NEW YORK LIFE MFA SERIES FUND INC, 485BPOS, 1996-04-22

NEW YORK LIFE MFA SERIES FUND INC
485BPOS, 1996-04-22

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<PAGE>

AS FILED WITH THE SECURITIES AND COMMISSION ON APRIL 18, 1996

REGISTRATION NO. 2-86082
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO. [_]

[X]
POST-EFFECTIVE AMENDMENT NO. 20

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[X]
AMENDMENT NO. 21

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

NEW YORK LIFE MFA SERIES FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

51 MADISON AVENUE, NEW YORK, NEW YORK 10010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER: (212) 576-7000

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

A. THOMAS SMITH III, ESQ.
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:

MICHAEL BERENSON, ESQ.

JORDEN BURT BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400 EAST
WASHINGTON, D.C. 20007

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:

[_] Immediately upon filing pursuant to paragraph (b) of Rule 485

[X] On May 1, 1996, pursuant to paragraph (b)(1)(v) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on (date) pursuant to paragraph (a)(2) of Rule 485

IF APPROPRIATE, CHECK THE FOLLOWING BOX:

[_] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.

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

PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HEREBY DECLARES THAT THE ISSUER HAS REGISTERED AN INDEFINITE NUMBER
OR AMOUNT OF SECURITIES UNDER THE SECURITIES ACT OF 1933. ON FEBRUARY 28,
1996, THE REGISTRANT SUBMITTED ITS RULE 24F-2 NOTICE FOR THE REGISTRANT'S MOST
RECENT FISCAL YEAR ON EDGAR.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

CROSS-REFERENCE SHEET

SHOWING LOCATION IN PROSPECTUS (PART A)
AND STATEMENT OF ADDITIONAL INFORMATION (PART B)
OF INFORMATION REQUIRED BY FORM N-1A

PART A

<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
1. Cover Page.................................. Cover Page
2. Synopsis.................................... Not Applicable
3. Condensed Financial Information............. Financial Highlights
4. General Description of Registrant........... The Fund and the Separate Accounts;
The Fund and the Variable Accounts;
Investment Objectives and Policies;
The Fund and its Management
5. Management of the Fund...................... The Fund and Its Management;
Custodian
6. Capital Stock and Other Securities.......... The Fund and Its Management;
Capital Stock; Taxes, Dividends and
Distributions; Other Information
7. Purchase of Securities Being Offered........ Purchase and Redemption of Shares
8. Redemption or Repurchase.................... Purchase and Redemption of Shares
9. Pending Legal Proceedings................... Not Applicable

PART B

<CAPTION>
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------- -------------------------------------------
<C> <S> <C>
10. Cover Page....................................... Cover Page
11. Table of Contents................................ Table of Contents
12. General Information and History.................. Not Applicable
13. Investment Objectives and Policies............... New York Life MFA Series Fund, Inc.;
Investment Policies
14. Management of the Registrant..................... Management of the Fund
15. Control Persons and Principal Holders of Management of the Fund; Purchase and
Securities...................................... Redemption of Shares; General Information
16. Investment Advisory and Other Services........... Management of the Portfolios; The Investment Advisers
17. Brokerage Allocation............................. Portfolio Brokerage
18. Capital Stock and Other Securities............... Purchase and Redemption of Shares; General Information
19. Purchase, Redemption and Pricing of Securities
Being Offered................................... Determination of Net Asset Value;
Purchase and Redemption of Shares
20. Tax Status....................................... Taxes
21. Underwriters..................................... Not Applicable
22. Calculation of Yield Quotations of Money Market
Funds............................................ Investment Performance Calculations
23. Financial Statements.............................. Financial Statements
</TABLE>
<PAGE>

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

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

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 ten
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 Universial 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 Capital Appreciation Portfolio, the Cash Management Portfolio, the
Government Portfolio, the High Yield Corporate Bond Portfolio, the
International Equity Portfolio, the Total Return Portfolio, the Value
Portfolio, the Bond Portfolio, the Growth Equity Portfolio and the Indexed
Equity Portfolio (hereinafter, collectively the "Portfolios" or individually a
"Portfolio").

MacKay-Shields Financial Corporation ("MacKay-Shields") serves as the
investment adviser for the Capital Appreciation, the Cash Management, the
Government, the High Yield Corporate Bond, the International Equity, the Total
Return and the Value Portfolios. New York Life Insurance Company ("New York
Life") serves as the investment adviser for the Bond and Growth Equity
Portfolios. Monitor Capital Advisers, Inc. ("Monitor") serves as the
investment adviser for the Indexed Equity Portfolio.

The 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 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
Cash Management 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 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 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 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 Investors Services, Inc. ("Moody's") or BBB to B
by Standard & Poors ("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 below. Capital appreciation
is a secondary objective which will be sought only when consistent with this
Portfolio's primary objective.

The 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. Foreign investing involves certain risks which
are discussed in greater detail below.

The 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 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 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 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 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 Indexed Equity Portfolio is neither sponsored by or 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 May 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) 576-7243 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 MAY 1, 1996
<PAGE>

NEW YORK LIFE MFA 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
Government Portfolio..................................................... 11
High Yield Corporate Bond Portfolio...................................... 12
International Equity Portfolio........................................... 14
Total Return Portfolio................................................... 16
Value Portfolio.......................................................... 17
Bond Portfolio........................................................... 18
Growth Equity Portfolio.................................................. 18
Indexed Equity Portfolio................................................. 19
Investment Practices Common to Two or More Portfolios.................... 20
Other Information........................................................ 32
THE FUND AND ITS MANAGEMENT................................................ 32
Investment Advisers...................................................... 32
Portfolio Managers....................................................... 33
Administrator............................................................ 35
Capital Stock............................................................ 36
PURCHASE AND REDEMPTION OF SHARES.......................................... 36
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 37
Taxes.................................................................... 37
Dividends and Distributions.............................................. 37
GENERAL INFORMATION........................................................ 38
Custodian................................................................ 38
Reports to Shareholders.................................................. 38
Other Information........................................................ 38
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 New York Life MFA 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 ten separate classes
of capital stock, each of which represents a separate portfolio of
investments--the Capital Appreciation Portfolio, the Cash Management
Portfolio, the Government Portfolio, the High Yield Corporate Bond Portfolio,
the International Equity Portfolio, the Total Return Portfolio, the Value
Portfolio, the Bond Portfolio, the Growth Equity Portfolio and the Indexed
Equity Portfolio. 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 appears 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.

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

*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.

4
<PAGE>

<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
CORPORATE EQUITY TOTAL RETURN VALUE
BOND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------- ------------------------------------------- -------------
MAY 1, 1995** MAY 1, 1995** FOR YEAR FOR YEAR JAN. 29, 1993** MAY 1, 1995**
TO TO ENDED ENDED TO TO
DEC. 31, 1995 DEC. 31, 1995 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1995
-------------- ------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 10.00 $ 10.00 $ 10.58 $ 11.32 $ 10.00 $ 10.00
------- ------- -------- -------- ------- -------
Net investment
income........... 0.37 0.64 0.31 0.27 0.16 0.10
Net realized and
unrealized gain
(loss) on
investments...... 0.61 0.01 2.69 (0.72) 1.34 1.58
Net realized and
unrealized gain
on foreign
currency
transactions..... -- 0.05 -- -- -- --
------- ------- -------- -------- ------- -------
Total from
investment
operations....... 0.98 0.70 3.00 (0.45) 1.50 1.68
------- ------- -------- -------- ------- -------
Less dividends
and
distributions:
From net
investment
income.......... (0.37) (0.06) (0.32) (0.29) (0.16) (0.10)
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) (0.50) (0.32) (0.29) (0.18) (0.10)
------- ------- -------- -------- ------- -------
NET ASSET VALUE
AT END OF
PERIOD........... $ 10.55 $ 10.20 $ 13.26 $ 10.58 $ 11.32 $ 11.58
======= ======= ======== ======== ======= =======
Total investment
return#.......... 10.06% 6.96% 28.33% (3.99)% 15.04% 16.76%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 10.02%* 1.07%* 3.06% 3.50% 3.48%* 2.57%*
Net expenses.... 0.67%* 0.97%* 0.69% 0.69% 0.69%* 0.73%*
Expenses (before
reimbursement).. 1.25%* 2.51%* 0.81% 0.88% 1.07%* 1.45%*
Portfolio
turnover rate.... 95% 14% 253% 297% 197% 20%
Net assets at end
of period
(in 000's)....... $43,314 $14,631 $194,893 $122,333 $55,548 $24,429
<CAPTION>
INDEXED EQUITY
PORTFOLIO
-------------------------------------------
FOR YEAR FOR YEAR JAN. 29, 1993**
ENDED ENDED TO
DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
------------- ------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 10.38 $ 10.58 $ 10.00
------------- ------------- ---------------
Net investment
income........... 0.27 0.24 0.19
Net realized and
unrealized gain
(loss) on
investments...... 3.55 (0.15) 0.67
Net realized and
unrealized gain
on foreign
currency
transactions..... -- -- --
------------- ------------- ---------------
Total from
investment
operations....... 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 and
foreign currency
transactions.... (0.39) (0.05) (0.08)
In excess of net
realized gain on
investments..... -- -- (0.01)
------------- ------------- ---------------
Total dividends
and
distributions.... (0.67) (0.29) (0.28)
------------- ------------- ---------------
NET ASSET VALUE
AT END OF
PERIOD........... $ 13.53 $ 10.38 $ 10.58
============= ============= ===============
Total investment
return#.......... 36.89% 0.76% 8.53%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment
income.......... 2.52% 2.61% 2.54%*
Net expenses.... 0.47% 0.47% 0.47%*
Expenses (before
reimbursement).. 0.62% 0.68% 0.96%*
Portfolio
turnover rate.... 5% 8% 7%
Net assets at end
of period
(in 000's)....... $105,171 $63,164 $43,081
</TABLE>
- ----

* Annualized.
**Commencement of operations.

5
<PAGE>

<TABLE>
<CAPTION>
BOND PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BE-
GINNING OF PERIOD....... $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99 $ 13.55 $ 12.21
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income... 0.88 0.88 0.95 0.92 1.02 1.12 1.11 1.20 1.06 1.04
Net realized and
unrealized gain (loss)
on investments.......... 1.33 (1.34) 0.53 0.13 0.91 (0.23) 0.30 (0.21) (0.91) 0.61
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. 2.21 (0.46) 1.48 1.05 1.93 0.89 1.41 0.99 0.15 1.65
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and dis-
tributions:
From net investment
income................. (0.88) (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18) (1.71) (0.20)
From net realized gain
on investments......... -- -- -- -- -- -- -- -- -- (0.11)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and dis-
tributions.............. (0.88) (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18) (1.71) (0.31)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END
OF PERIOD............... $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99 $ 13.55
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment re-
turn*................... 18.31% (3.39)% 11.40% 8.26% 16.27% 7.36% 11.95% 8.26% 1.07% 13.55%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment income.. 6.55% 6.53% 6.79% 7.54% 8.22% 8.88% 8.83% 8.66% 8.15% 7.98%
Net expenses........... 0.62% 0.62%# 0.27%# 0.25% 0.25% 0.25% 0.25% 0.26% 0.25% 0.26%
Expenses (before reim-
bursement)............. 0.91% 0.67%# 0.27%# 0.25% 0.25% 0.25% 0.25% 0.26% 0.25% 0.26%
Portfolio turnover
rate.................... 81% 88% 41% 10% 57% 81% 20% 105% 53% 68%
Net assets at end of pe-
riod (in 000's)......... $235,030 $206,686 $228,683 $203,947 $164,124 $138,826 $134,542 $122,725 $130,901 $132,942
</TABLE>
- ----

# At the MFA Series Fund, Inc.'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.

* 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.

