>

Investment in high yield bonds involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
bonds may be regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Analysis
of the creditworthiness of issuers of high yield bonds may be more complex
than for issuers of higher quality debt securities, and the ability of a
Portfolio to achieve its investment objective may, to the extent of its
investment in high yield bonds, be more dependent upon such creditworthiness
analysis than would be the case if the Portfolio were investing in higher
quality bonds.

Legislation designed to limit the use of high yield bonds in corporate
transactions may have a material adverse effect on a Portfolio's NAV and
investment practices. In addition, there may be special tax considerations
associated with investing in high yield bonds structured as zero coupon or
payment-in-kind securities. A Portfolio records the interest on these
securities annually as income even though it receives no cash interest until
the security's maturity or payment date.

High yield bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade bonds. The
prices of high yield bonds have been found to be less sensitive to interest-
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield bond prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield bonds
defaults, a Portfolio may incur additional expenses to seek recovery. In the
case of high yield bonds structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes, and therefore tend to be more volatile than
securities which pay interest periodically and in cash.

The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which a Portfolio could
sell a high yield bond, and could adversely affect and cause large
fluctuations in the daily net asset value of the Portfolio's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds,
especially in a thinly traded market.

The use of credit ratings as the sole method for evaluating high yield bonds
also involves certain risks. For example, credit ratings evaluate the safety
of principal and interest payments, not the market value risk of high yield
bonds. Also, credit rating agencies may fail timely to change credit ratings
to reflect subsequent events. If a credit rating agency changes the rating of
a portfolio security held by a Portfolio, the Portfolio may retain the
portfolio security if MacKay-Shields or New York Life deems it in the best
interest of the Portfolio's shareholders.

SHORT SALES AGAINST THE BOX

A short sale is a transaction in which the Portfolio sells a security it
does not own in anticipation of a possible decline in market price. A short
sale "against the box" is a short

31
<PAGE>

sale where, at the time of the short sale, the Portfolio owns or has the right
to obtain securities equivalent in kind and amount. The Capital Appreciation,
Convertible, Government, High-Yield Corporate Bond, International Equity,
Total Return, Value and Indexed Equity Portfolios may only enter into short
sales against the box for, among other reasons, to hedge against a market
decline in the value of the security owned or to defer recognition of a gain
or loss for Federal income tax purposes on the security owned by the
Portfolio. Short sales "against the box" will be limited to no more than 5% of
the Portfolio's net assets (25% with respect to the Convertible Portfolio).

If the value of a security sold short against the box increases, the
Portfolio would suffer a loss when it purchases or delivers to the selling
broker the security sold short. If a broker, with which the Portfolio has open
short sales, were to become bankrupt, a Portfolio could experience losses or
delays in recovering gains on short sales. The Portfolios will only enter into
short sales against the box with brokers they believe are creditworthy.

WHEN-ISSUED SECURITIES

Each Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities is fixed at the time a commitment to purchase is made, but delivery
and payment for the when-issued securities take place at a later date. During
the period between purchase and settlement, no payment is made by the
Portfolio and no interest accrues to the Portfolio. The market value of the
when-issued securities may be more or less than the purchase price payable at
settlement date. Each Portfolio will establish a segregated account in which
it will maintain cash, U.S. Government securities or other high-grade debt
obligations at least equal in value to commitments for when-issued securities.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date.

ZERO COUPON BONDS

The Portfolios may purchase zero coupon bonds, which are debt obligations
issued without any requirement for the periodic payment of interest. Zero
coupon bonds are issued at a significant discount from face value. The
discount approximates the total amount of interest the bonds would accrue and
compound over the period until maturity at a rate of interest reflecting
market rate at the time of issuance. Because interest on zero coupon bonds is
not distributed on a current basis but is, in effect, compounded, zero coupon
bonds tend to be subject to greater market risk than interest paying
securities of similar maturities. The discount represents income, a portion of
which a Portfolio must accrue and distribute every year even though the
Portfolio receives no payment on the investment in that year. Zero coupon
bonds tend to be more volatile than conventional debt securities.

OTHER INFORMATION

In addition to the investment policies described above, each Portfolio's
investment program is subject to further restrictions which are described in
the SAI. Unless otherwise specified, the policies and restrictions for each
Portfolio are non-fundamental and may be changed without shareholder approval.

32
<PAGE>

THE FUND AND ITS MANAGEMENT

The Fund is a mutual fund, technically known as an open-end, diversified
management investment company. The Board of Directors supervises the business
affairs and investments of each Portfolio, which are managed on a daily basis
by each Portfolio's investment adviser.

INVESTMENT ADVISERS

MacKay-Shields Financial Corporation, 9 West 57th Street, New York, NY
10019, is the investment adviser to the Capital Appreciation, Cash Management,
Convertible, Government, High Yield Corporate Bond, International Equity,
Total Return and Value Portfolios. MacKay-Shields is a wholly-owned subsidiary
of NYLIFE Inc. and an indirect wholly-owned subsidiary of New York Life.
MacKay-Shields was incorporated in 1960 as an independent investment advisory
firm and was privately held until 1984 when it became an autonomously managed
subsidiary of New York Life. As of June 30, 1996, MacKay-Shields managed over
$20.7 billion in assets, primarily for institutional clients.

New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010 is
the investment adviser to the Bond and Growth Equity Portfolios. New York Life
manages other assets, including assets held in its own general account and
various separate accounts (amounting to $62.8 billion as of June 30, 1996) and
in the general account and various separate accounts of NYLIAC (amounting to
$16.5 billion as of June 30, 1996).

The investment adviser to the Indexed Equity Portfolio is Monitor Capital
Advisers, Inc., 504 Carnegie Center, Princeton, NJ 08540. As of June 30, 1996,
Monitor managed over $1.44 billion in assets. Monitor, which was incorporated
in 1988, is a wholly-owned subsidiary of NYLIFE Inc. and an indirect wholly-
owned subsidiary of New York Life.

Pursuant to the Investment Advisory Agreements for each Portfolio, MacKay-
Shields, New York Life or Monitor (each an "Adviser" and collectively the
"Advisers"), each subject to the supervision of the Directors and in
conformity with the stated policies of each Portfolio, continuously manages
the portfolio of each Portfolio that it advises, including the purchase,
retention and disposition of securities and other supervision of its assets,
and maintains certain records relating thereto.

The Fund, on behalf of each Portfolio, pays MacKay-Shields, New York Life or
Monitor a monthly fee for the investment advisory services performed at an
annual percentage of the average daily net assets of that Portfolio as
follows:

<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C>
Capital Appreciation Portfolio................................... .36%
Cash Management Portfolio........................................ .25%
Convertible Portfolio............................................ .36%
Government Portfolio............................................. .30%
High Yield Corporate Bond Portfolio.............................. .30%
International Equity Portfolio................................... .60%
Total Return Portfolio........................................... .32%
Value Portfolio.................................................. .36%
Bond Portfolio................................................... .25%
Growth Equity Portfolio.......................................... .25%
Indexed Equity Portfolio......................................... .10%
</TABLE>

33
<PAGE>

PORTFOLIO MANAGERS

The following persons will act as portfolio managers for the designated
portfolios:

Ravi Akhoury (Government Portfolio, Total Return Portfolio)

Mr. Akhoury joined MacKay-Shields as a Director in 1984, became a Managing
Director in 1988, became President and a member of the Board of Directors in
1989, and became Chairman and Chief Executive Officer in 1992. Prior thereto,
he worked for four years as a fixed income manager for Fischer Francis Trees &
Watts and for seven years as a fixed income manager for the Equitable Life
Assurance Society. Mr. Akhoury (together with his team of fixed income
specialists) is the portfolio manager principally responsible for the
Government Portfolio and the fixed income portion of the Total Return
Portfolio.

Edward J. Munshower, II (Government Portfolio)

Mr. Munshower is a Director of MacKay-Shields. He joined MacKay-Shields as a
Fixed Income Investment Specialist in 1985 with more than five years of prior
investment management and research experience. Immediately prior to joining
MacKay-Shields, he had been an Investment Analyst for New York Life Insurance
Company.

Neil Feinberg (Convertible Portfolio)

Mr. Feinberg joined MacKay-Shields in 1992 and he is currently employed as a
portfolio manager. Prior to joining MacKay-Shields, Mr. Feinberg was employed
by National Securities and Research Corporation as an analyst (1989-1992).

Rudolph C. Carryl (Capital Appreciation Portfolio, Total Return Portfolio)

Mr. Carryl joined MacKay-Shields as a Director in 1992 with twelve years of
prior investment management and research experience. Immediately prior to
joining MacKay-Shields, Mr. Carryl was employed at Value Line as Research
Director and senior portfolio manager.

Edmund C. Spelman (Capital Appreciation Portfolio, Total Return Portfolio)

Mr. Spelman is a Director of MacKay-Shields. He specializes in equity
securities. Mr. Spelman joined MacKay-Shields in 1991 after working as a
securities analyst at Oppenheimer & Co., Inc.

Albert R. Corapi, Jr. (Bond Portfolio)

Mr. Corapi joined New York Life in 1985. He is an Investment Vice President
and Portfolio Manager. He has been responsible for managing the bond mutual
fund associated with New York Life's insurance products since 1990. Prior to
that he served on the bond trading desk. Before joining New York Life, he was
a U.S. Government securities sales representative with Harris Trust and
Savings Bank.

Celia M. Holtzberg (Bond Portfolio)

Ms. Holtzberg is a Vice President in the Investment Department of New York
Life. She joined New York Life in 1986 as a Senior Investment Analyst in the
portfolio management unit and currently heads the Fixed Income Portfolio
Management, Public Bond Trading and Quantitative Analysis Groups. Prior to
joining New York Life, Ms. Holtzberg worked as a portfolio manager for
Helmsley Spear Inc.

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<PAGE>

James Agostisi (Growth Equity Portfolio)

Mr. Agostisi is an Assistant Vice President for New York Life. He joined New
York Life in 1984 and subsequently served as its head money market trader.
From 1989 to 1994 he worked as a research analyst in both equities and high
yield securities.

Patricia S. Rossi (Growth Equity Portfolio)

Ms. Rossi joined New York Life as an Investment Vice President in 1995 with
eighteen years of investment management and research experience. Prior to
joining New York Life, Ms. Rossi was a portfolio manager for the United Church
of Christ--Pension Boards.

Jeffrey Simon (Value Portfolio)

Mr. Simon is a Director of MacKay-Shields and specializes in equity
securities. He joined MacKay-Shields in 1993 after working as a senior equity
research analyst and portfolio manager at National Securities and Research
Corporation (1991-1992) and Neuberger & Berman (1987-1991).

Denis Laplaige (High Yield Corporate Bond Portfolio, Convertible Portfolio,
Value Portfolio)

Mr. Laplaige is President and Managing Director of MacKay-Shields. He joined
the firm in 1982 as a research analyst, became a Director in 1988, Managing
Director in 1991 and a member of the Board of Directors in 1993. Prior to
joining MacKay-Shields he was a portfolio manager and research analyst with
Value Line Inc.

Steven Tananbaum (High Yield Corporate Bond Portfolio)

Mr. Tananbaum is a Director of MacKay-Shields. He specializes in high yield
securities. Mr. Tananbaum joined MacKay-Shields in 1989, after working as a
high yield and merger associate intern in the corporate finance department of
Kidder Peabody.

Michael M. Perelstein (International Equity Portfolio)

Mr. Perelstein joined MacKay-Shields as a Managing Director in 1989 with
more than six years of international and global investment experience.
Immediately prior to joining MacKay-Shields, he had been the International
Strategist at Brinson Partners Inc.

Shigemi Takagi (International Equity Portfolio)

Mr. Takagi is a Director of MacKay-Shields. He specializes in international
equity securities. Mr. Takagi joined MacKay-Shields in 1989, after working at
First Boston Corporation as an equity analyst in their international equity
research department.

James Mehling (Indexed Equity Portfolio)

Mr. Mehling is President and Chief Investment Officer for Monitor. Mr.
Mehling joined Monitor in 1991 after working as director of risk management in
the investment department of Merrill Lynch and County NatWest Government
Securities.

ADMINISTRATOR

NYLIAC (the "Administrator"), 51 Madison Avenue, New York, NY 10010, a
corporation organized under the laws of the State of Delaware and a wholly-
owned subsidiary of New

35
<PAGE>

York Life, is the Administrator for the Portfolios. NYLIAC may retain NYLIFE
Securities Inc. ("NYLIFE Securities"), an indirect wholly-owned subsidiary of
New York Life, to perform certain of the services to be provided by NYLIAC
pursuant to the terms of the Administration Agreement.

Under the Administration Agreement for each Portfolio, NYLIAC administers
the Portfolios' business affairs, subject to the supervision of the Directors
and, in connection therewith, furnishes the Portfolios with office facilities
and is responsible for ordinary clerical, recordkeeping and bookkeeping
services and for the financial and accounting records required to be
maintained by the Portfolios, excluding those maintained by the Portfolios'
Custodian, except those as to which the Administrator has supervisory
functions, and other than those being maintained by the Advisers. In
connection with its administration of the business affairs of the Portfolios,
the Administrator bears the following expenses:

(a) the salaries and expenses of all personnel of the Fund and the
Administrator, except the fees and expenses of Directors not affiliated
with the Administrator or the Advisers; and

(b) all expenses incurred by the Administrator in connection with
administering the ordinary course of the Portfolios' business, other than
those assumed by the Portfolios.

Except for the expenses to be paid by the Advisers and the Administrator as
described above, the Fund, on behalf of each Portfolio, is responsible for the
payment of expenses related to each Portfolio's operations, including (i) the
fees payable to the Advisers and the Administrator, (ii) the fees and expenses
of Directors who are not affiliated with the Advisers or the Administrator,
(iii) certain fees and expenses of the Fund's Custodian, including the cost of
pricing a Portfolio's shares, (iv) the charges and expenses of the Fund's
legal counsel and independent accountants, (v) brokers' commissions and any
issue or transfer taxes chargeable to the Fund, on behalf of a Portfolio, in
connection with its securities transactions, (vi) the fees of any trade
association of which a Portfolio or the Fund is a member, (vii) the cost of
share certificates representing shares of a Portfolio, (viii) reimbursement of
a portion of the organization expenses of a Portfolio and the fees and
expenses involved in registering and maintaining registration of the Fund and
of its shares with the SEC, including the preparation and printing of the
Fund's registration statements and prospectuses for such purposes, (ix)
allocable communications expenses with respect to investor services and all
expenses of shareholders' and Directors' meetings and preparing, printing and
mailing prospectuses and reports to shareholders, (x) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of a Portfolio's business, and (xi) all taxes and business
fees payable by a Portfolio to federal, state or other governmental agencies.
Fees and expenses of legal counsel, registering shares, holding meetings and
communicating with shareholders include an allocable portion of the cost of
maintaining an internal legal and compliance department.

The Fund, on behalf of each Portfolio, pays the Administrator a monthly fee
for the services performed and the facilities furnished by the Administrator
at an annual rate of .20% of the average daily net assets of each Portfolio.

The payment of the investment management and the administration fees, as
well as other operating expenses, will affect the Indexed Equity Portfolio's
ability to track the S&P 500 exactly.

36
<PAGE>

CAPITAL STOCK

All shares of common stock of the Fund, of whatever class, are entitled to
one vote, and votes are generally on an aggregate basis. However, on matters
where the interests of the Portfolios differ (such as approval of an
investment advisory agreement or a change in fundamental investment policies),
the voting is on a Portfolio-by-Portfolio basis. The Fund does not hold
routine annual shareholder's meetings. The shares of each Portfolio, when
issued, are fully paid and non-assessable, have no preference, conversion,
exchange or similar rights, and are freely transferable. In addition, each
issued and outstanding share in a Portfolio is entitled to participate equally
in dividends and distributions declared by such Portfolio. NYLIAC is the legal
owner of the shares and as such has the right to vote to elect the Board of
Directors of the Fund, to vote upon certain matters that are required by the
1940 Act to be approved or ratified by the shareholders of a mutual fund and
to vote upon any other matter that may be voted upon at a shareholders'
meeting. However, in accordance with its view of present applicable law,
NYLIAC will vote the shares of the Fund at special meetings of the
shareholders of the Fund in accordance with instructions received from Owners.
The current prospectus for the Policy (which is attached at the front of this
Prospectus) more fully describes voting rights of an Owner.

PURCHASE AND REDEMPTION OF SHARES

Shares in each of the Portfolios of the Fund are offered to and are redeemed
by the Separate Accounts at a price equal to their respective net asset value
per share. No sales or redemption charge is applicable to the purchase or
redemption of the Portfolios' shares.

The Fund determines the net asset value per share of each Portfolio on each
day the New York Stock Exchange is open for trading except the day after
Thanksgiving and Christmas Eve. Net asset value per share is calculated as of
the first close of the New York Stock Exchange (normally 4:00 p.m. Eastern
time) for each Portfolio for purchases and redemptions of shares of each
Portfolio by dividing the current market value (amortized cost in the case of
the Cash Management Portfolio) of total Portfolio assets, less liabilities, by
the total number of shares of that Portfolio outstanding.

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXES

Each Portfolio intends to elect to qualify as a "regulated investment
company" under the provisions of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). If each Portfolio qualifies as a "regulated
investment company" and complies with the appropriate provisions of the Code,
each Portfolio will be relieved of federal income tax on the amounts
distributed. Federal tax laws impose a four percent nondeductible excise tax
on each regulated investment company with respect to an amount, if any, by
which such company does not meet specified distribution requirements. Each
Portfolio intends to comply with such distribution requirements and therefore
does not expect to incur the four percent nondeductible excise tax.

In order for the Separate Accounts to comply with regulations under Section
817(h) of the Code, each Portfolio will diversify its investments so that on
the last day of each quarter

37
<PAGE>

of a calendar year, no more than 55% of the value on each Separate Accounts'
proportionate share of the assets owned by each of the regulated investment
companies in which it owns shares is represented by any one investment, no
more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. For this purpose, securities of a single issuer are
treated as one investment and each U.S. Government agency or instrumentality
is treated as a separate issuer. Any security issued, guaranteed, or insured
(to the extent so guaranteed or insured) by the U.S. Government or an agency
or instrumentality of the U.S. Government is treated as a security issued by
the U.S. Government or its agency or instrumentality, whichever is applicable.

Since the sole shareholders of the Fund will be separate accounts, no
discussion is included herein as to the federal income tax consequences at the
shareholder level. For information concerning the federal income tax
consequences to purchasers of the Policies, see the attached prospectus for
the Policy.

DIVIDENDS AND DISTRIBUTIONS

The Cash Management Portfolio (which seeks to maintain a constant net asset
value at $1.00 per share) will declare a dividend of its net investment income
daily and distribute such dividend monthly; a shareholder of that Portfolio
begins to earn dividends on the next business day following the receipt of the
shareholder's investment by the Portfolio. The Capital Appreciation,
Convertible, Government, High Yield Corporate Bond, International Equity,
Total Return, Value, Bond, Growth Equity and Indexed Equity Portfolios declare
and distribute a dividend of net investment income, if any, annually.
Shareholders of each Portfolio, other than the Cash Management Portfolio, will
begin to earn dividends on the first business day after the shareholder's
purchase order has been received. Distributions reinvested in shares will be
made after the first business day of each month following declaration of the
dividend. Each Portfolio will distribute its net long-term capital gains, if
any, after utilization of any capital loss carryforwards after the end of each
fiscal year. The Portfolios may declare an additional distribution of
investment income and capital gains in October, November or December (which
would be paid before February 1) to avoid the excise tax on income not
distributed in accordance with the applicable timing requirements.

GENERAL INFORMATION

CUSTODIAN

For the Capital Appreciation Portfolio, the Cash Management Portfolio, the
Convertible Portfolio, the Government Portfolio, the High Yield Corporate Bond
Portfolio, the International Equity Portfolio, the Total Return Portfolio, the
Value Portfolio, and the Indexed Equity Portfolio, The Bank of New York, 110
Washington Street, New York, New York 10286 is the custodian of the Fund's
assets. For the Bond Portfolio and the Growth Equity Portfolio, Chemical Bank,
770 Park Avenue, New York, New York 10017 is the custodian of the Fund's
assets.

REPORTS TO SHAREHOLDERS

The Fund will send annual and semi-annual reports to Owners showing the
financial conditions of the Portfolios and the investments held in each.

38
<PAGE>

OTHER INFORMATION

Inquiries and requests for the Statement of Additional Information should be
directed to the Fund at (212) 576-7000 or 51 Madison Avenue, New York, New
York 10010.

STATEMENT OF ADDITIONAL INFORMATION

A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is
the Table of Contents for that Statement:

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MAINSTAY VP SERIES FUND, INC. INVESTMENT POLICIES (8)..................... 2
Fundamental Investment Policies Applicable to the MainStay VP Capital
Appreciation, Cash Management, Convertible, Government, Total Return,
Value and Indexed Equity Portfolios..................................... 2
Fundamental Investment Policies Applicable to the MainStay VP High Yield
Corporate Bond Portfolio................................................ 3
Fundamental Investment Policies Applicable to the MainStay VP
International Equity Portfolio.......................................... 4
Fundamental Investment Policies Applicable to the MainStay VP Bond and
MainStay VP Growth Equity Portfolios.................................... 6
Additional Non-Fundamental Investment Restrictions Applicable to Certain
Portfolios.............................................................. 7
Other Investment Policies of the High Yield Corporate Bond Portfolio..... 10
Other Investment Policies of the Bond and Growth Equity Portfolios....... 10
Cash Management Portfolio................................................ 12
Investment Practices Common to Two or More Portfolios.................... 14
Additional Investment Policies Applicable to the International Equity
Portfolio............................................................... 38
State Insurance Law Requirements......................................... 39
Portfolio Turnover....................................................... 40
MANAGEMENT OF THE FUND (32)............................................... 41
Investment Advisers (33)................................................. 43
Administration Agreements................................................ 43
Portfolio Brokerage...................................................... 44
DETERMINATION OF NET ASSET VALUE.......................................... 45
How Portfolio Securities Will be Valued.................................. 45
INVESTMENT PERFORMANCE CALCULATIONS....................................... 46
Cash Management Portfolio Yield.......................................... 46
Convertible, Government, High Yield Corporate Bond and Bond Portfolio
Yield................................................................... 47
Total Return Calculations................................................ 48
PURCHASE AND REDEMPTION OF SHARES (37).................................... 48
TAXES (37)................................................................ 49
GENERAL INFORMATION (38).................................................. 50
LEGAL COUNSEL............................................................. 51
FINANCIAL STATEMENTS...................................................... 51
</TABLE>

39
<PAGE>

APPENDIX A

RATINGS OF DEBT SECURITIES
AND COMMERCIAL PAPER

DEBT SECURITIES RATINGS

Moody's Investors Services, Inc. describes the grades of corporate debt
securities as follows:

AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment at some time
in the future.

BAA Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.

BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Standard & Poor's Corporation describes the grades of corporate debt
security as follows:

AAA Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. The capacity to pay interest and repay principal is
extremely strong.

A-1
<PAGE>

AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.

A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.

BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.

BB Standard & Poor's Corporation describes the BB and B rated issues
B together with issues rated CCC, CC and C. Debt in these categories is
regarded on balance as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation
and C the highest degree of speculation. While such debt will likely
have some quality and protective characteristics these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

COMMERCIAL PAPER RATINGS

A Standard & Poor's Corporation Commercial Paper Rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days.

A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 indicate the relative degree of safety.

A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be
denoted with a ("-") sign designation.

A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated A-1.

A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.

Moody's Investors Services, Inc. employs the following three designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers of commercial paper not having an original maturity in excess
of nine months:

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

A-2
<PAGE>

--Leading market positions in well-established industries.

--High rates of return on funds employed.

--Conservative capitalization structures with moderate reliance on debt and
ample asset protection.

--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

--Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earning and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

A-3
<PAGE>

MAINSTAY VP SERIES FUND, INC. (FORMERLY, THE NEW YORK LIFE MFA SERIES FUND,
INC.)

STATEMENT OF ADDITIONAL INFORMATION

OCTOBER 1, 1996

This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the Fund's current Prospectus. Accordingly, this
Statement of Additional Information should be read in conjunction with the
Fund's current Prospectus, dated October 1, 1996 which may be obtained by
calling the Fund at (212) 576-7000, or writing the Fund at 51 Madison Avenue,
New York, New York 10010. Terms used in the Fund's current Prospectus are
incorporated in this Statement.

TABLE OF CONTENTS/1/

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MAINSTAY VP SERIES FUND, INC. INVESTMENT POLICIES (8)..................... 2
Fundamental Investment Policies Applicable to the MainStay VP Capital
Appreciation, Cash Management, Convertible, Government, Total Return,
Value and Indexed Equity Portfolios.................................... 2
Fundamental Investment Policies Applicable to the MainStay VP High Yield
Corporate Bond Portfolio............................................... 3
Fundamental Investment Policies Applicable to the MainStay VP
International Equity Portfolio......................................... 4
Fundamental Investment Policies Applicable to the MainStay VP Bond and
MainStay VP Growth Equity Portfolios................................... 6
Additional Non-Fundamental Investment Restrictions Applicable to Certain
Portfolios............................................................. 7
Other Investment Policies of the High Yield Corporate Bond Portfolio.... 10
Other Investment Policies of the Bond and Growth Equity Portfolios...... 10
Cash Management Portfolio............................................... 12
Investment Practices Common to Two or More Portfolios................... 14
Additional Investment Policies Applicable to the International Equity
Portfolio.............................................................. 38
State Insurance Law Requirements........................................ 39
Portfolio Turnover...................................................... 40
MANAGEMENT OF THE FUND (33)............................................... 41
Investment Advisers (33)................................................ 43
Administration Agreements............................................... 43
Portfolio Brokerage..................................................... 44
DETERMINATION OF NET ASSET VALUE.......................................... 45
How Portfolio Securities Will Be Valued................................. 45
INVESTMENT PERFORMANCE CALCULATIONS....................................... 46
Cash Management Portfolio Yield......................................... 46
Convertible, Government, High Yield Corporate Bond and Bond Portfolio
Yield.................................................................. 47
Total Return Calculations............................................... 48
PURCHASE AND REDEMPTION OF SHARES (37).................................... 48
TAXES (37)................................................................ 49
GENERAL INFORMATION (38).................................................. 50
LEGAL COUNSEL............................................................. 51
FINANCIAL STATEMENTS...................................................... 51
</TABLE>
- --------
/1/ Numbers in parentheses refer to page numbers of corresponding sections of
the Fund's current Prospectus.
<PAGE>

MAINSTAY VP SERIES FUND, INC. INVESTMENT POLICIES

Each Portfolio has a separate investment objective or objectives which it
pursues through separate investment policies as described in the Prospectus
and below. The following discussion elaborates on the presentation of the
Portfolios' investment policies contained in the Prospectus.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP CAPITAL
APPRECIATION, CASH MANAGEMENT, CONVERTIBLE, GOVERNMENT, TOTAL RETURN, VALUE
AND INDEXED EQUITY PORTFOLIOS

The investment objectives and investment restrictions set forth below apply
to the MainStay VP Capital Appreciation ("Capital Appreciation"), MainStay VP
Cash Management ("Cash Management"), MainStay VP Convertible ("Convertible"),
MainStay VP Government ("Government"), MainStay VP Total Return ("Total Re-
turn"), MainStay VP Value ("Value") and MainStay VP Indexed Equity ("Indexed
Equity") Portfolios and are fundamental policies of each of these Portfolios;
i.e., they may not be changed with respect to a Portfolio without a majority
vote of the outstanding shares of that Portfolio.

None of the above-designated Portfolios will:

(1) invest more than 5% of the value of the total assets of a Portfolio
in the securities of any one issuer, except in U.S. Government securities;

(2) purchase the securities of any issuer if such purchase would cause
more than 10% of the voting securities of such issuer to be held by a Port-
folio, except that this restriction does not apply to U.S. Government secu-
rities;

(3) borrow money (except from banks on a temporary basis for extraordi-
nary or emergency purposes), issue senior securities (except as appropriate
to evidence indebtedness that a Portfolio is permitted to incur) and/or
pledge, mortgage or hypothecate its assets, except that a Portfolio may (i)
borrow money or enter into reverse repurchase agreements, but only if imme-
diately after each borrowing there is asset coverage of 300%, (ii) enter
into transactions in options, forward currency contracts, futures and op-
tions on futures as described in the Prospectus and in this Statement of
Additional Information (the deposit of assets in escrow in connection with
the writing of secured put and covered call options and the purchase of se-
curities on a when-issued or delayed-delivery basis and collateral arrange-
ments with respect to initial or variation margin deposits for futures con-
tracts and related options contracts will not be deemed to be pledges of a
Portfolio's assets), and (iii) to secure permitted borrowings, pledge secu-
rities having a market value at the time of pledge not exceeding 15% of the
cost of a Portfolio's total assets;

(4) act as underwriter of the securities issued by others, except to the
extent that the purchase of securities, in accordance with a Portfolio's
investment objectives and policies directly from the issuer thereof and the
later disposition thereof, may be deemed to be underwriting;

(5) purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of a Portfolio to be in-
vested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no limita-
tion in respect to investments in U.S. Government

2
<PAGE>

securities and except that more than 25% of the market value of the total
assets of the Cash Management Portfolio will be invested in the securities
of banks and bank holding companies, including certificates of deposit and
bankers' acceptances. For the purposes of this restriction, telephone com-
panies are considered to be a separate industry from gas or electric utili-
ties, and wholly-owned finance companies are considered to be in the indus-
try of their parents if their activities are primarily related to financing
the activities of the parents;

(6) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), in-
terests in oil, gas or mineral leases, commodities or commodity contracts
(other than securities of companies that invest in or sponsor those pro-
grams and except futures contracts, including but not limited to contracts
for the future delivery of securities and futures contracts based on secu-
rities indexes or related options thereon), each Portfolio reserving the
freedom of action to hold and to sell real estate acquired for any Portfo-
lio as a result of the ownership of securities. Forward foreign currency
exchange contracts, options on currency, currency futures contracts and op-
tions on such futures contracts are not deemed to be investments in a pro-
hibited commodity or commodity contract for the purpose of this restric-
tion; or

(7) lend any funds or other assets, except that a Portfolio may, consis-
tent with its investment objectives and policies: (i) invest in debt obli-
gations including bonds, debentures or other debt securities, bankers' ac-
ceptances and commercial paper, even though the purchase of such obliga-
tions may be deemed to be the making of loans; (ii) enter into repurchase
agreements; and (iii) lend its portfolio securities in accordance with ap-
plicable guidelines established by the Securities and Exchange Commission
("SEC") and any guidelines established by the Fund's Board of Directors; or

(8) issue senior securities, except as appropriate to evidence indebted-
ness that a Portfolio is permitted to incur and except for shares of exist-
ing or additional series of the Fund.

"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Portfolio's net asset value.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP HIGH YIELD
CORPORATE BOND PORTFOLIO

The investment restrictions set forth below apply to the MainStay VP High
Yield Corporate Bond ("High Yield Corporate Bond") Portfolio and are fundamen-
tal policies of this Portfolio; i.e., they may not be changed with respect to
the Portfolio without a majority vote of the outstanding shares of the Portfo-
lio.

The High Yield Corporate Bond Portfolio will not:

(1) invest more than 5% of the value of its total assets in the securi-
ties of any one issuer, except U.S. Government securities;

(2) purchase the securities of any issuer if such purchase would cause
more than 10% of the voting securities of such issuer to be held by the
Portfolio;

(3) borrow money except from banks on a temporary basis for extraordinary
or emergency purposes, and no purchases of securities will be made while
such borrowings

3
<PAGE>

exceed 5% of the value of the Portfolio's assets, or pledge, mortgage or
hypothecate its assets, except that, to secure permitted borrowings, it may
pledge securities having a market value at the time of pledge not exceeding
15% of the cost of the Portfolio's total assets, and except in connection
with permitted transactions in options, futures contracts and options on
futures contracts;

(4) act as underwriter of the securities issued by others, except to the
extent that the purchase of securities in accordance with the Portfolio's
investment objectives and policies directly from the issuer thereof and the
later disposition thereof may be deemed to be underwriting;

(5) purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of the Portfolio to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no limita-
tion in respect to investments in U.S. Government securities (for the pur-
poses of this restriction, telephone companies are considered to be a sepa-
rate industry from gas or electric utilities, and wholly owned finance com-
panies are considered to be in the industry of their parents if their ac-
tivities are primarily related to financing the activities of the parents)
except that up to 40% of the Portfolio's total assets, taken at market val-
ue, may be invested in each of the electric utility and telephone indus-
tries, but it will not invest more than 25% in either of those industries
unless yields available for four consecutive weeks in the four highest rat-
ing categories on new issue bonds in such industry (issue size of $50 mil-
lion or more) have averaged in excess of 105% of yields of new issue long-
term industrial bonds similarly rated (issue size of $50 million or more);

(6) issue senior securities, except as appropriate to evidence indebted-
ness that a Portfolio is permitted to incur and except for shares of exist-
ing or additional series of the Fund;

(7) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), in-
terests in oil, gas or mineral leases, commodities or commodity contracts
(except futures contracts, including but not limited to contracts for the
future delivery of securities and futures contracts based on securities in-
dexes or related options thereon), the Fund reserving the freedom of action
to hold and to sell real estate acquired for any Portfolio as a result of
the ownership of securities. Forward foreign currency exchange contracts,
options on currency, currency futures contracts and options on such futures
contracts are not deemed to be an investment in a prohibited commodity or
commodity contract for the purpose of this restriction; or

(8) make loans to other persons, except loans of portfolio securities and
except to the extent that the purchase of debt obligations and the entry
into repurchase agreements in accordance with such Portfolio's investment
objectives and policies may be deemed to be loans.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP INTERNATIONAL
EQUITY PORTFOLIO

The investment restrictions set forth below apply to the MainStay VP Inter-
national Equity ("International Equity") Portfolio and are fundamental invest-
ment policies; i.e., they may not

4
<PAGE>

be changed with respect to this Portfolio without a majority vote of the out-
standing shares of that Portfolio. The International Equity Portfolio may not:

(1) invest in a security if, as a result of such investment, more than
25% of its total assets would be invested in the securities of issuers in
any particular industry, except that this restriction does not apply to se-
curities issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities (or repurchase agreements with respect thereto);

(2) invest in a security if, with respect to 75% of its total assets,
more than 5% of its total assets would be invested in the securities of any
one issuer, except that this restriction does not apply to securities is-
sued or guaranteed by the U.S. Government, its agencies or instrumentali-
ties;

(3) invest in a security if, with respect to 75% of its assets, it would
hold more than 10% of the outstanding voting securities of any one issuer,
except that this restriction does not apply to U.S. Government securities;

(4) purchase or sell real estate, including real estate limited partner-
ship interests (although it may purchase securities secured by real estate
or interests therein, or securities issued by companies which invest in
real estate, or interests therein);

(5) purchase or sell commodities, commodities contracts, or oil, gas or
mineral programs or interests in oil, gas or mineral leases (other than se-
curities of companies that invest in or sponsor those programs), except
that, subject to restrictions described in the Prospectus and elsewhere in
this Statement of Additional Information (i) this Portfolio may enter into
futures contracts and options on futures contracts and may enter into for-
ward foreign currency contracts and foreign currency options; and (ii) may
purchase or sell currencies on a spot or forward basis and may enter into
futures contracts on securities, currencies or on indexes of such securi-
ties or currencies, or any other financial instruments, and may purchase
and sell options on such futures contracts;

(6) borrow money, issue senior securities, or pledge, mortgage or hypoth-
ecate its assets, except that the Portfolio may (i) borrow from banks or
enter into reverse repurchase agreements, but only if immediately after
each borrowing there is asset coverage of 300%, and (ii) enter into trans-
actions in options, forward currency contracts, futures and options on
futures as described in the Prospectus and in this Statement of Additional
Information (the deposit of assets in escrow in connection with the writing
of secured put and covered call options and the purchase of securities on a
when-issued or delayed delivery basis and collateral arrangements with re-
spect to initial or variation margin deposits for futures contracts and re-
lated options contracts will not be deemed to be pledges of the Portfolio's
assets;

(7) lend any funds or other assets, except that the Portfolio may, con-
sistent with its investment objective and policies: (I) invest in debt ob-
ligations including bonds, debentures or other debt securities, bankers'
acceptances and commercial paper, even though the purchase of such obliga-
tions may be deemed to be the making of loans; (ii) enter into repurchase
agreements; and (iii) lend its portfolio securities in accordance with ap-
plicable guidelines established by the SEC and any guidelines established
by the Company's Directors; or

(8) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under the Federal securities laws; or

5
<PAGE>

(9) issue senior securities, except as appropriate to evidence indebted-
ness that the Portfolio is permitted to incur and except for shares of ex-
isting or additional series of the Fund.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP BOND
("BOND") AND MAINSTAY VP GROWTH EQUITY ("GROWTH EQUITY") PORTFOLIOS

In addition to the fundamental investment policies set forth above, neither
Portfolio will:

(1) purchase securities on margin or otherwise borrow money or issue se-
nior securities, except that any Portfolio may (a) borrow up to 5% of the
value of its total assets from banks for extraordinary or emergency pur-
poses (such as to permit the Portfolio to honor redemption requests which
might otherwise require the sale of securities at a time when that is not
in the Portfolio's best interest), or (b) obtain such short-term credits as
it needs for the clearance of securities transactions. A Portfolio will not
purchase investment securities while borrowings are outstanding, and, in
addition, the interest which must be paid on any borrowed money will reduce
the amount available for investment. Reverse repurchase agreements are not
considered "borrowings" for purposes of this restriction, and, to the ex-
tent permitted by applicable law, the Portfolios may enter into such agree-
ments;

(2) lend money, except that a Portfolio may purchase privately placed
bonds, notes, debentures or other obligations customarily purchased by in-
stitutional or individual investors (which obligations may or may not be
convertible into stock or accompanied by warrants or rights to acquire
stock), provided that such loans will not exceed 10% of the net asset value
of each Portfolio. Repurchase agreements and publicly traded debt obliga-
tions are not considered "loans" for purposes of this restriction, and a
Portfolio may enter into such purchases in accordance with its investment
objectives and policies and any applicable restrictions. A Portfolio may
also make loans of its securities of up to 20% of the value of the Portfo-
lio's total assets;

(3) underwrite the securities of other issuers, except where, in selling
portfolio securities, the Fund may be deemed to be an underwriter for pur-
poses of the Securities Act of 1933 when selling securities acquired pursu-
ant to paragraph 2 above;

(4) purchase securities in order to exercise control over the management
of any company, or to cause more than 25% of a Portfolio's total assets to
consist of (a) securities other than securities issued or guaranteed by the
United States government, its agencies and instrumentalities) which, to-
gether with other securities of the same issuer owned by the Portfolio,
constitute more than 5% of the value of the Portfolio's total assets or (b)
voting securities of issuers more than 10% of whose voting securities are
owned by the Fund;

(5) make an investment if this would cause more than 25% of the value of
the Portfolio's total assets to be invested in securities issued by compa-
nies principally engaged in any one industry except that this restriction
does not apply to securities issued or guaranteed by the United States gov-
ernment, its agencies and instrumentalities. Neither utilities nor energy
companies are considered to be a single industry for purposes of this re-
striction. Instead, they will be divided according to their services. For
example, gas, electric and telephone utilities will each be considered a
separate industry;

6
<PAGE>

(6) write or purchase any put options or engage in any combination of put
and call options;

(7) make short sales of securities;

(8) invest in commodities or commodity contracts;

(9) buy or sell real estate or mortgages, except that the Portfolios may
invest in shares of real estate investment trusts and of other issuers that
engage in real estate operations, and in public sold mortgage backed cer-
tificates in accordance with their investment objectives and policies; or

(10) issue senior securities, except as appropriate to evidence indebted-
ness that a Portfolio is permitted to incur and except for shares of exist-
ing or additional series of the Fund.

Except for those investment policies of a Portfolio specifically identified
as fundamental in this Statement of Additional Information, all other invest-
ment policies and practices described in the Prospectus and this Statement of
Additional Information may be changed by the Directors without the approval of
shareholders.

ADDITIONAL NON-FUNDAMENTAL INVESTMENT RESTRICTIONS APPLICABLE TO CERTAIN
PORTFOLIOS

In addition to the fundamental investment policies described above, the Fund
has also adopted the following investment policies for the Capital Apprecia-
tion, Cash Management, Convertible, Government, High Yield Corporate Bond, To-
tal Return, Value and Indexed Equity Portfolios which, unlike those described
above, may be changed without shareholder approval.

None of the designated Portfolios will:

(1) enter into repurchase agreements or purchase any "illiquid securi-
ties", illiquid securities being defined to include securities subject to
legal or contractual restrictions on resale (other than restricted securi-
ties eligible for resale pursuant to Rule 144A under the Securities Act of
1933) if, as a result thereof, more than 15% of the total assets of a Port-
folio (10% with respect to the Cash Management, High Yield Corporate Bond
and Value Portfolios) taken at market value would be, in the aggregate, in-
vested in repurchase agreements maturing in more than seven days and illiq-
uid securities or securities which are not readily marketable, (including
over-the-counter options considered by the Board of Directors of the Fund
not to be readily marketable); or

(2) invest assets in securities of other open-end investment companies
(except in connection with a merger, consolidation, reorganization or ac-
quisition of assets), but, to the extent permitted by the Investment Com-
pany Act of 1940 (the "1940 Act"), a Portfolio may invest in shares of
money market funds if double advisory fees are not assessed, may invest up
to 5% of its assets in closed-end investment companies (which would cause a
Portfolio to pay duplicate fees), and may purchase or acquire up to 10% of
the outstanding voting stock of a closed-end investment company (foreign
banks or their agencies or subsidiaries and foreign insurance companies are
not considered investment companies for the purposes of this limitation).

(3) purchase securities of any issuer with a record of less than three
years' continuous operation, including predecessors, except obligations is-
sued or guaranteed by the

7
<PAGE>

U.S. Government or its agencies or instrumentalities if such purchase would
cause the investments of such Portfolio in all such issuers to exceed 5% of
the value of the total assets of that Portfolio;

(4) purchase from or sell portfolio securities of such Portfolio to any
of the officers or Directors of the Fund, its investment advisers, its
principal underwriter or the officers, or directors of its investment ad-
visers or principal underwriter;

(5) purchase warrants of any issuer, except on a limited basis when, as a
result of such purchases by a Portfolio, no more than 2% of the value of
the Portfolio's total assets would be invested in warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange, and
no more than 5% of the value of the total assets of a Portfolio may be in-
vested in warrants whether or not so listed, such warrants in each case to
be valued at the lesser of cost or market, but assigning no value to war-
rants acquired by a Portfolio in units with or attached to debt securities;

(6) invest in other companies for the purpose of exercising control or
management;

(7) purchase or retain securities of an issuer any of whose officers, di-
rectors, trustees or security holders is an officer or Director of the Fund
or a member, officer, director or trustee of the investment advisers of the
Fund if one or more of such individuals owns beneficially more than one-
half of one percent ( 1/2 of 1%) of the securities (taken at market value)
of such issuer and such individuals owning more than one-half of one per-
cent ( 1/2 of 1%) of such securities together own beneficially more than 5%
of such securities or both;

(8) purchase securities on margin or make short sales, (except short
sales against the box) except in connection with arbitrage transactions or
unless, by virtue of its ownership of other securities, it has the right to
obtain securities equivalent in kind and amount to the securities sold and,
if the right is conditional, the sale is made upon the same conditions, ex-
cept that a Portfolio may obtain such short-term credits as may be neces-
sary for the clearance of purchases and sales of securities and in connec-
tion with transactions involving forward foreign currency exchange con-
tracts; or

(9) purchase or sell any put or call options or any combination thereof,
except that a Portfolio may purchase and sell or write (i) options on any
futures contracts into which it may enter, (ii) put and call options on
currencies, securities indexes and covered put and call options on securi-
ties, and (iii) may also engage in closing purchase transactions with re-
spect to any put and call option position it has entered into; provided,
however, that the Capital Appreciation, Convertible, High Yield Corporate
Bond, Total Return and Value Portfolios may not write any covered put op-
tions if, as a result, more than 25% of a Portfolio's total assets (taken
at current value) would be subject to put options written by such Portfo-
lio, and the Government Portfolio may not write any covered put options on
U.S. Government securities if as a result more than 50% of its total assets
(taken at current value) would be subject to put options written by such
Portfolio.

In addition, the International Equity Portfolio may not:

(1) purchase or retain securities of any issuer if, to the knowledge of
this Portfolio, any of the Directors or Officers of the Company, or any of
the directors or officers of the Portfolio's investment adviser, individu-
ally own more than 1/2 of 1% of the outstanding securities of the issuer
and together own beneficially more than 5% of such issuer's securities;

8
<PAGE>

(2) invest more than 5% of the value of its total assets in securities of
issuers (other than issuers of Federal agency obligations) having a record,
together with predecessors or unconditional guarantors, of less than three
years;

(3)(i) purchase securities that may not be sold without first being reg-
istered under the Securities Act of 1933, as amended ("restricted securi-
ties") other than Rule 144A securities determined to be liquid pursuant to
guidelines adopted by the Company's Board of Directors, (ii) enter into re-
purchase agreements having a duration of more than seven days, (iii) pur-
chase loan participation interests that are not subject to puts, (iv) pur-
chase instruments lacking readily available market quotations ("illiquid
instruments"), or (v) purchase or sell over-the-counter options, if as a
result of the purchase or sale, the Portfolio's aggregate holdings of re-
stricted securities, repurchase agreements having a duration of more than
seven days, loan participation interests that are not subject to puts, il-
liquid instruments, and over-the-counter options purchased by the Portfolio
and the assets used as cover for over-the-counter options written by the
Portfolio exceed 15% of the Portfolio's net assets;

(4) purchase securities of an investment company, except (i) in connec-
tion with a merger, consolidation, reorganization or acquisition of assets,
or (ii) to the extent permitted by the 1940 Act and then only securities of
money market funds (where the Portfolio's investment adviser undertakes to
forego the fees they would otherwise receive on the assets so invested and
where there is no commission or profit to a sponsor or dealer other than
the customary broker's commission that may result from such purchase) or
securities of a closed-end investment company (where there is no commission
or profit to a sponsor or dealer other than the customary broker's commis-
sion that may result from such purchase); provided, however, that foreign
banks or their agencies or subsidiaries and foreign insurance companies are
not considered investment companies for the purposes of this limitation as
permitted by the 1940 Act;

(5) invest in other companies for the purpose of exercising control;

(6) sell securities short, except for covered short sales or unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in options,
futures and forward contracts are deemed not to constitute short sales of
securities;

(7) purchase securities on margin, except that the Portfolio may obtain
such short-term credits as are necessary for the clearance of transactions,
and provided that margin payments in connection with futures contracts and
options on futures contracts shall not constitute the purchase of securi-
ties on margin;

(8) purchase warrants, valued at the lower of cost or market, in excess
of 5% of the Portfolio's net assets. Included within that amount, but not
to exceed 2% of net assets, are warrants whose underlying securities are
not traded on principal domestic or foreign exchanges (warrants acquired by
the Portfolio in units or attached to securities are not subject to these
restrictions); or

(9) acquire or retain the securities of any other investment company if,
as a result, more than 3% of such investment company's outstanding shares
would be held by the Portfolio, more than 5% of the value of the Portfo-
lio's total assets would be invested in shares of such investment company
or more than 10% of the value of the Portfolio's assets would be invested
in shares of investment companies in the aggregate, except in connection
with a merger, consolidation, acquisition, or reorganization.

9
<PAGE>

OTHER INVESTMENT POLICIES OF THE HIGH YIELD CORPORATE BOND PORTFOLIO

Corporate debt securities may bear fixed, contingent, or variable rates of
interest and may involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the same or a different is-
suer, participations based on revenues, sales or profits, or the purchase of
common stock in a unit transaction (where corporate debt securities and common
stock are offered as a unit).

Under normal market conditions, not more than 25% of the value of the Port-
folio's total assets will be invested in equity securities, including common
stocks, preferred stocks, warrants and rights.

When and if available, debt securities may be purchased at a discount from
face value. However, the Portfolio does not intend to hold such securities to
maturity for the purpose of achieving potential capital gains, unless current
yields on these securities remain attractive. From time to time the Portfolio
may purchase securities not paying interest or dividends at the time acquired
if, in the opinion of MacKay-Shields, such securities have the potential for
future income (or capital appreciation, if any).

Since shares of the Portfolio represent an investment in securities with
fluctuating market prices, the value of shares of the Portfolio will vary as
the aggregate value of the Portfolio's portfolio securities increases or de-
creases. Moreover, the value of the debt securities that the Portfolio pur-
chases may fluctuate more than the value of higher rated debt securities.
These lower rated fixed income securities generally tend to reflect short-term
corporate and market developments to a greater extent than higher rated secu-
rities which react primarily to fluctuations in the general level of interest
rates. Changes in the value of securities subsequent to their acquisition will
not affect cash income or yields to maturity to the Portfolio but will be re-
flected in the net asset value of the Portfolio's shares.

OTHER INVESTMENT POLICIES OF THE BOND AND GROWTH EQUITY PORTFOLIOS

In addition to the fundamental investment policies described above, the Fund
has also adopted the following investment policies, which unlike those de-
scribed above, may be changed without shareholder approval.

Neither of the Portfolios will:

(1) write or purchase any call options.

(2) purchase the securities of other investment companies, unless it ac-
quires them as part of a merger, consolidation, acquisition of assets or
reorganization.

(3) pledge or mortgage assets, except that a Portfolio may pledge up to
10% of the total value of its assets to secure permissible borrowings.

(4) purchase interests in oil, gas or other mineral exploration or devel-
opment programs, but the Portfolios may purchase securities of issuers who
deal or invest in such programs.

(5) purchase securities of foreign issuers if the purchase would cause
more than 10% of the value of the Portfolio's total assets to be invested
in such securities.

The following is more detailed information regarding subjects addressed in
the Fund's current Prospectus.

10
<PAGE>

GOVERNMENT PORTFOLIO MORTGAGE-BACKED SECURITIES

Government National Mortgage Association ("GNMA") certificates are mortgage-
backed securities representing part ownership of a pool of mortgage loans.
These loans, issued by lenders such as mortgage bankers, commercial banks and
savings and loan associations, are either insured by the Federal Housing Ad-
ministration ("FHA") or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled, and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is guaranteed by
GNMA and backed by the full faith and credit of the U.S. Government. GNMA cer-
tificates differ from bonds in that principal is paid back monthly by the bor-
rower over the term of the loan rather than returned in a lump sum at maturi-
ty. GNMA certificates are called "pass-through" securities because both inter-
est and principal payments (including prepayments) are passed through to the
holder of the certificate. Upon receipt, principal payments may be used for
the purchase of additional GNMA certificates or other securities permitted by
the Portfolios' investment policies and restrictions.

In addition to GNMA certificates, the Portfolio may invest in mortgage-
backed securities issued by the Federal National Mortgage Association ("FNMA")
and by the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA, a federally
chartered and privately-owned corporation, issues mortgage-backed pass-through
securities which are guaranteed as to timely payment of principal and interest
by FNMA. FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in mortgages from
FHLMC's portfolio. FHLMC guarantees the timely payment of interest and the ul-
timate collection of principal. Securities guaranteed by FNMA and FHLMC are
not backed by the full faith and credit of the U.S. Government.

If either fixed or variable rate pass-through securities issued by the U.S.
Government or its agencies or instrumentalities are developed in the future,
the Portfolios reserve the right to invest in them.

PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES

The Portfolio may also invest in mortgage-related securities ("CMOs") which
are issued by private entities such as investment banking firms and companies
related to the construction industry. The mortgage-related securities in which
the Portfolio may invest may be: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the
U.S. Government; (ii) privately issued securities which are collateralized by
pools of mortgages in which payment of principal and interest is guaranteed by
the issuer and such guarantee is collateralized by U.S. Government securities;
and (iii) other privately issued securities in which the proceeds of the issu-
ance are invested in mortgage-backed securities and payment of the principal
and interest is supported by the credit of an agency or instrumentality of the
U.S. Government. The Portfolio will not invest in any privately issued CMOs
if, as a result of such investment, more than 5% of a Portfolio's net assets
would be invested in any one CMO, more than 10% of the Portfolio's net assets
would be invested in CMOs and other investment company securities in the ag-
gregate, or the Portfolio would hold more than 3% of any outstanding issue of
CMOs.

11
<PAGE>

The Portfolio may also invest in securities collateralized by mortgages or
pools of mortgages the issuer of which has qualified to be treated as a "real
estate mortgage investment conduit" ("REMIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). CMOs and REMICs may offer a higher yield
than U.S. Government securities, but they may also be subject to greater price
fluctuation and credit risk. In addition, CMOs and REMICs typically will be
issued in a variety of classes or series, which have different maturities and
are retired in sequence. Privately issued CMOs and REMICs are not government
securities nor are they supported in any way by any governmental agency or in-
strumentality. In the event of a default by an issuer of a CMO or a REMIC,
there is no assurance that the collateral securing such CMO or REMIC will be
sufficient to pay principal and interest. It is possible that there will be
limited opportunities for trading CMOs and REMICs in the over-the-counter mar-
ket, the depth and liquidity of which will vary from issue to issue and from
time to time.

CASH MANAGEMENT PORTFOLIO

The Portfolio may invest its assets in U.S. dollar-denominated securities of
U.S. or foreign issuers and in securities of foreign branches of U.S. banks,
such as negotiable certificates of deposit (Eurodollars). Since the Portfolio
may contain such securities, an investment therein involves investment risks
that are different in some respects from an investment in a fund which invests
only in debt obligations of U.S. domestic issuers. Such risks may include fu-
ture political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities held in the
Portfolio, possible seizure or nationalization of foreign deposits, the possi-
ble establishment of exchange controls or the adoption of other foreign gov-
ernmental restrictions which might adversely affect the payment of the princi-
pal of and interest on securities in the Portfolio.

All of the assets of the Portfolio will be invested in obligations which ma-
ture in thirteen months or less and substantially all these investments will
be held to maturity; however, securities collateralizing repurchase agreements
may have maturities in excess of thirteen months. The Portfolio will, to the
extent feasible, make portfolio investments primarily in anticipation of or in
response to changing economic and money market conditions and trends. The dol-
lar-weighted average maturity of the Portfolio's portfolio may not exceed 90
days. Consistent with the provisions of a rule of the SEC, the Portfolio in-
vests only in U.S. dollar-denominated money market instruments that present
minimal credit risk and, with respect to 95% of its total assets, measured at
the time of investment, that are of the highest quality. MacKay-Shields shall
determine whether a security presents minimal credit risk under procedures
adopted by the Fund's Board of Directors. A money market instrument will be
considered to be highest quality (1) if rated in the highest rating category
(i.e., Aaa or Prime-1 by Moody's Investors Service, Inc. ("Moody's"), AAA or
A-1 by Standard & Poor's Corporation ("S&P")) by: (i) any two nationally rec-
ognized statistical rating organizations ("NRSROs") or, (ii) if rated by only
one NRSRO, by that NRSRO, and whose acquisition is approved or ratified by the
Board of Directors; (2) if issued by an issuer that has short-term debt obli-
gations of comparable maturity, priority, and security, and that are rated in
the highest rating category by (i) any two NRSROs or, (ii) if rated by only
one NRSRO, by that NRSRO, and whose acquisition is approved or ratified by the
Board of Directors; or (3) an unrated security that is of comparable quality
to a security in the highest rating category as determined by MacKay-Shields
and whose acquisition is approved or ratified by the Board of Directors. With
respect to 5% of its total assets, measured at the time of investment, the
Portfolio may also

12
<PAGE>

invest in money market instruments that are in the second-highest rating cate-
gory for short-term debt obligations (i.e., rated Aa or Prime-2 by Moody's or
AA or A-2 by S&P). A money market instrument will be considered to be in the
second-highest rating category under the criteria described above with respect
to instruments considered highest quality, as applied to instruments in the
second-highest rating category.

The Portfolio may not invest more than 5% of its total assets, measured at
the time of investment, in securities of any one issuer that are of the high-
est quality, except that the Portfolio may exceed this 5% limitation for up to
three business days after the purchase of a security of any one issuer and ex-
cept that this limitation shall not apply to U.S. Government securities. The
Portfolio may not invest more than the greater of 1% of its total assets or
$1,000,000, measured at the time of investment, in securities of any one is-
suer that are in the second-highest rating category, except that this limita-
tion shall not apply to U.S. Government securities. In the event that an in-
strument acquired by the Portfolio is downgraded or otherwise ceases to be of
the quality that is eligible for the Portfolio, MacKay-Shields, under proce-
dures approved by the Board of Directors (or the Board of Directors itself if
MacKay-Shields becomes aware an unrated security is downgraded below high
quality and MacKay-Shields does not dispose of the security within five busi-
ness days) shall promptly reassess whether such security presents minimal
credit risk and determine whether or not to retain the instrument.

Pursuant to the rule, the Portfolio uses the amortized cost method of valu-
ing its investments, which facilitates the maintenance of the Portfolio's per
share net asset value at $1.00. The amortized cost method, which is normally
used to value all of the Portfolio's portfolio securities, involves initially
valuing a security at its cost and thereafter amortizing to maturity any dis-
count or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument.

The Directors have also established procedures designed to stabilize, to the
extent reasonably possible, the Portfolio's price per share as computed for
the purpose of sales and redemptions at $1.00. Such procedures include review
of the Portfolio's portfolio by the Directors, at such intervals as they deem
appropriate, to determine whether the Portfolio's net asset value calculated
by using available market quotations or market equivalents (the determination
of value by reference to interest rate levels, quotations of comparable secu-
rities and other factors) deviates from $1.00 per share based on amortized
cost.

The extent of deviation between the Portfolio's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be periodically examined by the Directors. If such devia-
tion exceeds 1/2 of 1%, the Directors will promptly consider what action, if
any, will be initiated. In the event the Directors determine that a deviation
exists which may result in material dilution or other unfair results to in-
vestors or existing shareholders, they will take such corrective action as
they regard to be necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding part or all of dividends or payment of
distributions from capital or capital gains; redemptions of shares in kind; or
establishing a net asset value per share by using available market quotations
or equivalents. In addition, in order to stabilize the net asset value per
share at $1.00, the Directors have the authority (1) to reduce or increase the
number of shares outstanding on a pro rata basis, and

13
<PAGE>

(2) to offset each shareholder's pro rata portion of the deviation between the
net asset value per share and $1.00 from the shareholder's accrued dividend
account or from future dividends.

The Portfolio may hold cash for the purpose of stabilizing its net asset
value per share. Holdings of cash, on which no return is earned, would tend to
lower the yield on the Portfolio's shares.

The Portfolio may also, consistent with the provisions of the rule, invest
in securities with a face maturity of more than thirteen months, provided that
the security is either a variable or floating rate U.S. Government security,
or a floating or variable rate security with certain demand or interest rate
reset features.

INVESTMENT PRACTICES COMMON TO TWO OR MORE PORTFOLIOS

Except as otherwise noted below, the following description of investment
practices is applicable to all of the Portfolios.

REPURCHASE AGREEMENTS

The Portfolios may enter into repurchase agreements, including foreign re-
purchase agreements, with any member bank of the Federal Reserve System or a
member firm of the National Association of Securities Dealers, Inc. A repur-
chase agreement, which provides a means for a Portfolio to earn income on
uninvested cash for periods as short as overnight, is an arrangement under
which the purchaser (i.e., a Portfolio) purchases a U.S. Government or other
high quality short-term debt obligation (the "Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. A repurchase agreement with foreign banks may be available with re-
spect to government securities of the particular foreign jurisdiction. The
custody of the Obligation will be maintained by a Portfolio's Custodian. The
repurchase price may be higher than the purchase price, the difference being
income to a Portfolio, or the purchase and repurchase prices may be the same,
with interest at a stated rate due to a Portfolio together with the repurchase
price upon repurchase. In either case, the income to a Portfolio is unrelated
to the interest rate on the Obligation subject to the repurchase agreement.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan
from a Portfolio to the seller of the Obligation. It is not clear whether a
court would consider the Obligation purchased by a Portfolio subject to a re-
purchase agreement as being owned by a Portfolio or as being collateral for a
loan by a Portfolio to the seller. In the event of the commencement of bank-
ruptcy or insolvency proceedings with respect to the seller of the Obligation
before repurchase of the Obligation under a repurchase agreement, a Portfolio
may encounter delays and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in price of the Obligation. If
the court characterizes the transaction as a loan and a Portfolio has not per-
fected a security interest in the Obligation, a Portfolio may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Portfolio would be at the
risk of losing some or all of the principal and income involved in the trans-
action. As with any unsecured debt instrument purchased for the Portfolios,
each Portfolio's Adviser seeks to minimize the risk of loss from repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or

14
<PAGE>

insolvency proceedings, there is also the risk that the seller may fail to re-
purchase the security. However, if the market value of the Obligation subject
to the repurchase agreement becomes less than the repurchase price (including
accrued interest), a Portfolio will direct the seller of the Obligation to de-
liver additional securities so that the market value of all securities subject
to the repurchase agreement equals or exceeds the repurchase price.

REVERSE REPURCHASE AGREEMENTS

Each Portfolio may enter into reverse repurchase agreements, including for-
eign reverse repurchase agreements. These agreements involve the sale of debt
securities (obligations) held by a Portfolio, with an agreement to repurchase
the obligations at an agreed upon price, date and interest payment. The pro-
ceeds will be used to purchase other debt securities either maturing, or under
an agreement to resell, at a date simultaneous with or prior to the expiration
of the reverse repurchase agreement. Reverse repurchase agreements will be
utilized, when permitted by law, only when the interest income to be earned
from the investment of the proceeds from the transaction is greater than the
interest expense of the reverse repurchase transaction. When a Portfolio en-
ters into such an agreement, it will establish a segregated account with the
Fund's Custodian in which it will maintain cash or cash equivalents or other
liquid high grade debt obligations equal in value to the repurchase price
(which price will already include interest charges).

LENDING OF PORTFOLIO SECURITIES

Each Portfolio, except the Cash Management Portfolio, may seek to increase
its income by lending portfolio securities. A Portfolio would have the right
to call a loan and obtain the securities loaned at any time on five days' no-
tice. For the duration of a loan, a Portfolio would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from the investment of the collat-
eral. A Portfolio would not, however, have the right to vote any securities
having voting rights during the existence of the loan, but a Portfolio would
call the loan in anticipation of an important vote to be taken among holders
of the securities or of the giving or withholding of their consent on a mate-
rial matter affecting the investment.

BORROWING

A Portfolio may borrow from a bank, but only for temporary or emergency pur-
poses. This borrowing may be unsecured. The 1940 Act requires a Portfolio to
maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, a Portfolio may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time and could cause the Portfolio to be
unable to meet certain requirements for qualification as a regulated invest-
ment company for Federal tax purposes. To avoid the potential leveraging ef-
fects of a Portfolio's borrowings, a Portfolio will repay any money borrowed
in excess of 5% of its total assets prior to purchasing additional securities.
Borrowing may exaggerate the effect on a Portfolio's net asset value of any
increase or decrease in the market value of the Portfolio's portfolio securi-
ties. Money borrowed will be subject to interest costs which may or may not be
recovered by appreciation of the securities purchased. A Portfolio

15
<PAGE>

also may be required to maintain minimum average balances in connection with
such borrowing or to pay a commitment or other fee to maintain a line of cred-
it; either of these requirements would increase the cost of borrowing over the
stated interest rate.

FOREIGN SECURITIES

Except for the Government Portfolio, each Portfolio may invest, without lim-
it, subject to the other investment policies applicable to the Portfolio, in
U.S. dollar-denominated and non-dollar denominated foreign debt securities
(including those issued by the Dominion of Canada and its provinces and other
securities which meet the criteria applicable to that Portfolio's domestic in-
vestments), and in certificates of deposit issued by foreign banks and foreign
branches of United States banks, to any extent deemed appropriate by the Ad-
viser. Based on the investment policies of the Indexed Equity Portfolio, it
most likely will not purchase any foreign securities. Under current SEC rules
relating to the use of the amortized cost method of portfolio securities valu-
ation, the Cash Management Portfolio is restricted to purchasing U.S. dollar-
denominated securities, but it is not otherwise precluded from purchasing se-
curities of foreign issuers.

Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available informa-
tion, non-uniform accounting standards, lower trading volume and lower liquid-
ity, the possible imposition of withholding or confiscatory taxes, the possi-
ble adoption of foreign governmental restrictions affecting the payment of
principal and interest, changes in currency exchange rates and currency ex-
change control regulations, expropriation, or other adverse political or eco-
nomic developments. In addition, it may be more difficult to obtain and en-
force a judgment against a foreign issuer or a foreign branch of a domestic
bank. Further, to the extent investments in foreign securities are denominated
in currencies of foreign countries, a Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates and in exchange control reg-
ulations and may incur costs in connection with conversion between currencies.

FOREIGN CURRENCY TRANSACTIONS

Each Portfolio, except the Cash Management Portfolio and the Government
Portfolio, may, to the extent it invests in foreign securities, enter into
forward foreign currency exchange contracts in order to protect against uncer-
tainty in the level of future foreign currency exchange rates. It is not ex-
pected that the Indexed Equity Portfolio will engage in any foreign currency
transactions. A Portfolio will conduct its foreign currency exchange transac-
tions either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank mar-
ket conducted directly between traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and
no commissions are charged at any stage for trades. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the spread) between the price at which they are buying and
selling various currencies.

16
<PAGE>

Normally, consideration of the prospect for currency parities will be incor-
porated in a longer term investment decision made with regard to overall di-
versification strategies. However, MacKay-Shields, New York Life and Monitor
Capital Advisers, Inc. ("Monitor"), each believes that it is important to have
the flexibility to enter into such forward contracts when each determines that
the best interest of a Portfolio will be served. Generally, MacKay-Shields,
New York Life and Monitor believe that the best interest of a Portfolio will
be served if a Portfolio is permitted to enter into forward contracts under
specified circumstances. First, when a Portfolio enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars,
of the amount of foreign currency involved in the underlying security transac-
tion, a Portfolio will be able to insulate itself from a possible loss result-
ing from a change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold and the date on which payment is made or received, although
a Portfolio would also forego any gain it might have realized had rates moved
in the opposite direction. This technique is sometimes referred to as a "set-
tlement hedge" or "transaction hedge."

Second, when the Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell, for a fixed amount of dollars, the amount of
foreign currency approximating the value of some or all of a Portfolio's port-
folio securities denominated in such foreign currency. Such a hedge (sometimes
referred to as a "position hedge") will tend to offset both positive and nega-
tive currency fluctuations, but will not offset changes in security values
caused by other factors. A Portfolio also may hedge the same position by using
another currency (or a basket of currencies) expected to perform similarly to
the hedged currency, when exchange rates between the two currencies are suffi-
ciently correlated ("proxy hedge"). The precise matching of the forward con-
tract amounts and the value of the securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
With respect to positions that constitute "transaction" or "position hedges"
(including "proxy hedges"), a Portfolio will not enter into forward contracts
to sell currency or maintain a net exposure to such contracts if the consumma-
tion of such contracts would obligate a Portfolio to deliver an amount of for-
eign currency in excess of the value of a Portfolio's portfolio securities or
other assets denominated in that currency (or the related currency, in the
case of a proxy hedge).

Finally, a Portfolio may enter into forward contracts to shift its invest-
ment exposure from one currency into another currency that is expected to per-
form better relative to the U.S. dollar. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is pur-
chased, much as if a Portfolio had sold a security denominated in one currency
and purchased an equivalent security denominated in another. Cross-hedges pro-
tect against losses resulting from a decline in the hedged currency, but will
cause a Portfolio to assume the risk of fluctuations in the value of the cur-
rency it purchases.

At the consummation of the forward contract, a Portfolio may either make de-
livery of the foreign currency or terminate its contractual obligation to de-
liver the foreign currency by pur-

17
<PAGE>

chasing an offsetting contract obligating it to purchase at the same maturity
date the same amount of such foreign currency. If a Portfolio chooses to make
delivery of the foreign currency, it may be required to obtain such currency
for delivery through the sale of portfolio securities denominated in such cur-
rency or through conversion of other assets of a Portfolio into such currency.
If a Portfolio engages in an offsetting transaction, a Portfolio will realize
a gain or a loss to the extent that there has been a change in forward con-
tract prices. Closing purchase transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.

A Portfolio's dealing in forward contracts will be limited to the transac-
tions described above. Of course, a Portfolio is not required to enter into
such transactions with regard to its foreign currency-denominated securities
and will not do so unless deemed appropriate by the Adviser. A Portfolio gen-
erally will not enter into a forward contract with a term of greater than one
year.

In cases other than transactions which constitute "transaction hedges" or
"position hedges" (including "proxy hedges"), a Portfolio will place cash not
available for investment or liquid debt securities (denominated in the foreign
currency subject to the forward contract) in a segregated account in an amount
equal to the value of a Portfolio's total assets committed to the consummation
of forward currency exchange contracts entered into as a hedge against a sub-
stantial decline in the value of a particular foreign currency. If the value
of the securities placed in the segregated account declines, additional cash
or securities will be placed in the account by a Portfolio on a daily basis so
that the value of the account will equal the amount of a Portfolio's commit-
ments with respect to such contracts.

It should be realized that this method of protecting the value of a Portfo-
lio's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. It sim-
ply establishes a rate of exchange which can be achieved at some future point
in time. It also reduces any potential gain which may have otherwise occurred
had the currency value increased above the settlement price of the contract.

A Portfolio's foreign currency transactions may be limited by the require-
ments of Subchapter M of the Code for qualification as a regulated investment
company.

BRADY BONDS

The Convertible, High Yield Corporate Bond and Total Return Portfolios may
each invest a portion of its assets in Brady Bonds, which are securities cre-
ated through the exchange of existing commercial bank loans to sovereign enti-
ties for new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been
implemented in several countries, including Mexico, Uruguay, Venezuela, Argen-
tina, Costa Rica, Nigeria, the Philippines, Bulgaria, the Dominican Republic,
Bolivia, Ecuador, Niger, Poland and Jordan (collectively, the "Brady Coun-
tries"). In addition, Brazil has concluded a Brady-like plan. It is expected
that other countries will undertake a Brady Plan debt restructuring in the fu-
ture, including Peru and Panama.

Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized,
are issued in various

18
<PAGE>

currencies (primarily the U.S. dollar) and are actively traded in the over-
the-counter secondary market.

U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds having the same matu-
rity as the Brady Bonds. Interest payments on these Brady Bonds generally are
collateralized on a one-year or longer rolling-forward basis by cash or secu-
rities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the ap-
plicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest pay-
ments but generally are not collateralized. Brady Bonds are often viewed as
having three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repay-
ment of principal at maturity (these uncollateralized amounts constitute the
"residual risk").

Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or compara-
ble collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments
at final maturity collateralized by U.S. Treasury zero coupon bonds ( or com-
parable collateral denominated in other currencies) and/or interest coupon
payments collateralized on a 14-month (for Venezuela) or 12-month (for Argen-
tina) rolling-forward basis by securities held by the Federal Reserve Bank of
New York as collateral agent.

Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and pri-
vate entities of countries issuing Brady Bonds. There can be no assurance that
Brady Bonds in which a Portfolio may invest will not be subject to restructur-
ing arrangements or to requests for new credit, which may cause the Portfolio
to suffer a loss of interest or principal on any of its holdings.

WHEN-ISSUED SECURITIES

Each Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued in this manner. The price of such se-
curities, which may be expressed in yield terms, is fixed at the time a com-
mitment to purchase is made, but delivery of and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and set-
tlement, no payment is made by the Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending
the settlement of a purchase of securities, that Portfolio would earn no in-
come; however, it is the Fund's intention that each Portfolio will be fully
invested to the extent practicable and subject to the policies stated herein.
Although when-issued securities may be sold prior to the settlement date, each
Portfolio intends to purchase such securities with the purpose of actually ac-
quiring them unless a sale appears desirable for investment reasons.

19
<PAGE>

At the time the Fund makes the commitment on behalf of a Portfolio to pur-
chase a security on a when-issued basis, it will record the transaction and
reflect the amount due and the value of the security in determining the Port-
folio's net asset value. The market value of the when-issued securities may be
more or less than the purchase price payable at the settlement date. The Di-
rectors do not believe that a Portfolio's net asset value or income will be
exposed to additional risk by the purchase of securities on a when-issued ba-
sis. Each Portfolio will establish a segregated account in which it will main-
tain cash, U.S. Government securities or other high-grade debt obligations at
least equal in value to commitments for when-issued securities. Such segre-
gated securities either will mature or, if necessary, be sold on or before the
settlement date.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES

Mortgage-related securities are interests in pools of mortgage loans made to
residential home buyers, including mortgage loans made by savings and loan in-
stitutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmen-
tal, government-related and private organizations (see "Mortgage Backed Secu-
rities," below). The Portfolios may also invest in debt securities which are
secured with collateral consisting of mortgage-related securities (see "Col-
lateralized Mortgage Obligations," at page 22), and in other types of mort-
gage-related securities. The International Equity Portfolio will not purchase
mortgage-related securities or any other assets which in the opinion of Mac-
Kay-Shields are illiquid, if, as a result, more than 15% of the value of this
Portfolio's assets will be illiquid.

MORTGAGE BACKED SECURITIES. Interests in pools of mortgage-related securi-
ties differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal payments at matu-
rity or specified call dates. Instead, these securities provide a monthly pay-
ment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees paid to the is-
suer or guarantor of such securities. Additional payments are caused by repay-
ments of principal resulting from the sale of the underlying residential prop-
erty, refinancing or foreclosure, net of fees or costs which may be incurred.
Some mortgage-related securities (such as securities issued by the Government
National Mortgage Association) are described as "modified pass-through" secu-
rities. These securities entitle the holder to receive all interest and prin-
cipal payments owed on the mortgage pool, net of certain fees, at the sched-
uled payment dates regardless of whether or not the mortgagor actually makes
the payment.

Payment of principal and interest on some mortgage backed securities (but
not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities guar-
anteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by FNMA or FHLMC, which are
supported only by the discretionary authority of the U.S. Government to pur-
chase the agency's obligations). Mortgage backed securities created by non-
governmental issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers) may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit, which may be issued by governmental entities, private insurers or the
mortgage poolers.

20
<PAGE>

The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued
by institutions approved by GNMA (such as savings and loan institutions, com-
mercial banks and mortgage bankers) and backed by pools of FHA-insured or Vet-
erans Administration-guaranteed mortgages.

Government-related guarantors (i.e., not backed by the full faith and credit
of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Develop-
ment. FNMA purchases conventional (i.e., not insured or guaranteed by any gov-
ernment agency) residential mortgages from a list of approved
sellers/servicers which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks, credit unions and mort-
gage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the U.S. Government.

FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the twelve Federal Home Loan Banks and
now owned entirely by private stockholders. FHLMC issues Participation Certif-
icates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest
and ultimate collection of principal, but PCs are not backed by the full faith
and credit of the U.S. Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may, in addition, be the originators and/or servicers of the underlying mort-
gage loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental insurers generally offer a higher rate of in-
terest than government and government-related pools because there are no di-
rect or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance
and guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of
the issuers thereof will be considered in determining whether a mortgage-re-
lated security meets a Portfolio's investment quality standards. There can be
no assurance that the private insurers, or guarantors can meet their obliga-
tions under the insurance policies or guarantee arrangements. The Portfolios
may buy mortgage-related securities without insurance or guarantees if through
an examination of the loan experience and practices of the
originator/servicers and poolers, each Portfolio's investment adviser deter-
mines that the securities meet the Portfolio's quality standards. Although the
market for such securities is becoming increasingly liquid, securities issued
by certain private organizations may not be readily marketable. No Portfolio
will purchase mortgage-related securities or any other assets which in the
opinion of the Portfolio's Adviser are illiquid if, as a result, more than 15%
of the

21
<PAGE>

value of the Portfolio's total assets (10% with respect to the Cash Management
Portfolio, Growth Equity Portfolio and Bond Portfolio) will be illiquid.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid on a CMO, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment ex-
perience of the collateral. CMOs provide for a modified form of call protec-
tion through a de facto breakdown of the underlying pool of mortgages accord-
ing to how quickly the loans are repaid. Monthly payment of principal received
from the pool of underlying mortgages, including prepayments, is first re-
turned to investors holding the shortest maturity class. Investors holding the
longer maturity class receive principal only after the first call has been re-
tired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.

In a typical CMO transaction, a corporation ("issuer") issues multiple se-
ries (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates ("Collat-
eral"). The Collateral is pledged to a third-party trustee as security for the
Bonds. Principal and interest payments from the Collateral are used to pay
principal on the Bonds in the order A, B, C, Z. The Series A, B, and C bonds
all bear current interest. Interest on the Series Z Bond is accrued and added
to principal and a like amount is paid as principal on the Series A, B, or C
Bonds currently being paid off. When the Series A, B, and C Bonds are paid in
full, interest and principal on the Series Z Bond begins to be paid currently.
With some CMOs, the issuer serves as a conduit to allow loan originators (pri-
marily builders or savings and loan associations) to borrow against their loan
portfolios.

FHLMC COLLATERALIZED MORTGAGE OBLIGATIONS. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the FHLMC CMOs
are made semiannually, as opposed to monthly. The amount of principal payable
on each semiannual payment date is determined in accordance with FHLMC's man-
datory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the indi-
vidual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to
the holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral
pool in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class
of bonds will be retired in advance of its scheduled maturity date.

If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on

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<PAGE>

the next sinking fund payment date, FHLMC agrees to make up the deficiency
from its general funds.

Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the
event of delinquencies and/or defaults.

OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include
securities other than those described above that directly or indirectly repre-
sent a participation in, or are secured by and payable from, mortgage loans on
real property, including CMO residuals or stripped mortgage-backed securities.
Other mortgage-related securities may be equity or debt securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks, partner-
ships, trusts and special purpose entities of the foregoing.

CMO RESIDUALS. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.

The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess
cash flow remaining after making the foregoing payments. Each payment of such
excess cash flow to a holder of the related CMO residual represents income
and/or a return of capital. The amount of residual cash flow resulting from a
CMO will depend on, among other things, the characteristics of the mortgage
assets, the coupon rate of each class of CMO, prevailing interest rates, the
amount of administrative expenses and the prepayment experience on the mort-
gage assets. In particular, the yield to maturity on CMO residuals is ex-
tremely sensitive to prepayments on the related underlying mortgage assets, in
the same manner as an interest-only ("IO") class of stripped mortgage-backed
securities. See "Stripped Mortgage-Backed Securities". In addition, if a se-
ries of a CMO includes a class that bears interest at an adjustable rate, the
yield to maturity on the related CMO residual will also be extremely sensitive
to changes in the level of the index upon which interest rate adjustments are
based. As described below with respect to stripped mortgage-backed securities,
in certain circumstances a Portfolio may fail to recoup fully its initial in-
vestment in a CMO residual.

CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently
may not have the liquidity of other more established securities trading in
other markets. Transactions in CMO residuals are generally completed only af-
ter careful review of the characteristics of the securities in question. In
addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended. CMO
residuals, whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to a
Portfolio's limitations on investment in illiquid securities.

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<PAGE>

STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed Securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private origina-
tors of, or investors in, mortgage loans, including savings and loan associa-
tions, mortgage banks, commercial banks, investment banks and special purpose
entities of the foregoing.

SMBS are usually structured with two classes that receive different propor-
tions of the interest and principal distributions on a pool of mortgage as-
sets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class),
while the other class will receive all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO class is extremely sensitive to
the rate of principal payments (including prepayments) on the related under-
lying mortgage assets, and a rapid rate of principal payments may have a mate-
rial adverse effect on a Portfolio's yield to maturity from these securities.
If the underlying mortgage assets experience greater than anticipated prepay-
ments of principal, a Portfolio may fail to fully recoup its initial invest-
ment in these securities even if the security is in one of the highest rating
categories.

Although SMBS are purchased and sold by institutional investors through sev-
eral investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have
not yet developed and, accordingly, these securities may be deemed "illiquid"
and subject to a Portfolio's limitations on investment in illiquid securities.

OTHER ASSET-BACKED SECURITIES. Similarly, the Advisers expect that other as-
set-backed securities (unrelated to mortgage loans) will be offered to invest-
ors in the future. Several types of asset-backed securities have already been
offered to investors, including Certificates for Automobile ReceivablesSM
("CARSSM"). CARS SM represent undivided fractional interests in a trust
("trust") whose assets consist of a pool of motor vehicles retail installment
sales contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARSSM are passed-through monthly to
certificate holders, and are guaranteed up to certain amounts and for a cer-
tain time period by a letter of credit issued by a financial institution unaf-
filiated with the trustee or originator of the trust. An investor's return on
CARSSM may be affected by early prepayment of principal on the underlying ve-
hicles' sales contracts. If the letter of credit is exhausted, the trust may
be prevented from realizing the full amount due on a sales contract because of
state law requirements and restrictions relating to foreclosure sales of vehi-
cles and the obtaining of deficiency judgments following such sales or because
of depreciation, damage or loss of a vehicle, the application of Federal and
state bankruptcy and insolvency laws, or other factors. As a result, certifi-
cate holders may experience delays in payments or losses if the letter of
credit is exhausted.

Consistent with a Portfolio's investment objective and policies, the Adviser
also may invest in other types of asset-backed securities.

OPTIONS ON SECURITIES

Each Portfolio, except the Cash Management, Bond or Growth Equity Portfo-
lios, may purchase put or call options which are traded on an Exchange or in
the over-the-counter

24
<PAGE>

market. In addition, the Capital Appreciation, Convertible, Government, High
Yield Corporate Bond, Total Return and Value Portfolios may purchase puts and
calls, other than "protective puts" in which the security to be sold is iden-
tical or substantially identical to a security already held by the Portfolios
or to a security which the Portfolios have a right to purchase, with a value
of up to 5% of such Portfolios' respective net assets. The Capital Apprecia-
tion, Convertible, High Yield Corporate Bond, Total Return and Value Portfo-
lios may each purchase protective puts (in which the security to be sold is
identical or substantially identical to a security already held by the Portfo-
lio or to a security which the Portfolio has the right to purchase) with a
value of up to 25% of such Portfolios' respective net assets. Options traded
in the over-the-counter market may not be as actively traded as those listed
on an Exchange. Accordingly, it may be more difficult to value such options
and to be assured that they can be closed out at any time. The Portfolios will
engage in such transactions only with firms of sufficient credit worthiness so
as to minimize these risks.

The Portfolios may purchase put options on securities to protect their hold-
ings in an underlying or related security against a substantial decline in
market value. Securities are considered related if their price movements gen-
erally correlate with one another. The purchase of put options on securities
held in the portfolio or related to such securities will enable a Portfolio to
preserve, at least partially, unrealized gains occurring prior to the purchase
of the option on a portfolio security without actually selling the security.
In addition, a Portfolio will continue to receive interest or dividend income
on the security.

The Portfolios may also purchase call options on securities the Portfolios
intend to purchase to protect against substantial increases in prices of such
securities pending their ability to invest in an orderly manner in such secu-
rities. In order to terminate an option position, the Portfolios may sell put
or call options identical to those previously purchased, which could result in
a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put or
call option when it was purchased.

WRITING CALL OPTIONS. Any Portfolio, except the Cash Management, Bond or
Growth Equity Portfolios, may sell ("write") covered call options on the port-
folio securities of such Portfolio in an attempt to enhance investment perfor-
mance; however the Capital Appreciation, Convertible, Government, High Yield
Corporate Bond, Total Return and Value Portfolios may write covered call op-
tions with respect to no more than 25% of the value of their respective net
assets. A call option sold by a Portfolio is a short-term contract, having a
duration of nine months or less, which gives the purchaser of the option the
right to buy, and the writer of the option-in return for a premium received-
the obligation to sell, the underlying security at the exercise price upon the
exercise of the option at any time prior to the expiration date, regardless of
the market price of the security during the option period. The Portfolio cov-
ers options it has sold by holding a position in the underlying securities
(the usual practice in the case of a call) or by other means which would per-
mit timely satisfaction of the Portfolio's obligations as writer of the op-
tion, such as by depositing in a segregated account liquid high-grade debt ob-
ligations, or cash, equal in value to the exercise price of the option (the
usual practice in the case of a put). A Portfolio's purpose in selling covered
options is to realize greater income than would be realized on portfolio secu-
rities transactions alone. Even a Portfolio that is not designed to generate
income might benefit from selling covered options when MacKay-Shields or Moni-
tor believes that little risk is involved. However, a Portfolio may

25
<PAGE>

forego the benefits of appreciation on securities sold pursuant to call op-
tions, or pay a higher price for securities acquired pursuant to put options
written by the Portfolio.

A call option may be covered by, among other things, the writer's owning the
underlying security throughout the option period, or by holding, on a share-
for-share basis, a call on the same security as the call written, where the
exercise price of the call held is equal to or less than the price of the call
written, or greater than the exercise price of a call written if the differ-
ence is maintained by a Portfolio in cash or high grade liquid debt securities
in a segregated account with its custodian.

A Portfolio will write covered call options both to reduce the risks associ-
ated with certain of its investments and to increase total investment return
through the receipt of premiums. In return for the premium income, a Portfolio
will give up the opportunity to profit from an increase in the market price of
the underlying security above the exercise price so long as its obligations
under the contract continue, except insofar as the premium represents a prof-
it. Moreover, in writing the call option, the Portfolio will retain the risk
of loss should the price of the security decline, which loss the premium is
intended to offset in whole or in part. A Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligations as a writer, and that in such circumstances the net pro-
ceeds realized from the sale of the underlying securities pursuant to the call
may be substantially below the prevailing market price. Covered call options
and the securities underlying such options will be listed on national securi-
ties exchanges, except for certain transactions in options on debt securities
and foreign securities.

A Portfolio may protect itself from further losses due to a decline in value
of the underlying security or from the loss of ability to profit from appreci-
ation by buying an identical option, in which case the purchase cost may off-
set the premium. In order to do this, a Portfolio makes a "closing purchase
transaction"--the purchase of a call option on the same security with the same
exercise price and expiration date as the covered call option which it has
previously written on any particular security. A Portfolio will realize a gain
or loss from a closing purchase transaction if the amount paid to purchase a
call option in a closing transaction is less or more than the amount received
from the sale of the covered call option. Also, because increases in the mar-
ket price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the closing out of a
call option is likely to be offset in whole or in part by unrealized apprecia-
tion of the underlying security owned by a Portfolio. When a security is to be
sold from a Portfolio's portfolio, a Portfolio will first effect a closing
purchase transaction so as to close out any existing covered call option on
that security.

A closing purchase transaction may be made only on a national or foreign se-
curities exchange (an "Exchange") which provides a secondary market for an op-
tion with the same exercise price and expiration date. There is no assurance
that a liquid secondary market on an Exchange or otherwise will exist for any
particular option, or at any particular time, and for some options no second-
ary market on an Exchange or otherwise may exist. If a Portfolio is unable to
effect a closing purchase transaction involving an exchange-traded option, a
Portfolio will not sell the underlying security until the option expires or a
Portfolio delivers the underlying security upon exercise. A closing purchase
transaction for an over-the-counter option may be made only with the other
party to the option.

26
<PAGE>

Each Portfolio pays brokerage commissions and dealer spreads in connection
with writing covered call options and effecting closing purchase transactions,
as well as for purchases and sales of underlying securities. The writing of
covered call options could result in significant increases in a Portfolio's
portfolio turnover rate, especially during periods when market prices of the
underlying securities appreciate. Subject to the limitation that all call and
put option writing transactions be covered, the Portfolios may, to the extent
determined appropriate by the Advisers, engage without limitation in the writ-
ing of options on U.S. Government securities.

PURCHASING CALL OPTIONS. Each Portfolio, except the Cash Management, Bond
and Growth Equity Portfolios, may purchase call options on any securities in
which it may invest in anticipation of an increase in the market value of such
securities. The purchase of a call option would entitle the Portfolio, in ex-
change for the premium paid, to purchase a security at a specified price upon
exercise of the option during the option period. The Portfolio would ordinar-
ily realize a gain if the value of the securities increased during the option
period above the exercise price sufficiently to cover the premium. The Portfo-
lio would have a loss if the value of the securities remained below the sum of
the premium and the exercise price during the option period.

WRITING PUT OPTIONS. Each Portfolio, except the Cash Management, Bond or
Growth Equity Portfolios, may also write covered put options. A put option
written by a Portfolio is "covered" if a Portfolio maintains cash or cash
equivalents (high quality liquid debt securities) with a value equal to the
exercise price in a segregated account with its custodian; however, the Capi-
tal Appreciation, Convertible, High Yield Corporate Bond, Total Return and
Value Portfolios may not write any covered put options, if, as a result, more
than 25% of a Portfolio's total assets (taken at current value) would be sub-
ject to put options written by such Portfolio, and the Government Portfolio
may not write any covered put options on U.S. Government securities if, as a
result, more than 50% of its total assets (taken at current value) would be
subject to put options written by such Portfolio. A put option is also "cov-
ered" if a Portfolio holds on a share-for-share basis a put on the same secu-
rity as the put written, where the exercise price of the put held is equal to
or greater than the exercise price of the put written, or less than the exer-
cise price of the put written if the difference is maintained by a Portfolio
in cash or high grade liquid debt securities in a segregated account with its
custodian.

The premium which a Portfolio receives from writing a put option will re-
flect, among other things, the current market price of the underlying securi-
ty, the relationship of the exercise price to such market price, the histori-
cal price volatility of the underlying security, the option period, supply and
demand and interest rates.

The Portfolios may effect a closing purchase transaction to realize a profit
on an outstanding put option or to prevent an outstanding put option from be-
ing exercised. The Portfolios also may effect a closing purchase transaction,
in the case of a put option, to permit the Portfolios to maintain their hold-
ings of the deposited U.S. Treasury obligations, to write another put option
to the extent that the exercise price thereof is secured by the deposited U.S.
Treasury obligations, or to utilize the proceeds from the sale of such obliga-
tions to make other investments.

If a Portfolio is able to enter into a closing purchase transaction, a Port-
folio will realize a profit or loss from such transaction if the cost of such
transaction is less or more than the

27
<PAGE>

premium received from the writing of the option. After writing a put option, a
Portfolio may incur a loss equal to the difference between the exercise price
of the option and the sum of the market value of the underlying security plus
the premium received from the sale of the option.

In addition, the Portfolios may also write straddles (combinations of cov-
ered puts and calls on the same underlying security). The extent to which the
Portfolios may write covered call options and enter into so-called "straddle"
transactions involving put or call options may be limited by the requirements
of the Code for qualification as a regulated investment company and the Fund's
intention that each Portfolio qualify as such. Subject to the limitation that
all call and put option writing transactions be covered, the Portfolios may,
to the extent determined appropriate by the Advisers, engage without limita-
tion in the writing of options on U.S. Government securities.

PURCHASING PUT OPTIONS. Each Portfolio, except the Cash Management, Bond and
Growth Equity Portfolios, may purchase put options on any securities in which
it may invest in anticipation of a decline in the market value of such securi-
ties. The purchase of a put option would entitle the Portfolio, in exchange
for the premium paid, to sell a security at a specified price upon exercise of
the option during the option period. The put options purchased by the Portfo-
lio may include, but are not limited to, "protective puts" in which the secu-
rity to be sold is identical or substantially identical to a security already
held by the Portfolio or to a security which the Portfolio has the right to
purchase. The Portfolio would ordinarily recognize a gain if the value of the
securities decreased during the option period below the exercise price suffi-
ciently to cover the premium. The Portfolio would recognize a loss if the
value of the securities remained above the difference between the premium and
the exercise price.

SPECIAL RISKS ASSOCIATED WITH OPTIONS ON SECURITIES. Exchange markets in
U.S. Government securities options are a relatively new and untested concept,
and it is impossible to predict the amount of trading interest that may exist
in such options. The same types of risk apply to over-the-counter trading in
options. There can be no assurance that viable markets will develop or con-
tinue in the United States or abroad.

If a put or call option purchased by a Portfolio is not sold when it has re-
maining value, and if the market price of the underlying security, in the case
of a put, remains equal to or greater than the exercise price, or, in the case
of a call, remains less than or equal to the exercise price, a Portfolio will
not be able to exercise profitably the option and will lose its entire invest-
ment in the option. Also, the price of a put or call option purchased to hedge
against price movements in a related security may move more or less than the
price of the related security. A Portfolio will not purchase a put or call op-
tion if, as a result, the amount of premiums paid for all put and call options
then outstanding would exceed 10% of the value of the Portfolio's total as-
sets.

OPTIONS ON FOREIGN CURRENCIES. Each Portfolio, except the Cash Management
Portfolio, Government Portfolio, the Bond Portfolio and the Growth Equity
Portfolio may, to the extent that it invests in foreign securities, purchase
and write options on foreign currencies for hedging purposes in a manner simi-
lar to that of a Portfolio's transactions in currency futures contracts or
forward contracts. For example, a decline in the dollar value of a foreign
currency in which portfolio securities are denominated will reduce the dollar
value of such

28
<PAGE>

securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securi-
ties, a Portfolio may purchase put options on the foreign currency. If the
value of the currency does decline, that Portfolio will have the right to sell
such currency for a fixed amount of dollars which exceeds the market value of
such currency, resulting in a gain that may offset, in whole or in part, the
negative effect of currency depreciation on the value of a Portfolio's securi-
ties denominated in that currency.