6
<PAGE>

<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD..... $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87 $ 11.60
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income... 0.22 0.22 0.24 0.22 0.27 0.32 0.42 0.46 0.36 0.34
Net realized and
unrealized gain (loss)
on investments.......... 4.06 (0.03) 1.88 1.72 4.10 (1.20) 2.82 1.43 (0.49) 0.03
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. 4.28 0.19 2.12 1.94 4.37 (0.88) 3.24 1.89 (0.13) 0.37
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
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) (0.06)
From net realized gain
on investments......... (1.53) (0.92) (1.76) (1.76) (1.51) (0.01) (1.28) -- -- (0.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions........... (1.75) (1.14) (2.01) (1.98) (1.80) (0.34) (1.72) (0.41) (0.52) (0.10)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END
OF PERIOD............... $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment
return*................. 29.16% 1.20% 13.71% 12.42% 33.62% (6.19)% 25.51% 16.85% (1.13)% 3.21%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment income.. 1.29% 1.41% 1.42% 1.50% 1.78% 2.33% 2.80% 3.32% 2.71% 2.76%
Net expenses........... 0.62% 0.62%# 0.27%# 0.27% 0.29% 0.29% 0.28% 0.30% 0.26% 0.26%
Expenses (before
reimbursement)......... 0.91% 0.65%# 0.27%# 0.27% 0.29% 0.29% 0.28% 0.30% 0.26% 0.26%
Portfolio turnover
rate.................... 104% 108% 121% 82% 100% 114% 108% 111% 71% 43%
Net assets at end of
period (in 000's)....... $427,507 $330,161 $319,196 $272,834 $204,147 $152,824 $171,116 $150,538 $156,198 $122,100
</TABLE>
- ----

# At the MFA Series Fund Inc.'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.

<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 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, 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.

8
<PAGE>

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, such 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 21).

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 appears to
offer relatively greater appreciation potential or a relatively greater
anticipated

9
<PAGE>

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.

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

11
<PAGE>

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.

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 21). 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. 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 (see pages 24-28).

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

12
<PAGE>

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 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 75% of the value of the Portfolio's
net assets will be invested in corporate debt securities. For temporary
defensive purposes the Portfolio may invest more than 25% of its net 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). 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 21 ). 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 22). The value of all fixed-income securities, such
as those held by Portfolio, can be expected to change inversely with interest
rates. For

13
<PAGE>

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 29 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 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 in
"Investment Practices Common to Two or More Portfolios--Foreign Securities,"
at page 22 of this Prospectus.

The Portfolio pursues its objectives by investing its assets in a
diversified portfolio of common stocks, preferred stocks, warrants and
comparable equity securities. 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
"Investment Practices Common to Two or More Portfolios," at page 20 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

14
<PAGE>

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:

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
"Investment Practices Common to Two or More

15
<PAGE>

Portfolios," at page 20 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 "Investment Practices Common to Two or More Portfolios"
at page 20. MacKay-Shields believes that active currency management can
enhance portfolio returns through opportunities arising from interest rate
differentials between instruments 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

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<PAGE>

Securities," at page 29 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 21).

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 net
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 21).

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<PAGE>

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 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 29.) 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 31 and
"Foreign Securities" at page 22.) 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 31 and
"Foreign Securities" at page 22.)

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<PAGE>

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.

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 December 31, 1995, the five companies with the
largest weightings in the S&P 500 were: General Electric (2.6%), AT&T (2.1%),
Exxon Corporation (2.1%), Coca Cola Co. (2.1%), and Phillip Morris (1.7%).

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

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<PAGE>

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 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 (see pages 26-28).

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.

INVESTMENT PRACTICES COMMON TO TWO OR MORE PORTFOLIOS

As described below, each Portfolio, except the Cash Management, Bond and
Growth Equity Portfolios, for hedging and other appropriate risk management
purposes, may enter into contracts for the future delivery of securities
("futures contracts") or futures contracts based on appropriate securities
indexes. Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, may buy put and call options on individual securities, may sell
covered call and put options on individual securities (such as GNMA stand-by
commitments), may purchase put and call options on securities indexes, may
purchase and sell (write) options on futures contracts and may lend portfolio
securities if such loans are fully collateralized. Each Portfolio may engage
in arbitrage. In addition, each Portfolio may also

20
<PAGE>

buy securities on a "when-issued" basis, buy zero coupon bonds, invest in cash
equivalents and enter into repurchase agreements. Each Portfolio, except the
Government Portfolio, may, and the International Equity Portfolio will, invest
in foreign securities. Further, each Portfolio, except the Cash Management
Portfolio, Government Portfolio, Bond Portfolio and Growth Equity Portfolio,
may purchase and sell options on foreign currencies, enter into forward
foreign currency exchange contracts and currency futures contracts, and
purchase and sell options on such futures contracts, as discussed below.
Finally, the High Yield Corporate Bond, Total Return and Value Portfolios may
invest, to varying degrees, in debt securities that are rated below investment
grade.

Portfolio changes are made without regard to the length of time a security
has been held, subject to certain tax limitations, or whether a sale would
result in a profit or loss. Higher levels of portfolio activity may result in
higher transaction costs.

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.

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

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

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<PAGE>

determining the liquidity of all restricted securities to the Directors, who
will consider established factors in making such a determination.

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 31 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 Fund's Custodian will maintain
the custody of the purchased securities for the duration of the agreement. The
value of the purchased securities, including accrued interest, will at all
times exceed the value of the repurchase agreement. 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. 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.

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.
The proceeds 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 enters 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). 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.

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

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<PAGE>

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.

Foreign Currency Transactions

Each Portfolio, except the Cash Management and the Government Portfolios,
may, to the extent it invests in foreign securities, enter into forward
foreign currency exchange contracts in order to protect 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.

Each Portfolio, except the Cash Management and Government Portfolios, may
enter into contracts to purchase foreign currencies to protect against an
anticipated rise in the U.S. dollar price of securities it intends to
purchase. Each Portfolio, except the Cash Management and Government
Portfolios, may enter into contracts to sell foreign currencies to protect
against the decline in value of its foreign currency-denominated portfolio
securities due to a decline in the value of foreign currencies against the
U.S. dollar. The Portfolios may use one currency (or a basket of currencies)
to hedge against adverse changes in the value of another currency (or a basket
of currencies) when exchange rates between the two currencies are correlated.
Contracts to sell foreign currency could limit any potential gain which might
be realized by a Portfolio if the value of the hedge currency increases.

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.

Mortgage Pass-Through Securities

Each Portfolio, except the Indexed Equity Portfolio, may purchase mortgage
pass-through securities. Mortgage pass-through 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

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<PAGE>

mortgage pass-through 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.

Payment of principal and interest on some mortgage pass-through 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
guaranteed 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
purchase the agency's obligations). Mortgage pass-through 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.

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.

Other mortgaged-related and asset-backed securities include securities other
than those described above that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property, such as CMO residuals or stripped mortgaged-backed securities, and
may be structured in classes with rights to receive varying proportions of
principal and interest. Each Portfolio may invest in other asset-backed
securities that have been offered to investors. For a discussion of the
characteristics of some of these instruments, see the Statement of Additional
Information.

Options on Securities

Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, may 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. In
addition, the High Yield Corporate Bond and Value Portfolios may purchase puts
and calls, other than "protective puts," (as such term is defined below) with
a value of up to 5% of such Portfolio's respective assets.

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<PAGE>

Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, may sell (write) covered call options, however, the High Yield
Corporate Bond and Value Portfolios may write covered call options with
respect to no more than 25% of the value of their respective net assets. 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.

Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, also may sell covered put options, however, 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. 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 Portfolio covers 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 permit timely satisfaction
of the Portfolio's obligations as writer of the option, such as by depositing
in a segregated account liquid high-grade debt obligations, 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 securities transactions alone. Even
a Portfolio that is not designed to generate income might benefit from selling
covered options when MacKay-Shields or Monitor believes that little risk is
involved. However, a Portfolio may forego the benefits of appreciation on
securities sold pursuant to call options, or pay a higher price for securities
acquired pursuant to put options written by the Portfolio.

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 exchange for the
premium paid, to purchase a security at a specified price upon exercise of the
option during the option period. The Portfolio would ordinarily realize a gain
if the value of the securities increased during the option period above the
exercise price sufficiently to cover the premium. The Portfolio 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.

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 securities. 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 Portfolio
may include, but are not limited to, "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. The High Yield Corporate Bond and Value Portfolios may purchase
protective puts with a value of up to 25% of such Portfolios' respective net
assets. The Portfolio would ordinarily recognize a gain if the value of the
securities decreased during the option period below the exercise price
sufficiently 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.

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<PAGE>

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 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.

Futures Contracts and Options on Futures Contracts

The Government, High Yield Corporate Bond and Total Return Portfolios may
each enter into contracts for the future delivery of debt securities, and
index-based futures contracts for 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 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, the International Equity, the Total
Return, the Value, and the 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. The High

26
<PAGE>

Yield Corporate Bond Portfolio may enter into contracts for the future
delivery of debt securities, and index-based futures contracts that are
sufficiently correlated to its 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 this Portfolio's portfolio
(practices sometimes known as "hedging") and for other appropriate risk
management purposes. Such futures contracts would obligate the High Yield
Corporate Bond Portfolio to make or take delivery of certain debt securities
or an amount of cash upon expiration of the futures contract, although most
futures positions typically are closed out through an offsetting transaction
prior to expiration. 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.

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 changing and portfolio
values are rising, the purchase of futures contracts can secure 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 purchase of longer-
term securities to lengthen the average maturity or duration of a Portfolio's
portfolio. Similarly, a Portfolio can sell futures contracts on a specified
currency to protect against a decline in the value of such currency and its
portfolio securities which are denominated in such currency. 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.

Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, may purchase put and call options on futures contracts, 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. These
Portfolios also may write put and call options on futures contracts. A
Portfolio receives a premium in return for granting to the purchaser of the
option the right to sell to or buy from the Portfolio the underlying futures
contract for a specified price upon exercise at any time during the option
period. These Portfolios also may engage in related closing transactions with
respect to options on futures. 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

27
<PAGE>

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. 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 affecting 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.

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 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.

Options on Securities Indexes

The 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.

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<PAGE>

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.

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.

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 to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. 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. Certain inverse floaters may be
deemed to be illiquid securities for purposes of the Portfolios' limitation on
investments in such securities.

Risks of Investing in High Yield Securities

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 it 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 Insurance Company ("New York Life"). The High Yield Corporate
Bond Portfolio may, as previously described under "Investment Objectives and

29
<PAGE>

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 High Yield Corporate Bond, Total Return and Bond Portfolios.

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.

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.

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<PAGE>

Liquidity

In order to assure that each Portfolio of the Fund has sufficient liquidity,
as a matter of operating policy the Capital Appreciation, Government,
International Equity, Total Return and Indexed Equity Portfolios may not
invest more than 15% of their respective net assets in securities for which
market disposition is not readily available. 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 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.

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, Government,
High Yield Coporate 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
Directors of the Fund may exercise its fiduciary duties to vote on any
material questions brought before the shareholders or creditors.

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

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<PAGE>

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 Statement of Additional Information. Unless otherwise specified, the
policies and restrictions for each Portfolio are non-fundamental and may be
changed without shareholder approval.

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,
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 December 31, 1995, MacKay-Shields managed over $18.28
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 $74.3 billion as of December 31, 1995)
and in the general account and various separate accounts of NYLIAC (amounting
to $16.0 billion as of December 31, 1995).

The investment adviser to the Indexed Equity Portfolio is Monitor Capital
Advisers, Inc., 504 Carnegie Center, Princeton, NJ 08540. As of December 31,
1995, Monitor managed over $1.2 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:

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<PAGE>

<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C>
Capital Appreciation Portfolio................................. 36%
Cash Management Portfolio...................................... .25%
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>

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.

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

33
<PAGE>

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.

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.

THOMAS KOLEFAS (Value Portfolio)

Mr. Kolefas is a Director of MacKay-Shields. He specializes in equity
securities. Mr. Kolefas joined MacKay-Shields in 1991, after working as an
equity research analyst in the investment research department of the
investment sector of The Bank of New York (1987-1991).

DENIS LAPLAIGE (High Yield Corporate Bond Portfolio, Value Portfolios)

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.

34
<PAGE>

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.

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 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

35
<PAGE>

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.

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.

36
<PAGE>

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 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,
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.

37
<PAGE>

GENERAL INFORMATION

CUSTODIAN

For the Capital Appreciation Portfolio, the Cash Management 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.

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.