Conversely, if a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, a Portfolio may purchase call options on such currency. If
the value of such currency does increase, the purchase of such call options
would enable a Portfolio to purchase currency for a fixed amount of dollars
which is less than the market value of such currency, resulting in a gain that
may offset, at least partially, the effect of any currency-related increase in
the price of securities a Portfolio intends to acquire. As in the case of
other types of options transactions, however, the benefit a Portfolio derives
from purchasing foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, if currency exchange rates
do not move in the direction or to the extent anticipated, a Portfolio could
sustain losses on transactions in foreign currency options which would deprive
it of a portion or all of the benefits of advantageous changes in such rates.

A Portfolio may also write options on foreign currencies for hedging purpos-
es. For example, if a Portfolio anticipates a decline in the dollar value of
foreign currency-denominated securities due to declining exchange rates, it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset
by the amount of the premium received by a Portfolio.

Similarly, instead of purchasing a call option to hedge against an antici-
pated increase in the dollar cost of securities to be acquired, a Portfolio
could write a put option on the relevant currency. If rates move in the manner
projected, the put option will expire unexercised and allow a Portfolio to
offset such increased cost up to the amount of the premium. As in the case of
other types of options transactions, however, the writing of a foreign cur-
rency option will constitute only a partial hedge up to the amount of the pre-
mium, and only if rates move in the expected direction. If unanticipated ex-
change rate fluctuations occur, the option may be exercised and a Portfolio
would be required to purchase or sell the underlying currency at a loss which
may not be fully offset by the amount of the premium. As a result of writing
options on foreign currencies, a Portfolio also may be required to forego all
or a portion of the benefits which might otherwise have been obtained from fa-
vorable movements in currency exchange rates.

A call option written on foreign currency by a Portfolio is "covered" if
that Portfolio owns the underlying foreign currency subject to the call or se-
curities denominated in that currency or has an absolute and immediate right
to acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if a Portfolio holds a call on the same foreign
currency for the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the

29
<PAGE>

call written if the amount of the difference is maintained by a Portfolio in
cash and liquid high grade debt securities in a segregated account with its
Custodian.

FUTURES TRANSACTIONS

The Convertible, Government, High Yield Corporate Bond, International Equity
and Total Return Portfolios may purchase and sell futures contracts on debt
securities and on indexes of debt securities to hedge against anticipated
changes in interest rates that might otherwise have an adverse effect upon the
value of a Portfolio's portfolio securities. Each of such Portfolios may also
enter into such futures contracts in order to lengthen or shorten the average
maturity or duration of the Portfolio's portfolio. For example, a Portfolio
may purchase futures contracts as a substitute for the purchase of longer-term
debt securities to lengthen the average duration of a Portfolio's portfolio of
fixed-income securities. The Capital Appreciation, Convertible, High Yield
Corporate Bond, International Equity, Total Return, Value and Indexed Equity
Portfolios may purchase and sell futures contracts on stock index futures to
hedge the equity portion of those Portfolio's securities portfolios with re-
gard to market (systematic) risk (involving the market's assessment of overall
economic prospects), as distinguished from stock-specific risk (involving the
market's evaluation of the merits of the issuer of a particular security).
These Portfolios may also purchase and sell other futures when deemed appro-
priate, in order to hedge the equity or non-equity portions of their portfo-
lios. In addition, each Portfolio except the Cash Management, Government, Bond
and Growth Equity Portfolios may, to the extent it invests in foreign securi-
ties, enter into contracts for the future delivery of foreign currencies to
hedge against changes in currency exchange rates. Each of the Portfolios, ex-
cept the Cash Management, Bond and Growth Equity Portfolios, may also purchase
and write put and call options on futures contracts of the type into which
such Portfolio is authorized to enter and may engage in related closing trans-
actions. In the United States, all such futures on debt securities, debt index
futures, stock index futures, foreign currency futures and related options
will be traded on exchanges that are regulated by the Commodity Futures Trad-
ing Commission ("CFTC"). Subject to applicable CFTC rules, the Portfolios also
may enter into futures contracts traded on the following foreign futures ex-
changes: Frankfurt, Tokyo, London and Paris, as long as trading on the afore-
said foreign futures exchanges does not subject a Portfolio to risks that are
materially greater than the risks associated with trading on U.S. exchanges.

A futures contract is an agreement to buy or sell a security or currency (or
to deliver a final cash settlement price in the case of a contract relating to
an index or otherwise not calling for physical delivery at the end of trading
in the contract), for a set price in a future month. In the United States,
futures contracts are traded on boards of trade which have been designated
"contract markets" by the CFTC. Futures contracts trade on these markets
through an "open outcry" auction on the exchange floor. Currently, there are
futures contracts based on long-term U.S. Treasury bonds, Treasury notes, GNMA
certificates, three-month U.S. Treasury bills, three-month domestic bank cer-
tificates of deposit, major foreign currencies, a municipal bond index and
various stock indexes. When interest rates are changing and portfolio values
are falling, the sale of futures contracts can offset a decline in the value
of a Portfolio's current portfolio securities. When interest rates are chang-
ing and portfolio values are rising, the purchase of futures contracts can se-
cure better effective rates or prices for the Portfolio than might later be
available in the market when the Portfolio makes anticipated purchases. The
purchase of futures contracts can also be used as a substitute for the

30
<PAGE>

purchase of longer-term securities to lengthen the average maturity or dura-
tion of a Portfolio's portfolio. Similarly, a Portfolio can sell futures con-
tracts on a specified currency to protect against a decline in the value of
such currency and its portfolio securities which are denominated in such cur-
rency. A Portfolio can purchase futures contracts on foreign currency to fix
the price in U.S. dollars of a security denominated in such currency that a
Portfolio has acquired or expects to acquire.

When a purchase or sale of a futures contract is made by a Portfolio, a
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the con-
tract. The initial margin is in the nature of a performance bond or good faith
deposit on the futures contract which is returned to a Portfolio upon termina-
tion of the contract assuming all contractual obligations have been satisfied.
Each Portfolio expects to earn interest income on its initial margin deposits.
A futures contract held by a Portfolio is valued daily at the official settle-
ment price of the exchange on which it is traded. Each day a Portfolio pays or
receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Varia-
tion margin does not represent a borrowing or loan by a Portfolio but is in-
stead a settlement between a Portfolio and the broker of the amount one would
owe the other if the futures contract expired. In computing daily net asset
value, each Portfolio will mark to market its open futures positions. If the
price of a futures contract changes more than the price of the securities or
currencies, the Portfolio will experience either a loss or gain on the futures
contracts which will not be completely offset by changes in the price of the
securities or currencies which are the subject of the hedge. In addition, it
is not possible to hedge fully or perfectly against currency fluctuations af-
fecting the value of securities denominated in foreign currencies because the
value of such securities is likely to fluctuate as a result of independent
factors not related to currency fluctuations.

A Portfolio is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by a Portfolio.

Positions taken in the futures markets are not normally held until delivery
or final cash settlement is required, but are instead liquidated through off-
setting transactions which may result in a gain or a loss. While futures posi-
tions taken by a Portfolio will usually be liquidated in this manner, a Port-
folio may instead make or take delivery of underlying securities or currencies
whenever it appears economically advantageous to a Portfolio to do so. A
clearing organization associated with the exchange on which futures are traded
assumes responsibility for closing-out transactions and guarantees that as be-
tween the clearing members of an exchange, the sale and purchase obligations
will be performed with regard to all positions that remain open at the termi-
nation of the contract.

FUTURES ON DEBT SECURITIES. A futures contract on a debt security is a bind-
ing contractual commitment which, if held to maturity, will result in an obli-
gation to make or accept delivery, during a particular future month, of secu-
rities having a standardized face value and rate of return. By purchasing
futures on debt securities--assuming a "long" position--a Portfolio will le-
gally obligate itself to accept the future delivery of the underlying security
and pay

31
<PAGE>

the agreed-upon price. By selling futures on debt securities--assuming a
"short" position--it will legally obligate itself to make the future delivery
of the security against payment of the agreed-upon price. Open futures posi-
tions on debt securities will be valued at the most recent settlement price,
unless such price does not appear to the Directors to reflect the fair value
of the contract, in which case the positions will be valued by or under the
direction of the Directors.

Hedging by use of futures on debt securities seeks to establish, more cer-
tainly than would otherwise be possible, the effective rate of return on port-
folio securities. A Portfolio may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by a Portfolio (or securities having characteristics similar to those
held by a Portfolio) in order to hedge against an anticipated rise in interest
rates that would adversely affect the value of a Portfolio's portfolio securi-
ties. When hedging of this character is successful, any depreciation in the
value of portfolio securities will be substantially offset by appreciation in
the value of the futures position.

On other occasions, a Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when a Portfolio
intends to purchase particular securities and it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If
the anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to a Portfolio of purchas-
ing the securities will be offset, at least to some extent, by the rise in the
value of the futures position taken in anticipation of the subsequent securi-
ties purchase. A Portfolio may also purchase futures contracts as a substitute
for the purchase of longer-term securities to lengthen the average duration of
the Portfolio's portfolio.

A Portfolio could accomplish similar results by selling securities with long
maturities and investing in securities with short maturities when interest
rates are expected to increase or by buying securities with long maturities
and selling securities with short maturities when interest rates are expected
to decline. However, by using futures contracts as a risk management tech-
nique, given the greater liquidity in the futures market than in the cash mar-
ket, it may be possible to accomplish the same result more easily and more
quickly.

SECURITIES INDEX FUTURES. A securities index futures contract does not re-
quire the physical delivery of securities, but merely provides for profits and
losses resulting from changes in the market value of the contract to be cred-
ited or debited at the close of each trading day to the respective accounts of
the parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes
in the specified index of equity securities on which the contract is based. A
stock index is designed to reflect overall price trends in the market for eq-
uity securities.

Stock index futures may be used to hedge the equity portion of a Portfolio's
securities portfolio with regard to market (systematic) risk, as distinguished
from stock-specific risk. The Portfolios may enter into stock index futures to
the extent that they have equity securities in their portfolios. Similarly,
the Portfolios may enter into futures on debt securities indexes to the extent
they have debt securities in their portfolios. By establishing an appropriate
"short" position in securities index futures, a Portfolio may seek to protect
the value of its portfolio

32
<PAGE>

against an overall decline in the market for securities. Alternatively, in an-
ticipation of a generally rising market, a Portfolio can seek to avoid losing
the benefit of apparently low current prices by establishing a "long" position
in securities index futures and later liquidating that position as particular
securities are in fact acquired. To the extent that these hedging strategies
are successful, a Portfolio will be affected to a lesser degree by adverse
overall market price movements, unrelated to the merits of specific portfolio
securities, than would otherwise be the case. A Portfolio may also purchase
futures on debt securities or indexes as a substitute for the purchase of
longer-term debt securities to lengthen the average duration of a Portfolio's
debt portfolio.

CURRENCY FUTURES. A sale of a currency futures contract creates an obliga-
tion by a Portfolio, as seller, to deliver the amount of currency called for
in the contract at a specified future time for a specified price. A purchase
of a currency futures contract creates an obligation by a Portfolio, as pur-
chaser, to take delivery of an amount of currency at a specified future time
at a specified price. A Portfolio may sell a currency futures contract, if the
Adviser anticipates that exchange rates for a particular currency will fall,
as a hedge against a decline in the value of a Portfolio's securities denomi-
nated in such currency. If the Adviser anticipates that exchange rates will
rise, a Portfolio may purchase a currency futures contract to protect against
an increase in the price of securities denominated in a particular currency a
Portfolio intends to purchase. Although the terms of currency futures con-
tracts specify actual delivery or receipt, in most instances the contracts are
closed out before the settlement date without the making or taking of delivery
of the currency. Closing out of a currency futures contract is effected by en-
tering into an offsetting purchase or sale transaction. To offset a currency
futures contract sold by a Portfolio, a Portfolio purchases a currency futures
contract for the same aggregate amount of currency and delivery date. If the
price in the sale exceeds the price in the offsetting purchase, a Portfolio is
immediately paid the difference. Similarly, to close out a currency futures
contract purchased by a Portfolio, a Portfolio sells a currency futures con-
tract. If the offsetting sale price exceeds the purchase price, a Portfolio
realizes a gain, and if the offsetting sale price is less than the purchase
price, a Portfolio realizes a loss.

A risk in employing currency futures contracts to protect against the price
volatility of portfolio securities denominated in a particular currency is
that changes in currency exchange rates or in the value of the futures posi-
tion may correlate imperfectly with changes in the cash prices of a Portfo-
lio's securities. The degree of correlation may be distorted by the fact that
the currency futures market may be dominated by short-term traders seeking to
profit from changes in exchange rates. This would reduce the value of such
contracts for hedging purposes over a short-term period. Such distortions are
generally minor and would diminish as the contract approached maturity. An-
other risk is that the Adviser could be incorrect in its expectation as to the
direction or extent of various exchange rate movements or the time span within
which the movements take place.

OPTIONS ON FUTURES. For bona fide hedging and other appropriate risk manage-
ment purposes, the Portfolios, except the Cash Management, Bond and Growth Eq-
uity Portfolios, also may purchase and write call and put options on futures
contracts which are traded on exchanges that are licensed and regulated by the
CFTC for the purpose of options trading, or, subject to applicable CFTC rules,
on foreign exchanges. A "call" option on a futures contract gives the pur-
chaser the right, in return for the premium paid, to purchase a futures con-
tract (assume a "long" position) at a specified exercise price at any time be-
fore the option

33
<PAGE>

expires. A "put" option gives the purchaser the right, in return for the pre-
mium paid, to sell a futures contract (assume a "short" position), for a spec-
ified exercise price at any time before the option expires.

Upon the exercise of a "call," the writer of the option is obligated to sell
the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a "put,"
the writer of the option is obligated to purchase the futures contract (de-
liver a "short" position to the option holder) at the option exercise price,
which will presumably be higher than the current market price of the contract
in the futures market. When an entity exercises an option and assumes a long
futures position, in the case of a "call," or a short futures position, in the
case of a "put," its gain will be credited to its futures margin account,
while the loss suffered by the writer of the option will be debited to its ac-
count. However, as with the trading of futures, most participants in the op-
tions markets do not seek to realize their gains or losses by exercise of
their option rights. Instead, the writer or holder of an option will usually
realize a gain or loss by buying or selling an offsetting option at a market
price that will reflect an increase or a decrease from the premium originally
paid.

Options on futures contracts can be used by a Portfolio to hedge substan-
tially the same risks and for the same duration and risk management purposes
as might be addressed or served by the direct purchase or sale of the under-
lying futures contracts. If a Portfolio purchases an option on a futures con-
tract, it may obtain benefits similar to those that would result if it held
the futures position itself.

The purchase of put options on futures contracts is a means of hedging a
Portfolio's portfolio against the risk of rising interest rates, declining se-
curities prices or declining exchange rates for a particular currency. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance affecting securities prices or currency exchange
rates when a Portfolio is not fully invested or of lengthening the average ma-
turity or duration of a Portfolio's portfolio. Depending on the pricing of the
option compared to either the futures contract upon which it is based or upon
the price of the underlying securities or currencies, it may or may not be
less risky than ownership of the futures contract or underlying securities or
currencies.

In contrast to a futures transaction, in which only transaction costs are
involved, benefits received in an option transaction will be reduced by the
amount of the premium paid as well as by transaction costs. In the event of an
adverse market movement, however, a Portfolio will not be subject to a risk of
loss on the option transaction beyond the price of the premium it paid plus
its transaction costs, and may consequently benefit from a favorable movement
in the value of its portfolio securities or the currencies in which such secu-
rities are denominated that would have been more completely offset if the
hedge had been effected through the use of futures.

If a Portfolio writes options on futures contracts, a Portfolio will receive
a premium but will assume a risk of adverse movement in the price of the un-
derlying futures contract comparable to that involved in holding a futures po-
sition. If the option is not exercised, a Portfolio will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by or to be acquired for a Portfolio. If the option
is exercised, a Portfolio will incur a loss in the option transaction, which
will be reduced by the

34
<PAGE>

amount of the premium it has received, but which may partially offset favora-
ble changes in the value of its portfolio securities or the currencies in
which such securities are denominated.

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the underlying securities or the currencies
in which such securities are denominated. If the futures price at expiration
is below the exercise price, a Portfolio will retain the full amount of the
option premium, which provides a partial hedge against any decline that may
have occurred in a Portfolio's holdings of securities or the currencies in
which such securities are denominated.

The writing of a put option on a futures contract is analogous to the pur-
chase of a futures contract. For example, if a Portfolio writes a put option
on a futures contract on debt securities related to securities that a Portfo-
lio expects to acquire and the market price of such securities increases, the
net cost to a Portfolio of the debt securities acquired by it will be reduced
by the amount of the option premium received. Of course, if market prices have
declined, a Portfolio's purchase price upon exercise may be greater than the
price at which the debt securities might be purchased in the securities mar-
ket.

While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the
same series, a Portfolio's ability to establish and close out options posi-
tions at fairly established prices will be subject to the maintenance of a
liquid market. The Portfolios will not purchase or write options on futures
contracts unless the market for such options has sufficient liquidity such
that the risks associated with such options transactions are not at unaccept-
able levels.

LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. The Portfolios which engage in transactions in futures contracts
and related options do so only for bona fide hedging and other appropriate
risk management purposes, and not for speculation. A Portfolio will not enter
into a futures contract or futures option contract if, immediately thereafter,
the aggregate initial margin deposits relating to such positions plus premiums
paid by it for open futures option positions, less the amount by which any
such options are "in-the-money," would exceed 5% of a Portfolio's total as-
sets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.

When purchasing a futures contract, a Portfolio will maintain with its cus-
todian (and mark-to-market on a daily basis) cash, U.S. Government securities,
or other highly liquid debt securities that, when added to the amounts depos-
ited with a futures commission merchant as margin, are equal to the market
value of the futures contract. Alternatively, a Portfolio may "cover" its po-
sition by purchasing a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by a Portfolio.

When selling a futures contract, a Portfolio will maintain with its custo-
dian (and mark-to-market on a daily basis) liquid assets that, when added to
the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
a Portfolio may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or

35
<PAGE>

by holding a call option permitting a Portfolio to purchase the same futures
contract at a price no higher than the price of the contract written by a
Portfolio (or at a higher price if the difference is maintained in liquid as-
sets with a Portfolio's custodian).

When selling a call option on a futures contract, a Portfolio will maintain
with its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, equal the to-
tal market value of the futures contract underlying the call option. Alterna-
tively, a Portfolio may cover its position by entering into a long position in
the same futures contract at a price no higher than the strike price of the
call option, by owning the instruments underlying the futures contract, or by
holding a separate call option permitting a Portfolio to purchase the same
futures contract at a price not higher than the strike price of the call op-
tion sold by a Portfolio.

When selling a put option on a futures contract, a Portfolio will maintain
with its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that equal the purchase
price of the futures contract, less any margin on deposit. Alternatively, a
Portfolio may cover the position either by entering into a short position in
the same futures contract, or by owning a separate put option permitting it to
sell the same futures contract so long as the strike price of the purchased
put option is the same or higher than the strike price of the put option sold
by a Portfolio.

In order to comply with applicable regulations of the CFTC pursuant to which
the Portfolios avoid being deemed a "commodity pool," the Portfolios are lim-
ited in their futures trading activities to positions which constitute "bona
fide hedging" positions within the meanings and intent of applicable CFTC
rules, or to positions which qualify under an alternative test. Under this al-
ternative test, the "underlying commodity value" of each long position in a
commodity contract in which a Portfolio invests may not at any time exceed the
sum of: (1) the value of short-term U.S. debt obligations or other U.S. dol-
lar-denominated high quality short-term money market instruments and cash set
aside in an identifiable manner, plus any funds deposited as margin on the
contract; (2) unrealized appreciation on the contract held by the broker; and
(3) cash proceeds from existing investments due in not more than 30 days. "Un-
derlying commodity value" means the size of the contract multiplied by the
daily settlement price of the contract.

The requirements for qualification as a regulated investment company also
may limit the extent to which a Portfolio may enter into futures, futures op-
tions or forward contracts. See Tax Status.

RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no guaran-
tee that there will be a correlation between price movements in the hedging
vehicle and in the Portfolio's securities being hedged. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree of imperfection of correlation de-
pends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the finan-

36
<PAGE>

cial instruments being hedged and the instruments underlying the standard con-
tracts available for trading in such respects as interest rate levels, maturi-
ties, and creditworthiness of issuers. A decision as to whether, when and how
to hedge involves the exercise of skill and judgment, and even a well-con-
ceived hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.

Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit estab-
lishes the maximum amount that the price of a futures contract may vary either
up or down from the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a futures contract
subject to the limit, no more trades may be made on that day at a price beyond
that limit. The daily limit governs only price movements during a particular
trading day and therefore does not limit potential losses because the limit
may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several consecu-
tive trading days with little or no trading, thereby preventing prompt liqui-
dation of positions and subjecting some holders of futures contracts to sub-
stantial losses.

There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures or a futures option position, and that
Portfolio would remain obligated to meet margin requirements until the posi-
tion is closed. In addition, many of the contracts discussed above are rela-
tively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or con-
tinue to exist.

SECURITIES INDEX OPTIONS

The Portfolios, except the Bond and Growth Equity Portfolios, may purchase
call and put options on securities indexes, including European and American
options, for the purpose of hedging against the risk of unfavorable price
movements adversely affecting the value of a Portfolio's securities. Unlike a
securities option, which gives the holder the right to purchase or sell speci-
fied securities at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to
(i) the difference between the exercise price of the option and the value of
the underlying securities index on the exercise date, multiplied by (ii) a
fixed "index multiplier."

A securities index fluctuates with changes in the market values of the secu-
rities so included. For example, some securities index options are based on a
broad market index such as the S&P Index of 500 Common Stocks or the N.Y.S.E.
Composite Index, or a narrower market index such as the S&P 100 Index. Indexes
may also be based on an industry or market segment such as the AMEX Oil and
Gas Index or the Computer and Business Equipment Index. Options on stock in-
dexes are currently traded on the following exchanges, among others: The Chi-
cago Board Options Exchange, New York Stock Exchange, and American Stock Ex-
change. Options on other types of securities indexes, which do not currently
exist, including indexes on debt securities, may be introduced and traded on
exchanges in the future. If such options are introduced, the Portfolios will
not purchase them until they have appropriately amended or supplemented the
Prospectus or Statement of Additional Information, or both.

37
<PAGE>

The effectiveness of hedging through the purchase of securities index op-
tions will depend upon the extent to which price movements in the portion of
the securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the se-
curities held or to be acquired by a Portfolio will not exactly match the se-
curities represented in the securities indexes on which options are based. In
addition, the purchase of securities index options involves essentially the
same risks as the purchase of options on futures contracts. The principal risk
is that the premium and transaction costs paid by a Portfolio in purchasing an
option will be lost as a result of unanticipated movements in prices of the
securities comprising the securities index on which the option is based.

ADDITIONAL INVESTMENT POLICIES APPLICABLE TO THE INTERNATIONAL EQUITY
PORTFOLIO

In addition to the investment policies set forth above, the International
Equity Portfolio may enter the following transactions described below:

SWAP AGREEMENTS

The International Equity Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfo-
lio had invested directly in an instrument that yielded that desired return or
for other portfolio management purposes. Swap agreements are two party con-
tracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value
of a particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index. Commonly used swap agreements include (i) interest rate
caps, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates exceed a specified rate, or
"cap", (ii) interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor" and (iii) interest rate collars, un-
der which a party sells a cap and purchases a floor or vice versa in an at-
tempt to protect itself against interest rate movements exceeding given mini-
mum or maximum levels. The "notional amount" of the swap agreement is only a
fictive basis on which to calculate the obligations which the parties to a
swap agreement have agreed to exchange. The Portfolio's obligations (or
rights) under a swap agreement will generally be equal only to the net amount
to be paid or received under the agreement based on the relative values of the
positions held by each party to the agreement (the "net amount"). The Portfo-
lio's obligations under a swap agreement will be accrued daily (offset against
any amounts owing to the Portfolio) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or high grade debt ob-
ligations, to avoid any potential leveraging of the Portfolio's portfolio. The
Portfolio will not enter into a swap agreement with any single party if the
net amount owed or to be received under existing contracts with that party
would exceed 5% of the Portfolio's assets.

Whether the Portfolio's use of swap agreements will be successful in fur-
thering its investment objective will depend on the Adviser's ability cor-
rectly to predict whether certain types

38
<PAGE>

of investments are likely to produce greater returns than other investments.
Because they are two party contracts and because they may have terms of
greater than seven days, swap agreements may be considered to be illiquid.
Moreover, the Portfolio bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. The Adviser will cause the Portfolio to enter
into swap agreements only with counterparties that would be eligible for con-
sideration as repurchase agreement counterparties under the Portfolio's repur-
chase agreement guidelines. Certain restrictions imposed on the Portfolios by
the Internal Revenue Code may limit the Portfolio's ability to use swap agree-
ments. The swaps market is a relatively new market and is largely unregulated.
It is possible that developments in the swaps market, including potential gov-
ernment regulation, could adversely affect the Portfolio's ability to termi-
nate existing swap agreements or to realize amounts to be received under such
agreements.

Certain swap agreements are exempt from most provisions of the Commodity Ex-
change Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the
Commodity Futures Trading Commission ("CFTC") effective February 22, 1993. To
qualify for this exemption, a swap agreement must be entered into by "eligible
participants," which includes the following, provided the participants' total
assets exceed established levels: a bank or trust company, savings association
or credit union, insurance company, investment company subject to regulation
under the Investment Company Act of 1940, commodity pool, corporation, part-
nership, proprietorship, organization, trust or other entity, employee benefit
plan, governmental entity, broker-dealer, futures commission merchant, natural
person, or regulated foreign person. To be eligible, natural persons and most
other entities must have total assets exceeding $10 million; commodity pools
and employee benefit plans must have assets exceeding $5 million. In addition,
an eligible swap transaction must meet three conditions. First, the swap
agreement may not be part of a fungible class of agreements that are standard-
ized as to their material economic terms. Second, the creditworthiness of par-
ties with actual or potential obligations under the swap agreement must be a
material consideration in entering into or determining the terms of the swap
agreement, including pricing, cost or credit enhancement terms. Third, swap
agreements may not be entered into and traded on or through a multilateral
transaction execution facility.

This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a safe harbor for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with
a line of business, and (4) are not marketed to the public.

STATE INSURANCE LAW REQUIREMENTS

Applicable state insurance laws and regulations permit NYLIAC to invest the
assets allocated to NYLIAC's variable annuity and variable life insurance sep-
arate accounts in mutual funds, which are the investments contractually per-
mitted by the Policies. As a Delaware insurance company doing business in New
York, NYLIAC is required by section 4240 of the New York Insurance Law to in-
vest such assets prudently. Subject to the direction of the Directors, the Ad-
visers will make investments satisfying this requirement for each Portfolio.

39
<PAGE>

In addition, the Fund will comply with restrictions contained in any other in-
surance laws in order that the assets of NYLIAC's separate accounts may be in-
vested in Portfolio shares.

PORTFOLIO TURNOVER

Each Portfolio has a different expected annual rate of portfolio turnover,
which is calculated by dividing the lesser of purchases or sales of portfolio
securities during the fiscal year by the monthly average of the value of the
Portfolio's securities (excluding from the computation all securities, includ-
ing options, with maturities or expiration dates at the time of acquisition of
one year or less). A high rate of portfolio turnover generally involves corre-
spondingly greater brokerage commission expenses, which must be borne directly
by the Portfolios. Turnover rates may vary greatly from year to year as well
as within a particular year and may also be affected by cash requirements for
redemptions of each Portfolio's shares and by requirements which enable the
Fund to receive certain favorable tax treatments.

For the period ended June 30, 1996 and the years ending December 31, 1995,
December 31, 1994 and December 31, 1993, the rate of portfolio turnover for
each of the following Portfolios was as follows: for the Bond Portfolio,
35.43% (unannualized), 80.86%, 88.32% and 41.24%, respectively; and Growth Eq-
uity Portfolio, 63.36% (unannualized), 104.07%, 108.21% and 120.62%, respec-
tively. For the period ended June 30, 1996 and the years ended December 31,
1995, December 31, 1994 and the period January 29, 1993 (Commencement of Oper-
ations) through December 31, 1993, the rate of portfolio turnover for the fol-
lowing Portfolios was as follows: the Capital Appreciation Portfolio, 8.29%
(unannualized), 34.83%, 38.84% and 28.46% (unannualized), respectively; the
Government Portfolio, 172.23% (unannualized), 591.59%, 483.06% and 501.34%
(unannualized), respectively; the Total Return Portfolio, 102.46%
(unannualized), 253.00%, 297.16% and 196.69% (unannualized), respectively; and
the Indexed Equity Portfolio, 1.15% (unannualized), 4.99%, 8.30% and 6.96%
(unannualized), respectively. With respect to the Cash Management Portfolio,
for the period ended June 30, 1996 and the year ended December 31, 1995, the
rate of portfolio turnover as calculated in accordance with applicable SEC
regulations, was 0%. For the period May 1, 1995 (Commencement of Operations)
through December 31, 1995, the unannualized rates of portfolio turnover for
the High Yield Corporate Bond, International Equity and Value Portfolios were
as follows: 94.98%, 13.65%, and 19.75%, respectively. For the period ended
June 30, 1996, the unannualized rates of portfolio turnover for these Portfo-
lios were as follows: 105.33%, 12.30% and 17.28% respectively. A turnover rate
in excess of 100% is likely to result in a Portfolio's bearing higher broker-
age costs.

40
<PAGE>

MANAGEMENT OF THE FUND

The directors and executive officers of the Fund and their principal occupa-
tions for the past five years are set forth below. Each director of the Fund
is also a director of the New York Life Fund, Inc.

<TABLE>
<CAPTION>
POSITIONS(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS** AGE WITH REGISTRANT DURING PAST FIVE YEARS
- ------------------ --- ----------------- -----------------------
<S> <C> <C> <C>
Michael J. Drabb........ 62 Director Executive Vice President and Direc-
tor of O'Brien Asset Management,
Inc., from August 1993 to date, Ex-
ecutive Vice President of The Mu-
tual Life Insurance Company of New
York ("MONY") from May 1989 to
April 1992. Mr. Drabb is also a Di-
rector of the following Corpora-
tions; MONY Series Fund, J.P. Food
Services, Inc., and United States
Leather.
Jill Feinberg........... 41 Director Consultant, Jill Feinberg & Company
from 1989 to date.
Daniel Herrick.......... 75 Director Treasurer and Senior Executive, Na-
tional Gallery of Art, Washington,
D.C. from December 1985 to June
1995.
Richard M. Kernan, Jr.*. 55 Chairman of the Executive Vice President in charge
Board, Chief of the Investment Department of New
Executive Officer York Life Insurance Company from
and Director March 1991 to date; Senior Vice
President in charge of the Invest-
ment Department prior thereto.
Anne F. Pollack*........ 40 President, Chief Senior Vice President of New York
Administrative Life Insurance Company from March
Officer and Director 1992 to date; Vice President from
February 1988 to March 1992.
Robert D. Rock*......... 41 Vice President and Senior Vice President in charge of
Director the Individual Annuity Department
of New York Life Insurance Company
from March 1991 to date.
Roman L. Weil........... 55 Director Professor of Accounting and Sigmund
E. Edelstone Professor of Account-
ing, Graduate School of Business,
University of Chicago, from Septem-
ber 1976 to present, Visiting Pro-
fessor of Law, Stanford University
Law School, from September 1990 to
date.
</TABLE>

41
<PAGE>

<TABLE>
<CAPTION>
POSITIONS(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS** AGE WITH REGISTRANT DURING PAST FIVE YEARS
- ------------------ --- ----------------- -----------------------
<S> <C> <C> <C>
Officers (other than directors)
Anthony W. Polis........ 52 Treasurer Vice President of New York Life In-
surance Company from 1988 to date.
Marc J. Chalfin......... 50 Controller Senior Vice President and Controller
of New York Life Insurance Company
from March 1995 to date; Vice Pres-
ident and Controller from February
1994 to date; Vice President and
Deputy Controller from March 1991
to date.
</TABLE>
- --------
* Directors identified with an asterisk are considered to be interested per-
sons of the Fund within the meaning of the 1940 Act because of their affil-
iation with New York Life. None of the directors and executive officers of
the Fund owns any stock of the Fund.
** The address of each director and executive officer is 51 Madison Avenue,
New York, New York 10010.

For services rendered to the Fund during the fiscal year ended December 31,
1995, the directors received an aggregate of $88,000 from the Fund as direc-
tors' fees. Each director of the Fund who is not an interested person of the
Fund currently receives a fee of $16,000 per year plus $750 for each meeting
attended, and is reimbursed for out-of-pocket expenses incurred in connection
with attending meetings. No director or officer of the Fund who is also a di-
rector, officer or employee of New York Life is entitled to any compensation
from the Fund for services to the Fund. The following Compensation Table re-
flects all compensation paid by the Fund for the six months ended June 30,
1996, for each of the following persons:

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION FROM
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL REGISTRANT AND FUND
NAME OF PERSON, COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
POSITION FROM REGISTRANT EXPENSES RETIREMENT DIRECTORS
--------------- --------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Michael J. Drabb,
Director............... $10,250 $ 0 $ 0 $10,250
Jill Feinberg, Director. 10,250 0 0 10,250
Daniel Herrick,
Director............... 10,250 0 0 10,250
Richard M. Kernan, Jr.,
Director............... 0 0 0 0
Anne F. Pollack,
Director............... 0 0 0 0
Robert D. Rock,
Director............... 0 0 0 0
Roman L. Weil, Director. 10,250 0 0 10,250
-------
TOTAL................. $41,000
=======
</TABLE>

42
<PAGE>

INVESTMENT ADVISERS

Pursuant to the Investment Advisory Agreements for the Capital Appreciation
Portfolio, Cash Management Portfolio, Government Portfolio, and Total Return
Portfolio, dated December 15, 1995, the Investment Advisory Agreement, dated
December 15, 1995, for the Indexed Equity Portfolio, the Investment Advisory
Agreements for the High Yield Corporate Bond, International Equity and Value
Portfolios, dated February 22, 1995, and the Investment Advisory Agreement for
the Convertible Portfolio dated August 22, 1996, MacKay-Shields or Monitor,
respectively, each subject to the supervision of the Directors of the Fund and
in conformity with the stated policies of each Portfolio of the Fund, manages
the investment operations of the respective portfolios that it advises and the
composition of each such Portfolio's portfolio, including the purchase, reten-
tion, disposition and loan of securities. New York Life will perform these
services for the Bond and Growth Equity Portfolios pursuant to an Investment
Advisory Agreement dated December 15, 1995.

Each Investment Advisory Agreement will remain in effect for two years fol-
lowing its effective date, and will continue in effect thereafter only if such
continuance is specifically approved at least annually by the Directors or by
vote of a majority of the outstanding voting securities of the particular
Portfolio (as defined in the 1940 Act and in a rule under the Act) and, in ei-
ther case, by a majority of the Directors who are not parties to the Invest-
ment Advisory Agreements or interested persons of any such party.

The Advisers have each authorized any of their directors, officers and em-
ployees who have been elected or appointed as directors or officers of the
Fund to serve in the capacities in which they have been elected or appointed.
In connection with the services it renders, MacKay-Shields, New York Life or
Monitor bears the salaries and expenses of all of its personnel.

Other than as imposed by law, the Investment Advisory Agreements provide
that MacKay-Shields, New York Life or Monitor shall not be liable to the Port-
folios for any error of judgment by MacKay-Shields, New York Life or Monitor
or for any loss sustained by the Funds or NYLIFE Securities Inc. except in the
case of willful misfeasance, bad faith, gross negligence or reckless disregard
of duty. Each Agreement also provides that it shall terminate automatically if
assigned and that it may be terminated without penalty by either party upon no
more than 60 days' nor less than 30 days' written notice.

"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and
"500" are trademarks of Standard & Poor's Corporation and have been licensed
for use by Monitor. The Indexed Equity Portfolio is not sponsored, endorsed,
sold or promoted by S&P and S&P makes no representation regarding the advis-
ability of investing in the Indexed Equity Portfolio.

ADMINISTRATION AGREEMENTS

NYLIAC ("Administrator") acts as administrator for the Portfolios pursuant
to Administration Agreements dated December 15, 1995. NYLIAC has entered into
an Administration Agreement Supplement for the Convertible Portfolio dated Au-
gust 22, 1996. The Administrator has authorized any of its directors, officers
and employees who have been elected or appointed as Directors or officers of
the Fund to serve in the capacities in which they have

43
<PAGE>

been elected or appointed. In connection with its administration of the busi-
ness affairs of the Portfolios, and except as indicated in the Prospectus, the
Administrator bears the following expenses:

(a) the salaries and expenses of all personnel of the Fund and the Admin-
istrator, except the fees and expenses of Directors not affiliated with the
Administrator or the Advisers; and

(b) all expenses incurred by the Administrator in connection with admin-
istering the ordinary course of the Portfolios' business, other than those
assumed by the Fund.

NYLIAC has agreed to limit the "Other Expenses" of each of the Capital Ap-
preciation, Cash Management, Government, Total Return, Bond, Growth Equity and
Indexed Equity Portfolios to .17% annually through December 31, 1996 and the
Convertible, High Yield Corporate Bond, International Equity and Value Portfo-
lios to .17% annually through December 31, 1997.

Under a separate agreement, New York Life has granted the Fund the right to
use the "New York Life" name and service marks and has reserved the right to
withdraw its consent to the use of such name and marks by the Fund at any
time, and to grant the use of such name and marks to other users.

PORTFOLIO BROKERAGE

The Advisers determine which securities to buy and sell for the Fund, select
brokers and dealers to effect the transactions, and negotiate commissions.
Transactions in equity securities will usually be executed through brokers
that will receive a commission paid by the Portfolio for which the transaction
is executed. Fixed income securities are generally traded with dealers acting
as principals for their own account without a stated commission. The dealer's
margin is reflected in the price of the security. Money market instruments may
be traded directly with the issuer. Underwritten offerings of stock and inter-
mediate and long term debt securities may be purchased at a fixed price in-
cluding an amount of compensation to the underwriter. From time to time,
NYLIFE Securities, Inc. may execute transactions in equity securities on be-
half of the Portfolios. Such commissions may be charged against all Portfo-
lios, with the exception of the Cash Management Portfolio.

In placing orders for securities transactions, each Adviser's policy is to
obtain the most favorable price and efficient execution available. In order to
obtain the brokerage and research services described below, higher commissions
may sometimes be paid.

When selecting broker-dealers to execute portfolio transactions, each Ad-
viser considers many factors including the rate of commission or size of the
broker-dealer's "spread," the size and difficulty of the order, the nature of
the market for the security, the willingness of the broker-dealer to position,
the reliability, financial condition, general execution and operational capa-
bilities of the broker-dealer, and the research, statistical and economic data
furnished by the broker-dealer to the Adviser. The Advisers use these services
in connection with all their investment activities, including other investment
accounts they advise. Conversely, brokers or dealers which supply research may
be selected for execution of transactions for such other accounts, while the
data may be used by the Advisers in providing investment advisory services to
the Fund.

44
<PAGE>

For the period ended June 30, 1996, the Fund paid total brokerage commis-
sions of $1,039,137. For the years ending December 31, 1995, December 31,
1994, and December 31, 1993, the Fund paid total brokerage commissions of
$1,506,976, $1,266,182, and $1,342,116, respectively.

DETERMINATION OF NET ASSET VALUE

The Fund determines the net asset value per share of each Portfolio on each
day the New York Stock Exchange is open for trading except the day after
Thanksgiving and Christmas Eve. Net asset value per share is calculated as of
the first close of the New York Stock Exchange (normally 4:00 p.m. Eastern
time) for each Portfolio for purchases and redemptions of shares of each Port-
folio by dividing the current market value (amortized cost in the case of the
Cash Management Portfolio) of total Portfolio assets, less liabilities, by the
total number of shares of that Portfolio outstanding.

HOW PORTFOLIO SECURITIES WILL BE VALUED

Portfolio securities of the Cash Management Portfolio are valued at their
amortized cost, which does not take into account unrealized securities gains
or losses. This method involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity or any premium
paid or discount received.

Portfolio securities of each other Portfolio are valued (a) by appraising
other common and preferred stocks which are traded on the New York Stock Ex-
change at the last sale price on that Exchange on the day as of which assets
are valued or, if no sale occurs, at the mean between the closing bid price
and asked price, (b) by appraising other common and preferred stocks as nearly
as possible in the manner described in clause (a) if traded on any other ex-
change, including the National Association of Securities Dealers National Mar-
ket System and foreign securities exchanges, (c) by appraising over-the-
counter common and preferred stocks quoted on the National Association of Se-
curities Dealers (NASDAQ) system (but not listed on the National Market Sys-
tem) at the bid price supplied through such system, (d) by appraising over-
the-counter common and preferred stocks not quoted on the 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 a pricing
agent selected by the Adviser to be representative of market values at the
first close of business of the New York Stock Exchange, (e) by appraising debt
securities at prices supplied by a pricing agent selected by the Adviser,
which prices reflect broker-dealer-supplied valuations and electronic data
processing techniques if those prices are deemed by the Adviser to be repre-
sentative of market values at the close of business of the New York Stock Ex-
change, (f) by appraising options and futures contracts at the last sale price
on the market where any such option or futures contract is principally traded
and (g) by appraising all other securities and other assets including over-
the-counter common and preferred stocks not quoted on the NASDAQ system, secu-
rities listed or traded on certain foreign exchanges whose operations are sim-
ilar to the U.S. over-the-counter market and debt securities for which prices
are supplied by a pricing agent but are not deemed by the Adviser to be repre-
sentative of market values, but excluding money market instruments with a re-
maining maturity of 60 days or less and including restricted securities and
securities for which no market quotation is available, at fair value in accor-
dance with procedures approved by the Directors. Money market instruments held
by the Portfolios with a remaining maturity of 60 days or less will be valued
by the amortized

45
<PAGE>

cost method unless such method does not represent fair value. Forward foreign
currency exchange contracts held by the Portfolios are valued at their fair
market values determined on the basis of the mean between the last current bid
and asked prices based on dealer or exchange quotations.

Portfolio securities traded on more than one U.S. national securities ex-
change or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined at the close of the
exchange representing the principal market for such securities. The value of
all assets and liabilities expressed in foreign currencies will be converted
into U.S. dollar values at the mean between the buying and selling rates of
such currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in ac-
cordance with policies established by the Board of Directors. The Fund recog-
nizes dividend income and other distributions on the ex-dividend date, except
that certain dividends from foreign securities are recognized as soon as the
Fund is informed after the ex-dividend date.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of busi-
ness on each business day in New York (i.e., a day on which the New York Stock
Exchange is open for trading). In addition, European or Far Eastern securities
trading generally in a particular country or countries may not take place on
all business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which are
not business days in New York and on which the Portfolios' net asset values
are not calculated. Such calculation does not take place contemporaneously
with the determination of the prices of the majority of the portfolio securi-
ties used in such calculation. Events affecting the values of portfolio secu-
rities that occur between the time their prices are determined and the close
of the New York Stock Exchange will not be reflected in the Portfolios' calcu-
lation of net asset values unless the Adviser deems that the particular event
would materially affect net asset value, in which case an adjustment will be
made.

INVESTMENT PERFORMANCE CALCULATIONS

CASH MANAGEMENT PORTFOLIO YIELD

In accordance with regulations adopted by the SEC, the Fund is required to
compute the Cash Management Portfolio's current annualized yield for a seven-
day period in a manner which does not take into consideration any realized or
unrealized gains or losses on its portfolio securities. This current
annualized yield is computed by determining the net change (exclusive of real-
ized gains and losses on the sale of securities and unrealized appreciation
and depreciation) in the value of a hypothetical account having a balance of
one share of the Cash Management Portfolio at the beginning of such seven-day
period, dividing such net change in account value by the value of the account
at the beginning of the period to determine the base period return and
annualizing this quotient on a 365-day basis.

The SEC also permits the Fund to disclose the effective yield of the Cash
Management Portfolio for the same seven-day period, determined on a compounded
basis. The effective yield is calculated by compounding the unannualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one from the result.

46
<PAGE>

The Cash Management Portfolio intends to maintain a constant net asset value
of $1.00 per share, but there can be no assurance that it will be able to do
so. The yield on amounts held in the Cash Management Portfolio normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of re-
turn. The Cash Management Portfolio's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Cash Management Portfolio, the types and quality of portfolio securities held
by the Cash Management Portfolio, and its operating expenses. Therefore, the
yield for any period should not be considered representative of the yield for
any future period.

For the seven-day period ending June 30, 1996, the Cash Management Portfolio
yield was 4.85%, and the effective yield was 4.97%.

CONVERTIBLE, GOVERNMENT, HIGH YIELD CORPORATE BOND AND BOND PORTFOLIO YIELD

The Fund may from time to time disclose the current annualized yield of the
Convertible, Government, High Yield Corporate Bond and Bond Portfolios for 30-
day periods. The annualized yield of these Portfolios refers to the income
generated by the Portfolio over a specified 30-day period. Because the yield
is annualized, the yield generated by the Portfolio during the 30-day period
is assumed to be generated each 30-day period. The yield is computed by divid-
ing the net investment income per share earned during the period by the price
per share on the last day of the period, according to the following formula:

YIELD = 2[(a - b + 1)/6/ - 1]
-----
cd

Where: a = net investment income earned during the period by the Portfolio.

b =
expenses accrued for the period (net of reimbursements).

c =
the average daily number of shares outstanding during the period.

d =
the maximum offering price per share on the last day of the period.

Net investment income will be determined in accordance with rules estab-
lished by the SEC. Accrued expenses will include all recurring fees that are
charged to all shareholder accounts. The yield calculations do not reflect the
effect of any charges that may be applicable to a particular Policy.

Because of the charges and deductions imposed by the Separate Accounts, the
yield realized by Owners in the Investment Divisions of the Separate Accounts
will be lower than the yield for the corresponding Portfolio of the Fund. The
yield on amounts held in the Convertible, Government, High Yield Corporate
Bond and Bond Portfolios normally will fluctuate over time. Therefore, the
disclosed yield for any given past period is not an indication or representa-
tion of future yields or rates of return. Each of the Convertible, Government,
High Yield Corporate Bond and Bond Portfolio's actual yield will be affected
by the types and quality of portfolio securities held by the respective Port-
folio, and its operating expenses.

47
<PAGE>

TOTAL RETURN CALCULATIONS

The Fund may from time to time also disclose average annual total returns
for the Capital Appreciation, Convertible, Government, High Yield Corporate
Bond, International Equity, Total Return, Value, Bond, Growth Equity and In-
dexed Equity Portfolios for various periods of time. Average annual total re-
turn quotations are computed by finding the average annual compounded rates of
return over one, five and ten year periods that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:

P(1+T)/n/ = ERV

Where: P = a hypothetical initial payment of $1,000.

T =average annual total return.

n =number of years.

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or ten-year period at the end of the
one, five, or ten-year period (or fractional portion thereof).

All recurring fees that are charged to all shareholder accounts are recog-
nized in the ending redeemable value. The average annual total return calcula-
tions for the Portfolio will not reflect the effect of charges that may be ap-
plicable to a particular Policy.

For the one, five and ten year periods ending June 30, 1996, the average an-
nual total returns for the Bond Portfolio were 3.79%, 8.48% and 8.59%, respec-
tively.

For the one, five and ten year periods ending June 30, 1996, the average an-
nual total returns for the Growth Equity Portfolio were 26.60%, 16.64% and
12.13%, respectively.

For the one year period ending June 30, 1996, the average annual total re-
turns for the Capital Appreciation, Cash Management, Government, Total Return
and Indexed Equity Portfolios were 25.81%, 5.21%, 3.65%, 16.57% and 25.46%,
respectively. For the period beginning January 29, 1993 (inception date)
through June 30, 1996, the average annual total returns for the Capital Appre-
ciation, Cash Management, Government, Total Return and Indexed Equity Portfo-
lios were 17.19%, 4.12%, 5.11%, 12.42% and 15.68%, respectively. For the one
year period ending June 30, 1996, the annual total returns for the High Yield
Corporate Bond, International Equity and Value Portfolios were 17.21%, 20.46%
and 22.05%, respectively. For the period beginning May 1, 1995 (inception
date) through June 30, 1996, the average annual total returns for the High
Yield Corporate Bond, International Equity and Value Portfolios were 16.20%,
12.28% and 22.91%, respectively.

PURCHASE AND REDEMPTION OF SHARES

The Portfolios currently offer their shares to NYLIAC for allocation to
NYLIAC's Separate Accounts. The Separate Accounts are used to fund multi-
funded retirement annuity policies and variable life insurance policies issued
by NYLIAC. Shares of the Portfolios may be sold to NYLIAC separate accounts
funding both variable annuity contracts and variable life insurance policies
and may be sold to affiliated life insurance companies of NYLIAC, including
New York Life. The Fund currently does not foresee any disadvantages to Owners
arising from offering the Fund's shares to separate accounts funding both life
insurance policies and

48
<PAGE>

variable annuity contracts. Due, however, to differences in tax treatment or
other considerations, it is theoretically possible that the interests of own-
ers of various contracts participating in the Fund might at some time be in
conflict. However, the Board of Directors and insurance companies whose sepa-
rate accounts invest in the Fund are required to monitor events in order to
identify any material conflicts between variable annuity contract owners and
variable life policy owners. The Board of Directors will determine what ac-
tion, if any, should be taken in the event of such a conflict. If such a con-
flict were to occur, one or more insurance company separate accounts might
withdraw their investment in the Fund. This might force the Fund to sell secu-
rities at disadvantageous prices. The Portfolios do not presently intend to
offer their shares directly to the public.

The Fund is required to redeem all full and fractional shares of the Fund
for cash. The redemption price is the net asset value per share next deter-
mined after the receipt of proper notice of redemption.

The right to redeem shares or to receive payment with respect to any redemp-
tion may be suspended only for any period during which trading on the New York
Stock Exchange is restricted as determined by the SEC or when such Exchange is
closed (other than customary weekend and holiday closings) for any period dur-
ing which an emergency exists, as defined by the SEC, which makes disposal of
a Portfolio's securities or determination of the net asset value of each Port-
folio not reasonably practicable, and for any other periods as the SEC may by
order permit for the protection of shareholders of each Portfolio.

Investment decisions for each Portfolio are made independently from those of
the other Portfolios and investment companies advised by the respective Advis-
ers. However, if such other Portfolios or investment companies are prepared to
invest in, or desire to dispose of, securities of the type in which the Port-
folio invests at the same time as a Portfolio, available investments or oppor-
tunities for sales will be allocated equitably to each. In some cases, this
procedure may adversely affect the size of the position obtained for or dis-
posed of by a Portfolio or the price paid or received by a Portfolio.

TAXES

Each Portfolio of the Fund intends to elect to qualify as a "regulated in-
vestment company" under the provisions of Subchapter M of the Internal Revenue
Code of 1986 (the "Code"). If each Portfolio qualifies as a "regulated invest-
ment company" and complies with the appropriate provisions of the Code, each
Portfolio will be relieved of federal income tax on the amounts distributed.

In order to qualify as a regulated investment company, in each taxable year
each Portfolio must, among other requirements, (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to loans of secu-
rities, and gains (without deduction for losses) from the sale or other dispo-
sition of securities or foreign currencies (subject to the authority of the
Secretary of the Treasury to exclude certain foreign currency gains) or other
income derived with regard to its investing in such securities or currencies
and (b) derive less than 30% of its gross income from gains (without deduction
for losses) realized on the sale or other disposition of securities held for
less than three months. In order to meet this 30% requirement, a Portfolio may
defer selling certain investments beyond the time when it might otherwise do
so.

49
<PAGE>

The discussion of "Taxes" in the Prospectus, in conjunction with the forego-
ing, is a general summary of applicable provisions of the Code and U.S. Trea-
sury Regulations now in effect as currently interpreted by the courts and the
Internal Revenue Service. The Code and these Regulations, as well as the cur-
rent interpretations thereof, may be changed at any time by legislative, judi-
cial or administrative action.

GENERAL INFORMATION

The Fund was incorporated under Maryland law on June 3, 1983. The Fund was
formerly known as the New York Life MFA Series Fund, Inc. On August 22, 1996,
the Fund's name was changed to its present form. The authorized capital stock
of the Fund consists of 2,000,000,000 shares of common stock, par value $0.01
per share. The shares of common stock are divided into eleven classes as set
forth below:

<TABLE>
<CAPTION>
NAME SHARES
- ---- -----------
<S> <C>
Capital Appreciation Portfolio...................................... 50,000,000
Cash Management Portfolio........................................... 200,000,000
Convertible Portfolio............................................... 100,000,000
Government Portfolio................................................ 50,000,000
High Yield Corporate Bond Portfolio................................. 100,000,000
International Equity Portfolio...................................... 100,000,000
Total Return Portfolio.............................................. 50,000,000
Value Portfolio..................................................... 100,000,000
Bond Portfolio...................................................... 100,000,000
Growth Equity Portfolio............................................. 100,000,000
Indexed Equity Portfolio............................................ 50,000,000
</TABLE>

The shares of the Portfolios are eligible for investment by the Separate Ac-
counts. There exist 1,000,000,000 unclassified shares which may be issued as
an addition to one or more of the above classes or to any new class or classes
of shares as determined by the Fund's Board of Directors. The Fund has no
present plans to issue shares of any additional classes. The shares of each
Portfolio, when issued, will be fully paid and nonassessable, will have no
preference, conversion, exchange or similar rights, and will be freely trans-
ferable.

Each issued and outstanding share in a Portfolio is entitled to participate
equally in dividends and distributions declared by such Portfolio.

Each class of stock will have a pro rata interest in the assets of the Port-
folio to which the stock of that class relates and will have no interest in
the assets of any other Portfolio. If any assets, liabilities, revenue or ex-
penses are not clearly allocable to a particular Portfolio (such as fees for
non-interested Directors or extraordinary legal fees), they will be allocated
as determined by the Directors.

In the unlikely event that any Portfolio incurs liabilities in excess of its
assets, the other Portfolios could be held liable for such excess.

All shares of common stock, of whatever class, are entitled to one vote, and
votes are generally on an aggregate basis. However, on matters where the in-
terests of the Portfolios differ, the voting is on a Portfolio-by-Portfolio
basis. Approval or disapproval by the shares in one Portfolio on such a matter
would not generally be a pre-requisite to approval or

50
<PAGE>

disapproval by shares in another Portfolio; and shares in a Portfolio not af-
fected by a matter generally would not be entitled to vote on that matter. Ex-
amples of matters which would require a Portfolio-by-Portfolio vote are
changes in fundamental investment policies of a particular Portfolio and ap-
proval of the investment advisory agreement.

The vote of a majority of the Fund shares (or of the shares of any Portfo-
lio) means the vote, at any special meeting, of the lesser of (i) 67% or more
of the outstanding shares present at such meeting, if the holders of more than
50% of the outstanding shares are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund (or of any Portfolio).

The Board of Directors has decided not to hold routine annual stockholders'
meetings. Special stockholders' meetings will be called whenever one or more
of the following is required to be acted on by stockholders pursuant to the
1940 Act: (i) election of directors; (ii) approval of investment advisory
agreement; or (iii) ratification of selection of independent accountants. Not
holding routine annual meetings results in Policy Owners having a lesser role
in governing the business of the Fund.

The initial capital for the Portfolios was provided by NYLIAC separate ac-
counts. The equity of NYLIAC in the separate accounts is represented by its
ownership of accumulation units in the separate accounts. Such accumulation
units were acquired for investment and can be disposed of only by redemption.
NYLIAC has agreed not to redeem its accumulation units of any separate account
until such time as this can be done without any significant impact upon the
separate account.

The Fund has adopted a Code of Ethics governing personal trading activities
of all Directors, officers of the Fund and persons who, in connection with
their regular functions, play a role in the recommendation of any purchase or
sale of a security by the Fund or who obtain information pertaining to such
purchase or sale or who have the power to influence the management or policies
of the Fund or an investment adviser, unless such power is the result of their
position with the Fund or investment adviser. Such persons are generally re-
quired to preclear all security transactions with the Fund's Compliance Offi-
cer or such officer's designee and to report all transactions on a regular ba-
sis. The Fund has developed procedures for administration of the Code.

LEGAL COUNSEL

Legal advice regarding certain matters relating to the Federal securities
laws has been provided by Jorden Burt Berenson & Johnson LLP, Washington, D.C.

FINANCIAL STATEMENTS

Financial statements of the Fund contained herein are for the period ended
June 30, 1996 and are unaudited. The financial statements for the year ended
December 31, 1995, including the financial highlights for each of the periods
presented appearing in the 1995 Annual Report to shareholders and the report
thereon of Price Waterhouse LLP, independent accountants, appearing therein,
is incorporated by reference in the statement of additional information.

51
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

52
<PAGE>

CAPITAL APPRECIATION PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
June 30, 1996 (Unaudited)

COMMON STOCKS (90.9%)+

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

AIRLINES (1.3%)
Atlantic Southeast Airlines, Inc...................... 35,200 $ 994,400
Southwest Airlines Co................................. 127,300 3,707,612
------------
4,702,012
------------
AUTO PARTS (0.9%)
Lear Seating Corp. (a)................................ 99,500 3,507,375
------------
BANKS (2.3%)
NationsBank Corp...................................... 43,500 3,594,188
Wells Fargo & Co...................................... 20,566 4,912,703
------------
8,506,891
------------
BROKERAGE (0.8%)
Schwab (Charles) Corp................................. 120,400 2,949,800
------------
BUILDINGS (1.0%)
Lennar Corp........................................... 26,850 671,250
Oakwood Homes Corp.................................... 148,000 3,052,500
------------
3,723,750
------------
COMPUTERS & OFFICE EQUIPMENT (6.2%)
Alco Standard Corp.................................... 125,400 5,674,350
Danka Business Systems Plc ADR (b).................... 91,500 2,676,375
EMC Corp. (a)......................................... 75,000 1,396,875
Hewlett-Packard Co.................................... 52,000 5,180,500
Seagate Technology, Inc. (a).......................... 43,300 1,948,500
Sun Microsystems, Inc. (a)............................ 101,800 5,993,475
------------
22,870,075
------------
CONSUMER DURABLES (1.2%)
Black & Decker Corp................................... 114,100 4,407,112
------------
CONSUMER FINANCIAL SERVICES (1.3%)
First Data Corp....................................... 59,000 4,697,875
------------
CONSUMER SERVICES (2.5%)
CUC International Inc. (a)............................ 114,800 4,075,400
Service Corp. International........................... 93,000 5,347,500
------------
9,422,900
------------
DOMESTIC OILS (1.0%)
Triton Energy Ltd. Class A (a)........................ 75,400 3,666,325
------------
DRUGS (7.5%)
Amgen Inc. (a)........................................ 114,600 6,188,400
Elan Corp. Plc ADR (a)(b)............................. 68,000 3,884,500
Genzyme Corp. (a)..................................... 66,400 3,336,600
</TABLE>

- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

DRUGS (Continued)
Mylan Laboratories Inc. .............................. 88,950 $ 1,534,387
Pharmacia & Upjohn, Inc............................... 104,200 4,623,875
Schering-Plough Corp. ................................ 86,200 5,409,050
Teva Pharmaceutical Industries Ltd. ADR (b)........... 73,000 2,764,875
------------
27,741,687
------------
ELECTRONICS (1.3%)
Harman International
Industries, Inc. .................................... 50,000 2,462,500
Vishay Intertechnology, Inc. (a)...................... 105,861 2,500,966
------------
4,963,466
------------
ENERGY (0.7%)
Abacan Resource Corp. (a)............................. 652,000 2,720,062
------------
FINANCE (7.5%)
Federal National
Mortgage Association................................. 110,800 3,711,800
Green Tree Financial Corp............................. 227,400 7,106,250
Household International Inc. ......................... 78,500 5,966,000
MGIC Investment Corp.................................. 76,800 4,310,400
Travelers Group Inc................................... 147,249 6,718,236
------------
27,812,686
------------
FINANCIAL SERVICES (3.2%)
First USA, Inc........................................ 88,700 4,878,500
SunAmerica Inc. ...................................... 126,600 7,152,900
------------
12,031,400
------------
FOOD DISTRIBUTOR (0.5%)
Richfood Holdings, Inc................................ 57,000 1,852,500
------------
HEALTH CARE (7.6%)
Columbia/HCA Healthcare Corp. ........................ 87,812 4,686,966
HealthCare COMPARE Corp. (a).......................... 70,800 3,451,500
HEALTHSOUTH Corp. (a)................................. 128,000 4,608,000
Humana Inc. (a)....................................... 128,000 2,288,000
OrNda HealthCorp. (a)................................. 155,500 3,732,000
PacifiCare Health Systems, Inc. Class B (a)........... 38,900 2,635,475
Unison HealthCare Corp. (a)........................... 104,000 1,449,500
United Healthcare Corp................................ 103,000 5,201,500
------------
28,052,941
------------
INSURANCE (1.5%)
American International Group, Inc. 55,750 5,498,344
------------
LEISURE (0.9%)
Mirage Resorts, Inc. (a).............................. 63,500 3,429,000
------------
MACHINERY (0.9%)
U.S. Robotics Corp. (a)............................... 41,000 3,505,500
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

53
<PAGE>

CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

MEDICAL EQUIPMENT (6.0%)
Guidant Corp.......................................... 87,600 $ 4,314,300
Heartport, Inc. (a)................................... 63,000 1,905,750
Johnson & Johnson..................................... 118,462 5,863,869
Medtronic, Inc........................................ 108,800 6,092,800
Waters Corp. (a)...................................... 129,000 4,257,000
------------
22,433,719
------------
PUBLISHING (0.8%)
News Corp. Ltd. ADR (b)............................... 128,300 3,015,050
------------
RESTAURANTS &
LODGING (4.7%)
HFS Inc. (a).......................................... 198,000 13,860,000
Lone Star Steakhouse &
Saloon, Inc. (a)..................................... 90,000 3,397,500
------------
17,257,500
------------
RETAIL (9.7%)
AutoZone, Inc. (a).................................... 103,200 3,586,200
Bed Bath & Beyond, Inc. (a)........................... 70,000 1,872,500
Gymboree Corp. (a).................................... 50,000 1,525,000
Home Depot, Inc. (The)................................ 84,000 4,536,000
Kohl's Corp. (a)...................................... 116,000 4,248,500
Kroger Co. (The) (a).................................. 104,000 4,108,000
Lowe's Cos., Inc...................................... 105,900 3,825,637
Oakley, Inc. (a)...................................... 60,000 2,730,000
Office Depot, Inc. (a)................................ 135,975 2,770,491
Safeway Inc. (a)...................................... 148,500 4,900,500
Sunglass Hut International, Inc. (a) 82,000 1,998,750
------------
36,101,578
------------
SOFTWARE (6.0%)
Computer Associates
International, Inc................................... 115,450 8,225,813
Microsoft Corp. (a)................................... 28,200 3,387,525
Oracle Corp. (a)...................................... 162,000 6,388,875
Sterling Software, Inc. (a)........................... 57,000 4,389,000
------------
22,391,213
------------
TECHNOLOGY (7.3%)
Cisco Systems, Inc. (a)............................... 78,500 4,445,062
Electronic Data Systems Corp.......................... 69,000 3,708,750
Intel Corp............................................ 64,800 4,758,750
Lam Research Corp. (a)................................ 69,000 1,794,000
Linear Technology Corp................................ 81,000 2,430,000
Motorola, Inc......................................... 35,500 2,232,063
3Com Corp. (a)........................................ 166,400 7,612,800
------------
26,981,425
------------
TELECOMMUNICATION EQUIPMENT (0.2%)
General Instrument Corp. (a).......................... 31,500 909,563
------------
</TABLE>

SHARES VALUE
-----------------------------------------------------------
<S> <C> <C>

TELECOMMUNICATION SERVICES (1.9%)
WorldCom, Inc. (a)................................ 123,894 $ 6,860,630
------------
TEXTILE & APPAREL (4.2%)
Nike Inc. Class B................................. 57,900 5,949,225
Nine West Group Inc. (a).......................... 88,100 4,504,113
Warnaco Group, Inc. (The) Class A 123,600 3,182,700
Wolverine World Wide, Inc......................... 57,000 1,852,500
------------
15,488,538
------------
Total Common Stocks
(Cost $258,488,644).............................. 337,500,917
------------
PREFERRED STOCK (0.2%)
PUBLISHING (0.2%)
News Corp. Ltd. ADR
Preference Shares (b)............................ 28,500 573,562
------------
Total Preferred Stock
(Cost $455,577).................................. 573,562
------------
SHORT-TERM
INVESTMENTS (8.7%)
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
COMMERCIAL PAPER (8.7%)
American Express Credit Corp.
5.39%, due 7/5/96................................ $ 8,043,000 8,043,000
5.45%, due 7/2/96................................ 6,796,000 6,796,000
Ford Motor Credit Co.
5.37%, due 7/1/96................................ 10,614,000 10,614,000
Smith Barney Inc.
5.45%, due 7/3/96................................ 7,000,000 7,000,000
------------
Total Short-Term Investments (Cost $32,453,000)... 32,453,000
------------
Total Investments
(Cost $291,397,221) (c).......................... 99.8% 370,527,479 (d)
Cash and Other Assets,
Less Liabilities................................. 0.2 608,513
----------- ------------
Net Assets........................................ 100.0% $371,135,992
=========== ============
</TABLE>
- --------
(a) Non-incoming producing securities.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At June 30, 1996 net unrealized appreciation was $79,130,258, 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 $84,975,775 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $5,845,517.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

54
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $291,397,221).................................. $370,527,479
Cash............................................................. 389
Receivables:
Investment securities sold....................................... 7,651,823
Fund shares sold................................................. 1,111,658
Dividends and interest........................................... 160,853
------------
Total assets................................................... 379,452,202
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 8,043,000
Adviser.......................................................... 107,757
NYLIAC........................................................... 41,897
Administrator.................................................... 29,933
Custodian........................................................ 7,054
Accrued expenses................................................. 86,569
------------
Total liabilities.............................................. 8,316,210
------------
Net assets applicable to
outstanding shares.............................................. $371,135,992
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized.................................... $ 218,069
Additional paid-in capital....................................... 294,716,813
Accumulated undistributed net
investment income............................................... 269,533
Accumulated net realized loss
on investments.................................................. (3,198,681)
Net unrealized appreciation
on investments.................................................. 79,130,258
------------
Net assets applicable to
outstanding shares.............................................. $371,135,992
============
Shares of capital stock outstanding.............................. 21,806,891
============
Net asset value per share outstanding............................ $ 17.02
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 772,391
Interest......................................................... 610,723
------------
Total income................................................... 1,383,114
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 549,163
Administration (Note 3).......................................... 305,091
Recordkeeping.................................................... 241,301
Auditing......................................................... 39,645
Shareholder communication........................................ 37,663
Custodian........................................................ 19,442
Directors........................................................ 11,354
Legal............................................................ 9,432
Miscellaneous.................................................... 11,138
------------
Total expenses
before reimbursement.......................................... 1,224,229
Expense reimbursement from
Administrator (Note 3).......................................... (110,648)
------------
Net expenses................................................... 1,113,581
------------
Net investment income............................................ 269,533
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................. 4,139,426
Net change in unrealized appreciation
on investments.................................................. 22,267,805
------------
Net realized and unrealized gain
on investments.................................................. 26,407,231
------------
Net increase in net assets resulting
from operations................................................. $ 26,676,764
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$4,064.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

55
<PAGE>

CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (Unaudited) and the year ended December
31, 1995

<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 269,533 $ 966,842
Net realized gain (loss) on investments........... 4,139,426 (4,093,457)
Net change in unrealized appreciation on invest-
ments............................................ 22,267,805 52,411,784
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 26,676,764 49,285,169
------------ ------------
Dividends to shareholders:
From net investment income........................ -- (967,677)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 102,240,623 92,210,559
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... -- 967,677
------------ ------------
102,240,623 93,178,236
Cost of shares redeemed........................... (2,317,213) (10,959,038)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 99,923,410 82,219,198
------------ ------------
Net increase in net assets....................... 126,600,174 130,536,690
NET ASSETS:
Beginning of period............................... 244,535,818 113,999,128
------------ ------------
End of period..................................... $371,135,992 $244,535,818
============ ============
Accumulated undistributed net investment income... $ 269,533 $ --
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
SIX MONTHS 1993 (A)
ENDED THROUGH
JUNE 30, YEAR ENDED DECEMBER 31 DECEMBER 31,
1996* 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at be-
ginning of period...... $ 15.49 $ 11.45 $ 12.03 $ 10.00
------------ ------------ ------------ ------------
Net investment income... 0.01 0.06 0.05 0.02
Net realized and
unrealized gain (loss)
on investments......... 1.52 4.04 (0.58) 2.03
------------ ------------ ------------ ------------
Total from investment
operations............. 1.53 4.10 (0.53) 2.05
------------ ------------ ------------ ------------
Less dividends:
From net investment in-
come.................. -- (0.06) (0.05) (0.02)
------------ ------------ ------------ ------------
Net asset value at end
of period.............. $ 17.02 $ 15.49 $ 11.45 $ 12.03
============ ============ ============ ============
Total investment return
(b).................... 9.86% 35.78% (4.38%) 20.54%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 0.18%+ 0.57% 0.63% 0.46%+
Net expenses........... 0.73%+ 0.73% 0.73% 0.73%+
Expenses (before reim-
bursement)............ 0.80%+ 0.90% 0.91% 1.15%+
Portfolio turnover rate. 8% 35% 39% 28%
Average commission rate
paid................... $ 0.0600 (c) (c) (c)
Net assets at end of pe-
riod (in 000's)........ $ 371,136 $ 244,536 $ 113,999 $ 43,485
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after Sep-
tember 1, 1995.
+ Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

56
<PAGE>

CASH MANAGEMENT PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
June 30, 1996 (Unaudited)

SHORT-TERM INVESTMENTS (100.1%)+

<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------------------------------------------
<S> <C> <C>

BANK NOTES (4.8%)
Bank of America-Illinois
5.82%, due 3/24/97 (c)............................... $ 1,500,000 $ 1,500,000
First National Bank of Maryland
5.13%, due 2/26/97 (b)(c)............................ 1,000,000 1,000,158
Fleet National Bank-Province, Rhode Island
5.61%, due 10/30/96 (b)(c)........................... 1,700,000 1,700,000
PNC Bank N.A.-
Pittsburgh, Pennsylvania
5.52%, due 2/6/97 (b)(c)............................. 1,000,000 999,619
------------
5,199,777
------------
CERTIFICATES OF
DEPOSIT (4.6%)
Bayerische Vereinsbank AG
5.80%, due 4/29/97 (c)............................... 2,500,000 2,500,000
First National Bank of Maryland
5.69%, due 10/23/96 (b)(c)........................... 2,000,000 2,000,000
Mercantile Safe Deposit & Trust Co., Baltimore,
Maryland
5.68%, due 12/23/96 (b)(c)........................... 500,000 500,122
------------
5,000,122
------------
MEDIUM-TERM NOTES (9.5%)
Abbey National Treasury
Services Plc
5.05%, due 3/3/97 (c)................................ 3,300,000 3,297,622
Associates Corp. of North America
7.50%, due 10/15/96 (c).............................. 1,375,000 1,382,254
Bankers Trust Corp.-New York
5.27%, due 2/14/97 (b)(c)............................ 1,500,000 1,500,000
First Security Bank of Idaho
6.88%, due 10/4/96 (c)............................... 2,000,000 2,006,002
Ford Motor Credit Corp.
5.66%, due 1/6/97 (b)(c)............................. 1,000,000 1,001,095
International Lease Finance Corp.
6.80%, due 9/30/96 (c)............................... 1,000,000 1,002,318
------------
10,189,291
------------
COMMERCIAL PAPER (81.2%)
Atlantic Asset Securitization Corp.
5.37%, due 7/11/96 (a)............................... 3,800,000 3,794,332
Banca CRT Financial Corp.
4.94%, due 8/8/96.................................... 1,500,000 1,492,178
5.06%, due 9/3/96.................................... 2,000,000 1,982,009
5.08%, due 9/3/96.................................... 1,350,000 1,337,808
Bancomer S.A.
5.37%, due 9/13/96................................... 1,000,000 988,962
5.42%, due 7/11/96................................... 1,000,000 998,494
Central Corporate Credit Union
5.37%, due 7/12/96................................... 1,900,000 1,896,882
</TABLE>
- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------------------------------------------
<S> <C> <C>

COMMERCIAL PAPER (Continued)
Centric Funding Corp.
5.35%, due 7/10/96................................... $ 5,000,000 $ 4,993,312
Cheltenham & Gloucester Plc
5.28%, due 7/3/96.................................... 3,000,000 2,999,120
COSCO (Cayman) Co. Ltd.
5.34%, due 7/29/96................................... 1,000,000 995,847
Credito Italiano (DE) Inc.
5.01%, due 8/27/96................................... 1,975,000 1,959,333
5.25%, due 7/3/96.................................... 2,000,000 1,999,417
Duracell Inc.
5.38%, due 7/26/96................................... 2,400,000 2,391,033
Eastern Realty Investment Corp.
5.38%, due 7/12/96................................... 1,336,000 1,333,804
Enterprise Funding Corp.
5.33%, due 7/8/96 (a)................................ 2,100,000 2,097,824
5.42%, due 7/22/96 (a)............................... 2,000,000 1,993,677
Goldman Sachs & Co.
5.32%, due 7/10/96................................... 3,000,000 2,996,010
Halliburton Co.
5.35%, due 7/9/96.................................... 2,800,000 2,796,671
Korea Development Bank
5.40%, due 9/4/96.................................... 3,900,000 3,861,975
Lyon Short Term Funding Corp.
5.35%, due 7/8/96 (a)................................ 1,400,000 1,398,544
Merrill Lynch-Australia
5.37%, due 7/17/96................................... 5,000,000 4,988,067
Mitsubishi Motors Credit of America Inc. Series C
5.40%, due 7/15/96................................... 2,500,000 2,494,750
5.45%, due 7/25/96................................... 2,450,000 2,441,098
Morgan Stanley Group Inc.
5.63%, due 7/1/96.................................... 3,050,000 3,050,000
MPS U.S. Commercial Paper Corp.
5.29%, due 7/8/96.................................... 3,000,000 2,996,914
5.42%, due 9/19/96................................... 2,000,000 1,975,911
Nacional Financiera SNC
Series A
5.30%, due 7/1/96.................................... 900,000 900,000
Series B
5.33%, due 7/2/96.................................... 2,500,000 2,499,630
National Bank of Pakistan
5.38%, due 10/25/96.................................. 1,000,000 982,664
Petroleo Brasileiro S.A.-Petrobras
5.42%, due 1/14/97................................... 2,000,000 1,940,681
Receivables Capital Corp.
5.31%, due 7/2/96 (a)................................ 1,500,000 1,499,779
Redland Finance Inc.
5.32%, due 7/3/96.................................... 1,000,000 999,704
Songs Fuel Co.
5.15%, due 7/5/96.................................... 1,000,000 999,428
SRD Finance Inc.
5.50%, due 7/18/96................................... 5,000,000 4,987,014
State Bank of New South
Wales Ltd.
5.62%, due 7/1/96.................................... 165,000 165,000
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

57
<PAGE>

CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

SHORT-TERM INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------------------------------------------
<S> <C> <C>

COMMERCIAL PAPER (Continued)
Triple-A One Funding Corp.
5.35%, due 7/9/96 (a)............................... $ 2,725,000 $ 2,721,760
UNIfunding Inc.
4.94%, due 8/9/96................................... 2,000,000 1,989,297
Wood Street Funding Corp.
5.40%, due 7/12/96 (a).............................. 300,000 299,505
Working Capital Management
Co. L.P.
5.52%, due 7/19/96.................................. 5,300,000 5,285,372
------------
87,523,806
------------
Total Short-Term Investments
(Amortized Cost $107,912,996) (d)................... 100.1% 107,912,996
Liabilities in Excess of
Cash and Other Assets............................... (0.1) (114,731)
----------- ------------
Net Assets........................................... 100.0% $107,798,265
=========== ============
</TABLE>
- --------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at June 30, 1996.
(c) Coupon interest bearing security.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.

The table below sets forth the
diversification of Cash Management
Portfolio investments by industry.

SHORT-TERM INVESTMENTS

<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
----------------------------------------------------------
<S> <C> <C>
Banks #................................................. $ 73,361,810 68.1%
Brokerage............................................... 11,034,077 10.3
Construction & Engineering.............................. 999,704 0.9
Consumer Financial Services............................. 1,001,095 0.9
Electrical Equipment.................................... 2,391,033 2.2
Energy.................................................. 2,796,671 2.6
Finance................................................. 15,329,178 14.2
Utilities-Gas........................................... 999,428 0.9
------------ -----
107,912,996 100.1
Liabilities in Excess of
Cash and Other Assets.................................. (114,731) (0.1)
------------ -----
Net Assets.............................................. $107,798,265 100.0%
============ =====
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
# The Fund will invest more than 25% of the market value of its total assets
in the securities of banks and bank holding companies, including certifi-
cates of deposit, bankers' acceptances and securities guaranteed by banks
and bank holding companies.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

58
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2) (amortized cost
$107,912,996).................................................. $107,912,996
Cash............................................................ 102,685
Receivables:
Investment securities sold...................................... 3,111,002
Fund shares sold................................................ 423,690
Interest........................................................ 384,983
NYLIAC.......................................................... 7,947
------------
Total assets.................................................. 111,943,303
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 3,213,493
Fund shares redeemed............................................ 409,332
Adviser......................................................... 20,737
Recordkeeping................................................... 14,794
Administrator................................................... 8,295
Custodian....................................................... 2,200
Directors....................................................... 1,056
Accrued expenses................................................ 71,844
Dividend payable................................................ 403,287
------------
Total liabilities............................................. 4,145,038
------------
Net assets applicable to
outstanding shares............................................. $107,798,265
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
200 million shares authorized.................................. $ 1,078,000
Additional paid-in capital...................................... 106,721,483
Accumulated net realized loss
on investments................................................. (1,218)
------------
Net assets applicable to
outstanding shares............................................. $107,798,265
============
Shares of capital stock outstanding............................. 107,799,988
============
Net asset value per share outstanding........................... $ 1.00
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................... $ 2,461,011

------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 111,489
Administration (Note 3).......................................... 89,191
Recordkeeping (Note 3)........................................... 34,574
Custodian........................................................ 7,202
Auditing......................................................... 7,003
Shareholder communication........................................ 3,859
Directors........................................................ 3,081
Legal............................................................ 3,040
Miscellaneous.................................................... 951
------------
Total expenses ................................................ 260,390
------------
Net investment income............................................ 2,200,621
------------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................. 115
------------
Net increase in net assets resulting
from operations................................................. $ 2,200,736
============
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

59
<PAGE>

CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (Unaudited) and the year ended December
31, 1995

<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 2,200,621 $ 3,649,839
Net realized gain (loss) on investments........... 115 (949)
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 2,200,736 3,648,890
------------ ------------
Dividends to shareholders:
From net investment income........................ (2,200,621) (3,649,839)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 123,072,907 128,846,016
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 2,161,316 3,587,829
------------ ------------
125,234,223 132,433,845
Cost of shares redeemed........................... (105,275,417) (115,709,733)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 19,958,806 16,724,112
------------ ------------
Net increase in net assets....................... 19,958,921 16,723,163
NET ASSETS:
Beginning of period............................... 87,839,344 71,116,181
------------ ------------
End of period..................................... $107,798,265 $ 87,839,344
============ ============
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

60
<PAGE>

GOVERNMENT PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
June 30, 1996 (Unaudited)

LONG-TERM U.S. GOVERNMENT & FEDERAL AGENCIES (104.5%)+

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------
<S> <C> <C>

FEDERAL HOME LOAN
MORTGAGE CORPORATION (COLLATERALIZED
MORTGAGE
OBLIGATIONS) (11.5%)
Series 1604 Class C
5.00%, due 2/15/03................................. $ 600,000 $ 594,000
Series 1625 Class CA
5.125%, due 2/15/03................................ 1,625,000 1,609,774
Series 1678 Class PC
5.20%, due 7/15/03................................. 1,450,000 1,433,687
Series 1645 Class ZA
5.50%, due 4/15/05................................. 1,261,745 1,210,884
Series 1627 Class PZ
5.60%, due 8/15/17................................. 862,424 829,549
Series 1858 Class B
6.00%, due 6/15/11................................. 925,000 904,474
Series 1817 Class AB
6.50%, due 2/15/14................................. 638,754 634,162
Series 1783-A Class A
8.00%, due 2/15/00................................. 780,636 797,404
------------
8,013,934
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION (MORTGAGE PASS-
THROUGH SECURITY) (2.0%)
6.00%, due 8/1/24.................................. 1,491,433 1,365,825
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION
GOLD (MORTGAGE PASS-
THROUGH SECURITIES) (5.3%)
7.00%, due 2/1/26-5/1/26........................... 3,879,215 3,736,189
------------
FEDERAL NATIONAL
MORTGAGE
ASSOCIATION (1.6%)
8.50%, due 2/1/05.................................. 1,075,000 1,123,439
------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION (COLLATERALIZED
MORTGAGE
OBLIGATIONS) (3.6%)
Series 1993-224 Class PD
5.25%, due 8/25/15................................. 1,000,000 983,750
Series 1993-93 Class C
5.50%, due 2/25/06................................. 1,581,666 1,553,006
------------
2,536,756
------------
</TABLE>

- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

FEDERAL NATIONAL
MORTGAGE ASSOCIATION
(MORTGAGE PASS-
THROUGH SECURITIES) (7.3%)
6.50%, due 7/1/24..................................... $ 1,151,346 $ 1,083,520
7.00%, due 7/1/11 TBA (b)............................. 3,080,500 3,039,591
9.00%, due 6/1/25..................................... 974,797 1,017,288
------------
5,140,399
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH SECURITIES) (15.5%)
6.50%, due 7/1/26 TBA (b)............................. 1,650,000 1,546,363
7.50%, due 6/15/26 (a)................................ 1,225,000 1,207,397
8.00%, due 7/1/26 TBA (b)............................. 8,025,000 8,100,275
------------
10,854,035
------------
UNITED STATES TREASURY
BONDS (20.9%)
6.25%, due 8/15/23.................................... 7,675,000 6,957,848
8.875%, due 8/15/17................................... 3,425,000 4,112,123
11.25%, due 2/15/15................................... 2,450,000 3,535,644
------------
14,605,615
------------
UNITED STATES TREASURY
NOTES (36.8%)
5.50%, due 11/15/98 (a)............................... 7,490,000 7,371,808
6.375%, due 3/31/01................................... 1,200,000 1,194,744
6.375%, due 8/15/02................................... 700,000 694,421
6.50%, due 5/15/05.................................... 5,475,000 5,403,113
7.75%, due 12/31/99................................... 2,525,000 2,630,722
8.125%, due 2/15/98................................... 245,000 252,656
9.00%, due 5/15/98.................................... 7,825,000 8,219,928
------------
25,767,392
------------
Total Long-Term U.S. Government & Federal Agencies
(Cost $73,730,560).................................... 73,143,584
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

61
<PAGE>

GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

SHORT-TERM U.S. GOVERNMENT (12.2%)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

UNITED STATES TREASURY
NOTE (12.2%)
6.25%, due 8/31/96 (a)........................... $ 8,500,000 $ 8,509,265
------------
Total Short-Term
U.S. Government
(Cost $8,510,520)................................ 8,509,265
------------
Total Investments
(Cost $82,241,080) (c)........................... 116.7% 81,652,849 (d)
Liabilities in Excess of
Cash and Other Assets............................ (16.7) (11,661,158)
----------- ------------
Net Assets........................................ 100.0% $ 69,991,691
=========== ============
</TABLE>
- --------
(a) Segregated or partially segregated as collateral for TBA.
(b) TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and matu-
rity date will be determined upon settlement.
(c) The cost for Federal income tax purposes is $82,380,748.
(d) At June 30, 1996 gross unrealized depreciation was $727,899, 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 $107,649 and aggregated gross unrealized depreci-
ation for all investments on which there was excess of cost over market
value of $835,548.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

62
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:

Investment in securities, at value (Note 2)
(identified cost $82,241,080)................................... $ 81,652,849
Cash............................................................. 4,236
Receivables:
Investment securities sold....................................... 3,251,835
Interest......................................................... 1,044,564
Fund shares sold................................................. 6,744
------------
Total assets................................................... 85,960,228
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 15,794,020
Fund shares redeemed............................................. 101,600
Adviser.......................................................... 17,068
NYLIAC........................................................... 12,218
Administrator.................................................... 5,689
Custodian........................................................ 3,480
Directors........................................................ 778
Accrued expenses................................................. 33,684
------------
Total liabilities.............................................. 15,968,537
------------
Net assets applicable to
outstanding shares.............................................. $ 69,991,691
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized.................................... $ 71,404
Additional paid-in capital....................................... 73,248,861
Accumulated undistributed net
investment income............................................... 2,285,988
Accumulated net realized loss
on investments.................................................. (5,026,331)
Net unrealized depreciation
on investments.................................................. (588,231)
------------
Net assets applicable to
outstanding shares.............................................. $ 69,991,691
============
Shares of capital stock outstanding.............................. 7,140,362
============
Net asset value per share outstanding............................ $ 9.80
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:

Income:
Interest........................................................ $ 2,512,641
------------
Expenses: (Note 2)
Advisory (Note 3)............................................... 101,355
Administration (Note 3)......................................... 67,570
Recordkeeping................................................... 45,657
Custodian....................................................... 8,807
Shareholder communication....................................... 8,792
Auditing........................................................ 7,518
Legal........................................................... 2,242
Directors....................................................... 2,106
Portfolio pricing............................................... 855
Miscellaneous................................................... 3,318
------------
Total expenses
before reimbursement......................................... 248,220
Expense reimbursement from
Administrator (Note 3)......................................... (21,567)
------------
Net expenses.................................................. 226,653
------------
Net investment income........................................... 2,285,988
------------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Net realized loss on investments................................ (1,566,233)
Net change in unrealized appreciation
on investments................................................. (2,089,622)
------------
Net realized and unrealized loss
on investments................................................. (3,655,855)
------------
Net decrease in net assets resulting
from operations................................................ $ (1,369,867)
============
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

63
<PAGE>

GOVERNMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (Unaudited) and the year ended December
31, 1995

<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 2,285,988 $ 4,519,231
Net realized gain (loss) on investments........... (1,566,233) 1,575,754
Net change in unrealized appreciation (deprecia-
tion) on investments............................. (2,089,622) 2,860,304
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. (1,369,867) 8,955,289
------------ ------------
Dividends to shareholders:
From net investment income........................ -- (4,482,125)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 11,848,894 12,152,261
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... -- 4,482,125
------------ ------------
11,848,894 16,634,386
Cost of shares redeemed........................... (5,299,714) (17,936,046)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... 6,549,180 (1,301,660)
------------ ------------
Net increase in net assets....................... 5,179,313 3,171,504
NET ASSETS:
Beginning of period............................... 64,812,378 61,640,874
------------ ------------
End of period..................................... $ 69,991,691 $ 64,812,378
============ ============
Accumulated undistributed net investment income... $ 2,285,988 $ --
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
SIX MONTHS 1993 (A)
ENDED THROUGH
JUNE 30, YEAR ENDED DECEMBER 31 DECEMBER 31,
1996* 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at be-
ginning of period...... $ 10.01 $ 9.21 $ 10.15 $ 10.00
------------ ------------ ------------ ------------
Net investment income... 0.32 0.75 0.75 0.82
Net realized and
unrealized gain (loss)
on investments......... (0.53) 0.80 (0.94) (0.25)
------------ ------------ ------------ ------------
Total from investment
operations............. (0.21) 1.55 (0.19) 0.57
------------ ------------ ------------ ------------
Less dividends:
From net investment in-
come.................. -- (0.75) (0.75) (0.42)
------------ ------------ ------------ ------------
Net asset value at end
of period.............. $ 9.80 $ 10.01 $ 9.21 $ 10.15
============ ============ ============ ============
Total investment return
(b).................... (2.03%) 16.72% (1.84%) 5.63%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 6.79%+ 7.80% 8.16% 8.46%+
Net expenses........... 0.67%+ 0.67% 0.67% 0.67%+
Expenses (before reim-
bursement)............ 0.73%+ 0.82% 0.87% 1.02%+
Portfolio turnover rate. 172% 592% 483% 501%
Net assets at end of pe-
riod (in 000's)........ $ 69,992 $ 64,812 $ 61,641 $ 46,766
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

64
<PAGE>

HIGH YIELD CORPORATE BOND PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
June 30, 1996 (Unaudited)

LONG-TERM BONDS (57.0%)+ CONVERTIBLE BONDS (1.4%)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

COMPUTERS & OFFICE
EQUIPMENT (0.3%)
Apple Computer, Inc.
6.00%, due 6/1/01 (c)................................. $ 300,000 $ 285,750
------------
RETAIL (0.6%)
Michaels Stores, Inc.
6.75%, due 1/15/03.................................... 730,000 621,413
------------
TELECOMMUNICATION
SERVICES (0.5%)
Petersburg Long Distance, Inc. 9.00%, due 6/1/06 (c)... 500,000 600,000
------------
Total Convertible Bonds
(Cost $1,383,566)..................................... 1,507,163
------------
CORPORATE BONDS (43.2%)
AEROSPACE (0.9%)
K&F Industries, Inc.
11.875%, due 12/1/03.................................. 75,000 80,250
13.75%, due 8/1/01.................................... 550,000 572,000
Sequa Corp.
9.625%, due 10/15/99.................................. 400,000 402,500
------------
1,054,750
------------
AUTO PARTS (1.0%)
Great Dane Holdings, Inc.
12.75%, due 8/1/01.................................... 620,000 592,100
J.B. Poindexter & Co.
12.50%, due 5/15/04................................... 600,000 519,000
------------
1,111,100
------------
BUILDING MATERIALS (0.5%)
Associated Materials, Inc.
11.50%, due 8/15/03................................... 650,000 549,250
------------
BUILDINGS (1.1%)
NVR, Inc.
11.00%, due 4/15/03................................... 1,200,000 1,212,000
------------
CABLE (1.5%)
United International Holdings, Inc. Series B
(zero coupon), due 11/15/99........................... 1,600,000 1,056,000
(zero coupon), due 11/15/99........................... 850,000 561,000
------------
1,617,000
------------
CASINOS (4.1%)
Argosy Gaming Co.
13.25%, due 6/1/04 (c)................................ 2,000,000 2,030,000
</TABLE>

- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

CASINOS (Continued)
Casino Magic Finance Corp.
11.50%, due 10/15/01.................................. $ 900,000 $ 927,000
Colorado Gaming &
Entertainment Co.
12.00%, due 6/1/03 (h)................................ 5,000 4,564
El Comandante Capital Corp.
11.75%, due 12/15/03.................................. 800,000 752,000
Horseshoe Gaming LLC, Series B 12.75%, due 9/30/00..... 500,000 536,250
President Riverboat Casinos, Inc.
13.00%, due 9/15/01................................... 400,000 328,000
------------
4,577,814
------------
CELLULAR TELEPHONE (2.6%)
Centennial Cellular Corp.
8.875%, due 11/1/01................................... 500,000 462,500
10.125%, due 5/15/05.................................. 500,000 480,000
Occidente y Caribe Celular, S.A.
(zero coupon), due 3/15/04
14.00%, beginning 3/15/01 (c)(k1) 3,700 1,887,000
PriCellular Wireless Corp., Series B
(zero coupon), due 11/15/01
14.00%, beginning 11/15/97............................ 50,000 45,500
------------
2,875,000
------------
CHEMICALS (0.7%)
Uniroyal Chemical Co., Inc.
9.00%, due 9/1/00..................................... 800,000 808,000
------------
CHILD CARE SERVICES (0.9%)
La Petite Holdings Corp.
9.625%, due 8/1/01.................................... 1,100,000 1,014,750
------------
CONSUMER DURABLES (1.6%)
Samsonite Corp.
11.125%, due 7/15/05.................................. 700,000 710,500
Selmer Co., Inc.
11.00%, due 5/15/05................................... 1,000,000 1,055,000
------------
1,765,500
------------
CONTAINERS (0.3%)
Americold Corp.
12.875%, due 5/1/08................................... 350,000 357,000
------------
DEFENSE ELECTRONICS (0.5%)
Tracor, Inc.
10.875%, due 8/15/01.................................. 500,000 527,500
------------
DOMESTIC OIL & GAS (0.3%)
Mesa Capital Corp.
12.75%, due 6/30/98................................... 325,000 328,250
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