38
<PAGE>

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>
NEW YORK LIFE MFA SERIES FUND, INC. INVESTMENT POLICIES(8)................ 2
Fundamental Investment Policies Applicable to the Capital Appreciation,
Cash Management, Government, Total Return and Indexed Equity Portfolios
....................................................................... 2
Fundamental Investment Policies Applicable to the High Yield Corporate
Bond and Value Portfolios.............................................. 3
Fundamental Investment Policies Applicable to the International Equity
Portfolio.............................................................. 4
Fundamental Investment Policies Applicable to the Bond and Growth Equity
Portfolios............................................................. 5
Other Investment Policies With Respect to Certain Portfolios............ 7
Additional Investment Restrictions Applicable to Certain Portfolios..... 8
Other Investment Policies of the Bond and Growth Equity Portfolios...... 10
Other Investment Policies of the High Yield Corporate Bond Portfolio.... 11
Cash Management Portfolio............................................... 12
Investment Practices Common to Two or More Portfolios................... 14
Additional Investment Policies Applicable to the International Equity
Portfolio.............................................................. 37
State Insurance Law Requirements........................................ 39
Portfolio Turnover...................................................... 39
MANAGEMENT OF THE FUND(32)................................................ 40
Investment Advisers(32)................................................. 42
Administration Agreements............................................... 42
Portfolio Brokerage..................................................... 43
DETERMINATION OF NET ASSET VALUE.......................................... 44
How Portfolio Securities Will be Valued................................. 44
INVESTMENT PERFORMANCE CALCULATIONS....................................... 45
Cash Management Portfolio Yield......................................... 45
Government, High Yield Corporate Bond and Bond Portfolios............... 46
Total Return Calculations............................................... 46
PURCHASE AND REDEMPTION OF SHARES(36)..................................... 47
TAXES(37)................................................................. 48
GENERAL INFORMATION(38)................................................... 49
LEGAL COUNSEL............................................................. 50
FINANCIAL STATEMENTS...................................................... 50
</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 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
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:

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

A-2
<PAGE>

-- 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>

NEW YORK LIFE MFA SERIES FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

MAY 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 May 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>
NEW YORK LIFE MFA SERIES FUND, INC. INVESTMENT POLICIES (8)............ 2
Fundamental Investment Policies Applicable to the Capital
Appreciation, Cash Management, Government, Total Return and Indexed
Equity Portfolios................................................... 2
Fundamental Investment Policies Applicable to the High Yield
Corporate Bond and Value Portfolios................................. 3
Fundamental Investment Policies Applicable to the International
Equity Portfolio.................................................... 4
Fundamental Investment Policies Applicable to the Bond and Growth
Equity Portfolios................................................... 5
Other Investment Policies with Respect to Certain Portfolios......... 7
Additional Investment Restrictions Applicable to Certain Portfolios.. 8
Other Investment Policies of the Bond and Growth Equity Portfolios... 10
Other Investment Policies of the High Yield Corporate Bond
Portfolio........................................................... 11
Cash Management Portfolio............................................ 12
Investment Practices Common to Two or More Portfolios................ 14
Additional Investment Policies Applicable to the International Equity
Portfolio........................................................... 37
State Insurance Law Requirements..................................... 39
Portfolio Turnover................................................... 39
MANAGEMENT OF THE FUND (32)............................................ 40
Investment Advisers (32)............................................. 42
Administration Agreements............................................ 42
Portfolio Brokerage.................................................. 43
DETERMINATION OF NET ASSET VALUE....................................... 44
How Portfolio Securities Will Be Valued.............................. 44
INVESTMENT PERFORMANCE CALCULATIONS.................................... 45
Cash Management Portfolio Yield...................................... 45
Government, High Yield Corporate Bond and Bond Portfolios............ 46
Total Return Calculations............................................ 46
PURCHASE AND REDEMPTION OF SHARES (36)................................. 47
TAXES (37)............................................................. 48
GENERAL INFORMATION (38)............................................... 49
LEGAL COUNSEL.......................................................... 50
FINANCIAL STATEMENTS................................................... 50
</TABLE>
- ----------------
/1/Numbers in parentheses refer to page numbers of corresponding sections of
the Fund's current Prospectus.
<PAGE>

NEW YORK LIFE MFA 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 CAPITAL APPRECIATION, CASH
MANAGEMENT, GOVERNMENT, TOTAL RETURN AND INDEXED EQUITY PORTFOLIOS

The investment objectives and investment restrictions set forth below apply
to the Capital Appreciation, Cash Management, Government, Total Return, and
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
Portfolio, except that this restriction does not apply to U.S.
Government securities;

(3) borrow money (except from banks on a temporary basis for extraordinary
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 immediately after each borrowing there is asset coverage of 300%,
(ii) enter into transactions 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 respect to initial or
variation margin deposits for futures contracts and related options
contracts will not be deemed to be pledges of a Portfolio's assets),
and(iii) to secure permitted borrowings, pledge securities 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
invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that there
is no limitation in respect to investments in U.S. Government
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 companies are considered to be a

2
<PAGE>

separate industry from gas or electric utilities, and wholly-owned
finance companies are considered to be in the industry 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),
interests in oil, gas or mineral leases, commodities or commodity
contracts (other than securities of companies that invest in or sponsor
those programs and except futures contracts, including but not limited
to contracts for the future delivery of securities and futures
contracts based on securities indexes or related options thereon), each
Portfolio 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 investments in a prohibited commodity or
commodity contract for the purpose of this restriction; or

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

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE HIGH YIELD CORPORATE BOND
AND VALUE PORTFOLIOS

The investment restrictions set forth below apply to the High Yield
Corporate Bond and Value 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.

Neither Portfolio will:

(1) invest more than 5% of the value of its total assets in the securities
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 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 a Portfolio's
investment objectives and policies directly from the issuer thereof and
the later disposition thereof may be deemed to be underwriting;

3
<PAGE>

(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 limitation in respect to investments in U.S. Government
securities (for the purposes of this restriction, telephone companies
are considered to be a separate industry from gas or electric
utilities, and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related
to financing the activities of the parents) except that up to 40% of
the High Yield Corporate Bond Fund's total assets, taken at market
value, may be invested in each of the electric utility and telephone
industries, but it 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).

(6) issue senior securities, except as appropriate to evidence indebtedness
that a Portfolio is permitted to incur and except for shares of
existing 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),
interests 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 indexes 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.

"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 INTERNATIONAL EQUITY
PORTFOLIO

The investment restrictions set forth below apply to the International
Equity Portfolio and are fundamental investment policies; i.e., they may not
be changed with respect to this Portfolio without a majority vote of the
outstanding 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
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (or repurchase agreements with respect thereto);

4
<PAGE>

(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
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;

(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 partnership
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
securities 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 forward 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 securities 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
hypothecate 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 transactions 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 respect to initial or
variation margin deposits for futures contracts and related 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,
consistent with its investment objective and policies: (i) invest in
debt obligations including bonds, debentures or other debt securities,
bankers' acceptances and commercial paper, even though the purchase of
such obligations may be deemed to be the making of loans; (ii) enter
into repurchase agreements; and (iii) lend its portfolio securities in
accordance with applicable 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.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE BOND AND 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 senior
securities, except that any Portfolio may (a) borrow up to 5% of the
value of its total assets from

5
<PAGE>

banks for extraordinary or emergency purposes (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 extent permitted by applicable law, the
Portfolios may enter into such agreements.

(2) lend money, except that a Portfolio may purchase privately placed
bonds, notes, debentures or other obligations customarily purchased by
institutional 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 obligations 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 Portfolio'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
purposes of the Securities Act of 1933 when selling securities acquired
pursuant 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, together 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
companies principally engaged in any one industry except that this
restriction does not apply to securities issued or guaranteed by the
United States government, its agencies and instrumentalities. Neither
utilities nor energy companies are considered to be a single industry
for purposes of this restriction. Instead, they will be divided
according to their services. For example, gas, electric and telephone
utilities will each be considered a separate industry.

(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
pass-through certificates in accordance with their investment
objectives and policies.

6
<PAGE>

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

OTHER INVESTMENT POLICIES WITH RESPECT TO CERTAIN PORTFOLIOS

In addition to the fundamental investment policies described above, the Fund
has also adopted the following investment policies for the Capital
Appreciation, Cash Management, Government, Total Return and Indexed Equity
Portfolios which, unlike those described above, may be changed without
shareholder approval.

None of the designated Portfolios will:

(1) 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, except that a Portfolio may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities and in connection with transactions involving forward
foreign currency exchange contracts, options, futures and options on
futures;

(2) purchase or sell any put or call options, straddles, spreads or any
combination thereof, except that a Portfolio may: (i) purchase and sell
or write (a) options on any futures contracts into which it may enter,
and (b) put and call options on currencies, securities indexes and
covered put and call options on securities; and (ii) engage in closing
purchase transactions with respect to any put and call option position
it has entered into; provided, however, that 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.

(3) purchase from or sell portfolio securities of a 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
advisers or principal underwriter;

(4) enter into repurchase agreements or purchase any illiquid securities
if, as a result thereof, more than 15% of the total assets of a
Portfolio (10% with respect to the Cash Management Portfolio) taken at
market value would be, in the aggregate, invested in repurchase
agreements maturing in more than seven days and illiquid 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

(5) invest assets in securities of other open-end investment companies
(except in connection with a merger, consolidation, reorganization or
acquisition of assets), but, to the extent permitted by the Investment
Company 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

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<PAGE>

company (foreign banks or their agencies or subsidiaries and foreign
insurance companies are not considered investment companies for the
purposes of this limitation).

ADDITIONAL INVESTMENT RESTRICTIONS APPLICABLE TO CERTAIN PORTFOLIOS

In addition to the fundamental investment policies set forth above, neither
the High Yield Corporate Bond Portfolio nor the Value Portfolio will:

(1) purchase securities of any issuer with a record of less than three
years' continuous operation, including predecessors, except obligations
issued or guaranteed by the 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;

(2) 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
advisers or principal underwriter;

(3) invest more than 10% of the assets of such Portfolio (taken at market
value at the time of the investment) in "illiquid securities," illiquid
securities being defined to include securities 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), repurchase agreements maturing in more than seven days, certain
options traded over the counter that such Portfolio has written,
securities for which market quotations are not available, or other
securities which legally or in the opinion of MacKay-Shields Financial
Corporation ("MacKay-Shields") are deemed illiquid;

(4) invest assets in securities of other open-end investment companies, but
a Portfolio may, to the extent permitted by the 1940 Act, (i) invest in
shares of the Cash Management Portfolio if double advisory fees are not
assessed, (ii) invest up to 5% of its assets in closed-end investment
companies (which would cause a Portfolio to pay duplicate fees), and
(iii) purchase or acquire up to 10% of the outstanding voting stock of
a closed-end investment company (foreign banks or their agencies or
subsidiaries are not considered investment companies for the purposes
of this limitation);

(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 invested 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 warrants 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,
directors, 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

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<PAGE>

than one-half of one percent ( 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 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, except that the
Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities and in connection with
transactions involving forward foreign currency exchange contracts; or

(9) purchase or sell any put or call options or any combination thereof,
except that the Fund 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
securities, and (iii) may also engage in closing purchase transactions
with respect to any put and call option position it has entered into.

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,
individually 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;

(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
registered under the Securities Act of 1933, as amended ("restricted
securities") other than Rule 144A securities determined to be liquid
pursuant to guidelines adopted by the Company's Board of Directors,
(ii) enter into repurchase agreements having a duration of more than
seven days, (iii) purchase loan participation interests that are not
subject to puts, (iv) purchase 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 restricted securities, repurchase
agreements having a duration of more than seven days, loan
participation interests that are not subject to puts, illiquid
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 connection
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 commission that may result from such
purchase); provided, however, that foreign banks or their agencies or
subsidiaries and foreign insurance companies are

9
<PAGE>

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 securities on margin;

(8) purchase warrants, valued at the lower of cost or market, in excess of
10% 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
Portfolio'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.

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
described 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
acquires 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
development 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.

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<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
issuer, 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
Portfolio'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
decreases. Moreover, the value of the debt securities that the Portfolio
purchases 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
securities 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 reflected in the net asset value of the Portfolio's shares.

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
Administration ("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
certificates differ from bonds in that principal is paid back monthly by the
borrower over the term of the loan rather than returned in a lump sum at
maturity. GNMA certificates are called "pass-through" securities because both
interest 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

11
<PAGE>

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 ultimate 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
issuance 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 aggregate, or the Portfolio would hold more than 3% of any
outstanding issue of CMOs.

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
instrumentality. 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
market, the depth and liquidity of which will vary from issue to issue and
from time to time.

CASH MANAGEMENT PORTFOLIO

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<PAGE>

investment in a fund which invests only in debt obligations of U.S. domestic
issuers. Such risks may include future 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 possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which
might adversely affect the payment of the principal of and interest on
securities in the Portfolio.

All of the assets of the Portfolio will be invested in obligations which
mature 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
dollar-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
invests 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
recognized 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
obligations 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 invest in money market instruments that are in the second-
highest rating category 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
highest 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 except 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
issuer that are in the second-highest rating category, except that this
limitation shall not apply to U.S. Government securities. In the event that an
instrument acquired by the Portfolio is downgraded or otherwise ceases to be
of the quality that is eligible for the Portfolio, MacKay-Shields, under
procedures 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
business days) shall promptly reassess whether such security presents minimal
credit risk and determine whether or not to retain the instrument.

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<PAGE>

Pursuant to the rule, the Portfolio uses the amortized cost method of
valuing 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 discount 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
securities 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
deviation 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 investors 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 (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

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<PAGE>

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 respect 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
repurchase 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
bankruptcy 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 perfected 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 transaction. 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 insolvency proceedings, there is also the risk that the seller
may fail to repurchase 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 deliver additional securities so that the market
value of all securities subject to the repurchase agreement equals or exceeds
the repurchase price.

REVERSE REPURCHASE AGREEMENTS

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<PAGE>

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.

LENDING OF PORTFOLIO SECURITIES

Each Portfolio, except the Cash Management Portfolio, may 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 would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government or other high quality debt securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. A Portfolio would have the right to call a loan and obtain the
securities loaned at any time on five days' notice. 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 collateral. 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 material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery of,
or even loss of rights in, the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Adviser determines to make
securities loans, it is intended that the value of the securities loaned (i)
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, (ii) would
not exceed 30% of the value of the total assets of the lending Portfolio if
the loan is from the Capital Appreciation, Government, High Yield Corporate
Bond, Total Return, Value or Indexed Equity Portfolios, and (iii) would not
exceed 20% of the total assets of the lending Portfolio if such Portfolio is
the Bond or Growth Equity Portfolio.

BORROWING

A Portfolio may borrow from a bank, but only for temporary or emergency
purposes. 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
investment company for Federal tax purposes. To avoid the potential leveraging
effects 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
securities. Money borrowed will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased. A Portfolio 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 credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.

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<PAGE>

FOREIGN SECURITIES

Except for the Government Portfolio, each Portfolio may invest, without
limit, 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
investments), and in certificates of deposit issued by foreign banks and
foreign branches of United States banks, to any extent deemed appropriate by
the Adviser. The Bond and Growth Equity Portfolios may purchase foreign
securities up to a maximum of 10% of the Portfolio's total assets. 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 valuation, the Cash
Management Portfolio is restricted to purchasing U.S. dollar-denominated
securities, but it is not otherwise precluded from purchasing securities of
foreign issuers.

Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and lower
liquidity, the possible imposition of withholding or confiscatory taxes, the
possible adoption of foreign governmental restrictions affecting the payment
of principal and interest, changes in currency exchange rates and currency
exchange control regulations, expropriation, or other adverse political or
economic developments. In addition, it may be more difficult to obtain and
enforce 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
regulations 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
uncertainty in the level of future foreign currency exchange rates. It is not
expected that the Indexed Equity Portfolio will engage in any foreign currency
transactions. A Portfolio will conduct its foreign currency exchange
transactions 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 market 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.

Normally, consideration of the prospect for currency parities will be
incorporated in a longer term investment decision made with regard to overall
diversification 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

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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 transaction, a Portfolio will be able to insulate
itself from a possible loss resulting 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 "settlement 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
portfolio securities denominated in such foreign currency. Such a hedge
(sometimes referred to as a "position hedge") will tend to offset both
positive and negative 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 sufficiently correlated ("proxy hedge"). The precise matching
of the forward contract 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 consummation of such contracts would obligate a Portfolio to
deliver an amount of foreign 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
investment exposure from one currency into another currency that is expected
to perform 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
purchased, much as if a Portfolio had sold a security denominated in one
currency and purchased an equivalent security denominated in another. Cross-
hedges protect 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 currency it purchases.

At the consummation of the forward contract, a Portfolio may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing 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 currency 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

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<PAGE>

gain or a loss to the extent that there has been a change in forward contract
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
transactions 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 generally 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
substantial 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
commitments with respect to such contracts.

It should be realized that this method of protecting the value of a
Portfolio's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply 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
requirements of Subchapter M of the Code for qualification as a regulated
investment company.

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
securities, which may be expressed in yield terms, is fixed at the time a
commitment 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 settlement, 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 income; 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 acquiring them unless a sale appears desirable for investment
reasons.

At the time the Fund makes the commitment on behalf of a Portfolio to
purchase 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
Portfolio'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 Directors do not believe that a Portfolio's net asset value or income will

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be exposed to additional risk by the purchase of securities on a when-issued
basis. 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.

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
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations (see "Mortgage
Pass-Through Securities," at page ). The Portfolios may also invest in debt
securities which are secured with collateral consisting of mortgage-related
securities (see "Collateralized Mortgage Obligations," at page ), and in
other types of mortgage-related securities. The International Equity Portfolio
will not purchase mortgage-related securities or any other assets which in the
opinion of MacKay-Shields are illiquid, if, as a result, more than 15% of the
value of this Portfolio's assets will be illiquid.

MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment 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 issuer or guarantor of such securities. Additional payments are caused
by repayments of principal resulting from the sale of the underlying
residential property, 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" securities. These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.

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,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
Veterans 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
Development. FNMA purchases conventional (i.e., not insured or guaranteed by
any government 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
mortgage bankers.

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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
Certificates ("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
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental insurers generally offer a higher rate
of interest than government and government-related pools because there are no
direct 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-
related security meets a Portfolio's investment quality standards. There can
be no assurance that the private insurers, or guarantors can meet their
obligations 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
determines 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 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
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is
first returned to investors holding the shortest maturity class. Investors
holding the longer maturity class receive principal only after the first call
has been retired. An investor is partially

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guarded against a sooner than desired return of principal because of the
sequential payments.

In a typical CMO transaction, a corporation ("issuer") issues multiple
series (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
("Collateral"). 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 (primarily 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
mandatory 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
individual 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 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
represent 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, partnerships, trusts and special purpose entities of the foregoing.

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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
mortgage assets. In particular, the yield to maturity on CMO residuals is
extremely 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 series 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 investment 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
after 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.

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
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.

SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. 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 underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on a Portfolio's yield to maturity
from

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<PAGE>

these securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Portfolio may fail to fully recoup its
initial investment 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
several 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
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile Receivables
SM ("CARS SM"). 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 CARS SM are passed-through monthly to
certificate holders, and are guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. An investor's return
on CARS SM may be affected by early prepayment of principal on the underlying
vehicles' 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
vehicles 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, certificate 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

WRITING CALL OPTIONS. Any Portfolio, except the Cash Management, Bond or
Growth Equity Portfolios, may sell ("write") covered call options on the
portfolio securities of such Portfolio in an attempt to enhance investment
performance; however the High Yield Corporate Bond and Value Portfolios may
write covered call options 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. 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 difference is maintained by a Portfolio in cash or high grade
liquid debt securities in a segregated account with its custodian.

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<PAGE>

A Portfolio will write covered call options both to reduce the risks
associated 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 profit. 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 proceeds 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 securities 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
appreciation by buying an identical option, in which case the purchase cost
may offset 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 market 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 appreciation 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
securities exchange (an "Exchange") which provides a secondary market for an
option 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
secondary 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.

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
writing of options on U.S. Government securities.

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<PAGE>

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
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 "covered" if a Portfolio holds on a share-for-share basis a
put on the same security 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 exercise 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
reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to such market price, the
historical 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
being exercised. The Portfolios also may effect a closing purchase
transaction, in the case of a put option, to permit the Portfolios to maintain
their holdings 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 obligations to make other investments.

If a Portfolio is able to enter into a closing purchase transaction, a
Portfolio will realize a profit or loss from such transaction if the cost of
such transaction is less or more than the 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
covered 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 limitation in the writing of options on U.S. Government securities.

PURCHASING OPTIONS. Each Portfolio, except the Cash Management, Bond or
Growth Equity Portfolios, may purchase put or call options which are traded on
an Exchange or in the over-the-counter market. In addition, the High Yield
Corporate Bond and Value Portfolios may purchase puts and calls, other than
"protective puts" in which the security to be sold is identical 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 High Yield Corporate Bond
and Value Portfolios may each purchase protective puts (in which the security
to be sold is identical or substantially identical

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to a security already held by the Portfolio or to a security which the
Portfolio has the right to purchase) with a value of up to 25% of such
Portfolio's 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
holdings in an underlying or related security against a substantial decline in
market value. Securities are considered related if their price movements
generally 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
securities. 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.

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
continue in the United States or abroad.

If a put or call option purchased by a Portfolio is not sold when it has
remaining 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
investment 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
option 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 assets.

OPTIONS ON FOREIGN CURRENCIES. Each Portfolio, except the 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 similar 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 securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of portfolio securities, 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

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<PAGE>

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 securities 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
purposes. 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
anticipated 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 currency option will constitute only a partial hedge up to the amount
of the premium, and only if rates move in the expected direction. If
unanticipated exchange 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 favorable 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
securities 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 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.

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<PAGE>

FUTURES TRANSACTIONS

The 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, High Yield Corporate Bond,
International Equity, Value and Indexed Equity Portfolios may purchase and
sell stock index futures to hedge the equity portion of those Portfolio's
securities portfolios with regard 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 appropriate, in order to hedge the equity or non-
equity portions of their portfolios. 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 hedge against changes in currency exchange
rates. Each of the Portfolios, except 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 transactions. 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 Trading Commission ("CFTC"). Subject to applicable CFTC
rules, the Portfolios also may enter into futures contracts traded on the
following foreign futures exchanges: Frankfurt, Tokyo, London and Paris, as
long as trading on the aforesaid 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
certificates of deposit, major foreign currencies, a municipal bond index and
various stock indexes.

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
contract. 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
termination 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

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<PAGE>

valued daily at the official settlement 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." Variation margin does not represent a borrowing
or loan by a Portfolio but is instead 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.

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
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, a
Portfolio 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 between the clearing members of an exchange, the sale and purchase
obligations will be performed with regard to all positions that remain open at
the termination of the contract.

FUTURES ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. By purchasing
futures on debt securities--assuming a "long" position--a Portfolio will
legally obligate itself to accept the future delivery of the underlying
security and pay 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 positions 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
certainly than would otherwise be possible, the effective rate of return on
portfolio 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 securities. 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

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<PAGE>

reduction in yield), the increased cost to a Portfolio of purchasing 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 securities
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
technique, given the greater liquidity in the futures market than in the cash
market, it may be possible to accomplish the same result more easily and more
quickly.

SECURITIES INDEX FUTURES. A securities index futures contract does not
require the physical delivery of securities, but merely provides for profits
and losses resulting from changes in the market value of the contract to be
credited 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 equity 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 against an overall decline in the market for
securities. Alternatively, in anticipation 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
obligation 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 purchaser, 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
denominated 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 contracts specify actual delivery or receipt, in most instances the
contracts are closed out before the

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<PAGE>

settlement date without the making or taking of delivery of the currency.
Closing out of a currency futures contract is effected by entering 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 contract. 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
position may correlate imperfectly with changes in the cash prices of a
Portfolio'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. Another 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
management purposes, the Portfolios, except the Bond and Growth Equity
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
purchaser the right, in return for the premium paid, to purchase a futures
contract (assume a "long" position) at a specified exercise price at any time
before the option expires. A "put" option gives the purchaser the right, in
return for the premium paid, to sell a futures contract (assume a "short"
position), for a specified 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
(deliver 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 account. However, as with the trading of futures, most participants in
the options 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
substantially the same risks and for the same duration and risk management
purposes as might be addressed or

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<PAGE>

served by the direct purchase or sale of the underlying futures contracts. If
a Portfolio purchases an option on a futures contract, 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
securities 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
maturity 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
securities 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
underlying futures contract comparable to that involved in holding a futures
position. 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 amount of the premium it has received, but which
may partially offset favorable 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
purchase 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
Portfolio 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 market.

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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
positions 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
unacceptable 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
assets. 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
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, are equal to
the market value of the futures contract. Alternatively, a Portfolio may
"cover" its position 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
custodian (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 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 assets 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
total market value of the futures contract underlying the call option.
Alternatively, 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 option 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

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<PAGE>

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
limited 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 alternative 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. dollar-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. "Underlying 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
options 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
guarantee 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 depends 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
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, 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-
conceived 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
establishes 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
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.

35
<PAGE>

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
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue 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
specified 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
securities 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 indexes are currently traded on the following exchanges, among
others: The Chicago Board Options Exchange, New York Stock Exchange, and
American Stock Exchange. 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.

The effectiveness of hedging through the purchase of securities index
options 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
securities held or to be acquired by a Portfolio will not exactly match the
securities 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.

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 sale where, at the time of the short sale,
the Portfolio has the right to obtain securities equivalent in kind and
amount. The Capital Appreciation, Government, High-Yield Corporate Bond,
International Equity and Value Portfolios may enter into such a transaction
for, among

36
<PAGE>

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.

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.