65
<PAGE>

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

CORPORATE BONDS (CONTINUED)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

EQUIPMENT FINANCING (1.5%)
Atlas Air, Inc.
12.25%, due 12/1/02.................................. $ 650,000 $ 706,875
GPA Delaware, Inc.
8.75%, due 12/15/98.................................. 1,000,000 1,000,000
------------
1,706,875
------------
FOOD, BEVERAGES & TOBACCO (1.5%)
Great American Cookie Co.
Series B
10.875%, due 1/15/01................................. 450,000 337,500
National Tobacco Holdings, LLC
13.50%, due 5/17/03
16.50%, beginning 6/1/01 (c)(e)(g)................... 1,777,778 1,348,784
------------
1,686,284
------------
INDUSTRIAL (4.0%)
G-I Holdings, Inc.
Series B
(zero coupon), due 10/1/98........................... 1,300,000 1,043,250
Monarch Marking Systems, Inc.
12.50%, due 7/1/03................................... 1,400,000 1,491,000
Newflo Corp., Series B
13.25%, due 11/15/02................................. 350,000 374,500
Thermadyne Holdings Corp.
10.75%, due 11/1/03.................................. 1,500,000 1,522,500
------------
4,431,250
------------
LEISURE (0.3%)
Bally's Health & Tennis
13.00%, due 1/15/03.................................. 450,000 387,000
------------
MEDIA (9.1%)
Affiliated Newspaper Investments, Inc.
(zero coupon), due 7/1/06
13.25%, beginning 7/1/99............................. 1,500,000 1,050,000
Allbritton Communications Co.
Series B
9.75%, due 11/30/07.................................. 1,500,000 1,372,500
American Media, Inc.
Series XW
(zero coupon), due 5/15/97........................... 750,000 673,125
Comcast Cellular Corp.
Series A
(zero coupon), due 3/5/00............................ 800,000 546,000
Continental Cablevision, Inc.
11.00%, due 6/1/07................................... 1,350,000 1,515,375
Garden State Newspapers, Inc.
12.00%, due 7/1/04................................... 300,000 316,500
General Media, Inc.
10.625%, due 12/31/00................................ 1,300,000 1,014,000
Park Communications, Inc.
13.75%, due 5/15/04 (c)(h)(k2)....................... 1,000 1,050,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

MEDIA (Continued)
Park Newspapers, Inc.
11.875%, due 5/15/04 (c)............................. $ 1,000,000 $ 1,010,000
Spanish Broadcasting System, Inc.
7.50%, due 6/15/02
12.50%, beginning 6/15/97............................ 250,000 247,500
12.25%, due 6/1/01 (c)............................... 845,000 845,000
Telemundo Group, Inc.
7.00%, due 2/15/06
10.50%, beginning 2/15/99............................ 500,000 452,500
------------
10,092,500
------------
PAPER & FOREST
PRODUCTS (0.1%)
Gaylord Container Corp.
11.50%, due 5/15/01.................................. 100,000 102,250
------------
POLLUTION & RELATED (0.8%)
ICF Kaiser International, Inc.
13.00%, due 12/31/03................................. 200,000 191,000
13.00%, due 12/31/03 (k3)............................ 700 672,000
------------
863,000
------------
RECREATION &
ENTERTAINMENT (2.1%)
Affinity Group, Inc.
11.50%, due 10/15/03................................. 2,000,000 2,045,000
Stratosphere Corp.
14.25%, due 5/15/02.................................. 300,000 333,000
------------
2,378,000
------------
RESTAURANTS &
LODGING (0.7%)
American Restaurant Group, Inc.
12.00%, due 9/15/98.................................. 200,000 178,000
Family Restaurant, Inc.
9.75%, due 2/1/02.................................... 1,025,000 630,375
------------
808,375
------------
RETAIL (2.8%)
Brylane L.P., Series B
10.00%, due 9/1/03................................... 400,000 388,000
Guitar Center Management Co.
11.00%, due 7/1/06 (c)............................... 500,000 510,000
IHF Holdings, Inc.
Series B
(zero coupon), due 11/15/04
15.00%, beginning 11/15/99........................... 500,000 346,250
Mothers Work, Inc.
12.625%, due 8/1/05.................................. 1,150,000 1,214,687
Petro PSC Properties L.P.
12.50%, due 6/1/02................................... 400,000 386,000
Waban, Inc.
11.00%, due 5/15/04.................................. 250,000 260,000
------------
3,104,937
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

66
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

CORPORATE BONDS (CONTINUED)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

STEEL, ALUMINUM &
OTHER METALS (1.4%)
Maxxam Group, Inc.
(zero coupon), due 8/1/03
12.25%, beginning 8/1/98............................. $ 725,000 $ 514,750
Weirton Steel Corp.
11.375%, due 7/1/04 (c).............................. 1,000,000 985,000
------------
1,499,750
------------
TELECOMMUNICATION SERVICES (2.0%)
Microcell Telecommunications, Inc.
(zero coupon), due 6/1/06
14.00%, beginning 12/1/01 (c)(k4).................... 3,800 1,852,500
Petersburg Long Distance, Inc.
(zero coupon), due 6/1/04
14.00%, beginning 6/1/99 (c)(k5)..................... 415 327,850
------------
2,180,350
------------
TEXTILE & APPAREL (0.5%)
Hosiery Corp. of America, Inc.
13.75%, due 8/1/02................................... 500,000 542,500
------------
UTILITIES (0.4%)
Consolidated Hydro, Inc.
(zero coupon), due 7/15/03
12.00%, beginning 7/15/98............................ 2,100,000 493,500
------------
Total Corporate Bonds
(Cost $47,322,847)................................... 48,074,485
------------

U.S. GOVERNMENT &
FEDERAL AGENCY (6.0%)

FEDERAL NATIONAL MORTGAGE
ASSOCIATION (5.0%)
Series B
12.00%, due 6/26/98.................................. 5,000,000 5,533,000
------------
UNITED STATES TREASURY NOTE (1.0%)
9.125%, due 5/15/99.................................. 1,100,000 1,179,926
------------
Total U.S. Government &
Federal Agency
(Cost $6,703,192).................................... 6,712,926
------------

YANKEE BONDS (6.4%)

CABLE (1.5%)
Telewest, Plc
(zero coupon), due 10/1/07
11.00%, beginning 10/1/00............................ 2,710,000 1,598,900
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

COMPUTERS & OFFICE EQUIPMENT (1.0%)
International Semi-Technology Corp.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00............................ $ 2,000,000 $ 1,145,000
------------
FINANCIAL (1.8%)
Hollinger, Inc.
(zero coupon), due 10/5/13........................... 6,000,000 2,010,000
------------
MEDIA (1.4%)
Grupo Televisa, S.A.
(zero coupon), due 5/15/08
13.25%, beginning 5/15/01 (c)........................ 1,300,000 705,250
Le Groupe Videotron Ltee
10.625%, due 2/15/05................................. 800,000 836,000
------------
1,541,250
------------
REAL ESTATE (0.7%)
Trizec Finance Ltd.
10.875%, due 10/15/05................................ 800,000 804,000
------------
Total Yankee Bonds
(Cost $7,106,847).................................... 7,099,150
------------
Total Long-Term Bonds
(Cost $62,516,452)................................... 63,393,724
------------
COMMON STOCKS (7.1%)
<CAPTION>
SHARES
----------------------------------------------------
<S> <C> <C>
BANKS (0.5%)
Wells Fargo & Co...................................... 2,150 513,581
------------
BUILDINGS (0.4%)
NVR, Inc. (a)......................................... 40,000 445,000
------------
CABLE (0.2%)
United International Holdings, Inc.
Class A (a).......................................... 12,500 171,875
------------
CASINOS (0.1%)
Casino America, Inc. (a).............................. 5,619 46,357
Colorado Gaming &
Entertainment Co. (a)................................ 12,488 31,220
------------
77,577
------------
COMPUTERS & OFFICE
EQUIPMENT (0.3%)
Wallace Computer Services, Inc........................ 5,500 329,313
------------
CONGLOMERATES (0.4%)
Hanson, Plc ADR (d)................................... 34,500 491,625
------------
ELECTRICAL EQUIPMENT (0.5%)
Berg Electronics Corp. (a)............................ 23,500 558,125
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

67
<PAGE>

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
-----------------------------------------------------------
<S> <C> <C>

FOOD, BEVERAGES &
TOBACCO (0.3%)
RJR Nabisco Holdings Corp.............................. 11,600 $ 359,600
------------
GAS UTILITIES (0.1%)
UGI Corp............................................... 6,000 132,000
------------
MEDIA (2.5%)
Comcast Corp., Class A................................. 42,500 780,938
Matav-Cable Systems Media
Ltd. ADR (a)(d)....................................... 24,500 407,313
Metromedia International
Group, Inc. (a)....................................... 99,400 1,217,650
New World Communications Group, Inc., Class A (a)...... 28,000 409,500
------------
2,815,401
------------
RESTAURANTS &
LODGING (0.1%)
Bob Evans Farms, Inc................................... 10,000 170,000
------------
RETAIL (0.6%)
Limited, Inc. (The).................................... 10,000 215,000
Melville Corp.......................................... 11,400 461,700
------------
676,700
------------
TELECOMMUNICATION SERVICES (1.1%)
Clearnet Communications, Inc. Class A (a).............. 40,000 670,000
QUALCOMM, Inc. (a)..................................... 3,000 159,375
Rogers Communications, Inc.
Class B (a)........................................... 40,000 374,899
------------
1,204,274
------------
TEXTILE & APPAREL (0.0%) (b)
Hosiery Corp. of America, Inc. (a)..................... 500 2,500
------------
Total Common Stocks
(Cost $7,886,038)..................................... 7,947,571
------------
PREFERRED STOCKS (2.1%)
CABLE (0.0%) (b)
Cablevision Systems Corp.
11.75%, Series H (g).................................. 184 17,756
------------
EQUIPMENT FINANCING (0.3%)
GPA Group, Plc (a)(c).................................. 1,000,000 360,000
------------
FOOD, BEVERAGES &
TOBACCO (0.2%)
National Tobacco Holdings, LLC
14.50% (c)(e)(h)(l)................................... 222,222 222,222
------------
MEDIA (0.8%)
Spanish Broadcasting System, Inc.
Series A (a)(c)....................................... 905 841,650
------------
</TABLE>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

PUBLISHING (0.8%)
Time Warner, Inc.
10.25%, Series K (c)(g).............................. 915 $ 896,641
------------
Total Preferred Stocks
(Cost $2,279,303).................................... 2,338,269
------------
WARRANTS (0.7%)
CASINOS (0.0%) (b)
Casino America, Inc.
expire 5/3/01 (a).................................... 1,249 1,249
------------
DOMESTIC OIL & GAS (0.1%)
TransAmerican Refining Corp.
expire 2/15/02 (a)................................... 50,000 75,000
------------
FOOD, BEVERAGES &
TOBACCO (0.4%)
Cookies USA, Inc.
expire 1/15/01 (a)................................... 81 405
National Tobacco Holdings, LLC
Class A
expire 5/17/06 (c)(e)(m)............................. 617,283 428,993
expire 5/17/06 (a)(c)(e)(n).......................... 79,410 0
------------
429,398
------------
MEDIA (0.2%)
General Media, Inc.
expire 12/31/96 (a).................................. 600 3,000
Spanish Broadcasting System, Inc.
expire 6/29/99 (a)(c)................................ 1,100 198,000
------------
201,000
------------
POLLUTION & RELATED (0.0%) (b)
ICF Kaiser International, Inc.
expire 12/31/98 (a).................................. 960 600
------------
RETAIL (0.0%) (b)
Petro PSC Properties L.P.
expire 6/1/97 (a).................................... 400 13,200
------------
Total Warrants
(Cost $774,091)...................................... 720,447
------------
PURCHASED PUT OPTION (0.0%) (B)
<CAPTION>
NOTIONAL
AMOUNT
-----------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGES &
TOBACCO (0.0%) (b)
Underlying security
RJR Nabisco, Inc.
8.75%, due 8/15/05
expire 8/26/96 (f)................................... $ 500,000 500
------------
Total Purchased Put Option
(Cost $10,000)....................................... 500
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

68
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

SHORT-TERM INVESTMENT (33.8%)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT (33.8%)
United States Treasury Note
8.50%, due 4/15/97............................... $36,825,000 $ 37,601,639
------------
Total Short-Term Investment
(Cost $37,712,244)............................... 37,601,639
------------
Total Investments
(Cost $111,178,128) (i).......................... 100.7% 112,002,150 (j)
Liabilities in Excess of
Cash and Other Assets............................ (0.7) (794,399)
----------- ------------
Net Assets........................................ 100.0% $111,207,751
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) ADR--American Depository Receipt.
(e) Fair valued securities. (See Note 2)
(f) Purchased put option is based on spread between the risk/duration of RJR
Nabisco, Inc., 8.75%, due 8/15/05, multiplied by the yield on the RJR Na-
bisco bond less the yield on the U.S. Treasury Note 6.50%, due 8/15/05,
less 3%, multiplied by the notional principal.
(g) CIK ("Cash in Kind") interest or dividend payment is made with cash or ad-
ditional securities.
(h) PIK ("Payment in Kind") interest or dividend payment is made with addi-
tional securities.
(i) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(j) At June 30, 1996 net unrealized appreciation was $824,022, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $1,647,914 and aggregate gross unrealized depre-
ciation for all investments on which there was an excess of cost over mar-
ket value of $823,892.
(k1) 3,700 Units--each unit reflects $1,000 principal amount of Senior Dis-
counted Notes, plus 4 warrants to acquire 5,709 shares of Class B common
stock at a future date.
(k2) 1,000 Units--each unit reflects $1,000 principal amount of Senior Payment
in Kind Notes, plus 1 warrant to acquire 10 shares of common stock at a
future date.
(k3) 700 Units--each unit reflects $1,000 principal amount of 12.00% Senior
Subordinated Notes, plus warrants to acquire 4.8 shares of common stock at
$5.00 per share at a future date.
(k4) 3,800 Units--each unit reflects $1,000 principal amount of Senior Dis-
counted Notes, plus 4 warrants to acquire 3,702 shares of Class B common
stock at a future date.
(k5) 415 Units--each unit reflects $1,000 principal amount of Senior Discounted
Notes, plus 1 warrant to acquire 34 shares of common stock at a future
date.
(l) The preferred membership interest entitles the Fund to a Payment in Kind
dividend of 14.50% for the first five years and 17.50% for the sixth and
seventh year.
(m) The warrants entitle the Fund to 3.45% of the voting rights and dividend
payments.
(n) The redeemable warrants can be redeemed by National Tobacco Corp. for nomi-
nal consideration during the first five years, only on a pro-rata basis
with prepayment of the Subordinated Notes.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

69
<PAGE>

HIGH YIELD CORPORATE BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $111,178,128).................................. $112,002,150
Cash............................................................. 24,943
Receivables:
Dividends and interest........................................... 1,762,498
Investment securities sold....................................... 1,529,069
Fund shares sold................................................. 1,158,839
NYLIAC........................................................... 10,113
Unamortized organization expense
(Note 2)........................................................ 56,305
------------
Total assets................................................... 116,543,917
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 5,197,630
Organization..................................................... 72,839
Adviser.......................................................... 25,339
Administrator.................................................... 8,567
Custodian........................................................ 6,833
Directors........................................................ 1,000
Accrued expenses................................................. 23,958
------------
Total liabilities.............................................. 5,336,166
------------
Net assets applicable to
outstanding shares.............................................. $111,207,751
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized................................... $ 97,355
Additional paid-in capital....................................... 105,346,346
Accumulated undistributed net
investment income............................................... 3,355,829
Accumulated undistributed net realized gain on investments....... 1,584,199
Net unrealized appreciation
on investments.................................................. 824,022
------------
Net assets applicable to
outstanding shares.............................................. $111,207,751
============
Shares of capital stock outstanding.............................. 9,735,460
============
Net asset value per share outstanding............................ $ 11.42
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:

Dividends (a).................................................... $ 50,395
Interest......................................................... 3,553,521
------------
Total income................................................... 3,603,916
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 111,022
Administration (Note 3).......................................... 74,014
Recordkeeping.................................................... 64,607
Auditing......................................................... 10,452
Shareholder communication........................................ 8,487
Legal............................................................ 7,449
Amortization of organization expense............................. 7,329
Custodian........................................................ 5,556
Portfolio pricing................................................ 2,646
Directors........................................................ 2,392
Miscellaneous.................................................... 1,253
------------
Total expenses
before reimbursement.......................................... 295,207
Expense reimbursement from
Administrator (Note 3).......................................... (47,120)
------------
Net expenses................................................... 248,087
------------
Net investment income............................................ 3,355,829
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 1,673,725
Net change in unrealized appreciation
on investments.................................................. 303,189
------------
Net realized and unrealized gain
on investments.................................................. 1,976,914
------------
Net increase in net assets resulting
from operations................................................. $ 5,332,743
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of $218.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

70
<PAGE>

HIGH YIELD CORPORATE BOND PORTFOLIO NEW YORK LIFE MFA
STATEMENT OF CHANGES IN NET ASSETS SERIES FUND, INC.
For the six months ended June 30, 1996 (Unaudited) and the period May 1, 1995
(Commencement of Operations) through December 31, 1995

<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income.......................... $ 3,355,829 $ 1,500,585
Net realized gain on investments............... 1,673,725 172,097
Net change in unrealized appreciation on in-
vestments..................................... 303,189 520,833
------------ ------------
Net increase in net assets resulting from oper-
ations........................................ 5,332,743 2,193,515
------------ ------------
Dividends and distributions to shareholders:
From net investment income..................... -- (1,500,585)
From net realized gain on investments.......... -- (172,097)
In excess of net realized gain on investments.. -- (89,526)
------------ ------------
Total dividends and distributions to share-
holders...................................... -- (1,762,208)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares............... 63,692,443 31,553,312
Net asset value of shares issued to sharehold-
ers in reinvestment of dividends and distribu-
tions......................................... -- 1,762,208
------------ ------------
63,692,443 33,315,520
Cost of shares redeemed........................ (1,131,906) (432,356)
------------ ------------
Increase in net assets derived from capital
share transactions........................... 62,560,537 32,883,164
------------ ------------
Net increase in net assets.................... 67,893,280 33,314,471
NET ASSETS:
Beginning of period............................ 43,314,471 10,000,000
------------ ------------
End of period.................................. $111,207,751 $ 43,314,471
============ ============
Accumulated undistributed net investment in-
come.......................................... $ 3,355,829 $ --
============ ============

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<CAPTION>
MAY 1,
SIX MONTHS 1995 (A)
ENDED THROUGH
JUNE 30, DECEMBER 31,
1996* 1995
---------------------------
<S> <C> <C>

Net asset value at beginning of period.......... $ 10.55 $ 10.00
------------ ------------
Net investment income........................... 0.35 0.37
Net realized and unrealized gain on investments. 0.52 0.61
------------ ------------
Total from investment operations................ 0.87 0.98
------------ ------------
Less dividends and distributions:
From net investment income..................... -- (0.37)
From net realized gain on investments.......... -- (0.04)
In excess of net realized gain on investments.. -- (0.02)
------------ ------------
Total dividends and distributions............... -- (0.43)
------------ ------------
Net asset value at end of period................ $ 11.42 $ 10.55
============ ============
Total investment return (b)..................... 8.26% 10.06%
Ratios (to average net assets)/Supplemental Da-
ta:
Net investment income.......................... 9.07%+ 10.02%+
Net expenses................................... 0.67%+ 0.67%+
Expenses (before reimbursement)................ 0.80%+ 1.25%+
Portfolio turnover rate......................... 105% 95%
Average commission rate paid.................... $ 0.0643 (c)
Net assets at end of period (in 000's).......... $ 111,208 $ 43,314
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after Sep-
tember 1, 1995.
+ Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

71
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)

COMMON STOCKS (91.1%)+

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
AUSTRALIA (4.5%)
Amcor, Ltd.
(forest products & paper)............................ 13,000 $ 88,504
Boral, Ltd.
(building materials &
components).......................................... 15,000 38,959
Brambles Industries, Ltd.
(business & public services)......................... 4,300 59,835
Broken Hill Proprietary Co., Ltd.
(energy sources)..................................... 19,400 268,273
Coles Myer, Ltd.
(merchandising)...................................... 6,770 24,617
CRA, Ltd.
(metals-nonferrous).................................. 3,225 49,648
CSR, Ltd.
(multi-industry)..................................... 19,200 67,850
Foster's Brewing Group, Ltd.
(beverages & tobacco)................................ 28,920 49,848
Mount Isa Mines Holdings, Ltd.
(metals-nonferrous).................................. 22,461 28,992
National Australia Bank, Ltd.
(banking)............................................ 13,700 126,696
News Corp., Ltd.
(broadcasting & publishing).......................... 17,039 96,690
Pacific Dunlop, Ltd.
(multi-industry)..................................... 3,600 8,104
Santos, Ltd.
(energy sources)..................................... 15,500 53,677
Westpac Banking Corp., Ltd.
(banking)............................................ 19,400 85,964
WMC, Ltd.
(metals-nonferrous).................................. 14,600 104,568
------------
1,152,225
------------
AUSTRIA (2.8%)
Austrian Airlines Oesterreichische Luftverkehrs AG
(transportation-airlines) (a)........................ 150 23,090
Bank Austria AG
(banking)............................................ 2,050 164,576
Creditanstalt-Bankverein Stamm
(banking)............................................ 1,000 66,185
EA-Generali AG
(insurance).......................................... 350 103,735
Oesterreichische
Brau-Beteiligungs AG
(beverages & tobacco)................................ 750 42,708
OMV AG
(energy sources)..................................... 1,050 106,349
Verbundgesellschaft-Oesterreichische
Elektrizitatswirtschafts AG Class A
(utilities-electrical & gas)......................... 1,350 103,024
Wienerberger Baustoffindustrie AG (building materials
&
components).......................................... 500 100,958
------------
710,625
------------
</TABLE>
- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
FRANCE (9.3%)
Alcatel Alsthom
(electrical & electronics)........................... 1,323 $ 115,388
AXA
(insurance).......................................... 1,303 71,274
Carrefour, SA
(merchandising)...................................... 355 198,874
Compagnie de Saint Gobain
(misc.-materials & commodities)...................... 1,095 146,551
Compagnie de Suez, SA
(banking)............................................ 2,017 73,775
Compagnie Financiere de Paribas, SA Class A
(banking)............................................ 601 35,490
Compagnie Generale des Eaux
(business & public services)......................... 1,307 145,982
Elf Aquitaine, SA
(energy sources)..................................... 2,212 162,675
Eridania Beghin-Say, SA
(food & household products).......................... 180 28,181
Groupe Danone
(food & household products).......................... 1,086 164,332
Havas, SA
(business & public services)......................... 444 36,309
Lafarge, SA
(building materials &
components).......................................... 839 50,766
L'Air Liquide
(chemicals).......................................... 1,294 228,482
L'Oreal
(health & personal care)............................. 670 222,419
LVMH-Moet Hennessy
Louis Vuitton
(beverages & tobacco)................................ 720 170,766
Lyonnaise des Eaux, SA
(multi-industry)..................................... 733 69,996
Michelin (CGDE) Class B
(tire & rubber)...................................... 320 15,639
Pernod-Ricard
(beverages & tobacco)................................ 430 27,564
Pinault-Printemps-Redoute, SA
(building materials &
components).......................................... 110 38,482
PSA Peugeot, SA
(automobiles)........................................ 150 20,075
Rhone-Poulenc Class A
(chemicals).......................................... 1,439 37,819
Schneider, SA
(machinery & engineering)............................ 400 20,979
Societe Generale
(banking)............................................ 1,134 124,676
Thomson CSF, SA
(aerospace & military technology) 1,956 54,978
Total, SA Class B
(energy sources)..................................... 1,514 112,284
------------
2,373,756
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

72
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
GERMANY (3.8%)
Allianz AG Holding
(insurance).......................................... 100 $ 173,112
BASF AG
(chemicals).......................................... 100 28,578
Bayer AG
(chemicals).......................................... 1,000 35,312
Daimler-Benz AG
(automobiles) (a).................................... 200 107,020
Daimler-Benz AG Rights
(automobiles) (a).................................... 200 28
Deutsche Bank AG
(banking)............................................ 3,200 151,366
Dresdner Bank AG
(banking)............................................ 950 23,873
Karstadt AG
(merchandising)...................................... 50 20,218
Linde AG
(machinery & engineering)............................ 50 32,520
Mannesmann AG
(machinery & engineering)............................ 50 17,278
Preussag AG
(multi-industry)..................................... 50 12,647
RWE AG
(utilities-electrical & gas)......................... 500 19,479
Siemens AG
(electrical & electronics)........................... 1,850 98,812
Thyssen AG
(metals-steel)....................................... 50 9,135
VEBA AG
(utilities-electrical & gas)......................... 3,200 170,013
Viag AG
(multi-industry)..................................... 150 59,817
Volkswagen AG
(automobiles)........................................ 50 18,576
------------
977,784
------------
HONG KONG (3.5%)
Cheung Kong (Holdings) Ltd.
(real estate)........................................ 21,000 151,250
China Light & Power Co. Ltd.
(utilities-electrical & gas)......................... 17,000 77,088
Hang Seng Bank Ltd.
(banking)............................................ 12,400 124,954
Hong Kong
Telecommunications Ltd.
(telecommunications)................................. 76,000 136,477
Hutchison Whampoa Ltd.
(multi-industry)..................................... 24,000 150,999
Sun Hung Kai Properties Ltd.
(real estate)........................................ 16,000 161,747
Swire Pacific Ltd. Class A
(multi-industry)..................................... 11,000 94,148
------------
896,663
------------
</TABLE>

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
ITALY (4.7%)
Assicurazioni Generali
(insurance).......................................... 10,800 $ 248,921
Banca Commerciale Italiana
(banking)............................................ 28,000 56,228
Benetton Group SPA
(textiles & apparel)................................. 4,000 51,638
Credito Italiano
(banking)............................................ 12,000 14,052
Edison SPA
(energy sources)..................................... 4,000 24,124
Fiat SPA
(automobiles)........................................ 38,000 127,225
Fiat SPA di Risp
(automobiles)........................................ 6,000 10,249
Istituto Bancario San Paolo di
Torino SPA
(banking)............................................ 9,000 58,093
Italgas SPA
(utilities-electrical & gas)......................... 5,000 18,664
Mediobanca SPA
(financial services)................................. 10,000 63,472
Montedison SPA
(multi-industry) (a)................................. 31,000 18,009
Olivetti Group SPA
(data processing &
reproduction) (a).................................... 30,000 16,176
Parmalat Finanziaria SPA
(food & household products).......................... 35,000 47,009
Pirelli SPA
(industrial components).............................. 26,000 43,482
Riunione Adriatica di Sicurta SPA
(insurance).......................................... 5,200 53,721
Sirti SPA
(telecommunications)................................. 3,000 19,267
Telecom Italia SPA
(telecommunications)................................. 70,000 150,384
Telecom Italia SPA di Risp
(telecommunications)................................. 8,000 13,796
Telecom Italia Mobile SPA
(telecommunications)................................. 67,000 149,618
Telecom Italia Mobile SPA di Risp
(telecommunications)................................. 6,000 8,176
------------
1,192,304
------------
JAPAN (37.4%)
Ajinomoto Co., Inc.
(food & household products).......................... 3,000 35,830
Asahi Bank, Ltd.
(banking)............................................ 17,000 196,836
Asahi Chemical Industry Co., Ltd.
(chemicals).......................................... 19,000 135,460
Asahi Glass Co., Ltd.
(misc.-materials & components) 10,000 119,433
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

73
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
JAPAN (Continued)
Bank of Tokyo-Mitsubishi Ltd.
(banking)............................................ 22,600 $ 523,863
Bridgestone Corp.
(industrial components).............................. 3,000 57,164
Canon, Inc.
(recreation & other
consumer goods)...................................... 8,000 166,294
Chiba Bank, Ltd.
(banking)............................................ 6,000 52,842
Dai Nippon Printing Co., Ltd.
(business & public services)......................... 5,000 96,640
Daiei, Inc.
(merchandising)...................................... 10,000 120,344
Daiwa House Industry Co., Ltd.
(construction & housing)............................. 13,000 201,486
Fanuc Co., Ltd.
(electronic components &
instruments)......................................... 2,000 79,500
Fuji Bank, Ltd.
(banking)............................................ 13,000 279,710
Fuji Photo Film Co., Ltd.
(recreation & other
consumer goods)...................................... 2,000 63,090
Fujitsu, Ltd.
(data processing &
reproduction)........................................ 11,000 100,287
Furukawa Electric Co., Ltd.
(industrial components).............................. 15,000 89,575
Hankyu Corp.
(transportation-road & rail)......................... 3,000 17,559
Hitachi, Ltd.
(electrical & electronics)........................... 20,000 185,987
Honda Motor Co., Ltd.
(automobiles)........................................ 6,000 155,354
Industrial Bank of Japan, Ltd.
(banking)............................................ 11,000 272,781
Ito-Yokado Co., Ltd.
(merchandising)...................................... 3,000 180,790
Itochu Corp.
(wholesale &
international trade)................................. 30,000 209,509
Japan Air Lines
(transportation-airlines) (a)........................ 9,000 72,781
Japan Energy Corp.
(energy sources)..................................... 28,000 103,897
Joyo Bank
(banking)............................................ 3,000 22,729
Kajima Corp.
(construction & housing)............................. 2,000 20,604
Kansai Electric Power Co., Inc.
(utilities-electrical & gas)......................... 3,000 68,651
Kao Corp.
(food & household products).......................... 23,000 310,343
Kawasaki Steel Corp.
(metals-steel)....................................... 6,000 21,607
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
JAPAN (Continued)
Kinki Nippon Railway Co., Ltd.
(transportation-road & rail)......................... 7,000 $ 50,353
Kirin Brewery Co., Ltd.
(beverages & tobacco)................................ 11,000 134,385
Komatsu, Ltd.
(machinery & engineering)............................ 10,000 98,464
Kubota Corp.
(machinery & engineering)............................ 5,000 32,958
Marubeni Corp.
(wholesale &
international trade)................................. 17,000 92,993
Marui Co., Ltd.
(merchandising)...................................... 2,000 44,309
Matsushita Electric Industrial
Co., Ltd.
(appliances &
household durables).................................. 8,000 148,789
Mitsubishi Chemical Corp.
(chemicals).......................................... 10,000 46,132
Mitsubishi Corp.
(multi-industry)..................................... 5,000 65,642
Mitsubishi Electric Corp.
(electrical & electronics)........................... 35,000 243,789
Mitsubishi Estate Co., Ltd.
(construction & housing)............................. 3,000 41,300
Mitsubishi Heavy Industries, Ltd.
(machinery & engineering)............................ 15,000 130,327
Mitsubishi Trust & Banking
(financial services)................................. 11,000 185,531
Mitsui Engineering & Shipbuilding
Co., Ltd.
(machinery & engineering) (a)........................ 21,000 63,947
Mitsui Fudosan Co., Ltd.
(construction & housing)............................. 6,000 80,959
Mitsui Marine & Fire Insurance
Co., Ltd.
(insurance).......................................... 15,000 119,114
Mitsui Trust & Banking Co., Ltd.
(financial services)................................. 3,000 35,009
Mitsukoshi, Ltd.
(merchandising)...................................... 3,000 32,001
NEC Corp.
(electrical & electronics)........................... 8,000 86,794
New Oji Paper Co., Ltd.
(forest products & paper)............................ 2,000 17,249
Nippon Express Co., Ltd.
(transportation-road & rail)......................... 3,000 29,266
Nippon Oil Co., Ltd.
(energy sources)..................................... 8,000 54,191
Nippon Paper Industries Co.
(forest products & paper)............................ 6,000 37,471
Nippon Steel Corp.
(metals-steel)....................................... 11,000 37,708
Nippon Yusen Kabushiki Kaish
(transportation-shipping)............................ 5,000 28,901
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

74
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
JAPAN (Continued)
Nippondenso Co., Ltd.
(industrial components).............................. 8,000 $ 173,588
Nissan Motor Co., Ltd.
(automobiles)........................................ 5,000 44,354
NKK Corp.
(metals-steel) (a)................................... 10,000 30,268
Nomura Securities Co., Ltd.
(financial services)................................. 6,000 117,062
Obayashi Corp.
(construction & housing)............................. 5,000 45,175
Osaka Gas Co., Ltd.
(utilities-electrical & gas)......................... 6,000 21,935
Sakura Bank, Ltd.
(banking)............................................ 18,000 200,209
Sankyo Co., Ltd.
(health & personal care)............................. 2,000 51,785
Sanyo Electric Co., Ltd.
(appliances &
household durables).................................. 6,000 36,596
Sekisui Chemical Co.
(building materials &
components).......................................... 2,000 24,434
Sekisui House, Ltd.
(construction & housing)............................. 2,000 22,792
Sharp Corp.
(appliances &
household durables).................................. 5,000 87,523
Shimizu Corp.
(construction & housing)............................. 4,000 44,126
Shiseido Co., Ltd.
(health & personal care)............................. 8,000 102,110
Sony Corp.
(appliances &
household durables).................................. 1,000 65,734
Sumitomo Bank
(banking)............................................ 14,000 270,593
Sumitomo Chemical Co., Ltd.
(chemicals).......................................... 6,000 28,609
Sumitomo Corp.
(wholesale &
international trade)................................. 14,000 124,319
Sumitomo Electric Industries
(industrial components).............................. 12,000 171,764
Sumitomo Marine & Fire
(insurance).......................................... 7,000 60,947
Sumitomo Metal Industries, Ltd.
(metals-steel)....................................... 8,000 24,506
Sumitomo Metal Mining Co., Ltd.
(metals-nonferrous).................................. 4,000 34,608
Taisei Corp.
(construction & housing)............................. 19,000 134,767
Taisho Pharmaceutical Co., Ltd.
(health & personal care)............................. 1,000 21,607
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
JAPAN (Continued)
Takeda Chemical Industries
(health & personal care)............................. 6,000 $ 106,122
Teijin, Ltd.
(chemicals).......................................... 31,000 168,163
Tobu Railway Co., Ltd.
(transportation-road & rail)......................... 14,000 91,772
Tohoku Electric Power Co., Inc. (utilities-electrical
& gas)............................................... 1,010 22,560
Tokai Bank
(banking)............................................ 11,000 142,408
Tokio Marine & Fire Insurance Co.
(insurance).......................................... 9,000 119,797
Tokyo Dome Corp.
(leisure & tourism).................................. 2,000 40,297
Tokyo Electric Power
(utilities-electrical & gas)......................... 6,000 152,072
Tokyo Gas Co., Ltd.
(utilities-electrical & gas)......................... 15,000 54,702
Tokyu Corp.
(transportation-road & rail)......................... 5,000 38,063
Toppan Printing Co., Ltd.
(business & public services)......................... 8,000 116,698
Tostem Corp.
(building materials &
components).......................................... 1,000 29,448
Toto, Ltd.
(building materials &
components).......................................... 1,000 15,043
Toyoda Automatic Loom
Works
(machinery & engineering)............................ 1,000 19,966
Toyota Motor Corp.
(automobiles)........................................ 13,000 324,748
Yamaichi Securities
(financial services)................................. 15,000 102,840
Yamanouchi Pharmaceutical
(health & personal care)............................. 3,000 65,095
Yamazaki Baking Co., Ltd.
(food & household products).......................... 1,000 18,507
Yasuda Trust & Banking
(financial services)................................. 15,000 94,771
------------
9,561,011
------------
MALAYSIA (2.9%)
AMMB Holdings Berhad
(financial services)................................. 2,000 28,053
DCB Holdings Berhad
(financial services)................................. 5,000 17,133
Edaran Otomobil Nasional Berhad
(automobiles)........................................ 2,000 19,156
Golden Hope Plantations Berhad
(misc.-materials & commodities) 28,000 43,539
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

75
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
MALAYSIA (Continued)
Hume Industries Berhad
(building materials &
components).......................................... 5,000 $ 24,447
Malayan Banking Berhad
(banking)............................................ 9,000 86,565
Malaysia International
Shipping Berhad
(transportation-shipping)............................ 9,000 27,953
Malaysian Resources Corp. Berhad
(real estate)........................................ 7,000 17,113
Resorts World Berhad
(leisure & tourism).................................. 15,000 85,964
Rothmans of Pall Mall Berhad
(beverages & tobacco)................................ 4,000 42,080
Sime Darby Berhad
(multi-industry)..................................... 26,000 71,897
Technology Resources
Industries Berhad
(multi-industry) (a)................................. 7,000 24,407
Telekom Malaysia Berhad
(telecommunications)................................. 11,000 97,867
Tenaga Nasional Berhad
(utilities-electrical & gas)......................... 16,000 67,328
United Engineers Ltd.
(machinery & engineering)............................ 9,000 62,399
YTL Corp. Berhad
(multi-industry)..................................... 3,000 15,630
------------
731,531
------------
NETHERLANDS (1.2%)
Elsevier NV
(broadcasting & publishing).......................... 1,500 22,759
ING Groep NV
(insurance).......................................... 1,270 37,870
Koninklijke PTT Nederland NV
(forest products & paper)............................ 1,000 37,845
Philips Electronics NV
(appliances &
household durables).................................. 600 19,508
Royal Dutch Petroleum Co.
(energy sources)..................................... 900 138,983
Unilever NV
(food & household products).......................... 300 43,410
Wolters Kluwer CVA NV
(broadcasting & publishing).......................... 100 11,359
------------
311,734
------------
NEW ZEALAND (1.0%)
Brierley Investments Ltd.
(multi-industry)..................................... 35,900 33,940
Carter Holt Harvey Ltd.
(forest products & paper)............................ 26,400 60,226
Fletcher Challenge Building
(building materials &
components).......................................... 4,975 9,713
Fletcher Challenge Energy
(energy sources)..................................... 4,975 10,974
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
<S> <C> <C>

-----------------------------------------------------------
NEW ZEALAND (Continued)
Fletcher Challenge Paper
(forest products & paper)............................ 9,950 $ 19,222
Lion Nathan Ltd.
(beverages & tobacco)................................ 9,300 24,274
Telecom Corp. of New Zealand Ltd.
(telecommunications)................................. 25,100 105,235
------------
263,584
------------
NORWAY (1.6%)
Bergesen d.y. ASA Class A
(transportation-shipping)............................ 900 18,703
Bergesen d.y. ASA Class B
(transportation-shipping)............................ 500 10,083
Dyno Industrier ASA
(chemicals).......................................... 500 11,083
Hafslund ASA Class A
(energy sources)..................................... 1,000 7,235
Hafslund ASA Class B
(energy sources)..................................... 600 3,787
Kvaerner ASA Class B
(machinery & engineering)............................ 400 15,455
Norsk Hydro ASA
(energy sources)..................................... 4,700 230,068
Norske Skogindustrier ASA Class A
(forest products & paper)............................ 1,300 39,222
Nycomed ASA Class A
(health & personal care) (a)......................... 1,000 14,393
Nycomed ASA Class B
(health & personal care) (a)......................... 600 8,312
Orkla ASA Class A
(multi-industry)..................................... 900 47,380
------------
405,721
------------
SINGAPORE (5.2%)
City Developments, Ltd.
(real estate)........................................ 16,000 124,695
DBS Land, Ltd.
(real estate)........................................ 23,000 78,870
Development Bank of Singapore, Ltd. Foreign Registered
(banking)............................................ 12,000 149,634
Fraser & Neave, Ltd.
(beverages & tobacco)................................ 12,000 124,128
Keppel Corp., Ltd.
(machinery & engineering)............................ 12,000 100,323
Oversea-Chinese Banking Corp., Ltd. Foreign Registered
(banking)............................................ 16,000 187,043
Oversea-Chinese Banking Corp., Ltd. Foreign Registered
Rights
(banking) (a)........................................ 1,600 12,809
Singapore Airlines, Ltd.
Foreign Registered
(transportation-airlines)............................ 22,000 232,244
Singapore Press Holdings, Ltd.
Foreign Registered
(broadcasting & publishing).......................... 6,400 125,602
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

76
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
SINGAPORE (Continued)
Straits Steamship Land, Ltd.
(multi-industry)..................................... 10,000 $ 33,441
United Overseas Bank, Ltd.
Foreign Registered
(banking)............................................ 16,000 153,035
------------
1,321,824
------------
SPAIN (4.5%)
Acerinox, SA
(metals-steel)....................................... 110 11,454
Autopistas Concesionaria
Espanola, SA
(business & public services)......................... 1,376 15,992
Banco Bilbao Vizcaya, SA
(banking)............................................ 2,350 95,133
Banco Central
Hispanoamericano, SA
(banking)............................................ 680 13,843
Banco Santander, SA
(banking)............................................ 1,490 69,499
Corporacion Bancaria
de Espana, SA
(banking)............................................ 1,410 61,479
Corporacion Mapfre, SA
(insurance).......................................... 220 11,223
Empresa Nacional de
Electricidad, SA
(utilities-electrical & gas)......................... 3,420 213,141
Fomento de Construcciones y Contratas, SA
(construction & housing)............................. 460 38,033
Gas Natural SDG
(utilities-electrical & gas)......................... 330 69,241
Iberdrola, SA
(utilities-electrical & gas)......................... 14,620 149,957
Repsol, SA
(energy sources)..................................... 5,220 181,390
Telefonica de Espana
(telecommunications)................................. 12,160 223,841
------------
1,154,226
------------
UNITED KINGDOM (8.7%)
Abbey National Plc
(banking)............................................ 7,790 65,483
Barclays Plc
(banking)............................................ 6,765 81,254
Bass Plc
(beverages & tobacco)................................ 1,680 21,118
B.A.T Industries Plc
(beverages & tobacco)................................ 6,671 51,931
BOC Group Plc
(chemicals).......................................... 1,206 17,315
Boots Co. Plc
(merchandising)...................................... 1,724 15,510
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
UNITED KINGDOM (Continued)
British Airways Plc
(transportation-airlines)............................ 1,471 $ 12,662
British Gas Plc
(energy sources)..................................... 11,990 33,534
British Petroleum Co. Plc
(energy sources)..................................... 21,035 184,502
British Telecommunications Plc
(telecommunications)................................. 11,110 59,729
BTR Plc
(multi-industry)..................................... 16,831 66,295
Cable & Wireless Plc
(telecommunications)................................. 8,950 59,242
Commercial Union Plc
(insurance).......................................... 1,803 16,249
General Electric Co. Plc
(electrical & electronics)........................... 8,700 46,908
GKN Plc
(machinery & engineering)............................ 657 10,086
Glaxo Wellcome Plc
(health & personal care)............................. 11,369 153,069
Granada Group Plc
(leisure & tourism).................................. 5,010 67,103
Grand Metropolitan Plc
(multi-industry)..................................... 10,835 71,887
Great Universal Stores Plc
(merchandising)...................................... 12,200 123,975
Guinness Plc
(beverages & tobacco)................................ 15,670 113,949
Hanson Plc
(multi-industry)..................................... 31,877 89,403
HSBC Holdings Plc (GBP par)
(financial services)................................. 2,450 38,373
Imperial Chemical Industries Plc
(chemicals).......................................... 830 10,162
Kingfisher Plc
(merchandising)...................................... 1,090 10,958
Lloyds TSB Group Plc
(banking)............................................ 12,655 61,938
Marks & Spencer Plc
(merchandising)...................................... 10,167 74,327
MEPC Plc
(real estate)........................................ 1,050 6,624
National Power Plc
(utilities-electrical & gas)......................... 8,580 69,324
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(transportation-shipping)............................ 4,355 32,887
Prudential Corp. Plc
(insurance).......................................... 9,120 57,533
Rank Organisation Plc
(leisure & tourism).................................. 5,210 40,315
Redland Plc
(building materials &
components).......................................... 1,573 9,801
Reed International Plc
(broadcasting & publishing).......................... 8,270 138,394
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

77
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
<S> <C> <C>

-----------------------------------------------------------
UNITED KINGDOM (Continued)
Reuters Holdings Plc
(broadcasting & publishing)...................... 5,820 $ 70,446
RMC Group Plc
(building materials &
components)...................................... 700 11,018
RTZ Corp. Plc
(metals-nonferrous).............................. 4,143 61,348
Sainsbury Plc
(merchandising).................................. 4,820 28,384
Scottish Power Plc
(utilities-electrical & gas)..................... 7,100 33,537
Thorn Emi Plc
(appliances &
household durables).............................. 990 27,596
Unilever Plc
(food & household products)...................... 2,820 56,086
Vodafone Group Plc
(multi-industry)................................. 3,962 14,744
------------
2,214,999
------------
Total Common Stocks
(Cost $22,818,352)............................... 23,267,987
------------
PREFERRED STOCK (0.1%)

AUSTRIA (0.1%)
Creditanstalt-Bankverein Vorzug
(banking)........................................ 600 30,385
------------
Total Preferred Stock
(Cost $35,245)................................... 30,385
------------
SHORT-TERM
INVESTMENT (2.8%)
<CAPTION>
PRINCIPAL
AMOUNT
--------------
<S> <C> <C>

COMMERCIAL PAPER (2.8%)
UNITED STATES (2.8%)
A.I. Credit Corp.
5.47%, due 7/1/96................................ $ 725,000 725,000
------------
Total Short-Term Investment
(Cost $725,000).................................. 725,000
------------
Total Investments
(Cost $23,578,597) (b)........................... 94.0% 24,023,372 (c)
Cash and Other Assets,
Less Liabilities................................. 6.0 1,526,131
----------- ------------
Net Assets........................................ 100.0% $ 25,549,503
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) The cost for Federal income tax purposes is $23,616,729.
(c) At June 30, 1996 net unrealized appreciation for securities was $406,643,
based on cost for Federal income tax purposes. This consisted of aggregate
gross unrealized appreciation for all investments on which there was an ex-
cess of market value over cost of $1,236,536 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $829,893.