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
Portfolio had invested directly in an instrument that yielded that desired
return or for other portfolio management purposes. Swap agreements are two
party contracts 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

37
<PAGE>

fall below a specified level, or "floor" and (iii) interest rate collars,
under which a party sells a cap and purchases a floor or vice versa in an
attempt to protect itself against interest rate movements exceeding given
minimum 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
Portfolio'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 obligations, 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
furthering its investment objective will depend on the Adviser's ability
correctly to predict whether certain types 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 consideration as repurchase
agreement counterparties under the Portfolio's repurchase agreement
guidelines. Certain restrictions imposed on the Portfolios by the Internal
Revenue Code may limit the Portfolio's ability to use swap agreements. The
swaps market is a relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect the Portfolio's ability to terminate
existing swap agreements or to realize amounts to be received under such
agreements.

Certain swap agreements are exempt from most provisions of the Commodity
Exchange 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,
partnership, 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 standardized as to their material economic terms. Second, the
creditworthiness of parties 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

38
<PAGE>

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
separate accounts in mutual funds, which are the investments contractually
permitted 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
invest such assets prudently. Subject to the direction of the Directors, the
Advisers will make investments satisfying this requirement for each Portfolio.
In addition, the Fund will comply with restrictions contained in any other
insurance laws in order that the assets of NYLIAC's separate accounts may be
invested 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,
including options, with maturities or expiration dates at the time of
acquisition of one year or less). A high rate of portfolio turnover generally
involves correspondingly 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 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, 80.86%, 88.32% and 41.24%, respectively;
and Growth Equity Portfolio, 104.07%, 108.21% and 120.62%, respectively. For
the years ended December 31, 1995, December 31, 1994 and the period January
29, 1993 (Commencement of Operations) through December 31, 1993, the rate of
portfolio turnover for the following Portfolios was as follows: the Capital
Appreciation Portfolio, 34.83%, 38.84% and 28.46% (unannualized),
respectively; the Government Portfolio, 591.59%, 483.06% and 501.34%
(unannualized), respectively; the Total Return Portfolio, 253.00%, 297.16% and
196.69% (unannualized), respectively; and the Indexed Equity Portfolio, 4.99%,
8.30% and 6.96% (unannualized), respectively. With respect to the Cash
Management Portfolio, for 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

39
<PAGE>

unannualized rates of portfolio turnover for the High Yield Corporate Bond,
International Equity and Value Portfolios was as follows: 94.98%, 13.65%, and
19.75%, respectively. A turnover rate in excess of 100% is likely to result in
a Portfolio's bearing higher brokerage costs.

MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------

The directors and executive officers of the Fund and their principal
occupations 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 Director
of O'Brien Asset Management, Inc.,
from August 1993 to date, Executive
Vice President of The Mutual Life
Insurance Company of New York ("MONY")
from May 1989 to April 1992. Mr. Drabb
is also a Director of the following
Corporations; MONY Series Fund,
Webcraft Technologies, Inc., and J.P.
Food Services, Inc.
Jill Feinberg........... 41 Director Consultant, Jill Feinberg & Company
from 1989 to date.
Daniel Herrick.......... 75 Director Treasurer and Senior Executive,
National Gallery of Art, Washington,
D.C. from December 1985 to June 1995.
Richard M. Kernan, Jr.* 55 Chairman of the Board, Executive Vice President in charge of
Chief Executive Officer the Investment Department of New York
and Director Life Insurance Company from March 1991
to date; Senior Vice President in
charge of the Investment Department
prior thereto.
Anne F. Pollack*........ 40 President, Chief Senior Vice President of New York Life
Administrative Officer Insurance Company from March 1992 to
and Director date; Vice President from February
1988 to March 1992.
Robert D. Rock*......... 41 Vice President and Senior Vice President in charge of the
Director 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 Accounting,
Graduate School of Business,
University of Chicago, from September
1976 to present, Visiting Professor of
Law, Stanford University Law School,
from September 1990 to date.
</TABLE>

40
<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
Insurance 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
President 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
persons of the Fund within the meaning of the 1940 Act because of their
affiliation 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
directors' 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 director, officer or employee of New York Life is entitled to any
compensation from the Fund for services to the Fund. The following
Compensation Table reflects all compensation paid by the Fund for the fiscal
year ended December 31, 1995, 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............... $22,000 $ 0 $ 0 $22,000
Jill Feinberg,
Director............... 15,750 0 0 15,750
Daniel Herrick,
Director............... 22,000 0 0 22,000
Richard M. Kernan, Jr.,
Director............... 0 0 0 0
James Quigg Newton, Jr.
(Director,
Retired 2/20/95)....... 6,250 0 0 6,250
Anne F. Pollack,
Director............... 0 0 0 0
Robert D. Rock,
Director............... 0 0 0 0
Roman L. Weil,
Director............... 22,000 0 0 22,000
-------
TOTAL................. $88,000
=======
</TABLE>

41
<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, and the Investment Advisory Agreement,
dated December 15, 1995, for the Indexed Equity Portfolio, and the Investment
Advisory Agreements for the High Yield Corporate Bond, International Equity
and Value Portfolios, dated February 22, 1995, 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,
retention, 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
following 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 either case, by a majority of the Directors who are not parties to the
Investment Advisory Agreements or interested persons of any such party.

The Advisers have each authorized any of their 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 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
Portfolios 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
advisability of investing in the Indexed Equity Portfolio.

ADMINISTRATION AGREEMENTS

42
<PAGE>

In connection with its administration of the business 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
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 Fund.

The Fund will bear its allocable portion (currently 70%) of the Owner
servicing expenses paid to Fleet Administrative Services. NYLIAC has agreed to
limit the "Other Expenses" of each of the Portfolios to .17% annually through
December 31, 1996.

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
intermediate and long term debt securities may be purchased at a fixed price
including an amount of compensation to the underwriter. From time to time,
NYLIFE Securities, Inc. may execute transactions in equity securities on
behalf of the Portfolios. Such commissions may be charged against all
Portfolios, 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
Adviser 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
capabilities 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.

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.

43
<PAGE>

DETERMINATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------

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
Exchange 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
exchange, including the National Association of Securities Dealers National
Market System and foreign securities exchanges, (c) by appraising over-the-
counter common and preferred stocks 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 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
representative of market values at the 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 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,
securities listed or traded on certain foreign exchanges whose operations are
similar 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
representative of market values, but excluding money market instruments with a
remaining maturity of 60 days or less and including restricted securities and
securities for which no market quotation is available, at fair value in
accordance 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 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.

44
<PAGE>

Portfolio securities traded on more than one U.S. national securities
exchange 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 accordance with policies established by the Board of Directors. The Fund
recognizes 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
business 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 securities used in such calculation. Events affecting the values of
portfolio securities 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' calculation 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
realized 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.

45
<PAGE>

or rates of return. 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 December 31, 1995, the Cash Management
Portfolio yield was 5.20%, and the effective yield was 5.34%.

GOVERNMENT, HIGH YIELD CORPORATE BOND AND BOND PORTFOLIO YIELD

The Fund may from time to time disclose the current annualized yield of the
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 dividing 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
established 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 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 representation of future
yields or rates of return. Each of the 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 Portfolio, and its operating
expenses.

TOTAL RETURN CALCULATIONS

The Fund may from time to time also disclose average annual total returns
for the Capital Appreciation, Government, High Yield Corporate Bond,
International Equity, Total Return, Value, Bond, Growth Equity and Indexed
Equity Portfolios for various periods of time. Average annual total return
quotations are computed by finding the average annual

46
<PAGE>

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 por-
tion thereof).

All recurring fees that are charged to all shareholder accounts are
recognized in the ending redeemable value. The average annual total return
calculations for the Portfolio will not reflect the effect of charges that may
be applicable to a particular Policy.

For the one, five and ten year periods ending December 31, 1995, the average
annual total returns for the Bond Portfolio were 18.31%, 9.89% and 9.12%,
respectively.

For the one, five and ten year periods ending December 31, 1995, the average
annual total returns for the Growth Equity Portfolio were 29.16%, 17.43% and
12.10%, respectively.

For the one year period ending December 31, 1995, the average annual total
returns for the Capital Appreciation, Cash Management, Government, Total
Return and Indexed Equity Portfolios were 35.78%, 5.59%, 16.72%, 28.33% and
36.89%, respectively. For the period beginning January 29, 1993 (inception
date) through December 31, 1995, the average annual total returns
(unannualized) for the Capital Appreciation, Cash Management, Government,
Total Return and Indexed Equity Portfolios were 16.60%, 3.97%, 6.76%, 12.70%
and 14.83%, respectively. For the period beginning May 1, 1995 (inception
date) through December 31, 1995, the average annual total returns
(unannualized) for the High Yield Corporate Bond, International Equity and
Value Portfolios were 10.06%, 6.96% and 16.76%, 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 variable annuity contracts. Due, however, to
differences in tax treatment or other considerations, it is theoretically
possible that the interests of owners of various contracts participating in
the Fund might at some time be in conflict. However, the Board of Directors
and insurance companies whose separate 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 action, if any, should be taken in the event of
such a conflict. If such a conflict were to occur, one or

47
<PAGE>

more insurance company separate accounts might withdraw their investment in
the Fund. This might force the Fund to sell securities 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
determined after the receipt of proper notice of redemption.

The right to redeem shares or to receive payment with respect to any
redemption 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 during 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 Portfolio 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
Advisers. 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 Portfolio invests at the same time as a Portfolio, available
investments or opportunities for sales will be allocated equitably to each. In
some cases, this procedure may adversely affect the size of the position
obtained for or disposed 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
investment company" under the provisions of Subchapter M of the Internal
Revenue Code of 1986 (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.

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
securities, and gains (without deduction for losses) from the sale or other
disposition 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.

The discussion of "Taxes" in the Prospectus, in conjunction with the
foregoing, is a general summary of applicable provisions of the Code and U.S.
Treasury Regulations now in effect as currently interpreted by the courts and
the Internal Revenue Service. The Code and these Regulations, as well as the
current interpretations thereof, may be changed at any time by legislative,
judicial or administrative action.

48
<PAGE>

GENERAL INFORMATION
- -------------------------------------------------------------------------------

The Fund was incorporated under Maryland law on June 3, 1983. 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 ten
classes as set forth below:

<TABLE>
<CAPTION>
NAME SHARES
---- -----------
<S> <C>
Capital Appreciation Portfolio..................................... 50,000,000
Cash Management Portfolio.......................................... 200,000,000
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
Accounts. There exist 1,100,000,000 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
transferable.

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
Portfolio 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
expenses 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
interests 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 disapproval by shares in
another Portfolio; and shares in a Portfolio not affected by a matter
generally would not be entitled to vote on that matter. Examples of matters
which would require a Portfolio-by-Portfolio vote are changes in fundamental
investment policies of a particular Portfolio and approval of the investment
advisory agreement.

49
<PAGE>

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
accounts. 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
required to preclear all security transactions with the Fund's Compliance
Officer or such officer's designee and to report all transactions on a regular
basis. 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
- -------------------------------------------------------------------------------

The annual financial statements of the Fund have been audited by Price
Waterhouse LLP, independent accountants, whose report appears herein. The
financial statements included in this Statement of Additional Information have
been included in reliance on the report of Price Waterhouse LLP, given on the
authority of said firm as experts in auditing and accounting.

50
<PAGE>

CAPITAL APPRECIATION PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995
COMMON STOCKS (91.5%)+

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

AIRLINES (0.9%)
Atlantic Southeast Airlines, Inc...................... 35,200 $ 756,800
Southwest Airlines Co................................. 62,300 1,448,475
------------
2,205,275
------------
AUTO PARTS (0.8%)
Lear Seating Corp. (a)................................ 69,500 2,015,500
------------
BANKS (4.9%)
Bank of New York Co., Inc............................. 73,000 3,558,750
Barnett Banks, Inc.................................... 55,000 3,245,000
First Interstate Bancorp.............................. 34,500 4,709,250
NationsBank Corp. .................................... 5,500 382,938
------------
11,895,938
------------
BIOTECHNOLOGY (1.1%)
Guidant Corp. ........................................ 63,100 2,665,975
------------
BROKERAGE (0.2%)
Schwab (Charles) Corp................................. 20,400 410,550
------------
BUILDINGS (1.2%)
Lennar Corp........................................... 26,850 674,606
Oakwood Homes Corp.................................... 62,000 2,379,250
------------
3,053,856
------------
COMMERCIAL SERVICES (1.1%)
Service Corp. International........................... 62,000 2,728,000
------------
COMPUTERS & OFFICE
EQUIPMENT (6.7%)
Alco Standard Corp.................................... 118,400 5,402,000
Danka Business Systems
Plc ADR (b).......................................... 72,500 2,682,500
EMC Corp. (a)......................................... 60,000 922,500
Hewlett-Packard Co.................................... 31,000 2,596,250
Seagate Technology, Inc. (a).......................... 27,500 1,306,250
Sun Microsystems, Inc. (a)............................ 76,800 3,504,000
------------
16,413,500
------------
CONSUMER DURABLES (1.4%)
Black & Decker Corp................................... 96,100 3,387,525
------------
CONSUMER FINANCIAL
SERVICES (1.2%)
First Data Corp....................................... 43,600 2,915,750
------------
CONSUMER SERVICES (0.2%)
CUC International Inc. (a)............................ 13,200 450,450
------------
DOMESTIC OILS (1.4%)
Triton Energy Corp. (a)............................... 58,400 3,350,700
------------
</TABLE>

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

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

DRUGS (9.3%)
Amgen, Inc. (a)....................................... 83,600 $ 4,963,750
Elan Corp. Plc ADR (a)(b)............................. 68,000 3,306,500
Genzyme Corp. (a)..................................... 47,900 2,987,763
Mylan Laboratories Inc................................ 122,150 2,870,525
Pharmacia & Upjohn, Inc............................... 66,000 2,557,500
Schering-Plough Corp.................................. 65,200 3,569,700
Teva Pharmaceutical Industries Ltd. ADR (b)........... 54,000 2,504,250
------------
22,759,988
------------
ELECTRONICS (1.2%)
Vishay Intertechnology, Inc. (a)...................... 90,820 2,860,830
------------
ENERGY (0.6%)
Abacan Resource Corp. (a)............................. 550,000 1,478,125
------------
FINANCE (7.8%)
Federal National
Mortgage Association................................. 23,200 2,879,700
Green Tree Financial Corp............................. 202,400 5,338,300
Household International, Inc. ........................ 58,700 3,470,638
MGIC Investment Corp.................................. 50,800 2,755,900
Travelers Group Inc................................... 75,166 4,726,062
------------
19,170,600
------------
FINANCIAL SERVICES (3.3%)
First USA, Inc........................................ 75,700 3,359,188
SunAmerica Inc. ...................................... 98,100 4,659,750
------------
8,018,938
------------
HEALTH CARE (7.9%)
Columbia/HCA Healthcare Corp.......................... 74,812 3,796,709
HealthCare COMPARE Corp. (a).......................... 46,600 2,027,100
HEALTHSOUTH Corp. (a)................................. 90,000 2,621,250
Humana, Inc. (a)...................................... 81,000 2,217,375
OrNda HealthCorp. (a)................................. 105,500 2,452,875
Unison HealthCare Corp. (a)........................... 104,000 975,000
United Healthcare Corp................................ 78,700 5,154,850
------------
19,245,159
------------
HOUSEHOLD PRODUCTS (0.1%)
Singer Company N.V.(The).............................. 4,800 133,800
------------
INSURANCE (1.8%)
American International Group, Inc. 47,750 4,416,875
------------
MEDIA (1.2%)
Viacom Inc. Class A (a)............................... 5,360 245,890
Viacom Inc. Class B (a)............................... 59,412 2,814,643
------------
3,060,533
------------
MEDICAL EQUIPMENT (3.6%)
Cordis Corp. (a)...................................... 37,200 3,738,600
Medtronic, Inc. ...................................... 69,800 3,900,075
</TABLE>

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

51
<PAGE>

CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
COMMON STOCKS (CONTINUED)

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

MEDICAL EQUIPMENT (Continued)
Waters Corp. (a)....................................... 62,500 $ 1,140,625
------------
8,779,300
------------
PUBLISHING (0.9%)
News Corp. Ltd. ADR (b)................................ 104,300 2,229,412
------------
RESTAURANTS &
LODGING (3.4%)
HFS Inc. (a)........................................... 81,000 6,621,750
Lone Star Steakhouse &
Saloon, Inc. (a)...................................... 45,000 1,726,875
------------
8,348,625
------------
RETAIL (8.6%)
Bed Bath & Beyond, Inc. (a)............................ 35,000 1,358,438
Cato Corp. Class A..................................... 36,400 282,100
Circuit City Stores, Inc. ............................. 61,100 1,687,887
Gymboree Corp. (a)..................................... 50,000 1,031,250
Home Depot, Inc. (The)................................. 61,600 2,949,100
Kohl's Corp. (a)....................................... 50,500 2,651,250
Kroger Co. (The) (a)................................... 104,000 3,900,000
Lowe's Companies, Inc.................................. 96,400 3,229,400
Office Depot, Inc. (a)................................. 95,975 1,895,506
Sunglass Hut International, Inc. (a) 82,000 1,947,500
------------
20,932,431
------------
SOFTWARE (5.6%)
Computer Associates
International, Inc.................................... 100,450 5,713,094
Microsoft Corp. (a).................................... 13,200 1,158,300
Oracle Corp. (a)....................................... 79,500 3,368,812
Sterling Software, Inc. (a)............................ 57,000 3,555,375
------------
13,795,581
------------
TECHNOLOGY (9.6%)
General Motors Corp. Class E........................... 47,000 2,444,000
Intel Corp............................................. 69,000 3,915,750
Lam Research Corp. (a)................................. 67,000 3,065,250
Linear Technology Corp. ............................... 48,000 1,884,000
Micron Technology Inc.................................. 86,000 3,407,750
Motorola, Inc.......................................... 35,500 2,023,500
3Com Corp. (a)......................................... 146,400 6,825,900
------------
23,566,150
------------
TELECOMMUNICATION
EQUIPMENT (0.4%)
General Instrument Corp. (a)........................... 31,500 736,313
Scientific-Atlanta, Inc................................ 22,900 343,500
------------
1,079,813
------------
TELECOMMUNICATION
SERVICES (2.1%)
Tele-Communications International, Inc. Class A (a).... 60,000 1,365,000
WorldCom, Inc. (a)..................................... 107,894 3,803,263
------------
5,168,263
------------
</TABLE>
<TABLE>
<CAPTION>

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

TEXTILE & APPAREL (3.0%)
Nine West Group Inc. (a).......................... 80,000 $ 3,000,000
Warnaco Group, Inc. (The) Class A 97,600 2,440,000
Wolverine World Wide, Inc......................... 57,000 1,795,500
------------
7,235,500
------------
Total Common Stocks
(Cost $167,003,537).............................. 223,772,942
------------
PREFERRED STOCK (0.2%)
PUBLISHING (0.2%)
News Corp. Ltd. ADR--
Preference Shares (b)............................ 28,500 548,625
------------
Total Preferred Stock
(Cost $455,577).................................. 548,625
------------
SHORT-TERM
INVESTMENTS (7.8%)
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
COMMERCIAL PAPER (7.8%)
American General Finance Corp.
5.96%, due 1/3/96................................ $ 4,131,000 4,131,000
General Electric Capital Corp.
5.71%, due 1/4/96................................ 8,343,000 8,343,000
Prudential Funding Corp.
5.93%, due 1/2/96................................ 6,552,000 6,552,000
------------
Total Short-Term Investments
(Cost $19,026,000)............................... 19,026,000
------------
Total Investments
(Cost $186,485,114) (c).......................... 99.5% 243,347,567 (d)
Cash and Other Assets,
Less Liabilities................................. 0.5 1,188,251
----------- ------------
Net Assets........................................ 100.0% $244,535,818
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At December 31, 1995 net unrealized appreciation was $56,862,453, 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 $61,035,747 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $4,173,294.

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

52
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the year ended December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $186,485,114).................................. $243,347,567
Cash............................................................. 864
Receivables:
Fund shares sold................................................. 662,626
Investment securities sold....................................... 518,149
Dividends and interest........................................... 122,113
NYLIAC........................................................... 61,197
Other assets..................................................... 363
------------
Total assets................................................... 244,712,879
------------
LIABILITIES:
Payables:
Adviser.......................................................... 71,782
Recordkeeping.................................................... 46,390
Administrator.................................................... 19,939
Custodian........................................................ 4,405
Accrued expenses................................................. 34,545
------------
Total liabilities.............................................. 177,061
------------
Net assets applicable to
outstanding shares.............................................. $244,535,818
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized.................................... $ 157,845
Additional paid-in capital....................................... 194,853,627
Accumulated net realized loss
on investments.................................................. (7,338,107)
Net unrealized appreciation
on investments.................................................. 56,862,453
------------
Net assets applicable to
outstanding shares.............................................. $244,535,818
============
Shares of capital stock outstanding.............................. 15,784,450
============
Net asset value per share outstanding............................ $ 15.49
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 947,338
Interest......................................................... 1,254,492
------------
Total income................................................... 2,201,830
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 609,035
Recordkeeping.................................................... 442,909
Administration (Note 3).......................................... 338,353
Shareholder communication........................................ 54,342
Auditing......................................................... 27,822
Custodian........................................................ 24,104
Directors........................................................ 11,659
Legal............................................................ 9,761
Amortization of organization expense............................. 1,535
Miscellaneous.................................................... 10,419
------------
Total expenses
before reimbursement.......................................... 1,529,939
Expense reimbursement from
Administrator (Note 3).......................................... (294,951)
------------
Net expenses................................................... 1,234,988
------------
Net investment income............................................ 966,842
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments................................. (4,093,457)
Net change in unrealized appreciation
on investments.................................................. 52,411,784
------------
Net realized and unrealized gain
on investments.................................................. 48,318,327
------------
Net increase in net assets resulting
from operations................................................. $ 49,285,169
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$5,215.

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
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 966,842 $ 493,813
Net realized loss on investments.................. (4,093,457) (2,957,251)
Net change in unrealized appreciation on invest-
ments............................................ 52,411,784 710,503
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. 49,285,169 (1,752,935)
------------ ------------
Dividends to shareholders:
From net investment income........................ (967,677) (493,282)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 92,210,559 73,263,025
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 967,677 493,282
------------ ------------
93,178,236 73,756,307
Cost of shares redeemed........................... (10,959,038) (995,909)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 82,219,198 72,760,398
------------ ------------
Net increase in net assets....................... 130,536,690 70,514,181
NET ASSETS:
Beginning of year................................. 113,999,128 43,484,947
------------ ------------
End of year....................................... $244,535,818 $113,999,128
============ ============
Accumulated undistributed net investment income... $ -- $ 835
============ ============
</TABLE>

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

54
<PAGE>

CASH MANAGEMENT PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995
SHORT-TERM INVESTMENTS (100.0%)+

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

BANK NOTES (4.8%)
First Systems Bank-Fargo,
North Dakota
5.93%, due 6/3/96 (c)(d).............................. $ 2,500,000 $ 2,500,250
Fleet National Bank-Province, Rhode Island
5.88%, due 10/30/96 (c)(d)............................ 1,700,000 1,700,000
------------
4,200,250
------------
CERTIFICATES OF
DEPOSIT (10.8%)
Bayerische Vereinsbank AG
6.00%, due 7/24/96 (d)................................ 3,000,000 3,000,000
First National Bank of Maryland
5.90%, due 10/23/96 (c)(d)............................ 2,000,000 2,000,000
Industrial Bank of Japan Ltd. 5.86%, due 1/11/96 (d)... 1,000,000 999,896
Merchantile Safe Deposit &
Trust Co.
5.73%, due 12/23/96 (c)(d)............................ 500,000 500,248
Mitsubishi Bank
6.13%, due 1/4/96 (d)................................. 3,000,000 3,000,002
------------
9,500,146
------------
MEDIUM-TERM NOTES (8.6%)
AT&T Capital Corp.
6.99%, due 10/4/96 (d)................................ 1,000,000 1,008,433
First National Bank of Minneapolis
9.33%, due 2/26/96 (d)................................ 1,000,000 1,005,094
First Security Bank of Idaho
6.88%, due 10/4/96 (d)................................ 2,000,000 2,017,500
General Electric Capital Corp.
5.71%, due 6/6/96 (c)(d).............................. 1,000,000 1,000,000
International Lease Finance Corp.
6.80%, due 9/30/96 (d)................................ 1,000,000 1,006,955
Kingdom of Spain
9.35%, due 5/27/96 (d)................................ 1,000,000 1,013,140
Norwest Corp.
4.86%, due 6/28/96 (d)................................ 500,000 497,595
------------
7,548,717
------------
COMMERCIAL PAPER (75.8%)
ABN-AMRO North America Finance Inc.
5.68%, due 2/16/96.................................... 500,000 496,371
Banca CRT Financial Corp.
5.67%, due 3/1/96..................................... 1,800,000 1,782,990
5.69%, due 2/26/96.................................... 800,000 792,919
5.73%, due 1/26/96.................................... 1,000,000 996,021
Banco Real S.A., Grand Cayman
5.63%, due 4/12/96.................................... 1,000,000 984,062
Bancomer S.A.
5.37%, due 9/13/96.................................... 1,000,000 961,813
5.42%, due 7/11/96.................................... 1,000,000 971,093
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------------------------------------------
<S> <C> <C>