(d) Forward Foreign Currency Contracts Open at June 30, 1996:

<TABLE>
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- ---------------- --------------- -------- ------------
<S> <C> <C> <C>
A$ 245,000 $ 193,011 8/28/96 $ 862
AS 6,639,890 (Pounds)410,000 7/12/96 16,677
DK 970,500 $ 167,907 7/30/96 2,217
DM 784,173 (Pounds)345,000 7/2/96 20,768
DM 2,540,000 $ 1,782,456 7/5/96 113,127
DM 224,136 SP 19,000,000 7/22/96 537
DM 585,000 $ 396,798 8/5/96 11,606
DM 172,291 DK 665,000 8/9/96 110
DM 1,690,000 $ 1,167,934 8/20/96 54,083
DM 680,000 $ 465,865 9/23/96 16,771
DM 809,715 (Pounds)345,000 10/2/96 745
DM 1,808,000 $ 1,208,881 10/18/96 12,876
DM 1,165,000 $ 778,743 12/20/96 4,889
FF 1,365,000 DM 403,739 8/2/96 233
FF 500,000 DM 147,793 10/30/96 155
(Yen)104,745,200 $ 1,026,691 7/2/96 71,205
(Yen)584,078,950 $ 5,564,579 8/5/96 210,327
(Yen)272,100,000 $ 2,595,669 10/28/96 71,125
N$ 400,000 $ 272,760 8/7/96 121
$ 291,600 A$ 375,000 7/2/96 3,494
--------
611,928
--------
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE DEPRECIATION
- ---------------- --------------- -------- ------------
<S> <C> <C> <C>
A$ 180,000 $ 141,300 7/2/96 345
DK 665,000 DM 172,093 8/9/96 241
DM 335,000 $ 219,961 9/23/96 1,284
DM 1,260,000 $ 829,132 10/18/96 4,366
DM 1,535,000 $ 1,013,758 11/4/96 2,785
FF 1,151,000 DM 339,979 8/2/96 108
IL 938,000,000 DM 898,826 7/23/96 19,286
(Pounds) 345,000 DM 814,545 7/2/96 811
SP 74,300,000 DM 875,344 7/22/96 2,854
$ 1,180,000 DM 1,726,871 7/5/96 45,073
$ 166,210 DK 970,500 7/30/96 520
$ 1,195,000 DM 1,749,480 8/5/96 43,057
$ 392,523 (Yen)42,000,000 8/5/96 7,509
$ 500,000 DM 754,250 10/18/96 1,058
--------
129,297
--------
Net Appreciation....................................... $482,631
========
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

78
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

(e) Foreign cash held at June 30, 1996:

<TABLE>
<CAPTION>
CURRENCY COST VALUE
- --------------- ---------- ----------
<S> <C> <C>
A$ 5,044 $ 4,003 $ 3,970
AS 92,664 8,624 8,650
BF 7,325 233 234
DK 1,620 275 276
DM 7,633 4,972 4,523
FF 42,455 8,243 10,111
HK 44,740 5,783 5,780
IL 15,348,670 9,898 10,007
(Yen) 180,172 1,655 1,643
MK 3,880 1,553 1,555
NG 6,113 3,534 3,581
N$ 3,095 2,085 2,120
NK 47,090 7,152 7,249
(Pounds)653,207 988,719 1,014,958
S$ 3,730 2,648 2,642
SP 381,084 2,962 2,972
---------- ----------
$1,052,339 $1,080,271
========== ==========
</TABLE>
(f) The following abbreviations are used in footnotes (d) & (e):

A$--Australian Dollar
AS--Austrian Schilling
BF--Belgian Franc
DK--Danish Krone
DM--Deutsche Mark
FF--French Franc
HK--Hong Kong Dollar
IL--Italian Lira
(Yen)--Japanese Yen
MK--Malaysian Ringgit
NG--Netherland Guilder
N$--New Zealand Dollar
NK--Norwegian Krone
(Pounds)--Pound Sterling
S$--Singapore Dollar
SP--Spanish Peseta
$--U.S. Dollar

The table below sets forth the diversification of International Equity Portfolio
investments by industry.

COMMON STOCKS, PREFERRED STOCK &SHORT-TERM INVESTMENT

<TABLE>
<CAPTION>
VALUE PERCENT +
----------------------------------------------------------
<S> <C> <C>
Aerospace & Military Technology........................... $ 54,978 0.2%
Appliances & Household Durables........................... 385,746 1.5
Automobiles............................................... 826,785 3.2
Banking................................................... 4,135,998 16.2
Beverages & Tobacco....................................... 802,750 3.1
Broadcasting & Publishing................................. 465,251 1.8
Building Materials & Components........................... 353,069 1.4
Business & Public Services................................ 471,456 1.8
Chemicals................................................. 747,117 2.9
Construction & Housing.................................... 629,243 2.5
Data Processing & Reproduction............................ 116,463 0.5
Electrical & Electronics.................................. 777,676 3.0
Electronic Components
& Instruments............................................ 79,500 0.3
Energy Sources............................................ 1,675,943 6.6
Financial Services........................................ 682,245 2.7
Food & Household Products................................. 703,698 2.8
Forest Products & Paper................................... 299,739 1.2
Health & Personal Care.................................... 744,912 2.9
Industrial Components..................................... 535,572 2.1
Insurance................................................. 1,798,495 7.0
Leisure & Tourism......................................... 233,678 0.9
Machinery & Engineering................................... 604,702 2.4
Merchandising............................................. 874,307 3.4
Metals-Nonferrous......................................... 279,164 1.1
Metals-Steel.............................................. 134,680 0.5
Miscellaneous-Materials
& Commodities............................................ 190,090 0.7
Miscellaneous-Materials
& Components............................................. 119,433 0.5
Multi-Industry............................................ 1,016,235 4.0
Real Estate............................................... 540,299 2.1
Recreation & Other
Consumer Goods........................................... 229,384 0.9
Telecommunications........................................ 1,023,631 4.0
Textiles & Apparel........................................ 51,638 0.2
Tire & Rubber............................................. 15,639 0.1
Transportation-Airlines................................... 340,778 1.3
Transportation-Road & Rail................................ 227,013 0.9
Transportation-Shipping................................... 118,526 0.5
Utilities-Electrical & Gas................................ 1,310,717 5.1
Wholesale & International Trade........................... 426,822 1.7
----------- -----
24,023,372 94.0
Cash and Other Assets,
Less Liabilities......................................... 1,526,131 6.0
----------- -----
Net Assets................................................ $25,549,503 100.0%
=========== =====
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

79
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:

Investment in securities, at value (Note 2) (identified cost
$23,578,597)................................................... $ 24,023,372
Cash denominated in foreign currencies (identified cost
$1,052,339).................................................... 1,080,271
Cash............................................................ 200,888
Receivables:
Investment securities sold...................................... 955,000
Dividends and interest.......................................... 94,788
Fund shares sold................................................ 72,922
NYLIAC.......................................................... 56,036
Unrealized appreciation on foreign
currency contracts............................................. 611,928
Unamortized organization expense
(Note 2)....................................................... 56,345
------------
Total assets.................................................. 27,151,550
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 1,361,070
Organization.................................................... 72,839
Adviser......................................................... 11,999
Custodian....................................................... 5,241
Administrator................................................... 2,000
Directors....................................................... 231
Accrued expenses................................................ 19,370
Unrealized depreciation on foreign
currency contracts............................................. 129,297
------------
Total liabilities............................................. 1,602,047
------------
Net assets applicable to
outstanding shares............................................. $ 25,549,503
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized.................................. $ 23,591
Additional paid-in capital...................................... 24,197,616
Accumulated distribution in excess of
net investment income.......................................... (18,710)
Accumulated undistributed net realized gain on investments ..... 5,852
Accumulated undistributed net realized gain on foreign currency
transactions................................................... 391,045
Net unrealized appreciation
on investments................................................. 444,775
Net unrealized appreciation on
translation of assets and liabilities in
foreign currencies............................................. 505,334
------------
Net assets applicable to
outstanding shares............................................. $ 25,549,503
============
Shares of capital stock outstanding............................. 2,359,061
============
Net asset value per share outstanding........................... $ 10.83
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:

Dividends (a)................................................... $ 199,063
Interest........................................................ 39,864
------------
Total income.................................................. 238,927
------------
Expenses: (Note 2)
Advisory (Note 3)............................................... 57,301
Recordkeeping................................................... 32,889
Custodian....................................................... 24,568
Administration (Note 3)......................................... 19,100
Portfolio pricing............................................... 10,121
Amortization of organization expense............................ 7,329
Auditing........................................................ 2,360
Shareholder communication....................................... 2,288
Legal........................................................... 572
Directors....................................................... 455
Miscellaneous................................................... 1,240
------------
Total expenses
before reimbursement......................................... 158,223
Expense reimbursement from
Administrator (Note 3)......................................... (65,586)
------------
Net expenses.................................................. 92,637
------------
Net investment income........................................... 146,290
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions........................................... 47,153
Foreign currency transactions................................... 286,206
------------
Net realized gain on investments and foreign currency
transactions................................................... 333,359
------------
Net change in unrealized appreciation
on investments:
Security transactions........................................... 300,688
Translation of assets and liabilities in
foreign currencies............................................. 468,807
------------
Net unrealized gain on investments and
foreign currencies............................................. 769,495
------------
Net realized and unrealized gain
on investments and foreign
currency transactions.......................................... 1,102,854
------------
Net increase in net assets resulting
from operations................................................ $ 1,249,144
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$28,832.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

80
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO NEW YORK LIFE MFA
STATEMENT OF CHANGES IN NET ASSETS SERIES FUND, INC.
For the six months ended June 30, 1996 (Unaudited) and the period May 1, 1995
(Commencement of Operations) through December 31, 1995

<TABLE>
<CAPTION>
1996 1995
-----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................... $ 146,290 $ 82,369
Net realized gain (loss) on investments......... 47,153 (41,301)
Net realized gain on foreign currency transac-
tions.......................................... 286,206 702,174
Net change in unrealized appreciation on invest-
ments.......................................... 300,688 144,087
Net change in unrealized appreciation on trans-
lation of assets and liabilities in
foreign currencies............................. 468,807 36,527
------------ ------------
Net increase in net assets resulting from opera-
tions.......................................... 1,249,144 923,856
------------ ------------
Dividends and distributions to shareholders:
From net investment income...................... (165,000) (82,369)
From net realized gain on investments and for-
eign currency transactions..................... -- (597,335)
------------ ------------
Total dividends and distributions to sharehold-
ers........................................... (165,000) (679,704)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares................ 9,879,882 4,168,978
Net asset value of shares issued to shareholders
in reinvestment of dividends................... 165,000 679,704
------------ ------------
10,044,882 4,848,682
Cost of shares redeemed......................... (210,233) (462,124)
------------ ------------
Increase in net assets derived from capital
share transactions............................ 9,834,649 4,386,558
------------ ------------
Net increase in net assets..................... 10,918,793 4,630,710
NET ASSETS:
Beginning of period............................. 14,630,710 10,000,000
------------ ------------
End of period................................... $ 25,549,503 $ 14,630,710
============ ============
Accumulated distribution in excess of net in-
vestment income................................ $ (18,710) $ --
============ ============

Net asset value at beginning of period........... $ 10.20 $ 10.00
------------ ------------
Net investment income............................ 0.07 0.64
Net realized and unrealized gain on investments.. 0.20 0.01
Net realized and unrealized gain on foreign cur-
rency transactions.............................. 0.44 0.05
------------ ------------
Total from investment operations................. 0.71 0.70
------------ ------------
Less dividends and distributions:
From net investment income...................... (0.08) (0.06)
From net realized gain on investments and for-
eign currency transactions..................... -- (0.44)
------------ ------------
Total dividends and distributions................ (0.08) (0.50)
------------ ------------
Net asset value at end of period................. $ 10.83 $ 10.20
============ ============
Total investment return (b)...................... 7.03% 6.96%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................... 1.53%+ 1.07%+
Net expenses.................................... 0.97%+ 0.97%+
Expenses (before reimbursement)................. 1.66%+ 2.51%+
Portfolio turnover rate.......................... 12% 14%
Average commission rate paid..................... $ 0.0429 (c)
Net assets at end of period (in 000's)........... $ 25,550 $ 14,631
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after Sep-
tember 1, 1995.
+ Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

81
<PAGE>

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)

LONG-TERM BONDS (38.6%)+
ASSET-BACKED SECURITIES (6.0%)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

AIRPLANE LEASES (0.4%)
Aircraft Lease Portfolio Securitization
Series 1996-1 Class C
6.788%, due 6/15/06 (c)(e)........................... $ 1,200,000 $ 1,200,000
------------
AUTO FINANCE (0.2%)
WFS Financial Owner Trust
Series 1996-B Class A3
6.65%, due 8/20/00................................... 550,000 552,189
------------
AUTO LOANS (0.8%)
Chevy Chase Auto
Receivables Trust
Series 1995-2 Class A
5.80%, due 6/15/02................................... 534,063 530,309
NationsBank Auto Grantor Trust
Series 1995-A Class A
5.85%, due 6/15/02................................... 840,897 837,609
Olympic Automobile
Receivables Trust
Series 1996-B Class A4
6.70%, due 3/15/02................................... 800,000 803,504
------------
2,171,422
------------
CREDIT CARD
RECEIVABLES (0.3%)
Standard Credit Card Master Trust
Series 1995-4 Class A
5.60%, due 2/15/00 (e)............................... 725,000 725,362
------------
EQUIPMENT LOANS (0.4%)
Case Equipment Loan Trust
Series 1995-B Class A3
6.15%, due 9/15/02................................... 1,050,000 1,044,666
------------
MORTGAGE LOANS (3.4%)
Asset Securitization Corp.
Series 1996-D2 Class A1
6.92%, due 2/14/29................................... 870,249 842,375
Capstead Securities Corp. IV
Series 1992-1 Class G
8.75%, due 1/25/20................................... 1,100,000 1,122,341
Mortgage Capital Funding, Inc.
Series 1996-MC1 Class A2A
7.35%, due 7/15/05................................... 900,000 903,798
Nomura Asset Securities Corp.
Series 1996-MD5 Class A1B
7.12%, due 4/13/36................................... 1,050,000 1,024,737
Residential Asset
Securitization Trust
Series 1996-A5 Class A3
7.75%, due 7/31/26................................... 800,000 803,664
Series 1996-A2 Class A3
9.00%, due 6/25/26................................... 664,120 679,999
</TABLE>
- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

MORTGAGE LOANS (Continued)
Residential Funding Mortgage
Securities I
Series 1994-S12 Class A1
6.50%, due 4/25/09................................... $ 602,190 $ 600,118
Series 1996-S13 Class A1
7.00%, due 5/25/11................................... 944,431 942,806
Structured Asset Securities Corp.
Series 1996-CFL Class A1A
5.711%, due 2/25/28.................................. 366,313 363,222
Series 1996-CFL Class A1B
5.751%, due 2/25/28.................................. 775,000 759,864
Series 1996-2 Class A1
7.00%, due 8/25/26................................... 975,000 978,052
------------
9,020,976
------------
RECREATIONAL LOANS (0.5%)
Fleetwood Credit Corp.
Grantor Trust
Series 1996-A Class A
6.75%, due 10/17/11.................................. 613,153 612,669
Green Tree Recreational,
Equipment & Consumer Trust
Series 1996-A Class A1
5.55%, due 2/15/18................................... 905,730 888,322
------------
1,500,991
------------
Total Asset-Backed Securities
(Cost $16,305,465)................................... 16,215,606
------------

BRADY BOND (0.4%)

EURO BOND (0.4%)
Poland-Global Registered
2.75%, due 10/27/24 (e).............................. 2,150,000 1,212,063
------------
Total Brady Bond
(Cost $1,194,385).................................... 1,212,063
------------

CERTIFICATE OF DEPOSIT (0.2%)

BANKS (0.2%)
Mercantile Safe Deposit & Trust
Co., Baltimore, Maryland
5.16%, due 1/30/98................................... 575,000 565,288
------------
Total Certificate of Deposit
(Cost $575,000)...................................... 565,288
------------

CORPORATE BONDS (3.8%)

BANKS (1.4%)
Bankers Trust Corp.-New York
7.50%, due 11/15/15.................................. 625,000 600,025
Capital One Bank
8.125%, due 2/27/98.................................. 500,000 510,965
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

82
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

CORPORATE BONDS (CONTINUED)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

BANKS (Continued)
First Union Corp.
7.50%, due 4/15/35................................... $ 600,000 $ 614,838
First USA Bank
6.25%, due 10/9/98................................... 775,000 766,080
Regions Financial Corp.
7.75%, due 9/15/24................................... 1,125,000 1,177,222
------------
3,669,130
------------
BROKERAGE (1.0%)
Lehman Brothers Holdings Inc.
7.375%, due 5/15/07.................................. 1,225,000 1,243,890
Merrill Lynch & Co.
6.65%, due 1/15/99................................... 950,000 950,494
Salomon Inc.
6.70%, due 12/1/98................................... 525,000 524,039
------------
2,718,423
------------
FINANCE (0.8%)
Associates Corp. of North America
7.75%, due 2/15/05................................... 1,450,000 1,527,546
Chrysler Financial Corp.
5.66%, due 1/16/98................................... 650,000 643,604
------------
2,171,150
------------
INDUSTRIAL (0.3%)
Philip Morris Cos. Inc.
6.95%, due 6/1/06.................................... 700,000 701,092
------------
RETAIL (0.3%)
Sears Roebuck Acceptance Corp.
5.82%, due 12/7/98................................... 950,000 936,063
------------
Total Corporate Bonds
(Cost $10,352,237)................................... 10,195,858
------------

U.S. GOVERNMENT &
FEDERAL AGENCIES (23.7%)

FEDERAL AGENCY (0.8%)
Tennessee Valley Authority
7.25%, due 7/15/43................................... 2,425,000 2,257,166
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION (0.7%)
6.82%, due 6/29/05................................... 975,000 941,801
7.61%, due 5/24/06................................... 1,075,000 1,070,163
------------
2,011,964
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

FEDERAL HOME LOAN MORTGAGE CORPORATION
(COLLATERALIZED
MORTGAGE
OBLIGATIONS) (0.8%)
Series 1709 Class B
5.50%, due 4/15/19................................... $ 961,521 $ 941,243
Series 1627 Class PZ
5.60%, due 8/15/17................................... 1,149,899 1,106,065
------------
2,047,308
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION
(MORTGAGE PASS-
THROUGH SECURITY) (0.5%)
6.00%, due 8/1/24.................................... 1,515,107 1,387,505
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION
GOLD (MORTGAGE PASS-
THROUGH SECURITIES) (1.5%)
7.00%, due 2/1/26-5/1/26............................. 4,205,916 4,049,368
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (0.2%)
7.85%, due 9/10/04................................... 525,000 532,676
------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (1.0%)
Series 1993-29 Class PE
6.00%, due 11/25/19.................................. 950,000 934,563
Series 1993-118 Class A
6.50%, due 7/25/98................................... 1,625,868 1,626,372
------------
2,560,935
------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION
(MORTGAGE PASS-
THROUGH SECURITIES) (2.9%)
6.50%, due 7/1/24.................................... 1,567,790 1,475,431
7.00%, due 7/19/11 TBA (b)........................... 3,933,950 3,881,707
7.00%, due 10/1/23................................... 1,051,462 1,016,963
9.00%, due 6/1/25.................................... 1,389,085 1,449,635
------------
7,823,736
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION I
(MORTGAGE PASS-
THROUGH SECURITIES) (5.5%)
6.50%, due 7/22/26 TBA (b)........................... 2,400,000 2,249,256
7.50%, due 6/15/26................................... 1,760,000 1,734,709
8.00%, due 7/22/26 TBA (b)........................... 10,680,000 10,780,178
------------
14,764,143
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

83
<PAGE>

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

UNITED STATES TREASURY
BONDS (4.5%)
6.25%, due 8/15/23 (d)............................... $ 5,100,000 $ 4,623,456
6.875%, due 8/15/25.................................. 1,275,000 1,262,046
8.875%, due 8/15/17 (d).............................. 3,525,000 4,232,185
11.25%, due 2/15/15.................................. 1,020,000 1,471,982
11.625%, due 11/15/04................................ 345,000 452,436
------------
12,042,105
------------
UNITED STATES TREASURY NOTES (5.3%)
5.50%, due 11/15/98.................................. 1,330,000 1,309,013
5.625%, due 11/30/00................................. 1,850,000 1,791,891
6.375%, due 3/31/01.................................. 900,000 896,058
7.75%, due 12/31/99.................................. 1,675,000 1,745,132
7.875%, due 11/15/99................................. 900,000 940,077
7.875%, due 11/15/04................................. 1,200,000 1,289,808
8.125%, due 2/15/98 (d).............................. 5,950,000 6,135,938
------------
14,107,917
------------
Total U.S. Government &
Federal Agencies
(Cost $63,443,698)................................... 63,584,823
------------

YANKEE BONDS (4.5%)

African Development Bank
8.80%, due 9/1/19.................................... 1,425,000 1,638,137
China International Trust &
Investing Corp.
9.00%, due 10/15/06.................................. 775,000 827,684
City of Naples
7.52%, due 7/15/06................................... 1,000,000 1,025,420
Financiera Ener Nacional
9.375%, due 6/15/06 (c).............................. 1,000,000 1,011,540
Ford Capital BV
9.00%, due 8/15/98................................... 675,000 707,785
Grand Metropolitan
Investment Corp.
7.45%, due 4/15/35................................... 600,000 620,022
Hydro-Quebec
8.05%, due 7/7/24.................................... 800,000 850,608
Korea Electric Power
6.375%, due 12/1/03.................................. 1,400,000 1,329,062
Korea Telecom
7.50%, due 6/1/06.................................... 425,000 426,016
People's Republic of China
7.375%, due 7/3/01................................... 925,000 927,211
Republic of Columbia
7.25%, due 2/15/03................................... 1,000,000 934,520
Santander Financial Issuances
6.80%, due 7/15/05................................... 975,000 934,196
7.75%, due 5/15/05................................... 410,000 417,983
Wharf Capital International Ltd.
8.875%, due 11/1/04.................................. 350,000 361,560
------------
Total Yankee Bonds
(Cost $11,956,465)................................... 12,011,744
------------
Total Long-Term Bonds
(Cost $103,827,250).................................. 103,785,382
------------
</TABLE>

COMMON STOCKS (55.2%)
<TABLE>
<CAPTION>

SHARES VALUE
-----------------------------------------------------------
<S> <C> <C>

AIRLINES (0.7%)
Atlantic Southeast Airlines, Inc...................... 18,000 $ 508,500
Southwest Airlines Co................................. 51,450 1,498,481
------------
2,006,981
------------
AUTO PARTS (0.5%)
Lear Seating Corp. (a)................................ 40,000 1,410,000
------------
BANKS (1.3%)
NationsBank Corp...................................... 16,100 1,330,263
Wells Fargo & Co...................................... 9,100 2,173,762
------------
3,504,025
------------
BROKERAGE (0.5%)
Schwab (Charles) Corp................................. 52,700 1,291,150
------------
BUILDINGS (0.7%)
Lennar Corp........................................... 17,200 430,000
Oakwood Homes Corp.................................... 64,400 1,328,250
------------
1,758,250
------------
COMMERCIAL SERVICES (0.9%)
Service Corp. International........................... 41,000 2,357,500
------------
COMPUTERS & OFFICE
EQUIPMENT (4.4%)
Alco Standard Corp.................................... 57,700 2,610,925
Danka Business Systems Plc ADR (f) 42,800 1,251,900
Electronic Data Systems Corp.......................... 25,000 1,343,750
EMC Corp. (a)......................................... 35,000 651,875
Hewlett-Packard Co.................................... 22,700 2,261,488
Seagate Technology, Inc. (a).......................... 19,100 859,500
Sun Microsystems, Inc. (a)............................ 46,800 2,755,350
------------
11,734,788
------------
CONSUMER DURABLES (0.7%)
Black & Decker Corp................................... 47,000 1,815,375
------------
CONSUMER FINANCIAL
SERVICES (0.8%)
First Data Corp....................................... 25,800 2,054,325
------------
CONSUMER SERVICES (0.5%)
CUC International Inc. (a)............................ 39,400 1,398,700
------------
DRUGS (4.5%)
Amgen Inc. (a)........................................ 49,400 2,667,600
Elan Corp. Plc ADR (a)(f)............................. 28,400 1,622,350
Genzyme Corp. (a)..................................... 25,500 1,281,375
Mylan Laboratories Inc................................ 42,800 738,300
Pharmacia & Upjohn, Inc............................... 43,600 1,934,750
Schering-Plough Corp.................................. 40,000 2,510,000
Teva Pharmaceutical Industries
Ltd. ADR (f)......................................... 31,500 1,193,063
------------
11,947,438
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

84
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

SHARES VALUE
-----------------------------------------------------------
<S> <C> <C>

ELECTRONICS (0.9%)
General Instrument Corp. (a).......................... 15,500 $ 447,563
Harman International
Industries, Inc...................................... 21,000 1,034,250
Vishay Intertechnology, Inc. (a)...................... 42,392 1,001,511
------------
2,483,324
------------
FINANCE (4.4%)
Federal National
Mortgage Association................................. 51,800 1,735,300
Green Tree Financial Corp............................. 105,000 3,281,250
Household International Inc........................... 30,800 2,340,800
MGIC Investment Corp.................................. 31,000 1,739,875
Travelers Group Inc................................... 61,800 2,819,625
------------
11,916,850
------------
FINANCIAL SERVICES (2.0%)
First USA, Inc........................................ 40,000 2,200,000
SunAmerica Inc........................................ 54,250 3,065,125
------------
5,265,125
------------
FOOD (0.3%)
Richfood Holdings, Inc................................ 28,100 913,250
------------
HEALTH CARE (3.1%)
Columbia/HCA Healthcare Corp.......................... 36,369 1,941,195
HealthCare COMPARE Corp. (a).......................... 27,400 1,335,750
Humana, Inc. (a)...................................... 52,200 933,075
Pacificare Health Systems, Inc.
Class B (a).......................................... 15,600 1,056,900
Sunrise Assisted Living, Inc. (a)..................... 30,200 724,800
United Healthcare Corp................................ 45,900 2,317,950
------------
8,309,670
------------
HOSPITAL MANAGEMENT
& SERVICES (1.7%)
HEALTHSOUTH Corp. (a)................................. 57,000 2,052,000
OrNda HealthCorp (a).................................. 68,500 1,644,000
Unison HealthCare Corp. (a)........................... 51,000 710,812
------------
4,406,812
------------
INSURANCE (1.0%)
American International Group, Inc. 26,150 2,579,044
------------
LEISURE (0.6%)
Mirage Resorts, Inc. (a).............................. 27,900 1,506,600
------------
MACHINERY (0.6%)
U.S. Robotics Corp. (a)............................... 18,000 1,539,000
------------
</TABLE>

SHARES VALUE
-----------------------------------------------------------
<S> <C> <C>

MEDICAL EQUIPMENT (3.6%)
Guidant Corp.......................................... 38,000 $ 1,871,500
Heartport, Inc. (a)................................... 27,000 816,750
Johnson & Johnson..................................... 49,552 2,452,824
Medtronic, Inc........................................ 49,200 2,755,200
Waters Corp. (a)...................................... 56,800 1,874,400
------------
9,770,674
------------
OIL & GAS
EXPLORATION (0.6%)
Triton Energy Ltd. Class A (a)........................ 32,300 1,570,588
------------
PUBLISHING (0.5%)
News Corp. Ltd. ADR (f)............................... 61,700 1,449,950
------------
RESTAURANTS &
LODGING (3.1%)
HFS Inc. (a).......................................... 98,400 6,888,000
Lone Star Steakhouse &
Saloon, Inc. (a)..................................... 39,000 1,472,250
------------
8,360,250
------------
RETAIL (6.6%)
AutoZone, Inc. (a).................................... 45,600 1,584,600
Bed Bath & Beyond, Inc. (a)........................... 34,000 909,500
Gymboree Corp. (a).................................... 20,000 610,000
Home Depot, Inc. (The)................................ 36,500 1,971,000
Kohl's Corp. (a)...................................... 44,200 1,618,825
Kroger Co. (The) (a).................................. 38,800 1,532,600
Lowe's Cos., Inc...................................... 52,000 1,878,500
Nike Inc. Class B..................................... 23,000 2,363,250
Oakley, Inc. (a)...................................... 26,000 1,183,000
Office Depot, Inc. (a)................................ 48,950 997,356
Safeway Inc. (a)...................................... 66,800 2,204,400
Sunglass Hut International, Inc. (a) 39,000 950,625
------------
17,803,656
------------
SOFTWARE (2.0%)
Computer Associates
International, Inc................................... 52,900 3,769,125
Microsoft Corp. (a)................................... 13,800 1,657,725
------------
5,426,850
------------
TECHNOLOGY (5.3%)
Cisco Systems, Inc. (a)............................... 28,100 1,591,162
IDT Corp. (a)......................................... 146,000 1,405,250
Intel Corp............................................ 25,700 1,887,344
Lam Research Corp. (a)................................ 31,850 828,100
Linear Technology Corp................................ 36,000 1,080,000
Motorola, Inc......................................... 17,500 1,100,313
Oracle Corp. (a)...................................... 74,625 2,943,023
3Com Corp. (a)........................................ 74,200 3,394,650
------------
14,229,842
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
85
<PAGE>

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
-----------------------------------------------------------
<S> <C> <C>

TELECOMMUNICATION SERVICES (1.1%)
WorldCom, Inc. (a).................................... 53,716 $ 2,974,523
------------
TEXTILE & APPAREL (1.5%)
Nine West Group Inc. (a).............................. 37,700 1,927,412
Warnaco Group, Inc. (The) Class A..................... 49,500 1,274,625
Wolverine World Wide, Inc............................. 28,000 910,000
------------
4,112,037
------------
TURNKEY & SOFTWARE SYSTEMS (0.8%)
Sterling Software, Inc. (a)........................... 28,500 2,194,500
------------
Total Common Stocks
(Cost $107,392,114).................................. 148,091,077
------------
PREFERRED STOCK (0.1%)
PUBLISHING (0.1%)
News Corp. Ltd. ADR
Preference Shares (f)................................ 18,900 380,363
------------
Total Preferred Stock
(Cost $302,632)...................................... 380,363
------------
</TABLE>
SHORT-TERM INVESTMENTS (11.9%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>

COMMERCIAL PAPER (11.0%)
American Express Credit Corp.
5.32%, due 7/1/96................................ $ 5,000,000 $ 5,000,000
5.45%, due 7/1/96................................ 2,290,000 2,290,000
Ford Motor Credit Co.
5.37%, due 7/2/96................................ 10,000,000 10,000,000
Travelers Group Inc.
5.43%, due 7/1/96................................ 12,145,000 12,145,000
------------
Total Commercial Paper
(Cost $29,435,000)............................... 29,435,000
------------
U.S. GOVERNMENT (0.9%)
United States Treasury Note
6.25%, due 8/31/96 (d)........................... 2,400,000 2,402,616
------------
Total U.S. Government
(Cost $2,402,906)................................ 2,402,616
------------
Total Short-Term Investments
(Cost $31,837,906)............................... 31,837,616
------------
Total Investments
(Cost $243,359,902) (g).......................... 105.8% 284,094,438 (h)
Liabilities in Excess of
Cash and Other Assets............................ (5.8) (15,649,149)
----------- ------------
Net Assets........................................ 100.0% $268,445,289
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) TBA: Securities purchased on a forward commitment basis with an approxi-
mate principal amount and maturity date. The actual principal amount and
maturity date will be deter- mined upon settlement.
(c) May be sold to institutional investors only.
(d) Segregated as collateral for TBA.
(e) Floating rate. Rate shown is the rate in effect at June 30, 1996.
(f) ADR--American Depository Receipt.
(g) The cost for Federal income tax purposes is $243,368,627.
(h) At June 30, 1996 net unrealized appreciation was $40,725,811, 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 $43,575,206 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,849,395.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

86
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
TOTAL RETURN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2) (identified cost
$243,359,902).................................................. $284,094,438
Cash............................................................ 27,056
Receivables:
Investment securities sold...................................... 22,539,284
Dividends and interest.......................................... 1,447,713
Fund shares sold................................................ 984,561
------------
Total assets.................................................. 309,093,052
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 40,426,523
Adviser......................................................... 69,513
NYLIAC.......................................................... 49,309
Administrator................................................... 21,574
Custodian....................................................... 3,928
Directors....................................................... 2,756
Accrued expenses................................................ 74,160
------------
Total liabilities............................................. 40,647,763
------------
Net assets applicable to
outstanding shares............................................. $268,445,289
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized................................... $ 192,387
Additional paid-in capital...................................... 228,582,910
Accumulated undistributed net
investment income.............................................. 2,836,536
Accumulated net realized loss
on investments................................................. (3,901,080)
Net unrealized appreciation
on investments................................................. 40,734,536
------------
Net assets applicable to
outstanding shares............................................. $268,445,289
============
Shares of capital stock outstanding............................. 19,238,702
============
Net asset value per share outstanding........................... $ 13.95
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 350,172
Interest......................................................... 3,273,919
------------
Total income................................................... 3,624,091
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 365,243
Administration (Note 3).......................................... 228,277
Recordkeeping.................................................... 156,706
Auditing......................................................... 32,089
Shareholder communication........................................ 28,703
Custodian........................................................ 16,332
Directors........................................................ 8,141
Legal............................................................ 7,232
Miscellaneous.................................................... 9,661
------------
Total expenses
before reimbursement.......................................... 852,384
Expense reimbursement from
Administrator (Note 3).......................................... (64,829)
------------
Net expenses................................................... 787,555
------------
Net investment income............................................ 2,836,536
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 297,329
Net change in unrealized appreciation
on investments.................................................. 8,156,381
------------
Net realized and unrealized gain
on investments.................................................. 8,453,710
------------
Net increase in net assets resulting
from operations................................................. $ 11,290,246
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$1,973.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

87
<PAGE>

TOTAL RETURN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (Unaudited) and the year ended December
31, 1995

INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 2,836,536 $ 4,619,451
Net realized gain on investments.................. 297,329 1,771,355
Net change in unrealized appreciation on invest-
ments............................................ 8,156,381 29,979,674
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 11,290,246 36,370,480
------------ ------------
Dividends to shareholders:
From net investment income........................ -- (4,571,400)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 64,548,605 52,019,281
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... -- 4,571,400
------------ ------------
64,548,605 56,590,681
Cost of shares redeemed........................... (2,286,968) (15,828,916)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 62,261,637 40,761,765
------------ ------------
Net increase in net assets....................... 73,551,883 72,560,845
NET ASSETS:
Beginning of period............................... 194,893,406 122,332,561
------------ ------------
End of period..................................... $268,445,289 $194,893,406
============ ============
Accumulated undistributed net investment income... $ 2,836,536 $ --
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
SIX MONTHS 1993 (A)
ENDED THROUGH
JUNE 30, YEAR ENDED DECEMBER 31 DECEMBER 31,
1996* 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at be-
ginning of period...... $ 13.26 $ 10.58 $ 11.32 $ 10.00
------------ ------------ ------------ ------------
Net investment income... 0.14 0.31 0.27 0.16
Net realized and
unrealized gain (loss)
on investments......... 0.55 2.69 (0.72) 1.34
------------ ------------ ------------ ------------
Total from investment
operations............. 0.69 3.00 (0.45) 1.50
------------ ------------ ------------ ------------
Less dividends and dis-
tributions:
From net investment in-
come.................. -- (0.32) (0.29) (0.16)
In excess of net real-
ized gain on invest-
ments................. -- -- -- (0.02)
------------ ------------ ------------ ------------
Total dividends and dis-
tributions............. -- (0.32) (0.29) (0.18)
------------ ------------ ------------ ------------
Net asset value at end
of period.............. $ 13.95 $ 13.26 $ 10.58 $ 11.32
============ ============ ============ ============
Total investment return
(b).................... 5.24% 28.33% (3.99%) 15.04%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 2.49%+ 3.06% 3.50% 3.48%+
Net expenses........... 0.69%+ 0.69% 0.69% 0.69%+
Expenses (before reim-
bursement)............ 0.75%+ 0.81% 0.88% 1.07%+
Portfolio turnover rate. 102% 253% 297% 197%
Average commission rate
paid................... $ 0.0600 (c) (c) (c)
Net assets at end of pe-
riod (in 000's)........ $ 268,445 $ 194,893 $ 122,333 $ 55,548
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after Sep-
tember 1, 1995.
+Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

88
<PAGE>

VALUE PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
June 30, 1996 (Unaudited)

COMMON STOCKS (80.8%)+

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
AEROSPACE (1.1%)
McDonnell Douglas Corp................................ 15,600 $ 756,600
------------
AUTO MANUFACTURING (1.3%)
General Motors Corp................................... 16,000 838,000
------------
AUTO PARTS (2.6%)
Dana Corp............................................. 22,000 682,000
Magna International Inc............................... 9,100 418,600
Varity Corp. (a)...................................... 13,600 654,500
------------
1,755,100
------------
BANKS (6.9%)
Bankers Trust New York Corp........................... 13,500 997,313
Boatmen's Bancshares, Inc............................. 21,000 842,625
First Bank System, Inc................................ 14,100 817,800
National City Corp.................................... 7,700 270,462
PNC Bank Corp......................................... 24,000 714,000
Wells Fargo & Co...................................... 4,000 955,500
------------
4,597,700
------------
BUILDING MATERIALS (2.7%)
Armstrong World Industries, Inc....................... 16,300 939,287
Masco Corp............................................ 29,400 889,350
------------
1,828,637
------------
CAPITAL GOODS (2.6%)
Case Corp............................................. 6,500 312,000
Coltec Industries Inc. (a)............................ 38,000 541,500
Xerox Corp............................................ 16,800 898,800
------------
1,752,300
------------
CHEMICALS (8.9%)
Agrium, Inc........................................... 34,800 456,206
Arcadian Corp......................................... 38,800 766,300
Dow Chemical Co. (The)................................ 11,600 881,600
FMC Corp. (a)......................................... 10,700 698,175
Geon Co. (The)........................................ 9,600 216,000
Georgia Gulf Corp..................................... 16,800 491,400
IMC Global, Inc....................................... 34,400 1,294,300
Lyondell Petrochemical Co............................. 28,300 682,738
PPG Industries, Inc................................... 1,900 92,625
Terra Industries Inc.................................. 31,300 387,337
------------
5,966,681
------------
COMPUTERS & OFFICE
EQUIPMENT (1.0%)
Gateway 2000, Inc. (a)................................ 20,000 680,000
------------
CONGLOMERATES (1.4%)
Hanson Plc ADR (b).................................... 67,700 964,725
------------
DEFENSE ELECTRONICS (0.7%)
Litton Industries, Inc. (a)........................... 5,700 247,950
Lockheed Martin Corp.................................. 2,900 243,600
------------
491,550
------------
</TABLE>
- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
DOMESTIC OILS (2.3%)
Enron Oil & Gas Co.................................... 11,700 $ 326,138
Parker & Parsley Petroleum Co......................... 13,400 371,850
Unocal Corp. ......................................... 24,000 810,000
------------
1,507,988
------------
ENERGY (3.4%)
Coastal Corp.......................................... 19,400 809,950
Horsham Corp.......................................... 4,000 55,500
MAPCO, Inc............................................ 12,900 727,238
PanEnergy Corp........................................ 13,600 447,100
Tosco Corp............................................ 4,400 221,100
------------
2,260,888
------------
FINANCE (1.4%)
Travelers Group Inc................................... 21,050 960,406
------------
FOOD (2.6%)
Archer Daniels Midland Co............................. 46,170 883,001
IBP, Inc. ............................................ 30,800 850,850
------------
1,733,851
------------
FOOD, BEVERAGES & TOBACCO (4.6.%)
American Brands, Inc.................................. 17,000 771,375
Philip Morris Cos. Inc. .............................. 11,800 1,227,200
RJR Nabisco Holdings Corp. ........................... 34,200 1,060,200
------------
3,058,775
------------
HEALTH CARE (0.4%)
FHP International Corp. (a)........................... 5,500 150,563
Humana Inc. (a)....................................... 6,500 116,187
------------
266,750
------------
HOME BUILDERS (1.2%)
Kaufman and Broad Home Corp........................... 55,000 797,500
------------
HOUSEHOLD PRODUCTS (1.6%)
Premark International, Inc............................ 17,600 325,600
Tupperware Corp. (a).................................. 17,600 743,600
------------
1,069,200
------------
INSURANCE (9.0%)
Aetna Life and Casualty Co............................ 16,400 1,172,600
Allstate Corp. (The).................................. 28,000 1,277,500
American International Group, Inc..................... 10,000 986,250
Chubb Corp. (The)..................................... 19,400 967,575
SAFECO Corp........................................... 14,200 502,325
St. Paul Cos., Inc. (The)............................. 11,000 588,500
Torchmark Corp........................................ 11,100 485,625
------------
5,980,375
------------
INTERNATIONAL OILS (2.0%)
British Petroleum Co.,
Plc ADR (b).......................................... 3,026 323,404
Occidental Petroleum Corp............................. 40,300 997,425
------------
1,320,829
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

89
<PAGE>

VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
<S> <C> <C>

----------------------------------------------------------
PAPER & FOREST
PRODUCTS (4.3%)
Bowater Inc........................................... 26,200 $ 985,775
Chesapeake Corp....................................... 20,200 530,250
Rayonier, Inc......................................... 13,800 524,400
Stone Container Corp. ................................ 42,600 585,750
Temple-Inland Inc. ................................... 5,000 233,750
------------
2,859,925
------------
RAILROADS (3.9%)
Conrail Inc........................................... 13,900 922,613
Illinois Central Corp................................. 29,150 827,131
Union Pacific Corp.................................... 12,100 845,487
------------
2,595,231
------------
REAL ESTATE (0.3%)
Meditrust............................................. 6,000 200,250
------------
RETAIL (3.7%)
American Stores Co.................................... 10,200 420,750
Dillard Department Stores, Inc........................ 20,000 730,000
Federated Department
Stores, Inc. (a)..................................... 7,000 238,875
Kroger Co. (The) (a).................................. 19,900 786,050
Penney (J.C.) Co., Inc................................ 4,000 210,000
Sears, Roebuck and Co................................. 1,200 58,350
------------
2,444,025
------------
TECHNOLOGY (1.9%)
International Business
Machines Corp. ...................................... 13,100 1,296,900
------------
TELECOMMUNICATION EQUIPMENT (1.8%)
AT&T Corp............................................. 19,100 1,184,200
------------
TEXTILE & APPAREL (2.3%)
Burlington Industries, Inc. (a)....................... 45,000 635,625
Reebok International Ltd.............................. 3,700 124,413
Spring Industries, Inc................................ 15,800 797,900
------------
1,557,938
------------
TIRE & RUBBER (1.8%)
Goodyear Tire & Rubber Co. (The) 25,200 1,215,900
------------
UTILITIES--ELECTRIC (3.1%)
Entergy Corp.......................................... 25,000 709,375
Long Island Lighting Co............................... 36,000 603,000
Pinnacle West Capital Corp............................ 7,300 221,737
Unicom Corp........................................... 19,000 529,625
------------
2,063,737
------------
Total Common Stocks
(Cost $50,926,799)................................... 54,005,961
------------
</TABLE>
SHORT-TERMINVESTMENTS (19.2%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>

----------------------------------------------------------
COMMERCIAL PAPER (19.2%)
American General Finance Corp.
5.37%, due 7/2/96............................ $ 3,000,000 $ 3,000,000
Beneficial Corp.
5.32%, due 7/1/96............................ 1,030,000 1,030,000
Chevron Oil Finance Co.
5.33%, due 7/3/96............................ 2,489,000 2,489,000
Ford Motor Credit Co.
5.42%, due 7/3/96............................ 3,000,000 3,000,000
General Electric Capital Corp.
5.35%, due 7/1/96............................ 3,000,000 3,000,000
Norwest Corp.
5.30%, due 7/2/96............................ 328,000 328,000
------------
Total Short-Term Investments
(Cost $12,847,000)........................... 12,847,000
------------
Total Investments
(Cost $63,773,799) (d)....................... 100.0% 66,852,961 (e)
Liabilities in Excess of
Cash and Other Assets........................ (0.0)(c) (47,657)
----------- ------------
Net Assets.................................... 100.0% $ 66,805,304
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) ADR--American Depository Receipt.
(c) Less than one tenth of a percent.
(d) The cost for Federal income tax purposes is $63,777,178.
(e) At June 30, 1996 net unrealized appreciation was $3,075,783, 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 $3,885,403 and aggregate gross unrealized de-
preciation for all investments on which there was an excess of cost over
market value of $809,620.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

90
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2) (identified cost
$63,773,799).................................................... $ 66,852,961
Cash............................................................. 711
Receivables:
Investment securities sold....................................... 4,959,334
Fund shares sold................................................. 584,012
Dividends and interest........................................... 180,740
NYLIAC........................................................... 13,782
Unamortized organization expense
(Note 2)........................................................ 56,305
------------
Total assets................................................... 72,647,845
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 5,727,852
Organization..................................................... 73,173
Adviser.......................................................... 18,382
Administrator.................................................... 5,106
Custodian........................................................ 3,422
Accrued expenses................................................. 14,606
------------
Total liabilities.............................................. 5,842,541
------------
Net assets applicable to
outstanding shares.............................................. $ 66,805,304
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized................................... $ 53,004
Additional paid-in capital....................................... 62,035,722
Accumulated undistributed net
investment income............................................... 497,214
Accumulated undistributed net realized gain
on investments.................................................. 1,140,202
Net unrealized appreciation
on investments.................................................. 3,079,162
------------
Net assets applicable to
outstanding shares.............................................. $ 66,805,304
============
Shares of capital stock outstanding.............................. 5,300,371
============
Net asset value per share outstanding............................ $ 12.60
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:

Dividends (a).................................................... $ 459,422
Interest......................................................... 199,910
------------
Total income................................................... 659,332
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 78,116
Administration (Note 3).......................................... 43,398
Recordkeeping.................................................... 37,425
Custodian........................................................ 9,586
Shareholder communication........................................ 7,964
Amortization of organization expense............................. 7,329
Auditing......................................................... 5,838
Directors........................................................ 1,341
Legal............................................................ 1,193
Miscellaneous.................................................... 1,540
------------
Total expenses
before reimbursement.......................................... 193,730
Expense reimbursement from
Administrator (Note 3).......................................... (35,481)
------------
Net expenses................................................... 158,249
------------
Net investment income............................................ 501,083
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 1,144,240
Net change in unrealized appreciation
on investments.................................................. 1,560,155
------------
Net realized and unrealized gain
on investments.................................................. 2,704,395
------------
Net increase in net assets resulting
from operations................................................. $ 3,205,478
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of $426.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

91
<PAGE>

VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (Unaudited) and the period May 1, 1995
(Commencement of Operations)through December 31, 1995

INCREASE IN NET ASSETS:
Operations:
Net investment income......................... $ 501,083 $ 196,798
Net realized gain on investments.............. 1,144,240 46,962
Net change in unrealized appreciation on in-
vestments.................................... 1,560,155 1,519,007
------------ ------------
Net increase in net assets resulting from op-
erations..................................... 3,205,478 1,762,767
------------ ------------
Dividends and distributions to shareholders:
From net investment income.................... (4,000) --
From net realized gain on investments......... (51,000) (196,667)
------------ ------------
Total dividends and distributions to share-
holders.................................... (55,000) (196,667)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.............. 39,524,293 17,977,153
Net asset value of shares issued to share-
holders in reinvestment of dividends and
distributions................................ 55,000 196,667
------------ ------------
39,579,293 18,173,820
Cost of shares redeemed....................... (353,917) (310,470)
------------ ------------
Increase in net assets derived from capital
share transactions.......................... 39,225,376 17,863,350
------------ ------------
Net increase in net assets................... 42,375,854 19,429,450
NET ASSETS:
Beginning of period........................... 24,429,450 5,000,000
------------ ------------
End of period................................. $ 66,805,304 $ 24,429,450
------------ ------------
Accumulated undistributed net investment in-
come......................................... $ 497,214 $ 131
============ ============