COMMERCIAL PAPER (Continued)
Bank of Scotland
5.32%, due 6/11/96................................... $ 1,000,000 $ 976,060
Barton Capital Corp.
5.95%, due 1/9/96 (b)................................ 3,000,000 2,996,033
6.00%, due 1/9/96 (b)................................ 800,000 798,933
Caisse Centrale des
Banques Populaires
5.61%, due 3/18/96................................... 2,000,000 1,976,002
5.75%, due 1/8/96.................................... 2,000,000 1,997,764
Cargill Inc.
5.75%, due 1/8/96.................................... 1,100,000 1,098,770
Coles Myer Finance Ltd.
5.68%, due 2/6/96.................................... 1,200,000 1,193,184
5.71%, due 2/6/96.................................... 2,000,000 1,988,580
5.74%, due 2/2/96.................................... 1,000,000 994,898
Compagnie Bancaire
5.52%, due 4/11/96................................... 1,000,000 984,513
5.62%, due 1/10/96................................... 500,000 499,298
5.85%, due 1/11/96................................... 1,800,000 1,797,075
Corporacion Andina de Fomento
5.65%, due 1/18/96................................... 1,000,000 997,332
COSCO (Cayman) Co. Ltd.
5.75%, due 2/9/96.................................... 1,450,000 1,440,968
Credito Italiano (DE) Inc.
5.66%, due 1/29/96................................... 1,000,000 995,598
Echlin Inc.
5.75%, due 1/29/96................................... 2,000,000 1,991,056
Idaho Power Co.
5.85%, due 1/9/96.................................... 2,000,000 1,997,400
Island Finance Puerto Rico Inc.
5.63%, due 2/29/96................................... 1,800,000 1,783,391
5.72%, due 1/22/96................................... 1,500,000 1,494,995
Kingdom of Sweden
5.65%, due 3/8/96.................................... 1,700,000 1,682,124
Morgan Stanley Group Inc.
5.70%, due 2/9/96.................................... 2,500,000 2,484,562
Nationwide Building Society
5.66%, due 3/14/96................................... 600,000 593,114
NICOR Inc.
5.63%, due 2/9/96.................................... 1,000,000 993,901
Pacificorp
5.70%, due 1/8/96.................................... 3,300,000 3,296,343
Pemex Capital Inc.
5.65%, due 1/23/96................................... 1,000,000 996,547
5.90%, due 1/17/96................................... 1,500,000 1,496,067
Petroleo Brasileiro S.A.-Petrobras
5.72%, due 1/3/96.................................... 500,000 499,841
5.74%, due 1/3/96.................................... 800,000 799,745
Petroleos de Venezuela S.A.
5.57%, due 3/8/96.................................... 1,000,000 989,634
Receivables Capital Corp.
5.75%, due 1/4/96 (b)................................ 2,000,000 1,999,042
5.75%, due 1/29/96 (b)............................... 1,800,000 1,791,950
Shinhan Bank
5.82%, due 2/12/96................................... 2,600,000 2,582,346
</TABLE>

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

55
<PAGE>

CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
SHORT-TERM INVESTMENTS (CONTINUED)

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

COMMERCIAL PAPER (Continued)
Songs Fuel Co.
5.57%, due 3/15/96.............................. $ 1,207,000 $ 1,193,181
5.80%, due 1/31/96.............................. 3,000,000 2,985,500
Svenska Handelsbanken Inc.
5.60%, due 1/16/96.............................. 1,000,000 997,667
Transamerica Finance Corp.
5.60%, due 3/4/96............................... 4,000,000 3,960,800
Unibanco-Uniao de Bancos Brasilieros S.A., Grand
Cayman
5.66%, due 4/15/96.............................. 2,000,000 1,966,983
USL Capital Corp.
5.73%, due 1/26/96.............................. 300,000 298,806
------------
66,595,272
------------
Total Short-Term Investments
(Amortized Cost $87,844,385) (e) 100.0% 87,844,385
Liabilities in Excess of
Cash and Other Assets........................... (0.0)(a) (5,041)
----------- ------------
Net Assets....................................... 100.0% $ 87,839,344
=========== ============
</TABLE>
- --------
(a) Less than one tenth of a percent.
(b) May be sold to institutional investors only.
(c) Floating rate. Rate shown is the rate in effect at December 31, 1995.
(d) Coupon interest bearing security.
(e) The cost stated also represents the aggregate cost for Federal income tax
purposes.

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

SHORT-TERM INVESTMENTS

<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
---------------------------------------------------------
<S> <C> <C>
Auto Parts............................................. $ 1,991,056 2.3%
Banks #................................................ 53,665,121 61.1
Brokerage.............................................. 2,484,562 2.8
Conglomerates.......................................... 1,000,000 1.1
Finance................................................ 13,434,855 15.3
Food................................................... 1,098,770 1.3
Foreign Government..................................... 2,695,264 3.1
Utilities.............................................. 9,472,423 10.8
Utilities-Gas.......................................... 993,901 1.1
Utilities-Telephone.................................... 1,008,433 1.1
----------- -----
87,844,385 100.0
Liabilities in Excess of
Cash and Other Assets................................. (5,041) (0.0)(a)
----------- -----
Net Assets............................................. $87,839,344 100.0%
=========== =====
</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.
(a) Less than one tenth of a percent.

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

56
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the year ended December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2) (amortized cost
$87,844,385)................................................... $ 87,844,385
Receivables:
Interest........................................................ 369,768
Investment securities sold...................................... 199,090
NYLIAC.......................................................... 15,271
Other assets.................................................... 166
------------
Total assets.................................................. 88,428,680
------------
LIABILITIES:
Payables:
Custodian....................................................... 119,932
Recordkeeping................................................... 29,621
Adviser......................................................... 17,289
Administrator................................................... 6,915
Directors....................................................... 634
Accrued expenses................................................ 50,963
Dividend payable................................................ 363,982
------------
Total liabilities............................................. 589,336
------------
Net assets applicable to
outstanding shares............................................. $ 87,839,344
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
200 million shares authorized.................................. $ 878,410
Additional paid-in capital...................................... 86,962,267
Accumulated net realized loss
on investments................................................. (1,333)
------------
Net assets applicable to
outstanding shares............................................. $ 87,839,344
============
Shares of capital stock outstanding............................. 87,841,000
============
Net asset value per share outstanding........................... $ 1.00
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................... $ 4,065,628
------------
Expenses: (Note 2)
Recordkeeping (Note 3)........................................... 237,763
Advisory (Note 3)................................................ 167,656
Administration (Note 3).......................................... 134,125
Shareholder communication........................................ 44,802
Auditing......................................................... 20,689
Custodian........................................................ 9,381
Legal............................................................ 5,662
Directors........................................................ 5,332
Amortization of organization expense............................. 1,535
Miscellaneous.................................................... 5,437
------------
Total expenses
before reimbursement.......................................... 632,382
Expense reimbursement from
Administrator (Note 3).......................................... (216,593)
------------
Net expenses................................................... 415,789
------------
Net investment income............................................ 3,649,839
------------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments................................. (949)
------------
Net increase in net assets resulting
from operations................................................. $ 3,648,890
============
</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
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 3,649,839 $ 2,310,893
Net realized loss on investments.................. (949) (342)
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 3,648,890 2,310,551
------------ ------------
Dividends to shareholders:
From net investment income........................ (3,649,839) (2,310,893)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 128,846,016 99,252,119
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 3,587,829 2,011,001
Net asset value of shares issued in connection
with acquisition of Money Market Portfolio....... -- 37,601,126
------------ ------------
132,433,845 138,864,246
Cost of shares redeemed........................... (115,709,733) (94,480,925)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 16,724,112 44,383,321
------------ ------------
Net increase in net assets....................... 16,723,163 44,382,979
NET ASSETS:
Beginning of year................................. 71,116,181 26,733,202
------------ ------------
End of year....................................... $ 87,839,344 $ 71,116,181
============ ============
</TABLE>

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

58
<PAGE>

GOVERNMENT PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995
LONG-TERM U.S. GOVERNMENT & FEDERAL AGENCIES (98.4%)+

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

FEDERAL HOME LOAN MORTGAGE CORPORATION (MORTGAGE
PASS-THROUGH SECURITY) (2.3%)
6.00%, due 8/1/24................................... $ 1,525,099 $ 1,477,196
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION GOLD (MORTGAGE
PASS-THROUGH SECURITIES) (4.1%)
6.00%, due 2/20/26 TBA (b).......................... 1,725,000 1,668,938
7.00%, due 2/13/26 TBA (b).......................... 1,000,000 1,007,500
------------
2,676,438
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (1.8%)
8.50%, due 2/1/05................................... 1,075,000 1,176,136
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (COLLATERALIZED
MORTGAGE
OBLIGATIONS) (1.7%)
Series 1993-76 Class B
6.00%, due 6/25/08.................................. 522,941 494,995
Series 1993-89 Class D
7.00%, due 6/25/23.................................. 625,000 602,831
------------
1,097,826
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS- THROUGH SECURITY) (4.8%)
7.00%, due 2/15/11 TBA (b).......................... 3,050,000 3,102,887
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (9.9%)
5.50%, due 2/22/26, ARM
TBA (b)(c).......................................... 2,825,000 2,825,000
7.50%, due 2/20/26 TBA (b).......................... 1,225,000 1,258,308
8.00%, due 2/20/26 TBA (b).......................... 2,225,000 2,314,000
------------
6,397,308
------------
</TABLE>

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

UNITED STATES TREASURY
BONDS (17.3%)
6.875%, due 8/15/25............................. $ 3,875,000 $ 4,370,264
7.625%, due 2/15/25............................. 5,050,000 6,175,191
11.25%, due 2/15/15............................. 425,000 680,331
------------
11,225,786
------------
UNITED STATES TREASURY
NOTES (56.5%)
4.75%, due 2/15/97 (a).......................... 4,250,000 4,224,755
5.625%, due 6/30/97............................. 2,350,000 2,364,688
5.625%, due 11/30/00............................ 1,175,000 1,185,645
6.375%, due 8/15/02............................. 3,450,000 3,617,636
7.75%, due 12/31/99............................. 5,375,000 5,832,735
7.875%, due 11/15/99............................ 3,600,000 3,913,884
7.875%, due 11/15/04............................ 2,325,000 2,691,187
8.125%, due 2/15/98............................. 3,125,000 3,304,687
8.75%, due 10/15/97............................. 3,000,000 3,179,520
9.00%, due 5/15/98.............................. 5,825,000 6,307,368
------------
36,622,105
------------
Total Long-Term U.S. Government & Federal
Agencies
(Cost $62,271,015).............................. 63,775,682
------------
SHORT-TERM
U.S. GOVERNMENT (18.8%)
UNITED STATES TREASURY NOTES (18.8%)
4.625%, due 2/15/96 (a)......................... 9,325,000 9,319,125
9.25%, due 1/15/96 (a).......................... 2,875,000 2,879,054
------------
Total Short-Term
U.S. Government
(Cost $12,201,455).............................. 12,198,179
------------
Total Investments
(Cost $74,472,470) (d).......................... 117.2% 75,973,861 (e)
Liabilities in Excess of
Cash and Other Assets........................... (17.2) (11,161,483)
----------- ------------
Net Assets....................................... 100.0% $ 64,812,378
=========== ============
</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 maturity date will be determined upon settlement.
(c) ARM--Adjustable Rate Mortgage. Resets annually.
(d) The cost for Federal income tax purposes is $74,671,788.
(e) At December 31, 1995 net unrealized appreciation was $1,302,073, 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 $1,305,349 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $3,276.