Net asset value at beginning of period......... $ 11.58 $ 10.00
------------ ------------
Net investment income.......................... 0.09 0.10
Net realized and unrealized gain on invest-
ments......................................... 0.94 1.58
------------ ------------
Total from investment operations............... 1.03 1.68
------------ ------------
Less dividends and distributions:
From net investment income.................... (0.00)(c) (0.10)
From net realized gain on investments......... (0.01) --
------------ ------------
Total dividends and distributions.............. (0.01) (0.10)
------------ ------------
Net asset value at end of period............... $ 12.60 $ 11.58
============ ============
Total investment return (b).................... 8.95% 16.76%
Ratios (to average net assets)/Supplemental Da-
ta:
Net investment income......................... 2.31%+ 2.57%+
Net expenses.................................. 0.73%+ 0.73%+
Expenses (before reimbursement)............... 0.89%+ 1.45%+
Portfolio turnover rate........................ 17% 20%
Average commission rate paid................... $ 0.0596 (d)
Net assets at end of period (in 000's)......... $ 66,805 $ 24,429
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Less than one cent per share.
(d) Disclosure of amount required for fiscal years beginning on or after Sep-
tember 1, 1995.
+ Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

92
<PAGE>

BOND PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
June 30, 1996 (Unaudited)

LONG-TERM BONDS (96.1%)+
CORPORATE BONDS (45.6%)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

BANKS (7.0%)
BankAmerica Corp.
7.75%, due 7/15/02................................... $ 4,000,000 $ 4,125,000
First Union Corp.
9.45%, due 6/15/99................................... 5,000,000 5,362,500
Golden West Financial Corp.
10.25%, due 12/1/00.................................. 1,000,000 1,125,000
Republic New York Corp.
7.75%, due 5/15/09................................... 5,000,000 5,150,000
------------
15,762,500
------------
CONGLOMERATE
/DIVERSIFIED (0.9%)
Harcourt General, Inc.
9.50%, due 3/15/00................................... 2,000,000 2,152,500
------------
CONTAINERS (1.7%)
Federal Paper Board Inc.
10.00%, due 4/15/11.................................. 3,100,000 3,758,750
------------
DATA PROCESSING (1.3%)
International Business
Machines Corp.
6.375%, due 6/15/00.................................. 3,000,000 2,966,250
------------
DIVERSIFIED UTILITIES (5.0%)
Consumers Power Co.
7.375%, due 9/15/23.................................. 5,000,000 4,575,000
Long Island Lighting Co.
8.75%, due 2/15/97 (a)............................... 2,000,000 2,022,500
Niagara Mohawk Power Corp.
7.375%, due 8/1/03................................... 2,000,000 1,777,500
Public Service Co. of Colorado
6.00%, due 1/1/01.................................... 3,000,000 2,910,000
------------
11,285,000
------------
ELECTRIC UTILITIES (1.5%)
Commonwealth Edison Co.
9.75%, due 2/15/20................................... 1,450,000 1,555,125
Southern California Edison Corp.
5.875%, due 2/1/98................................... 2,000,000 1,985,000
------------
3,540,125
------------
FINANCE (11.5%)
American General Finance Corp.
7.00%, due 10/1/97................................... 7,000,000 7,059,290
Chrysler Financial Corp.
8.125%, due 12/15/96 (a)............................. 6,000,000 6,064,260
Ford Motor Credit Co.
6.25%, due 2/26/98................................... 3,000,000 2,996,250
General Motors Acceptance Corp.
5.625%, due 2/15/01.................................. 6,000,000 5,707,500
9.625%, due 12/15/01................................. 1,000,000 1,118,750
</TABLE>
- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

FINANCE (Continued)
Mellon Financial Co.
7.625%, due 11/15/99................................. $ 3,000,000 $ 3,090,000
------------
26,036,050
------------
FOOD (0.5%)
ConAgra, Inc.
9.875%, due 11/15/05................................. 1,000,000 1,167,500
------------
FOREIGN (3.5%)
British Telecommunications Plc
9.375%, due 2/15/99.................................. 4,200,000 4,483,500
9.625%, due 2/15/19.................................. 1,000,000 1,103,750
National Westminster Bancorp, Inc.
9.375%, due 11/15/03................................. 2,000,000 2,262,500
------------
7,849,750
------------
LEISURE/AMUSEMENT (2.6%)
Walt Disney Co. (The)
6.75%, due 3/30/06................................... 6,000,000 5,820,000
------------
OIL & GAS (0.5%)
Phillips Petroleum Co.
9.18%, due 9/15/21................................... 1,200,000 1,290,552
------------
PAPER/PRODUCTS (2.2%)
Champion International Corp.
9.875%, due 6/1/00................................... 4,500,000 4,938,750
------------
RAILROADS (1.1%)
CSX Corp.
9.00%, due 8/15/06................................... 2,200,000 2,469,500
------------
RETAIL STORES (5.4%)
Price/Costco, Inc.
7.125%, due 6/15/05.................................. 5,000,000 4,887,500
Sears Roebuck & Co.
8.45%, due 11/1/98................................... 7,000,000 7,297,500
------------
12,185,000
------------
TELECOMMUNICATIONS (0.9%)
AT&T Corp.
8.625%, due 12/1/31.................................. 2,000,000 2,110,000
------------
Total Corporate Bonds
(Cost $100,743,979).................................. 103,332,227
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (50.5%)

FEDERAL HOME LOAN MORTGAGE
CORPORATION (4.4%)
6.655%, due 5/20/99.................................. 10,000,000 9,996,900
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

93
<PAGE>

BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

U.S. GOVERNMENT &FEDERAL AGENCIES (CONTINUED)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

FEDERAL NATIONAL
MORTGAGE
ASSOCIATION (6.7%)
4.95%, due 9/30/98................................... $10,000,000 $ 9,718,100
8.70%, due 6/10/99................................... 5,000,000 5,298,100
------------
15,016,200
------------
UNITED STATES TREASURY BONDS (16.7%)
6.00%, due 2/15/26................................... 5,000,000 4,431,600
6.875%, due 8/15/25.................................. 17,000,000 16,828,980
7.625%, due 2/15/07.................................. 10,000,000 10,377,400
10.75%, due 5/15/03.................................. 5,000,000 6,130,850
------------
37,768,830
------------
UNITED STATES TREASURY NOTES (22.7%)
6.25%, due 2/15/03................................... 15,000,000 14,742,450
6.875%, due 5/15/06.................................. 8,000,000 8,082,480
7.125%, due 2/29/00.................................. 5,000,000 5,114,400
7.50%, due 2/15/05................................... 5,000,000 5,258,400
7.875%, due 4/15/98.................................. 6,000,000 6,180,120
8.50%, due 11/15/00.................................. 11,200,000 12,063,184
------------
51,441,034
------------
Total U.S. Government &
Federal Agencies
(Cost $114,268,017).................................. 114,222,964
------------
Total Long-Term Bonds
(Cost $215,011,996).................................. 217,555,191
------------
</TABLE>
SHORT-TERM INVESTMENTS (2.4%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

COMMERCIAL PAPER (2.4%)
Associates Corp. of North America
5.286%, due on demand (b)........................ $ 461,000 $ 461,000
PHH Corp.
5.60%, due 7/1/96................................ 5,000,000 5,000,000
------------
Total Short-Term Investments
(Cost $5,461,000)................................ 5,461,000
------------
Total Investments
(Cost $220,472,996) (c).......................... 98.5% 223,016,191 (d)
Cash and Other Assets,
Less Liabilities................................. 1.5 3,293,210
----------- ------------
Net Assets........................................ 100.0% $226,309,401
=========== ============
</TABLE>
- --------
(a) Long-term securities maturing within the subsequent twelve month period.
(b) Adjustable rate. Rate shown is the rate in effect at June 30, 1996.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At June 30, 1996 net unrealized appreciation was $2,543,195, 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 $5,663,386 and aggregate gross unrealized de-
preciation for all investments on which there was an excess of cost over
market value of $3,120,191.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

94
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $220,472,996)................................ $ 223,016,191
Cash........................................................... 2,568
Receivables:
Investment securities sold..................................... 5,129,000
Interest....................................................... 3,808,066
Fund shares sold............................................... 110,717
NYLIAC......................................................... 11,366
-------------
Total assets................................................. 232,077,908
-------------
LIABILITIES:
Payables:
Investment securities purchased................................ 4,997,667
Fund shares redeemed........................................... 242,893
Recordkeeping.................................................. 162,499
Adviser........................................................ 143,319
Administrator.................................................. 18,342
Directors...................................................... 2,510
Accrued expenses............................................... 201,277
-------------
Total liabilities............................................ 5,768,507
-------------
Net assets applicable to
outstanding shares............................................ $226,309,401
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized................................. $ 172,810
Additional paid-in capital..................................... 220,159,947
Accumulated undistributed net
investment income............................................. 7,151,286
Accumulated net realized loss
on investments................................................ (3,717,837)
Net unrealized appreciation
on investments................................................ 2,543,195
-------------
Net assets applicable to
outstanding shares............................................ $ 226,309,401
=============
Shares of capital stock outstanding............................ 17,280,988
=============
Net asset value per share outstanding.......................... $ 13.10
=============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:

Interest........................................................ $ 7,852,532
------------
Expenses: (Note 2)
Advisory (Note 3)............................................... 284,867
Administration (Note 3)......................................... 227,893
Recordkeeping (Note 3).......................................... 139,849
Shareholder communication....................................... 69,973
Auditing........................................................ 25,750
Legal........................................................... 10,208
Directors....................................................... 7,644
Portfolio pricing............................................... 1,956
Miscellaneous................................................... 5,097
------------
Total expenses
before reimbursement......................................... 773,237
Expense reimbursement from
Administrator (Note 3)......................................... (73,534)
------------
Net expenses.................................................. 699,703
------------
Net investment income........................................... 7,152,829
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments................................ (969,629)
Net change in unrealized appreciation
on investments................................................. (11,847,511)
------------
Net realized and unrealized loss
on investments................................................. (12,817,140)
------------
Net decrease in net assets resulting
from operations................................................ $ (5,664,311)
============
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

95
<PAGE>

BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (Unaudited) and the year ended December
31, 1995

<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................. $ 7,152,829 $ 14,495,255
Net realized gain (loss) on investments........... (969,629) 4,716,932
Net change in unrealized appreciation
(depreciation) on investments.................... (11,847,511) 17,768,492
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. (5,664,311) 36,980,679
------------ ------------
Dividends to shareholders:
From net investment income........................ (5,000) (14,491,993)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 14,068,594 22,956,887
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 5,000 14,491,993
------------ ------------
14,073,594 37,448,880
Cost of shares redeemed........................... (17,125,326) (31,593,131)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... (3,051,732) 5,855,749
------------ ------------
Net increase (decrease) in net assets............ (8,721,043) 28,344,435
NET ASSETS:
Beginning of period............................... 235,030,444 206,686,009
------------ ------------
End of period..................................... $226,309,401 $235,030,444
============ ============
Accumulated undistributed net investment income... $ 7,151,286 $ 3,457
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31
1996* 1995 1994 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period..... $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86
---------- ---------- ---------- ---------- ---------- ----------
Net investment income.... 0.42 0.88 0.88 0.95 0.92 1.02
Net realized and
unrealized gain (loss)
on investments.......... (0.74) 1.33 (1.34) 0.53 0.13 0.91
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations.............. (0.32) 2.21 (0.46) 1.48 1.05 1.93
---------- ---------- ---------- ---------- ---------- ----------
Less dividends:
From net investment
income................. (0.00)(b) (0.88) (0.88) (0.96) (0.91) (1.02)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at end of
period.................. $ 13.10 $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
========== ========== ========== ========== ========== ==========
Total investment return
(a)..................... (2.40%) 18.31% (3.39%) 11.40% 8.26% 16.27%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income... 6.35%+ 6.55% 6.53% 6.79% 7.54% 8.22%
Net expenses............ 0.62%+ 0.62% 0.62%# 0.27%# 0.25% 0.25%
Expenses (before
reimbursement)......... 0.69%+ 0.91% 0.67%# 0.27%# 0.25% 0.25%
Portfolio turnover rate.. 35% 81% 88% 41% 10% 57%
Net assets at end of
period (in 000's)....... $ 226,309 $ 235,030 $ 206,686 $ 228,683 $ 203,947 $ 164,124
</TABLE>
- --------
(a) Total return is not annualized.
(b) Less than one cent per share.
# At the MFA Series Fund, Inc.'s shareholders meeting on December 14, 1993, the
shareholders voted to have the Bond Portfolio assume certain administrative
and operating expenses of the Fund previously borne by New York Life.
+ Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

96
<PAGE>

GROWTH EQUITY PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
June 30, 1996 (Unaudited)

COMMON STOCKS (96.4%)+

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

AEROSPACE/DEFENSE (4.8%)
Boeing Co. (The)...................................... 60,000 $ 5,227,500
Coltec Industries Inc. (a)............................ 370,000 5,272,500
Lockheed Martin Corp.................................. 61,200 5,140,800
Loral Space &
Communications Ltd. (a).............................. 196,000 2,670,500
Northrop Grumman Corp. ............................... 80,000 5,450,000
------------
23,761,300
------------
AUTO & AUTO SERVICES (1.0%)
Ford Motor Co......................................... 150,000 4,856,250
------------
BANKS (3.4%)
AmSouth Bancorp....................................... 62,400 2,254,200
Bankers Trust New York Corp........................... 75,000 5,540,625
Chase Manhattan Corp. (The)........................... 93,600 6,610,500
Commerce Bancshares Inc............................... 74,550 2,544,019
------------
16,949,344
------------
BEVERAGES (2.6%)
Anheuser-Busch Cos., Inc.............................. 68,500 5,137,500
Pepsico Inc........................................... 216,800 7,669,300
------------
12,806,800
------------
BUILDING &
MAINTENANCE (1.0%)
ADT Ltd. (a).......................................... 250,000 4,718,750
------------
BUILDING PRODUCTS (0.9%)
Sherwin-Williams Co. (The)............................ 100,000 4,650,000
------------
CHEMICALS (3.4%)
Engelhard Corp........................................ 80,800 1,858,400
Morton International, Inc. ........................... 125,000 4,656,250
Praxair, Inc.......................................... 100,000 4,225,000
Sealed Air Corp. (a).................................. 182,500 6,136,562
------------
16,876,212
------------
COMMERCIAL SERVICES (2.6%)
Alco Standard Corp.................................... 54,800 2,479,700
Career Horizons, Inc. (a)............................. 114,500 4,007,500
Service Corp. International........................... 110,000 6,325,000
------------
12,812,200
------------
COMMUNICATIONS (3.1%)
ADC Telecommunications Inc. (a)....................... 90,000 4,050,000
Andrew Corp. (a)...................................... 70,000 3,762,500
AT&T Corp............................................. 100,000 6,200,000
Teleport Communications
Group Inc. (a)....................................... 73,500 1,405,687
------------
15,418,187
------------
</TABLE>

- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

COMPUTER & BUSINESS EQUIPMENT (7.5%)
Checkfree Corp. (a)................................... 100,000 $ 1,987,500
Computer Sciences Corp. (a)........................... 70,000 5,232,500
Electronic Data Systems Corp.......................... 100,000 5,375,000
First Data Corp....................................... 91,030 7,248,264
FIserv Inc. (a)....................................... 111,000 3,330,000
Intel Corp............................................ 75,000 5,507,813
Sungard Data Systems Inc. (a)......................... 125,000 5,015,625
U.S. Robotics Corp. (a)............................... 40,000 3,420,000
------------
37,116,702
------------
DRUGS (6.3%)
Allergan Inc.......................................... 92,400 3,626,700
American Home Products Corp. ......................... 91,800 5,519,475
Amgen Inc. (a)........................................ 50,000 2,700,000
Elan Corp. Plc ADR (a)(c)............................. 81,000 4,627,125
Eli Lilly & Co........................................ 75,000 4,875,000
Pfizer Inc............................................ 58,800 4,196,850
Warner-Lambert Co..................................... 102,400 5,632,000
------------
31,177,150
------------
ELECTRICAL (4.4%)
Emerson Electric Co................................... 70,000 6,326,250
General Electric Co. ................................. 119,000 10,293,500
Mark IV Industries, Inc. ............................. 223,758 5,062,525
------------
21,682,275
------------
ELECTRONICS (3.4%)
Analog Devices, Inc. (a).............................. 155,000 3,952,500
Hewlett-Packard Co.................................... 30,000 2,988,750
Raytheon Co........................................... 100,000 5,162,500
Rockwell International Corp........................... 83,600 4,786,100
------------
16,889,850
------------
FINANCE (4.6%)
Beneficial Corp....................................... 90,000 5,051,250
Federal National
Mortgage Association................................. 160,000 5,360,000
Great Western Financial Corp.......................... 175,000 4,178,125
Republic New York Corp................................ 80,000 4,980,000
Signet Banking Corp................................... 146,900 3,415,425
------------
22,984,800
------------
FOODS (3.5%)
Chiquita Brands International, Inc. 168,000 2,184,000
Dole Food Co., Inc.................................... 66,200 2,846,600
IBP, Inc.............................................. 100,000 2,762,500
Sara Lee Corp......................................... 144,000 4,662,000
Sysco Corp............................................ 140,000 4,795,000
------------
17,250,100
------------
HOSPITAL & MEDICAL SERVICES (4.9%)
HEALTHSOUTH Corp. (a)................................. 70,100 2,523,600
Medtronic, Inc........................................ 50,000 2,800,000
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

97
<PAGE>

GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

HOSPITAL & MEDICAL SERVICES (Continued)
NABI (a).............................................. 245,000 $ 2,327,500
Quorum Health Group, Inc.............................. 100,000 2,637,500
Sybron International Corp. (a)........................ 186,200 4,655,000
Tenet Healthcare Corp. (a)............................ 225,000 4,809,375
U.S. Surgical Corp. .................................. 140,600 4,358,600
------------
24,111,575
------------
HOUSEHOLD PRODUCTS (1.1%)
Colgate-Palmolive Co. ................................ 65,000 5,508,750
------------
INSURANCE-PROPERTY &
CASUALTY (3.4%)
Allstate Corp. (The).................................. 120,000 5,475,000
American International Group, Inc..................... 70,000 6,903,750
General Re Corp....................................... 30,000 4,567,500
------------
16,946,250
------------
LEISURE/AMUSEMENT (1.7%)
International Game Technology......................... 286,000 4,826,250
MGM Grand, Inc. (a)................................... 86,000 3,429,250
------------
8,255,500
------------
LODGING &
RESTAURANTS (2.7%)
ITT Corp. (New) (a)................................... 80,000 5,300,000
Landry's Seafood Restaurants Inc. (a)................. 50,000 1,237,500
Marriott International, Inc. ......................... 125,000 6,718,750
------------
13,256,250
------------
MANUFACTURING (2.1%)
AlliedSignal Inc. .................................... 96,000 5,484,000
Minnesota Mining &
Manufacturing Co..................................... 75,000 5,175,000
------------
10,659,000
------------
MEDIA & INFORMATION
SERVICES (2.2%)
Evergreen Media Corp. Class A (a) 70,000 2,992,500
Heritage Media Corp. Class A (a)...................... 130,000 5,183,750
Infinity Broadcasting Corp. (a)....................... 87,000 2,610,000
------------
10,786,250
------------
METALS (1.4%)
Aluminum Co. of America............................... 85,000 4,876,875
Titanuim Metals Corp. (a)............................. 80,000 2,070,000
------------
6,946,875
------------
OIL & ENERGY
SERVICES (4.6%)
Aquila Gas Pipeline Corp. ............................ 107,800 1,401,400
Halliburton Co. ...................................... 57,000 3,163,500
Quaker State Corp. ................................... 333,000 4,995,000
Schlumberger Ltd. .................................... 50,000 4,212,500
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

OIL & ENERGY
SERVICES (Continued)
Smith International, Inc. (a)......................... 180,500 $ 5,437,562
Triton Energy Ltd. Class A (a)........................ 60,000 2,917,500
XCL Ltd. (a).......................................... 1,316,800 411,500
------------
22,538,962
------------
PACKAGING (0.6%)
Crown Cork & Seal Co., Inc............................ 60,000 2,700,000
------------
PAPER & FOREST
PRODUCTS (1.7%)
Georgia Pacific Corp.................................. 35,000 2,485,000
International Paper Co................................ 62,600 2,308,375
Kimberly-Clark Corp. ................................. 50,000 3,862,500
------------
8,655,875
------------
PUBLISHING (1.1%)
Tribune Co............................................ 75,900 5,512,238
------------
REAL ESTATE (2.1%)
Chelsea GCA Realty, Inc. ............................. 96,300 3,057,525
First Industrial Reality Trust, Inc. ................. 175,000 4,112,500
Liberty Property Trust................................ 166,500 3,309,187
------------
10,479,212
------------
RETAIL TRADE &
MERCHANDISING (6.6%)
Consolidated Stores Corp. (a)......................... 125,000 4,593,750
Eckerd Corp. (a)...................................... 200,000 4,525,000
Federated Department
Stores, Inc. (a)..................................... 74,500 2,542,313
Home Depot Inc........................................ 100,000 5,400,000
Kroger Co. (The) (a).................................. 148,000 5,846,000
Price/Costco, Inc. (a)................................ 250,000 5,406,250
Smart & Final, Inc.................................... 163,000 4,176,875
------------
32,490,188
------------
TRANSPORTATION (4.1%)
AMR Corp. (a)......................................... 50,000 4,550,000
Conrail Inc........................................... 63,500 4,214,813
Rollins Truck Leasing Corp............................ 380,500 3,947,687
UNC Inc. (a).......................................... 300,000 2,512,500
Union Pacific Corp.................................... 75,000 5,240,625
------------
20,465,625
------------
UTILITIES--ELECTRIC (0.8%)
CMS Energy Corp....................................... 135,000 4,168,125
------------
UTILITIES--TELEPHONE (2.8%)
Frontier Corp......................................... 130,000 3,981,250
Qualcomm Inc. (a)..................................... 100,000 5,312,500
WorldCom Inc. (a)..................................... 85,300 4,723,487
------------
14,017,237
------------
Total Common Stocks
(Cost $398,611,397).................................. 477,447,832
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

98
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

SHORT-TERM INVESTMENTS (5.5%)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------
<S> <C> <C>

COMMERCIAL PAPER (5.5%)
Associates Corp. of North America
5.33%, due on demand (b)......................... $ 3,120,000 $ 3,120,000
Bemis Co.
5.33%, due 7/2/96................................ 5,000,000 4,999,260
Sara Lee Corp.
5.55%, due 7/1/96................................ 19,000,000 19,000,000
------------
27,119,260
------------
Total Short-Term Investments
(Cost $27,119,260)............................... 27,119,260
------------
Total Investments
(Cost $425,730,657) (d).......................... 101.9% 504,567,092 (e)
Liabilities in Excess of
Cash and Other Assets............................ (1.9) (9,440,103)
----------- ------------
Net Assets........................................ 100.0% $495,126,989
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) Adjustable Rate. Rate shown is the rate in effect at June 30, 1996.
(c) ADR--American Depository Receipt.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At June 30, 1996 net unrealized appreciation was $78,836,435, 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 $85,832,659 and aggregate gross unrealized depre-
ciation for all investments on which there was an excess of cost over mar-
ket value of $6,996,224.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

99
<PAGE>

GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $425,730,657).................................. $504,567,092
Cash............................................................. 2,572
Receivables:
Investment securities sold....................................... 23,319,979
Dividends and interest........................................... 636,292
Fund shares sold................................................. 504,755
------------
Total assets................................................... 529,030,690
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 32,691,380
Recordkeeping.................................................... 306,795
Adviser.......................................................... 306,330
Fund shares redeemed............................................. 175,265
NYLIAC........................................................... 44,296
Administrator.................................................... 40,539
Directors........................................................ 5,396
Accrued expenses................................................. 333,700
------------
Total liabilities.............................................. 33,903,701
------------
Net assets applicable to
outstanding shares.............................................. $495,126,989
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized................................... $ 254,680
Additional paid-in capital....................................... 365,511,123
Accumulated undistributed net investment income.................. 1,887,962
Accumulated undistributed net realized gain on investments....... 48,636,789
Net unrealized appreciation
on investments.................................................. 78,836,435
------------
Net assets applicable to outstanding shares...................... $495,126,989
============
Shares of capital stock outstanding.............................. 25,468,033
============
Net asset value per share outstanding............................ $ 19.44
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:

Dividends (a).................................................... $ 2,734,859
Interest......................................................... 579,169
------------
Total income................................................... 3,314,028
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 575,927
Administration (Note 3).......................................... 460,742
Recordkeeping (Note 3)........................................... 256,383
Shareholder communication........................................ 129,047
Auditing......................................................... 46,979
Legal............................................................ 19,545
Directors........................................................ 15,789
Registration..................................................... 135
Miscellaneous.................................................... 9,090
------------
Total expenses
before reimbursement.......................................... 1,513,637
Expense reimbursement from
Administrator (Note 3).......................................... (87,571)
------------
Net expenses................................................... 1,426,066
------------
Net investment income............................................ 1,887,962
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 48,636,789
Net change in unrealized appreciation
on investments.................................................. 5,001,563
------------
Net realized and unrealized gain
on investments.................................................. 53,638,352
------------
Net increase in net assets resulting
from operations................................................. $ 55,526,314
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$1,501.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

100
<PAGE>

GROWTH EQUITY PORTFOLIO NEW YORK LIFE MFA
STATEMENT OF CHANGES IN NET ASSETS SERIES FUND, INC.
For the six months ended June 30, 1996 (Unaudited) and the year ended December
31, 1995

<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:

Net investment income.............................. $ 1,887,962 $ 4,885,469
Net realized gain on investments................... 48,636,789 34,444,510
Net change in unrealized appreciation on
investments....................................... 5,001,563 56,914,338
------------ ------------
Net increase in net assets resulting from
operations........................................ 55,526,314 96,244,317
------------ ------------
Dividends and distributions to shareholders:
From net investment income......................... -- (4,897,272)
From net realized gain on investments.............. -- (34,471,675)
------------ ------------
Total dividends and distributions to
shareholders.................................... -- (39,368,947)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares................... 33,952,853 35,852,696
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions.... -- 39,368,947
------------ ------------
33,952,853 75,221,643
Cost of shares redeemed............................ (21,858,999) (34,751,127)
------------ ------------
Increase in net assets derived from capital share
transactions..................................... 12,093,854 40,470,516
------------ ------------
Net increase in net assets........................ 67,620,168 97,345,886
NET ASSETS:
Beginning of period................................ 427,506,821 330,160,935
------------ ------------
End of period...................................... $495,126,989 $427,506,821
============ ============
Accumulated undistributed net investment income.... $ 1,887,962 $ --
============ ============
</TABLE>

Net asset value at
beginning of period.... $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00
---------- ---------- ---------- ---------- ---------- ----------
Net investment income... 0.08 0.22 0.22 0.24 0.22 0.27
Net realized and
unrealized gain (loss)
on investments......... 2.14 4.06 (0.03) 1.88 1.72 4.10
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations............. 2.22 4.28 0.19 2.12 1.94 4.37
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
From net investment
income................ -- (0.22) (0.22) (0.25) (0.22) (0.29)
From net realized gain
on investments........ -- (1.53) (0.92) (1.76) (1.76) (1.51)
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and
distributions.......... -- (1.75) (1.14) (2.01) (1.98) (1.80)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at end
of period.............. $ 19.44 $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
========== ========== ========== ========== ========== ==========
Total investment return
(a).................... 12.88% 29.16% 1.20% 13.71% 12.42% 33.62%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 0.82%+ 1.29% 1.41% 1.42% 1.50% 1.78%
Net expenses........... 0.62%+ 0.62% 0.62%# 0.27%# 0.27% 0.29%
Expenses (before
reimbursement)........ 0.66%+ 0.91% 0.65%# 0.27%# 0.27% 0.29%
Portfolio turnover rate. 63% 104% 108% 121% 82% 100%
Average commission rate
paid................... $ 0.0593 (b) (b) (b) (b) (b)
Net assets at end of
period (in 000's)...... $ 495,127 $ 427,507 $ 330,161 $ 319,196 $ 272,834 $ 204,147
</TABLE>
- --------
(a) Total return is not annualized.
(b) Disclosure of amount required for fiscal years beginning on or after Sep-
tember 1, 1995.
# At the MFA Series Fund, Inc.'s shareholders meeting on December 14, 1993, the
shareholders voted to have the Growth Equity Portfolio assume certain admin-
istrative and operating expenses of the Fund previously borne by New York
Life.
+Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

101
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)

COMMON STOCKS (89.3%)+

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

AEROSPACE/DEFENSE (1.9%)
Boeing Company (The).................................. 8,771 $ 764,173
General Dynamics Corp................................. 1,619 100,378
Lockheed Martin Corp.................................. 5,137 431,508
Loral Space &
Communications Ltd. (a).............................. 3,256 44,363
McDonnell Douglas Corp................................ 5,757 279,215
Northrop Grumman Corp. ............................... 1,266 86,246
Raytheon Company...................................... 6,174 318,733
Rockwell International Corp........................... 5,533 316,764
United Technologies Corp.............................. 3,143 361,445
------------
2,702,825
------------
AIRLINES (0.3%)
AMR Corp. (a)......................................... 2,013 183,183
Delta Air Lines, Inc.................................. 1,276 105,908
Southwest Airlines Co................................. 3,775 109,947
USAir Group, Inc. (a)................................. 1,505 27,090
------------
426,128
------------
ALUMINUM (0.4%)
Alcan Aluminum Limited................................ 5,871 179,066
Aluminum Co. of America............................... 4,612 264,614
Reynolds Metals Company............................... 1,612 84,024
------------
527,704
------------
AUTOMOBILES (1.7%)
Chrysler Corp......................................... 9,749 604,438
Ford Motor Company.................................... 28,864 934,472
General Motors Corp................................... 19,018 996,068
------------
2,534,978
------------
AUTOPARTS--AFTER
MARKET (0.3%)
Cooper Tire & Rubber Company.......................... 2,131 47,415
Echlin Inc............................................ 1,502 56,888
Genuine Parts Company................................. 3,240 148,230
Goodyear Tire & Rubber Company........................ 3,877 187,065
------------
439,598
------------
BEVERAGES--ALCOHOLIC (0.6%)
Anheuser-Busch Companies, Inc......................... 6,484 486,300
Brown-Forman Corp..................................... 1,786 71,440
Coors (Adolph) Co..................................... 988 17,661
Seagram Company Ltd................................... 9,530 320,446
------------
895,847
------------
BEVERAGES--SOFT DRINKS (3.2%)
Coca-Cola Company (The)............................... 64,572 3,155,957
PepsiCo, Inc.......................................... 40,440 1,430,565
------------
4,586,522
------------
</TABLE>

- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

BROADCAST/MEDIA (0.4%)
Comcast Corp. Class A................................. 6,111 $ 113,054
Tele-Communications TCI Group, Class A (a)............ 16,727 303,177
U.S. West Media Group (a)............................. 12,013 219,237
------------
635,468
------------
BUILDING MATERIALS (0.2%)
Masco Corp............................................ 4,102 124,086
Owens-Corning Fiberglas Corp. ........................ 1,245 53,535
Sherwin-Williams Company.............................. 2,145 99,742
------------
277,363
------------
CHEMICALS (2.1%)
Air Products & Chemicals, Inc......................... 2,882 166,436
Dow Chemical Company (The)............................ 6,607 502,132
Du Pont (E.I.) De Nemours
& Company............................................ 14,232 1,126,107
Eastman Chemical Co. ................................. 2,124 129,299
Goodrich (B.F.) Company............................... 1,372 51,278
Hercules Inc.......................................... 2,755 152,214
Monsanto Company...................................... 14,529 472,192
Praxair, Inc.......................................... 3,820 161,395
Rohm & Haas Company................................... 1,749 109,750
Union Carbide Corp.................................... 3,450 137,137
------------
3,007,940
------------
CHEMICALS--DIVERSIFIED (0.3%)
Avery Dennison Corp................................... 1,391 76,331
Engelhard Corp........................................ 3,777 86,871
FMC Corp. (a)......................................... 980 63,945
PPG Industries Inc. .................................. 4,883 238,046
------------
465,193
------------
CHEMICALS--SPECIALTY (0.4%)
Grace (W.R.) & Co..................................... 2,587 183,354
Great Lakes Chemical Corp............................. 1,674 104,206
Morton International, Inc............................. 3,777 140,693
Nalco Chemical Company................................ 1,770 55,755
Sigma-Aldrich Corp.................................... 1,264 67,624
------------
551,632
------------
COMMUNICATION--EQUIPMENT
MANUFACTURERS (1.4%)
Andrew Corp. (a)...................................... 1,485 79,819
Bay Networks Inc. (a)................................. 4,799 123,574
Cabletron Systems, Inc. (a)........................... 1,914 131,348
Cisco Systems, Inc. (a)............................... 14,154 801,470
DSC Communications Corp. (a).......................... 2,832 85,314
General Instrument Corp. (a).......................... 3,034 87,607
Northern Telecom Limited.............................. 6,513 354,144
Scientific-Atlanta, Inc............................... 1,983 30,737
Tellabs, Inc. (a)..................................... 2,232 149,265
3Com Corporation (a).................................. 4,277 195,673
------------
2,038,951
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

102
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

COMPUTER--SOFTWARE &
SERVICES (2.8%)
Autodesk, Inc. ....................................... 1,152 $ 34,416
Automatic Data Processing, Inc. ...................... 7,489 289,263
Ceridian Corp. (a).................................... 1,663 83,982
Computer Associates
International Inc.................................... 6,121 436,121
Computer Sciences Corp. (a)........................... 1,482 110,779
First Data Corp....................................... 5,600 445,900
Microsoft Corp. (a)................................... 15,210 1,827,101
Novell Inc. (a)....................................... 9,383 130,189
Oracle Corp. (a)...................................... 16,661 657,068
Shared Medical Systems Corp........................... 624 40,092
------------
4,054,911
------------
COMPUTER SYSTEMS (2.7%)
Amdahl Corp. (a)...................................... 3,005 32,304
Apple Computer Inc. (a)............................... 3,123 65,583
Compaq Computer Corp. (a)............................. 6,825 336,131
Data General Corp. (a)................................ 980 12,740
Digital Equipment Corp. (a)........................... 3,933 176,985
EMC Corportation (a).................................. 5,844 108,844
Hewlett-Packard Company............................... 13,043 1,299,409
Intergraph Corp. (a).................................. 1,149 13,932
International Business
Machines Corp. ...................................... 14,554 1,440,846
Silicon Graphics, Inc. (a)............................ 4,147 99,528
Sun Microsystems Inc. (a)............................. 4,730 278,479
Tandem Computers Inc. (a)............................. 2,888 35,739
Unisys Corp. (a)...................................... 4,379 31,200
------------
3,931,720
------------
CONGLOMERATES (0.3%)
Teledyne, Inc......................................... 1,488 53,754
Tenneco, Inc.......................................... 4,490 229,551
Textron Inc........................................... 2,147 171,492
------------
454,797
------------
CONTAINERS--METAL &
GLASS (0.1%)
Ball Corp............................................. 750 21,563
Crown Cork & Seal Company, Inc........................ 2,896 130,320
------------
151,883
------------
CONTAINERS--PAPER (0.1%)
Bemis Company, Inc. .................................. 1,370 47,950
Stone Container Corp. ................................ 2,454 33,743
Temple-Inland Inc. ................................... 1,488 69,564
------------
151,257
------------
COSMETICS (0.7%)
Alberto-Culver Company................................ 645 29,912
Avon Products, Inc.................................... 3,354 151,349
Gillette Company...................................... 11,300 704,838
International Flavors &
Fragrances, Inc...................................... 2,767 131,778
------------
1,017,877
------------
</TABLE>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

DRUGS (3.6%)
Eli Lilly & Company................................... 14,085 $ 915,525
Merck & Co., Inc...................................... 31,686 2,047,708
Pfizer Inc............................................ 16,292 1,162,841
Pharmacia & Upjohn, Inc............................... 12,899 572,393
Schering-Plough Corp. ................................ 9,381 588,658
------------
5,287,125
------------
ELECTRIC POWER
COMPANIES (3.0%)
American Electric Power Company, Inc. ................ 4,766 203,151
Baltimore Gas & Electric Company 3,860 109,527
Carolina Power & Light Company 3,926 149,188
Central & South West Corp............................. 5,304 153,816
CINergy Corp. ........................................ 3,969 127,008
Consolidated Edison Company
of New York.......................................... 6,014 175,909
Dominion Resources Inc. .............................. 4,485 179,400
DTE Energy Company.................................... 3,763 116,183
Duke Power Company.................................... 5,260 269,575
Edison International.................................. 11,420 201,277
Entergy Corp.......................................... 5,884 166,959
FPL Group, Inc........................................ 4,756 218,776
General Public Utilities Corp......................... 2,978 104,975
Houston Industries Inc................................ 6,764 166,564
Niagara Mohawk Power Corp............................. 3,747 29,039
Northern States Power Company......................... 1,747 86,258
Ohio Edison Company................................... 3,888 85,050
Pacific Gas & Electric Company........................ 10,821 251,588
PacifiCorp............................................ 7,362 163,805
Peco Energy Company................................... 5,657 147,082
PP&L Resources, Inc. ................................. 3,969 93,768
Public Service Enterprise Group Inc. 6,265 171,504
Southern Company (The)................................ 17,166 422,713
Texas Utilities Company............................... 5,868 250,857
Unicom Corp. ......................................... 5,414 150,915
Union Electric Company................................ 2,637 106,139
------------
4,301,026
------------
ELECTRICAL
EQUIPMENT (3.5%)
AMP Inc. ............................................. 5,602 224,780
Emerson Electric Co................................... 5,670 512,426
General Electric Company.............................. 42,624 3,686,976
General Signal Corp................................... 1,151 43,594
Grainger (W.W.), Inc. ................................ 1,269 98,348
Honeywell Inc......................................... 3,286 179,087
Raychem Corp.......................................... 1,120 80,500
Thomas & Betts Corp. ................................. 618 23,175
Westinghouse Electric Corp. .......................... 10,594 198,638
------------
5,047,524
------------
ELECTRONIC--
DEFENSE (0.0%) (b)
EG&G, Inc............................................. 1,278 27,317
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

103
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

ELECTRONIC--
INSTRUMENTATION (0.1%)
Perkin-Elmer Corp. (The).............................. 1,137 $ 54,860
Tektronix, Inc........................................ 858 38,396
------------
93,256
------------
ELECTRONIC--
SEMICONDUCTORS (2.2%)
Advanced Micro Devices, Inc. (a)...................... 3,326 45,317
Applied Materials, Inc. (a)........................... 4,566 139,263
Intel Corp............................................ 21,115 1,550,633
LSI Logic Corp. (a)................................... 3,336 86,736
Micron Technology Inc................................. 5,320 137,655
Motorola, Inc......................................... 15,047 946,080
National Semiconductor Corp. (a)...................... 3,226 50,003
Texas Instruments, Inc................................ 4,841 241,445
------------
3,197,132
------------
ENGINEERING &
CONSTRUCTION (0.1%)
Fluor Corp............................................ 2,127 139,052
Foster Wheeler Corp................................... 1,082 48,555
------------
187,607
------------
ENTERTAINMENT (1.3%)
King World Productions, Inc. (a)...................... 885 32,192
Time Warner, Inc...................................... 9,772 383,551
Viacom Inc. Class B (a)............................... 9,442 367,058
Walt Disney Company (The)............................. 17,333 1,089,812
------------
1,872,613
------------
FINANCIAL--
MISCELLANEOUS (1.7%)
American Express Company.............................. 12,430 554,689
American General Corp................................. 5,303 192,896
Federal Home Loan
Mortgage Corp........................................ 4,728 404,244
Federal National
Mortgage Association................................. 27,913 935,086
Green Tree Financial Corp............................. 3,345 104,531
MBNA Corp............................................. 5,698 162,393
Transamerica Corp..................................... 1,687 137,912
------------
2,491,751
------------
FOOD DISTRIBUTORS (0.2%)
Fleming Companies, Inc................................ 984 14,145
SuperValu Inc......................................... 1,777 55,976
Sysco Corp............................................ 4,661 159,639
------------
229,760
------------
FOODS (2.6%)
Archer Daniels Midland Company........................ 13,484 257,882
Campbell Soup Company................................. 6,405 451,553
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

FOODS (Continued)
ConAgra, Inc.......................................... 6,395 $ 290,173
CPC International, Inc................................ 3,771 271,512
General Mills, Inc.................................... 4,135 225,358
Heinz (H.J.) Company.................................. 9,441 286,770
Hershey Foods Corp.................................... 2,041 149,758
Kellogg Company....................................... 5,590 409,468
Quaker Oats Company................................... 3,428 116,980
Ralston Purina Group.................................. 2,739 175,638
Sara Lee Corp......................................... 12,046 401,644
Unilever, N.V......................................... 4,134 599,947
Wrigley (Wm.) Jr. Company............................. 2,898 146,349
------------
3,783,032
------------
GOLD (0.5%)
Barrick Gold Corp..................................... 9,148 248,140
Echo Bay Mines Ltd.................................... 3,297 35,443
Homestake Mining Company.............................. 3,521 60,297
Newmont Mining Corp................................... 2,446 120,771
Placer Dome Inc....................................... 6,028 143,918
Santa Fe Pacific Gold Corp............................ 3,321 46,909
------------
655,478
------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp................................... 2,136 82,503
Snap-On, Inc.......................................... 1,032 48,891
Stanley Works (The)................................... 2,284 67,949
------------
199,343
------------
HEALTH CARE--
DIVERSIFIED (3.6%)
Abbott Laboratories................................... 20,342 884,877
Allergan Inc.......................................... 1,626 63,820
American Home Products Corp. ......................... 16,016 962,962
Bristol-Myers Squibb Company.......................... 12,953 1,165,770
Johnson & Johnson..................................... 33,372 1,651,914
Mallinckrodt Group, Inc. ............................. 2,002 77,828
Warner-Lambert Company................................ 6,801 374,055
------------
5,181,226
------------
HEALTH CARE--HMO's (0.4%)
Humana Inc. (a)....................................... 4,172 74,576
United Healthcare Corp................................ 4,476 226,038
U.S. Healthcare, Inc.................................. 3,914 215,270
------------
515,884
------------
HEALTH CARE--
MISCELLANEOUS (0.4%)
Alza Corp. (a)........................................ 2,118 57,980
Amgen Inc. (a)........................................ 6,895 372,330
Beverly Enterprises, Inc. (a)......................... 2,436 29,232
Manor Care, Inc....................................... 1,609 63,355
------------
522,897
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

104
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

HEAVY TRUCKS & PARTS (0.3%)
Cummins Engine Company, Inc........................... 1,017 $ 41,061
Dana Corp............................................. 2,616 81,096
Eaton Corp............................................ 1,979 116,019
ITT Industries, Inc................................... 2,903 72,938
Navistar International Corp. (a)...................... 2,006 19,809
Paccar Inc............................................ 1,049 51,401
------------
382,324
------------
HOMEBUILDING (0.0%) (b)
Centex Corp. ......................................... 656 20,418
Kaufman & Broad Home Corp............................. 773 11,209
Pulte Corp............................................ 642 17,173
------------
48,800
------------
HOSPITAL MANAGEMENT (0.5%)
Columbia/HCA Healthcare Corp.......................... 11,392 608,048
Community Psychiatric Centers (a)..................... 1,136 10,792
Tenet Healthcare Corp. (a)............................ 5,236 111,919
------------
730,759
------------
HOTEL--MOTEL (0.4%)
Harrah's Entertainment, Inc. (a)...................... 2,659 75,117
Hilton Hotels Corp.................................... 1,256 141,300
ITT Corp. (New) (a)................................... 2,902 192,257
Marriott International, Inc........................... 3,212 172,645
------------
581,319
------------
HOUSEHOLD--FURNISHINGS &
APPLIANCES (0.1%)
Armstrong World Industries, Inc....................... 984 56,703
Maytag Corp. ......................................... 2,755 57,510
Whirlpool Corp........................................ 1,974 97,960
------------
212,173
------------
HOUSEHOLD PRODUCTS (1.8%)
Clorox Company (The).................................. 1,278 113,263
Colgate-Palmolive Company............................. 3,797 321,796
Kimberly-Clark Corp. ................................. 7,126 550,483
Procter & Gamble Company (The) 17,554 1,590,831
------------
2,576,373
------------
HOUSEWARES (0.2%)
Newell Co. ........................................... 4,125 126,328
Rubbermaid, Inc. ..................................... 4,030 109,818
Tupperware Corp. (a).................................. 1,618 68,360
------------
304,506
------------
INSURANCE BROKERS (0.2%)
Alexander & Alexander
Services, Inc........................................ 1,120 22,120
Aon Corporation....................................... 2,715 137,786
Marsh & McLennan
Companies, Inc....................................... 1,889 182,289
------------
342,195
------------
</TABLE>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

INVESTMENT BANK
/BROKERAGE (1.0%)
Dean Witter Discover &
Company 4,293 $ 245,774
Merrill Lynch & Co.,
Inc.................................................. 4,514 293,974
Morgan Stanley Group
Inc. ................................................ 3,962 194,634
Salomon Inc........................................... 2,756 121,264
Travelers Group Inc................................... 12,192 556,260
------------
1,411,906
------------
LEISURE TIME (0.1%)
Bally Entertainment Corp. (a)......................... 1,252 34,430
Brunswick Corp........................................ 2,496 49,920
Outboard Marine Corp.................................. 510 9,244
------------
93,594
------------
LIFE INSURANCE (0.4%)
Jefferson-Pilot Corp.................................. 1,840 94,990
Lincoln National Corp................................. 2,612 120,805
Providian Corp........................................ 2,502 107,273
Torchmark Corp........................................ 1,787 78,181
UNUM Corp............................................. 1,945 121,077
USLIFE Corp........................................... 986 32,414
------------
554,740
------------
MACHINE TOOLS (0.0%) (b)
Cincinnati Milacron Inc. ............................. 874 20,976
Giddings & Lewis Inc.................................. 872 14,170
------------
35,146
------------
MACHINERY--
DIVERSIFIED (0.8%)
Briggs & Stratton Corp................................ 666 27,389
Case Corporation...................................... 1,777 85,296
Caterpillar Inc....................................... 5,154 349,183
Cooper Industries, Inc................................ 2,781 115,411
Deere & Company....................................... 6,695 267,800
Harnischfeger Industries, Inc......................... 1,170 38,903
Ingersoll-Rand Company................................ 2,753 120,444
Nacco Industries, Inc. ............................... 138 7,642
Timken Company (The).................................. 757 29,334
Varity Corp. (a)...................................... 1,007 48,462
------------
1,089,864
------------
MAJOR REGIONAL
BANKS (3.8%)
Banc One Corp......................................... 11,514 391,476
Bank of Boston Corp. ................................. 2,845 140,828
Bank of New York Company,
Inc. (The)........................................... 5,194 266,193
Barnett Banks, Inc.................................... 2,512 153,232
Boatmen's Bancshares, Inc............................. 4,007 160,781
Comerica Inc.......................................... 3,024 134,946
CoreStates Financial Corp............................. 5,682 218,757
Fifth Third Bancorp................................... 2,408 130,032
First Bank System, Inc................................ 3,749 217,442
First Union Corp...................................... 7,387 449,684
Fleet Financial Group, Inc............................ 6,817 296,539
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

105
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

MAJOR REGIONAL
BANKS (Continued)
KeyCorp............................................... 6,080 $ 235,600
Mellon Bank Corp. .................................... 3,435 195,795
National City Corp. .................................. 4,109 144,329
NationsBank Corp. .................................... 7,616 629,272
Norwest Corp. ........................................ 9,053 315,723
PNC Bank Corp. ....................................... 8,723 259,509
Republic New York Corp................................ 1,484 92,379
Suntrust Banks, Inc................................... 5,638 208,606
U.S. Bancorp (Portland, OR)........................... 3,890 140,526
Wachovia Corp......................................... 4,363 190,881
Wells Fargo & Company................................. 2,547 608,414
------------
5,580,944
------------
MANUFACTURED
HOUSING (0.0%) (b)
Fleetwood Enterprises, Inc............................ 1,145 35,495
------------
MANUFACTURING--
DIVERSIFIED (0.9%)
AlliedSignal, Inc..................................... 7,272 415,413
Crane Co.............................................. 754 30,914
Dover Corp. .......................................... 2,887 133,163
Illinois Tool Works Inc. ............................. 2,988 202,064
Johnson Controls, Inc................................. 1,109 77,075
Millipore Corp........................................ 1,078 45,141
Pall Corp. ........................................... 2,893 69,794
Parker Hannifin Corp.................................. 1,987 84,199
Trinova Corp.......................................... 647 21,594
Tyco International Ltd................................ 3,886 158,354
------------
1,237,711
------------
MEDICAL PRODUCTS (0.9%)
Bard (C.R.), Inc. .................................... 1,378 46,852
Bausch & Lomb Inc..................................... 1,500 63,750
Baxter International Inc.............................. 6,950 328,387
Becton, Dickinson & Company........................... 1,682 134,981
Biomet Inc. (a)....................................... 2,892 41,572
Boston Scientific Corp. (a)........................... 4,464 200,880
Medtronic, Inc........................................ 6,000 336,000
St. Jude Medical, Inc. (a)............................ 1,736 58,156
United States Surgical Corp. ......................... 1,496 46,376
------------
1,256,954
------------
METALS--
MISCELLANEOUS (0.3%)
Asarco, Inc........................................... 1,114 30,774
Cyprus Amax Minerals Co. ............................. 2,535 57,355
Freeport-McMoRan Copper & Gold Inc.................... 5,206 165,941
INCO Limited.......................................... 3,000 96,750
Phelps Dodge Corp..................................... 1,773 110,591
------------
461,411
------------
MISCELLANEOUS (1.4%)
Airtouch Communications (a)........................... 12,697 358,690
American Greetings Corp............................... 1,979 54,175
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

MISCELLANEOUS (Continued)
Corning Inc........................................... 5,915 $ 226,988
Dial Corp. (The)...................................... 2,499 71,534
Harcourt General, Inc. ............................... 1,899 94,950
Harris Corp. ......................................... 1,006 61,366
Jostens, Inc.......................................... 1,137 22,456
Minnesota Mining & Manufacturing Company.............. 10,825 746,925
Pioneer Hi-Bred International, Inc.................... 2,179 115,215
TRW Inc............................................... 1,639 147,305
Whitman Corp.......................................... 2,653 64,003
------------
1,963,607
------------
MONEY CENTER BANKS (2.4%)
BankAmerica Corp...................................... 9,470 717,352
Bankers Trust New York Corp. ......................... 2,020 149,228
Chase Manhattan Corp. (The)........................... 11,166 788,599
Citicorp.............................................. 12,481 1,031,243
First Chicago Corp.................................... 8,179 320,003
Morgan (J.P.) & Company, Inc.......................... 4,792 405,523
------------
3,411,948
------------
MULTI-LINE
INSURANCE (1.2%)
Aetna Life & Casualty Company......................... 2,880 205,920
American International Group, Inc. ................... 12,227 1,205,888
CIGNA Corp. .......................................... 1,990 234,571
ITT Hartford Group, Inc............................... 2,902 154,532
------------
1,800,911
------------
NATURAL GAS DISTRIBUTORS & PIPE LINES (0.8%)
Coastal Corp.......................................... 2,648 110,554
Columbia Gas System, Inc.............................. 1,371 71,463
Consolidated Natural
Gas Company.......................................... 2,484 129,789
Eastern Enterprises................................... 517 17,190
Enron Corp. .......................................... 6,476 264,707
Enserch Corp.......................................... 1,749 38,041
Nicor Inc............................................. 1,277 36,235
Noram Energy Corp..................................... 3,248 35,322
Oneok, Inc............................................ 640 16,000
Pacific Enterprises................................... 2,126 62,983
PanEnergy Corp. ...................................... 3,868 127,161
Peoples Energy Corp................................... 874 29,279
Sonat Inc............................................. 2,159 97,155
Williams Companies, Inc. (The)........................ 2,643 130,827
------------
1,166,706
------------
OFFICE EQUIPMENT &
SUPPLIES (0.6%)
Alco Standard Corp.................................... 3,265 147,741
Moore Corp. Ltd....................................... 2,612 49,302
Pitney Bowes Inc...................................... 3,914 186,893
Xerox Corp. .......................................... 8,206 439,021
------------
822,957
------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

106
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

OIL & GAS DRILLING (0.0%) (b)
Helmerich & Payne, Inc. .............................. 631 $ 23,110
Rowan Companies, Inc. (a)............................. 2,134 31,477
------------
54,587
------------
OIL--EXPLORATION &
PRODUCTION (0.1%)
Burlington Resources, Inc. ........................... 3,220 138,460
Oryx Energy Company (a)............................... 2,709 44,021
Santa Fe Energy Resources, Inc. (a) 2,259 26,826
------------
209,307
------------
OIL--INTEGRATED
DOMESTIC (1.2%)
Amerada Hess Corp..................................... 2,484 133,205
Ashland Inc........................................... 1,511 59,873
Atlantic Richfield Company............................ 4,133 489,761
Kerr-McGee Corp....................................... 1,265 77,007
Louisiana Land & Exploration Company (The)............ 761 43,853
Occidental Petroleum Corp............................. 8,115 200,846
Pennzoil Company...................................... 1,125 52,031
Phillips Petroleum Company............................ 6,652 278,553
Sun Company, Inc. .................................... 2,008 60,993
Unocal Corp. ......................................... 6,262 211,342
USX-Marathon Group.................................... 7,396 148,844
------------
1,756,308
------------
OIL--INTEGRATED
INTERNATIONAL (5.9%)
Amoco Corp. .......................................... 12,782 925,097
Chevron Corp.......................................... 16,792 990,728
Exxon Corp............................................ 31,850 2,766,969
Mobil Corp............................................ 10,158 1,138,966
Royal Dutch Petroleum Company......................... 13,688 2,104,530
Texaco Inc............................................ 6,847 574,292
------------
8,500,582
------------
OIL--WELL EQUIPMENT &
SERVICES (0.7%)
Baker Hughes Inc...................................... 3,624 119,139
Dresser Industries, Inc............................... 4,663 137,559
Halliburton Company................................... 2,888 160,284
McDermott International, Inc.......................... 1,377 28,745
Schlumberger Limited.................................. 6,162 519,148
Western Atlas, Inc. (a)............................... 1,449 84,404
------------
1,049,279
------------
PAPER & FOREST
PRODUCTS (0.9%)
Boise Cascade Corp.................................... 1,209 44,280
Champion International Corp........................... 2,485 103,749
Georgia-Pacific Corp.................................. 2,470 175,370
International Paper Company........................... 7,634 281,504
James River Corp. of Virginia......................... 2,127 56,100
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

PAPER & FOREST
PRODUCTS (Continued)
Louisiana-Pacific Corp................................ 2,765 $ 61,176
Mead Corp............................................. 1,395 72,366
Potlatch Corp. ....................................... 649 25,392
Union Camp Corp. ..................................... 1,759 85,750
Westvaco Corp......................................... 2,673 79,856
Weyerhaeuser Company.................................. 5,261 223,592
Willamette Industries, Inc............................ 1,483 88,238
------------
1,297,373
------------
PERSONAL LOANS (0.2%)
Beneficial Corp....................................... 1,374 77,116
Household International Inc........................... 2,500 190,000
------------
267,116
------------
PHOTOGRAPHY/IMAGING (0.5%)
Eastman Kodak Company................................. 8,739 679,457
Polaroid Corp. ....................................... 1,148 52,378
------------
731,835
------------
POLLUTION CONTROL (0.4%)
Browning-Ferris Industries Inc........................ 5,390 156,310
Laidlaw, Inc. Class B................................. 7,250 73,406
WMX Technologies, Inc................................. 12,433 407,181
------------
636,897
------------
PROPERTY--CASUALTY
INSURANCE (1.1%)
Allstate Corp. (The).................................. 11,512 525,235
Chubb Corp. (The)..................................... 4,498 224,338
General Re Corp....................................... 2,129 324,140
Loews Corp. .......................................... 2,975 234,653
SAFECO Corp. ......................................... 3,236 114,474
St. Paul Companies, Inc. (The)........................ 2,122 113,527
USF&G Corp. .......................................... 2,587 42,362
------------
1,578,729
------------
PUBLISHING (0.3%)
Dun & Bradstreet Corp. (The).......................... 4,300 268,750
McGraw-Hill Companies, Inc............................ 2,624 120,048
Meredith Corp......................................... 660 27,555
------------
416,353
------------
PUBLISHING--
NEWSPAPER (0.5%)
Dow Jones & Company, Inc.............................. 2,524 105,377
Gannett Company, Inc.................................. 3,644 257,813
Knight-Ridder Inc..................................... 1,176 85,260
New York Times Company (The).......................... 2,591 84,531
Times Mirror Company.................................. 2,736 119,016
Tribune Company....................................... 1,641 119,178
------------
771,175
------------
</TABLE>

107
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

RAILROADS (0.9%)
Burlington Northern Santa Fe Corp..................... 3,672 $ 296,973
Conrail Inc........................................... 2,014 133,679
CSX Corp. ............................................ 5,294 255,436
Norfolk Southern Corp. ............................... 3,303 279,929
Union Pacific Corp.................................... 5,262 367,682
------------
1,333,699
------------
RESTAURANTS (0.7%)
Darden Restaurants, Inc............................... 4,135 44,451
Luby's Cafeterias, Inc................................ 636 14,946
McDonald's Corp. ..................................... 17,790 831,683
Ryan's Family Steak
Houses, Inc. (a)..................................... 1,377 12,737
Shoney's, Inc. (a).................................... 1,111 12,082
Wendy's International, Inc. .......................... 3,054 56,881
------------
972,780
------------
RETAIL STORES--
APPAREL (0.3%)
Charming Shoppes, Inc. (a)............................ 2,639 18,638
Gap, Inc. (The)....................................... 7,307 234,737
Limited, Inc. (The)................................... 6,980 150,070
TJX Companies, Inc. (The)............................. 1,889 63,754
------------
467,199
------------
RETAIL STORES--
DEPARTMENT (0.7%)
Dillard Department Stores, Inc........................ 2,783 101,580
Federated Department
Stores, Inc. (a)..................................... 5,220 178,132
May Department Stores Company......................... 6,384 279,300
Mercantile Stores Company, Inc........................ 982 57,570
Nordstrom, Inc. ...................................... 2,125 94,562
Penney (J.C.) Company, Inc............................ 5,704 299,460
------------
1,010,604
------------
RETAIL STORES--DRUG (0.2%)
Longs Drug Stores Corp................................ 514 22,937
Rite Aid Corp......................................... 2,142 63,725
Walgreen Company...................................... 6,276 210,246
------------
296,908
------------
RETAIL STORES--FOOD
CHAIN (0.5%)
Albertson's, Inc...................................... 6,531 270,220
American Stores Co.................................... 3,766 155,348
Giant Food, Inc....................................... 1,504 53,956
Great Atlantic & Pacific Tea Company, Inc. ........... 988 32,480
Kroger Company (The) (a).............................. 3,177 125,491
Winn-Dixie Stores, Inc. .............................. 3,893 137,715
------------
775,210
------------
</TABLE>

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

RETAIL STORES--GENERAL MERCHANDISE (1.6%)
Dayton Hudson Corp.................................... 1,881 $ 193,978
Kmart Corp. .......................................... 11,811 146,161
Sears, Roebuck & Company.............................. 10,076 489,945
Wal-Mart Stores, Inc. ................................ 58,946 1,495,755
------------
2,325,839
------------
RETAIL STORES--
SPECIALTY (1.0%)
Circuit City Stores, Inc. ............................ 2,498 90,240
Home Depot, Inc. (The)................................ 12,201 658,854
Lowe's Companies, Inc................................. 4,107 148,365
Melville Corp......................................... 2,649 107,285
Pep Boys-Manny, Moe & Jack............................ 1,512 51,408
Price/Costco, Inc. (a)................................ 5,036 108,904
Tandy Corp............................................ 1,630 77,221
Toys "R" Us (a)....................................... 7,083 201,866
Woolworth Corp. (a)................................... 3,389 76,251
------------
1,520,394
------------
SAVINGS & LOANS (0.2%)
Ahmanson (H.F.) & Company............................. 3,011 81,297
Golden West Financial Corp............................ 1,512 84,672
Great Western Financial Corp. ........................ 3,395 81,056
------------
247,025
------------
SHOES (0.3%)
Brown Group, Inc...................................... 501 8,705
Nike Inc. ............................................ 3,684 378,531
Reebok International Ltd.............................. 2,026 68,124
Stride Rite Corp. .................................... 1,265 10,436
------------
465,796
------------
SPECIALIZED SERVICES (0.5%)
Block (H & R), Inc.................................... 2,652 86,522
CUC International Inc. (a)............................ 4,590 162,945
Ecolab, Inc........................................... 1,620 53,460
Interpublic Group of Cos., Inc........................ 2,001 93,797
National Service Industries, Inc. .................... 1,162 45,463
Ogden Corp............................................ 1,243 22,529
Safety-Kleen Corp..................................... 1,496 26,180
Service Corp. International........................... 2,882 165,715
------------
656,611
------------
SPECIALTY PRINTING (0.2%)
Deluxe Corp........................................... 2,129 75,579
Donnelley (R.R.) & Sons Company 3,915 136,536
Harland (John H.) Co. (The)........................... 761 18,740
------------
230,855
------------
STEEL (0.2%)
Armco Inc. (a)........................................ 2,747 13,735
Bethlehem Steel Corp. (a)............................. 2,826 33,559
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
108
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

SHARES VALUE
----------------------------------------------------------
<S> <C> <C>

STEEL (Continued)
Inland Steel Industries, Inc.......................... 1,217 $ 23,884
Nucor Corp. .......................................... 2,263 114,564
USX-U.S. Steel Group Inc.............................. 1,982 56,239
Worthington Industries, Inc. ......................... 2,323 48,493
------------
290,474
------------
TELECOMMUNICATIONS--
LONG DISTANCE (2.5%)
AT&T Corp............................................. 41,073 2,546,526
MCI Communications Corp. ............................. 17,392 445,670
Sprint Corp. ......................................... 9,374 393,708
WorldCom, Inc. (a).................................... 4,906 271,670
------------
3,657,574
------------
TELEPHONE (4.1%)
Alltel Corp........................................... 4,789 147,262
Ameritech Corp........................................ 14,152 840,275
Bell Atlantic Corp. .................................. 11,160 711,450
BellSouth Corp........................................ 25,457 1,078,740
GTE Corp.............................................. 24,865 1,112,709
NYNEX Corp............................................ 10,977 521,408
Pacific Telesis Group................................. 10,867 366,761
SBC Communications, Inc. ............................. 15,649 770,713
US West, Inc.......................................... 12,015 382,978
------------
5,932,296
------------
TEXTILES--APPAREL
MANUFACTURERS (0.2%)
Fruit Of The Loom Inc. Class A (a).................... 2,019 51,484
Liz Claiborne, Inc.................................... 1,912 66,203
Russell Corp.......................................... 1,107 30,581
Springs Industries, Inc. ............................. 504 25,452
VF Corp............................................... 1,624 96,831
------------
270,551
------------
TOBACCO (1.8%)
American Brands, Inc.................................. 4,079 213,671
Philip Morris Companies, Inc.......................... 21,419 2,227,576
UST Inc............................................... 5,064 173,442
------------
2,614,689
------------
TOYS (0.2%)
Hasbro Inc............................................ 2,148 76,791
Mattel, Inc........................................... 7,206 206,272
------------
283,063
------------
TRANSPORTATION--
MISCELLANEOUS (0.1%)
Federal Express Corp. (a)............................. 1,487 121,934
Ryder System, Inc..................................... 2,005 56,391
------------
178,325
------------
</TABLE>
<TABLE>
<CAPTION>

SHARES VALUE
-----------------------------------------------------------
<S> <C> <C>

TRUCKERS (0.0%) (b)
Caliber System, Inc............................... 1,005 $ 34,170
Consolidated Freightways, Inc..................... 1,099 23,216
Yellow Corp. (a).................................. 646 8,560
------------
65,946
------------
Total Common Stocks
(Cost $101,145,525).............................. 129,413,287 (c)
------------
PREFERRED STOCK (0.0%) (B)
CONGLOMERATES (0.0%) (b)
Teledyne, Inc.
$1.20, Series E.................................. 11 169
------------
Total Preferred Stock
(Cost $165)...................................... 169
------------

SHORT-TERM
INVESTMENTS (10.5%)

<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
COMMERCIAL PAPER (3.4%)
American Honda Finance Corp.
5.35%, due 7/25/96 (d)........................... $ 500,000 498,217
Dynamic Funding Corp.
5.47%, due 8/5/96 (d)............................ 500,000 497,341
Empire District Electric Co.
5.45%, due 7/29/96 (d)........................... 1,700,000 1,692,794
Hosokawa Micron
International Inc.
5.55%, due 7/29/96 (d)........................... 1,300,000 1,294,388
Sanwa Business Credit Corp.
5.40%, due 7/29/96 (d)........................... 750,000 746,850
Strategic Asset Funding Corp.
5.45%, due 7/8/96 (d)............................ 150,000 149,841
------------
Total Commercial Paper
(Cost $4,879,431)................................ 4,879,431
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (7.1%)
Federal Home Loan Bank
5.24%, due 7/22/96 (d)........................... 2,820,000 2,811,459
Federal Mortgage Corp.
5.33%, due 9/3/96 (d)............................ 2,220,000 2,198,102
United States Treasury Bill
5.13%, due 10/17/96 (d).......................... 5,450,000 5,363,291
------------
Total U.S. Government &
Federal Agencies
(Cost $10,377,167)............................... 10,372,852
------------
Total Short-Term Investments
(Cost $15,256,598)............................... 15,252,283
------------
Total Investments
(Cost $116,402,288) (f).......................... 99.8% 144,665,739 (g)
Cash and Other Assets,
Less Liabilities................................. 0.2 317,936
----------- ------------
Net Assets........................................ 100.0% $144,983,675
=========== ============
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

109
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)

FUTURES CONTRACTS (0.0%) (B)

<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
LONG APPRECIATION
----------------------------------------------------------
<S> <C> <C>

Standard & Poor's 500
September 1996................................... 43 $ 25,200
------------
Total Futures Contracts
(Settlement Value $14,551,200) $ 25,200 (e)
============
</TABLE>
- --------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) The combined market value of common stocks and Standard & Poor's 500 Index
futures contracts represents 99.3% of net assets.
(d) 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 June 30, 1996.
(f) The cost for Federal income tax purposes is $116,522,250.
(g) At June 30, 1996 net unrealized appreciation was $28,143,489, 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 $29,500,679 and aggregate gross unrealized depre-
ciation for all investments on which there was an excess of cost over mar-
ket value of $1,357,190.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

110
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
INDEXED EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of June 30, 1996 (Unaudited) For the six months ended June 30,
1996 (Unaudited)

<TABLE>
<S> <C>
ASSETS:

Investment in securities, at value (Note 2)
(identified cost $116,402,288).................................. $144,665,739
Cash............................................................. 155,032
Receivables:
Fund shares sold................................................. 431,148
Dividends and interest........................................... 224,036
Investment securities sold....................................... 5,942
NYLIAC........................................................... 1,270
Variation margin receivable on futures contracts................. 176,424
------------
Total assets................................................... 145,659,591
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 599,271
Administrator.................................................... 11,374
Adviser.......................................................... 11,374
Custodian........................................................ 8,054
Directors........................................................ 1,208
Accrued expenses................................................. 44,635
------------
Total liabilities.............................................. 675,916
------------
Net assets applicable to
outstanding shares.............................................. $144,983,675
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized.................................... $ 98,010
Additional paid-in capital....................................... 114,616,111
Accumulated undistributed net
investment income............................................... 1,260,478
Accumulated undistributed net realized gain
on investments.................................................. 720,425
Net unrealized appreciation
on investments.................................................. 28,288,651
------------
Net assets applicable to
outstanding shares.............................................. $144,983,675
============
Shares of capital stock outstanding.............................. 9,800,979
============
Net asset value per share outstanding............................ $ 14.79
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:

Dividends (a).................................................... $ 1,154,105
Interest......................................................... 378,789
------------
Total income................................................... 1,532,894
------------
Expenses: (Note 2)
Administration (Note 3).......................................... 115,922
Recordkeeping.................................................... 82,739
Advisory (Note 3)................................................ 57,961
Auditing......................................................... 19,628
Custodian........................................................ 17,104
Shareholder communication........................................ 13,968
Directors........................................................ 3,993
Legal............................................................ 3,573
Portfolio pricing................................................ 1,491
Miscellaneous.................................................... 5,655
------------
Total expenses
before reimbursement.......................................... 322,034
Expense reimbursement from
Administrator (Note 3).......................................... (49,618)
------------
Net expenses................................................... 272,416
------------
Net investment income............................................ 1,260,478
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain from:
Securities transactions.......................................... 324,956
Futures transactions............................................. 851,556
------------
Net realized gain on investments................................. 1,176,512
------------
Net change in unrealized appreciation
on investments:
Securities transactions.......................................... 8,809,148
Futures transactions............................................. (303,650)
------------
Net unrealized gain on investments............................... 8,505,498
------------
Net realized and unrealized gain
on investments.................................................. 9,682,010
------------
Net increase in net assets resulting
from operations................................................. $ 10,942,488
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$14,724.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

111
<PAGE>

INDEXED EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (Unaudited) and the year ended December
31, 1995

<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:

Operations:
Net investment income............................. $ 1,260,478 $ 2,018,769
Net realized gain on investments.................. 1,176,512 3,180,447
Net change in unrealized appreciation on
investments...................................... 8,505,498 19,351,538
------------ ------------
Net increase in net assets resulting from
operations....................................... 10,942,488 24,550,754
------------ ------------
Dividends and distributions to shareholders:
From net investment income........................ -- (2,044,642)
From net realized gain on investments............. (590,000) (2,898,925)
------------ ------------
Total dividends and distributions to
shareholders.................................... (590,000) (4,943,567)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 51,101,194 32,292,361
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions... 590,000 4,943,567
------------ ------------
51,691,194 37,235,928
Cost of shares redeemed........................... (22,230,539) (14,837,036)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 29,460,655 22,398,892
------------ ------------
Net increase in net assets....................... 39,813,143 42,006,079
NET ASSETS:
Beginning of period............................... 105,170,532 63,164,453
------------ ------------
End of period..................................... $144,983,675 $105,170,532
============ ============
Accumulated undistributed net investment income... $ 1,260,478 $ --
============ ============
</TABLE>

Net asset value at
beginning of period.... $ 13.53 $ 10.38 $ 10.58 $ 10.00
------------ ------------ ------------ ------------
Net investment income... 0.13 0.27 0.24 0.19
Net realized and
unrealized gain (loss)
on investments......... 1.20 3.55 (0.15) 0.67
------------ ------------ ------------ ------------
Total from investment
operations............. 1.33 3.82 0.09 0.86
------------ ------------ ------------ ------------
Less dividends and
distributions:
From net investment
income................ -- (0.28) (0.24) (0.19)
From net realized gain
on investments........ (0.07) (0.39) (0.05) (0.08)
In excess of net
realized gain on
investments........... -- -- -- (0.01)
------------ ------------ ------------ ------------
Total dividends and
distributions.......... (0.07) (0.67) (0.29) (0.28)
------------ ------------ ------------ ------------
Net asset value at end
of period.............. $ 14.79 $ 13.53 $ 10.38 $ 10.58
============ ============ ============ ============
Total investment return
(b).................... 9.88% 36.89% 0.76% 8.53%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 2.18%+ 2.52% 2.61% 2.54%+
Net expenses........... 0.47%+ 0.47% 0.47% 0.47%+
Expenses (before
reimbursement)........ 0.56%+ 0.62% 0.68% 0.96%+
Portfolio turnover rate. 1% 5% 8% 7%
Average commission rate
paid................... $ 0.0500 (c) (c) (c)
Net assets at end of
period (in 000's)...... $ 144,984 $ 105,171 $ 63,164 $ 43,081
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after Sep-
tember 1, 1995.
+ Annualized.
* Unaudited.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

112
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--Organization and Business:
- -------------------------------------------------------------------------------

New York Life MFA Series Fund, Inc. (the "Company") was incorporated under
Maryland law on June 3, 1983. The Company is registered under the Investment
Company Act of 1940, as amended, ("Investment Company Act") as an open-end
diversified management investment company. High Yield Corporate Bond,
International Equity and Value Portfolios, which commenced operations on May
1, 1995, Capital Appreciation, Cash Management, Government, Total Return and
Indexed Equity Portfolios, which commenced operations on January 29, 1993, and
Bond and Growth Equity Portfolios, which commenced operations on January 23,
1984, (the "Funds") are separate series of the Company. Shares of the Funds
are currently offered only to New York Life Insurance and Annuity Corporation
("NYLIAC"), a wholly owned subsidiary of New York Life Insurance Company ("New
York Life"). NYLIAC allocates shares of the Funds to, among others, New York
Life Insurance and Annuity Corporation's Variable Universal Life Separate
Account I and may allocate shares in the future to Variable Universal Life
Separate Account II ("Separate Accounts", collectively). The Separate Accounts
are used to fund flexible premium variable life insurance policies.

Effective May 2, 1994, the name of the New York Life MFA Series Fund, Inc.
Common Stock Portfolio changed to New York Life MFA Series Fund, Inc. Growth
Equity Portfolio.

The investment objectives for each of the Portfolios of the Company are as
follows:

Capital Appreciation: to seek long-term growth of capital.

Cash Management: to seek as high a level of current income as is considered
consistent with the preservation of capital and liquidity.

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 opportu-
nity for future growth of capital and income.

Value: to realize maximum long-term total return from a combination of cap-
ital growth and income.

Bond: to seek the highest income over the long term consistent with preser-
vation of principal.

Growth Equity: to seek long-term growth of capital with income as a second-
ary consideration.

Indexed Equity: to seek to provide investment results that correspond to
the total return performance (reflecting reinvestment of dividends) of
common stocks in the aggregate, as presented by the S&P 500.

- -------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- -------------------------------------------------------------------------------

The following is a summary of significant accounting policies followed by the
Company:

(A)

VALUATION OF FUND SHARES. The net asset value per share of each Fund is
calculated on every day the New York Stock Exchange is open for trading,
except the day after Thanksgiving and Christmas Eve. Net asset value per share
is calculated as of the regular close of the New York Stock Exchange (normally
4:00 P.M., Eastern time) for each Fund by dividing the current market value
(amortized cost, in the case of Cash Management Portfolio) of the Fund's total
assets, less liabilities, by the total number of outstanding shares of that
Fund.

113
<PAGE>

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(B)

SECURITIES VALUATION. Portfolio securities of Cash Management Portfolio are
valued at amortized cost, which approximates market value. This method
involves initially valuing an instrument at its cost and thereafter amortizing
the premium or accreting the discount to income over the life of the security.

Securities of each of the other Funds are stated at value determined (a) by
appraising common and preferred stocks which are traded on the New York Stock
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and
preferred stocks traded on other United States national securities exchanges
or foreign securities exchanges as nearly as possible in the manner described
in (a) by reference to their principal exchange, including the National
Association of Securities Dealers National Market System, (c) by appraising
over-the-counter securities quoted on the National Association of Securities
Dealers NASDAQ system (but not listed on the National Market System) at the
bid price supplied through such system, (d) by appraising over-the-counter
securities not quoted on the NASDAQ system and securities listed or traded on
certain foreign exchanges whose operations are similar to the U.S. over-the-
counter market, at prices supplied by the pricing agent or brokers selected by
the Adviser if these prices are deemed to be representative of market values
at the regular close of business of the New York Stock Exchange, (e) by
appraising debt securities at prices supplied by a pricing agent selected by
the Adviser, whose prices reflect broker/dealer supplied valuations and
electronic data processing techniques if those prices are deemed by the
Adviser to be representative of market values at the regular close of business
of the New York Stock Exchange, (f) by appraising options and futures
contracts at the last sale price on the market where such options or futures
contracts are principally traded, and (g) by appraising all other securities
and other assets, including debt securities for which prices are supplied by a
pricing agent but are not deemed by the Adviser to be representative of market
values, but excluding money market instruments with a remaining maturity of
sixty days or less and including restricted securities and securities for
which no market quotations are available, at fair value in accordance with
procedures approved by the Directors. Short-term securities which mature in
more than 60 days are valued at current market quotations. Short-term
securities which mature in 60 days or less are valued at amortized cost if
their term to maturity at purchase was 60 days or less, or by amortizing the
difference between market value on the 61st day prior to maturity and value on
maturity date if their original term to maturity at purchase exceeded 60 days.

Events affecting the values of certain portfolio securities that occur
between the close of trading on the principal market for such securities
(foreign exchanges and over-the-counter markets) and the regular close of the
New York Stock Exchange will not be reflected in the Funds' calculations of
net asset values unless the Adviser believes that the particular event would
materially affect net asset value, in which case an adjustment would be made.

(C)

FORWARD CURRENCY CONTRACTS. A forward currency contract is an agreement to buy
or sell currencies of different countries on a specified future date at a
specified rate. During the period the forward contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by "marking
to market" such contract on a daily basis to reflect the market value of the
contract at the end of each day's trading. When the forward contract is
closed, the Portfolio records a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the
Portfolio's basis in the contract. The International Equity Portfolio enters
into forward foreign currency exchange contracts in order to hedge its 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 or notional amounts reflect 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 on forward contracts reflects the Portfolio's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.

114
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

(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, or
to make or receive a cash payment based on the value of a securities index.
During the period the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value of
the contract. Such receipts or payments are known as "variation margin". When
the futures contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Portfolio's basis in the contract. The Indexed Equity
Portfolio invests in stock index futures contracts to gain full exposure to
changes in stock market prices to fulfill its investment objective.

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 long 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 the Funds enter into a repurchase
agreement, the value of the underlying security, including accrued interest,
will be equal to or exceed the value of the repurchase agreement and, in the
case of repurchase agreements exceeding one day, the value of the underlying
security, including accrued interest, is required during the term of the
agreement to be equal to or exceed the value of the repurchase agreement. The
underlying securities for all repurchase agreements are held in a segregated
account of the respective Funds' custodian. In the case of repurchase
agreements exceeding one day, the market value of the underlying securities
are monitored by the Adviser by pricing them daily. (Also see Note 5).

(F)

SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Company records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage backed securities.
Dividend income is recognized on the ex-dividend date and interest income is
accrued daily except when collection is not expected. Discounts on securities
purchased for all Funds are accreted on the constant yield method over the
life of the respective securities or, if applicable, over the period to the
first date of call.

(G)

FOREIGN CURRENCY INVESTING. The books and records of the Company are kept 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 International Equity Portfolio are presented
at the exchange rates and market values at the close of the period. 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.

115
<PAGE>

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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 Fund'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 at period-end exchange rates are reflected in
unrealized foreign exchange gains.

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.

(H)

MORTGAGE DOLLAR ROLLS. The Funds 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
Funds are classified as purchase and sale transactions. The securities sold in
connection with the MDR are removed from the portfolio and a realized gain or
loss is recognized. The securities the Funds have agreed to acquire are
included at market value in the portfolio of investments and liability for
such purchase commitments is included as payables for investments purchased.

(I)

FEDERAL INCOME TAXES. Each of the Funds is treated as a separate entity for
Federal income tax purposes. The Company's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of the taxable income to the shareholders of
each Fund within the allowable time limits. Therefore, no Federal income tax
provision is required.

Investment income received by a Fund from foreign sources may be subject to
foreign income taxes withheld at the source.

(J)

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. For Cash Management Portfolio, dividends are
declared daily and paid monthly. Each of the other Funds intends to declare
and pay, as a dividend, substantially all of their net investment income and
net realized gains no less frequently than once a year.

Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.

(K)

ORGANIZATION COSTS. Costs incurred in connection with the initial organization
and registration of a Portfolio of the Company are amortized over 60 months
beginning with the commencement of operations of the respective Portfolio.
Organization costs for High Yield Corporate Bond, International Equity and
Value Portfolios, paid by, and reimbursable to, NYLIAC, aggregated
approximately $220,500. Such costs are being amortized beginning with the
commencement of operations of the respective Portfolios on May 1, 1995.
Organization costs for Capital Appreciation, Cash Management, Government,
Total Return and Indexed Equity Portfolios, paid by, and reimbursable to,
NYLIAC, aggregated approximately $253,500. Such costs are being amortized
beginning with the commencement of operations of the respective Portfolio on
January 29, 1993. 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.

116
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

All of the initial shares purchased by NYLIAC in Capital Appreciation, Cash
Management, Government and Total Return Portfolios were redeemed on
February 21, 1995. All of the initial shares purchased by NYLIAC in Indexed
Equity Portfolio were redeemed between February 14, 1995 and February 21,
1996. (Also see Note 7 for further discussion of these redemptions).

(L)

EXPENSES. Expenses with respect to the Company are allocated to the individual
Funds in proportion to the net assets of the respective Funds when the
expenses are incurred except where allocations of direct expenses can
otherwise fairly be made.

(M)

USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.

- -------------------------------------------------------------------------------
NOTE 3--Fees and Related Party Policies:
- -------------------------------------------------------------------------------

(A)

INVESTMENT ADVISORY AND ADMINISTRATION FEES. MacKay-Shields Financial
Corporation ("MacKay-Shields") acts as investment adviser to Capital
Appreciation, Cash Management, 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 Insurance Company ("New York Life"). New York Life acts as
investment adviser to Bond and Growth Equity Portfolios under an Investment
Advisory agreement. Monitor Capital Advisors Inc. ("Monitor") acts as
investment adviser to Indexed Equity Portfolio under an Investment Advisory
Agreement. Monitor is a registered investment adviser, a wholly-owned
subsidiary of NYLIFE Inc. and an indirect wholly-owned subsidiary of New York
Life.

NYLIAC is Administrator for the Company.

The Company, on behalf of each Fund, pays the Advisers and Administrator a
monthly fee for the services performed and the facilities furnished at an
approximate annual rate of the average daily net assets of each Fund as
follows:

<TABLE>
<CAPTION>
ADVISER ADMINISTRATOR
------- -------------
<S> <C> <C>
Capital Appreciation Portfolio............................ .36% .20%
Cash Management Portfolio................................. .25% .20%
Government Portfolio...................................... .30% .20%
High Yield Corporate Bond Portfolio....................... .30% .20%
International Equity Portfolio............................ .60% .20%
Total Return Portfolio.................................... .32% .20%
Value Portfolio........................................... .36% .20%
Bond Portfolio............................................ .25% .20%
Growth Equity Portfolio................................... .25% .20%
Indexed Equity Portfolio.................................. .10% .20%
</TABLE>

The Administrator has voluntarily agreed to assume the Funds' operating
expenses through December 31, 1996, which on an annualized basis exceed the
percentages indicated below, after which, the voluntary expense limitation may
be terminated at any time.

117
<PAGE>

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

<TABLE>
<S> <C>
Capital Appreciation Portfolio............................................. .73%
Cash Management Portfolio.................................................. .62%
Government Portfolio....................................................... .67%
High Yield Corporate Bond Portfolio........................................ .67%
International Equity Portfolio............................................. .97%
Total Return Portfolio..................................................... .69%
Value Portfolio............................................................ .73%
Bond Portfolio............................................................. .62%
Growth Equity Portfolio.................................................... .62%
Indexed Equity Portfolio................................................... .47%
</TABLE>

In connection with the expense limitation the Administrator assumed certain
of the expenses of the Funds for the six months ended June 30, 1996 as shown
on the Statement of Operations.

(B)

DISTRIBUTOR. NYLIFE Distributors Inc. ("NYLIFE Distributors"), a wholly-owned
subsidiary of NYLIFE Inc. and an indirect wholly-owned subsidiary of New York
Life serves as the Company's distributor and principal underwriter (the
"Distributor") pursuant to a Distribution agreement. NYLIFE Distributors is
not obligated to sell any specific amount of the Company's shares, and
receives no compensation from the Company pursuant to the Distribution
Agreement.

(C)

DIRECTORS FEES. Directors, other than those affiliated with New York Life,
MacKay-Shields, Monitor, NYLIFE Distributors or NYLIFE Securities, are paid an
annual fee of $16,000 and $750 for each Board meeting attended plus
reimbursement for travel and out-of-pocket expenses. The Company allocates
this expense in proportion to the net assets of the respective Funds.

(D)

CAPITAL. At June 30, 1996 NYLIAC held shares of each Portfolio with a net
asset value as follows:

<TABLE>
<S> <C>
High Yield Corporate Bond Portfolio................................ $11,818,096
International Equity Portfolio..................................... 11,354,223
Value Portfolio.................................................... 6,308,613
</TABLE>

(E)

RECORDKEEPING FEES. NYLIAC provides recordkeeping services for Cash
Management, Bond and Growth Equity Portfolios. For the four months ended April
30, 1996, the Portfolios accrued recordkeeping fees as follows:

<TABLE>
<S> <C>
Cash Management Portfolio............................................. $ 5,223
Bond Portfolio........................................................ 111,341
Growth Equity Portfolio............................................... 208,472
</TABLE>

Effective May 1, 1996, these fees are paid by NYLIAC.

118
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

NOTE 4--Federal Income Tax:
- -------------------------------------------------------------------------------

At December 31, 1995, 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 Funds intend to elect, to the extent
provided by regulations, to treat certain qualifying capital losses that arose
during the year ended December 31, 1995 as if they arose on January 1, 1996.

<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S) DEFERRED (000'S)
----------------- -------------- ----------------
<S> <C> <C> <C>
Capital Appreciation Portfo-
lio......................... 2001 $ 116
2002 3,049
2003 3,133
------
$6,298 $1,038
====== ======
Cash Management Portfolio.... 2003 $ 1 $ 0
====== ======
Government Portfolio......... 2002 $3,261 $ 0
====== ======
High Yield Corporate Bond
Portfolio................... $ 0 $ 82
====== ======
International Equity Portfo-
lio......................... 2003 $ 24 $ 3
====== ======
Total Return Portfolio....... 2002 $4,183 $ 0
====== ======
Value Portfolio.............. $ 0 $ 3
====== ======
Bond Portfolio............... 2002 $2,748 $ 0
====== ======
</TABLE>

- -------------------------------------------------------------------------------
NOTE 5--Financial Investments:
- -------------------------------------------------------------------------------

High Yield Corporate Bond Portfolio invests primarily in high yield bonds.
These bonds may involve special risks in addition to the risks associated with
investment in higher rated debt securities. High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher grade bonds. Also, the secondary market on which high
yield bonds are traded may be less liquid than the market for higher grade
bonds.

Each Portfolio may enter into repurchase agreements to earn income. In the
event of the bankruptcy of the seller or the failure of the seller to
repurchase the securities as agreed, a Portfolio could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement.

- -------------------------------------------------------------------------------
NOTE 6--Acquisition of Money Market Portfolio:
- -------------------------------------------------------------------------------

On March 31, 1994, Cash Management Portfolio acquired all the net assets of
Money Market Portfolio pursuant to a plan of reorganization approved by the
shareholders of Cash Management and Money Market Portfolios on December 14,
1993. The acquisition was accomplished by a tax-free exchange of 37,601,126
shares of Cash Management Portfolio (valued at $37,601,126) for the 3,759,941
shares of Money Market Portfolio outstanding on March 31, 1994. Money Market's
net assets at that date ($37,597,525) were combined with those of Cash
Management Portfolio. The aggregate net assets of Cash Management and Money
Market Portfolios immediately before the acquisition were $28,516,066 and
$37,597,525, respectively. The combined net assets of Cash Management and
Money Market Portfolios immediately after the acquisition were $66,113,591.

119
<PAGE>

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

NOTE 7--Redemption by NYLIAC of Initial Investment:
- --------------------------------------------------------------------------------

On February 21, 1995, NYLIAC redeemed all of its initial investment in Capital
Appreciation, Cash Management, Government and Total Return Portfolios. In
connection with the redemption of the initial shares, NYLIAC reimbursed each of
the above listed Funds $28,042, which represented the unamortized deferred
organization expense of the respective Funds on the date of the redemption.
Additionally, between February 14, 1995 and February 21, 1996, NYLIAC redeemed
all of its initial investment in Indexed Equity Portfolio. NYLIAC reimbursed
Indexed Equity Portfolio $20,892 which represented the proportionate amount of
the unamortized deferred organization expense which the number of shares
redeemed bears to the total number of initial shares purchased between the
dates above.

120
<PAGE>

NEW YORK LIFE
MFA SERIES FUND, INC.

(THIS PAGE INTENTIONALLY LEFT BLANK)

121
<PAGE>

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 8--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------

During the six month period ended June 30, 1996, purchases and sales of
securities, other than securities subject to repurchase transactions and short-
term securities, were as follows:

<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
CAPITAL APPRECIATION GOVERNMENT CORPORATE BOND EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Securi-
ties................... $ -- $ -- $131,445 $117,160 $ 6,703 $ -- $ -- $ --
All others.............. 110,920 23,574 -- -- 85,087 45,670 11,771 2,142
------------------------------------------------------------------------------
Total................... $ 110,920 $ 23,574 $131,445 $117,160 $91,790 $45,670 $11,771 $2,142
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
NOTE 9--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------

Transactions in capital shares for the six month period ended June 30, 1996 and
the year ended December 31, 1995 were as follows:

<TABLE>
<CAPTION>
HIGH YIELD
CAPITAL APPRECIATION CASH MANAGEMENT GOVERNMENT CORPORATE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1996 1995 1996 1995 1996 1995 1996 1995 (A)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 6,162 6,644 123,075 128,846 1,208 1,197 5,733 2,979
Shares issued in
reinvestment of
dividends and
distributions.......... -- 62 2,161 3,588 -- 448 -- 167
-------------------------------------------------------------------
6,162 6,706 125,236 132,434 1,208 1,645 5,733 3,146
Shares redeemed......... 139 874 105,277 115,710 544 1,859 103 41
-------------------------------------------------------------------
Net increase (decrease). 6,023 5,832 19,959 16,724 664 (214) 5,630 3,105
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
- --------
(a)For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.

122
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TOTAL RETURN VALUE BOND GROWTH EQUITY INDEXED EQUITY
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>
$188,232 $181,832 $ -- $ -- $71,453 $63,332 $ -- $ -- $ -- $ --
95,350 40,680 38,379 6,353 14,772 10,877 294,426 282,474 30,714 1,197
- -------------------------------------------------------------------------------------------
$283,582 $222,512 $38,379 $6,353 $86,225 $74,209 $294,426 $282,474 $30,714 $1,197
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY TOTAL RETURN VALUE BOND GROWTH EQUITY INDEXED EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1996 1995 (A) 1996 1995 1996 1995 (A) 1996 1995 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
928 414 4,709 4,196 3,216 1,621 1,073 1,732 1,829 2,118 3,561 2,580
15 67 -- 345 4 17 -- 1,080 -- 2,286 40 367
- ---------------------------------------------------------------------------------------------
943 481 4,709 4,541 3,220 1,638 1,073 2,812 1,829 4,404 3,601 2,947
19 46 169 1,404 30 28 1,306 2,397 1,184 2,060 1,576 1,259
- ---------------------------------------------------------------------------------------------
924 435 4,540 3,137 3,190 1,610 (233) 415 645 2,344 2,025 1,688
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>

123
<PAGE>

APPENDIX A

RATINGS OF DEBT SECURITIES AND COMMERCIAL PAPER

DEBT SECURITIES RATINGS

MOODY'S INVESTORS SERVICES, INC. DESCRIBES THE GRADES OF CORPORATE DEBT
SECURITIES AS FOLLOWS:

Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.

Baa Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.

Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

STANDARD & POOR'S CORPORATION DESCRIBES THE GRADES OF CORPORATE DEBT
SECURITY AS FOLLOWS:

AAA Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. The capacity to pay interest and repay principal is
extremely strong.

AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.

A-1
<PAGE>

BB Standard & Poor's Corporation describes the BB and B rated issues
B together with issues rated CCC and CC. Debt in these categories is
regarded on balance as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such debt will likely
have some quality and protective characteristics these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

COMMERCIAL PAPER RATINGS

A Standard & Poor's Corporation Commercial Paper Rating is a current assess-
ment of the likelihood of timely payment of debt having an original maturity
of no more than 365 days.

A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated A-1.

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

A-2
<PAGE>

Issuers rated Prime-2 (or related supporting institutions) have a strong ca-
pacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser de-
gree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an accept-
able capacity for repayment of short-term promissory obligations. The effect
of industry characteristics and market composition may be more pronounced.
Variability in earning and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

A-3