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

59
<PAGE>

GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the year ended December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $74,472,470)................................... $ 75,973,861
Cash............................................................. 150
Receivables:
Interest......................................................... 1,322,981
Fund shares sold................................................. 230,109
Investment securities sold....................................... 15,359
Other assets..................................................... 145
------------
Total assets................................................... 77,542,605
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 12,654,858
Adviser.......................................................... 16,024
NYLIAC........................................................... 11,296
Recordkeeping.................................................... 10,419
Administrator.................................................... 5,341
Custodian........................................................ 3,418
Directors........................................................ 634
Accrued expenses................................................. 28,237
------------
Total liabilities.............................................. 12,730,227
------------
Net assets applicable to
outstanding shares.............................................. $ 64,812,378
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized.................................... $ 64,767
Additional paid-in capital....................................... 66,706,318
Accumulated net realized loss
on investments.................................................. (3,460,098)
Net unrealized appreciation
on investments.................................................. 1,501,391
------------
Net assets applicable to
outstanding shares.............................................. $ 64,812,378
============
Shares of capital stock outstanding.............................. 6,476,696
============
Net asset value per share outstanding............................ $ 10.01
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................... $ 4,907,647
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 173,920
Administration (Note 3).......................................... 115,947
Recordkeeping.................................................... 114,007
Shareholder communication........................................ 19,843
Auditing......................................................... 19,100
Custodian........................................................ 16,976
Legal............................................................ 4,859
Directors........................................................ 4,781
Amortization of organization expense............................. 1,535
Portfolio pricing................................................ 1,463
Miscellaneous.................................................... 3,895
------------
Total expenses
before reimbursement.......................................... 476,326
Expense reimbursement from
Administrator (Note 3).......................................... (87,910)
------------
Net expenses................................................... 388,416
------------
Net investment income............................................ 4,519,231
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 1,575,754
Net change in unrealized depreciation
on investments.................................................. 2,860,304
------------
Net realized and unrealized gain
on investments.................................................. 4,436,058
------------
Net increase in net assets resulting
from operations................................................. $ 8,955,289
============
</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
STATEMENT OF CHANGES IN NET ASSETS SERIES FUND, INC.
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 4,519,231 $ 4,719,554
Net realized gain (loss) on investments........... 1,575,754 (4,781,332)
Net change in unrealized depreciation on invest-
ments............................................ 2,860,304 (938,174)
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. 8,955,289 (999,952)
------------ ------------
Dividends to shareholders:
From net investment income........................ (4,482,125) (4,619,677)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 12,152,261 23,924,993
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 4,482,125 4,619,677
------------ ------------
16,634,386 28,544,670
Cost of shares redeemed........................... (17,936,046) (8,049,708)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... (1,301,660) 20,494,962
------------ ------------
Net increase in net assets....................... 3,171,504 14,875,333
NET ASSETS:
Beginning of year................................. 61,640,874 46,765,541
------------ ------------
End of year....................................... $ 64,812,378 $ 61,640,874
============ ============
Accumulated distribution in excess of net invest-
ment income...................................... $ -- $ (17,378)
============ ============
</TABLE>

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

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

61
<PAGE>

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1995

LONG-TERM BONDS (47.4%)+
CONVERTIBLE BOND (1.3%)

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

CELLULAR TELEPHONE (1.3%)
PriCellular Wireless Corp.
(zero coupon), due 10/1/03
12.25%, beginning 10/1/98............................ $ 650,000 $ 502,125
Series B
(zero coupon), due 11/15/01
14.00%, beginning 5/15/98............................ 50,000 44,000
------------
546,125
------------
CHILD CARE SERVICES (1.0%)
La Petite Holdings Corp.
9.625%, due 8/1/01................................... 500,000 443,750
------------
CONSUMER DURABLES (0.9%)
Selmer Co., Inc.
11.00%, due 5/15/05.................................. 400,000 394,000
------------
CONTAINERS (0.2%)
Gaylord Containers Corp.
(zero coupon), due 5/15/05
12.75%, beginning 5/15/96............................ 100,000 98,500
------------
DOMESTIC OIL & GAS (0.9%)
Petro PSC Properties L.P.
12.50%, due 6/1/02................................... 400,000 380,000
------------
FOOD, BEVERAGES & TOBACCO (4.0%)
All-American Bottling Corp.
13.00%, due 8/15/01.................................. 500,000 422,500
American Restaurant Group, Inc.
10.25%, due 9/30/00 (c).............................. 2,000,000 619,992
12.00%, due 9/15/98.................................. 200,000 156,000
Liggett Group, Inc.
Series B
11.50%, due 2/1/99................................... 500,000 415,000
SC International Services, Inc.
13.00%, due 10/1/05.................................. 100,000 107,000
------------
1,720,492
------------
INDUSTRIAL (3.0%)
Atlantis Plastics, Inc.
11.00%, due 2/15/03.................................. 400,000 348,000
Great Dane Holdings, Inc.
12.75%, due 8/1/01................................... 620,000 565,750
Newflo Corp., Series B
13.25%, due 11/15/02................................. 350,000 364,000
------------
1,277,750
------------
MACHINERY (0.7%)
Thermadyne Holdings Corp.
10.75%, due 11/1/03.................................. 290,000 290,725
------------
MEDIA (3.4%)
Garden State Newspapers, Inc.
12.00%, due 7/1/04................................... 300,000 301,500
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

RETAIL (1.3%)
Michaels Stores, Inc.
4.75%, due 1/15/03
6.75%, beginning 1/15/96............................. $ 730,000 $ 558,450
------------
Total Convertible Bond
(Cost $576,002)...................................... 558,450
------------
CORPORATE BONDS (39.3%)
ADVERTISING (0.6%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05 (c)............................... 250,000 243,750
------------
AEROSPACE (1.9%)
Atlas Air, Inc.
12.25%, due 12/1/02.................................. 350,000 357,000
K&F Industries, Inc.
11.875%, due 12/1/03................................. 75,000 80,625
Sequa Corp.
9.625%, due 10/15/99................................. 400,000 396,000
------------
833,625
------------
BUILDING MATERIALS (1.0%)
Associated Materials, Inc.
11.50%, due 8/15/03.................................. 350,000 276,500
Waxman Industries, Inc., Series B (zero coupon), due
6/1/04
12.75%, beginning 6/1/99............................. 500,000 185,000
------------
461,500
------------
BUILDINGS (1.5%)
NVR, Inc.
11.00%, due 4/15/03.................................. 500,000 503,125
Peters (JM) Co.
12.75%, due 5/1/02................................... 150,000 136,500
------------
639,625
------------
CASINOS (7.3%)
Casino America, Inc.
11.50%, due 11/15/01................................. 400,000 370,000
El Comandante Capital Corp.
11.75%, due 12/15/03................................. 800,000 712,000
Hemmeter Enterprises, Inc.
12.00%, due 12/15/00 (d)(g).......................... 500,000 190,000
Hollywood Casino Corp.
12.75%, due 11/1/03.................................. 275,000 250,938
Horseshoe Gaming LLC, Series WW
12.75%, due 9/30/00 (c).............................. 850,000 845,750
President Riverboat Casinos, Inc.
13.00%, due 9/15/01.................................. 450,000 378,000
Resorts International Hotel Financing, Inc.
11.00%, due 9/15/03.................................. 400,000 378,000
Trump Taj Mahal Funding, Inc.
Series A
11.35%, due 11/15/99 (e)............................. 50,000 48,125
------------
3,172,813
------------
</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.

62
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

CORPORATE BONDS (CONTINUED)

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

MEDIA (Continued)
General Media, Inc.
10.625%, due 12/31/00................................ $ 900,000 $ 675,000
United International Holdings, Inc.
(zero coupon), due 11/15/99.......................... 825,000 511,500
------------
1,488,000
------------
PAPER & FOREST
PRODUCTS (0.9%)
Crown Paper Co.
11.00%, due 9/1/05................................... 450,000 393,750
------------
POLLUTION & RELATED (0.4%)
ICF Kaiser International, Inc.
12.00%, due 12/31/03................................. 200,000 188,000
------------
REAL ESTATE (1.5%)
Olympia & York Maiden Lane Finance Corp.
7.332%, due 3/20/99 (c)(f)........................... 931,495 633,417
------------
RESTAURANTS &
LODGING (0.6%)
Family Restaurant, Inc.
9.75%, due 2/1/02.................................... 450,000 258,750
------------
RETAIL (3.0%)
Brylane L.P., Series B
10.00%, due 9/1/03................................... 400,000 354,000
Hechinger Co.
6.95%, due 10/15/03.................................. 500,000 330,000
Hills Stores Co.
10.25%, due 9/30/03.................................. 70,000 62,300
IHF Holdings, Inc.
Series B
(zero coupon), due 11/15/04
15.00%, beginning 11/15/99........................... 500,000 315,000
Waban, Inc.
11.00%, due 5/15/04.................................. 250,000 256,250
------------
1,317,550
------------
STEEL, ALUMINUM &
OTHER METALS (0.5%)
Algoma Steel, Inc.
12.375%, due 7/15/05................................. 250,000 225,000
------------
SUPERMARKET (0.7%)
Pueblo Xtra International, Inc.
9.50%, due 8/1/03.................................... 300,000 287,250
------------
TELECOMMUNICATION
EQUIPMENT (0.3%)
EchoStar Communications Corp. (zero coupon), due
6/1/04 12.875%, beginning 6/1/99..................... 50,000 33,750
PageMart Nationwide, Inc.
(zero coupon), due 2/1/05
15.00%, beginning 2/1/00............................. 150,000 97,500
------------
131,250
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

TELECOMMUNICATION SERVICES (1.5%)
Centennial Cellular Corp.
8.875%, due 11/1/01.................................. $ 500,000 $ 492,500
Nextel Communications, Inc.
(zero coupon), due 8/15/04
9.75%, beginning 2/15/99............................. 300,000 162,750
------------
655,250
------------
TEXTILE & APPAREL (2.2%)
CMI Industries, Inc.
9.50%, due 10/1/03................................... 500,000 405,000
Hosiery Corp. of America, Inc.
14.25%, due 8/1/02................................... 500,000 542,500
------------
947,500
------------
Total Corporate Bonds
(Cost $16,751,333)................................... 17,028,372
------------
YANKEE BONDS (6.8%)
CABLE (1.5%)
Australis Media Ltd.
(zero coupon), due 5/15/03
14.00%, beginning 5/15/00 (h2) 200 144,500
Fundy Cable Ltd.
11.00%, due 11/15/05................................. 500,000 522,500
------------
667,000
------------
CELLULAR TELEPHONE (0.4%)
Comunicacion Celular S.A.
(zero coupon), due 11/15/03
13.125%, beginning 11/15/00 (c)(h3) 300 170,250
------------
FINANCIAL (2.1%)
Hollinger, Inc.
(zero coupon), due 10/5/13........................... 3,000,000 907,500
------------
REAL ESTATE (1.9%)
Trizec Finance Ltd.
10.875%, due 10/15/05................................ 800,000 820,000
------------
TELECOMMUNICATION SERVICES (0.9%)
Clearnet Communications, Inc.
(zero coupon), due 12/15/05
14.75%, beginning 12/15/00 (h1) 75 390,000
------------
Total Yankee Bonds
(Cost $2,875,283).................................... 2,954,750
------------
Total Long-Term Bonds
(Cost $20,202,618)................................... 20,541,572
------------
</TABLE>

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

63
<PAGE>

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (6.9%)

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

BUILDINGS (0.9%)
NVR, Inc. (a).......................................... 40,000 $ 400,000
------------
GAS UTILITY (0.4%)
UGI Corp............................................... 8,400 174,300
------------
INSURANCE (0.5%)
Aetna Life & Casualty Co............................... 2,800 193,900
------------
MEDIA (0.7%)
United International Holdings, Inc.
Class A (a)........................................... 21,700 320,075
------------
PAPER & FOREST
PRODUCTS (1.1%)
Champion International Corp............................ 11,700 491,400
------------
RECREATION &
ENTERTAINMENT (1.0%)
Royal Caribbean Cruises Ltd............................ 20,000 440,000
------------
TELECOMMUNICATION SERVICES (2.3%)
Airtouch Communications, Inc. (a) 18,700 528,275
Rogers Communications, Inc.
Class B (a)........................................... 40,000 450,715
------------
978,990
------------
TEXTILE & APPAREL (0.0%) (b)
Hosiery Corp. of America, Inc. (a) 500 2,500
------------
Total Common Stocks
(Cost $2,856,745)..................................... 3,001,165
------------
PREFERRED STOCKS (3.4%)
CABLE (3.2%)
Cablevision Systems Corp.
8.50%, Series I....................................... 40,000 1,090,000
11.75%, Series G (g).................................. 3,000 312,000
------------
1,402,000
------------
DOMESTIC OILS (0.2%)
Parker & Parsley Capital LLC
6.25% (c)............................................. 1,800 84,600
------------
Total Preferred Stocks
(Cost $1,377,625)..................................... 1,486,600
------------
WARRANTS (0.4%)
CASINOS (0.1%)
Horseshoe Gaming LLC
expire 4/10/96 (a).................................... 425,000 21,250
------------
DOMESTIC OIL & GAS (0.3%)
Petro PSC Properties L.P.
expire 6/1/97 (a)..................................... 400 13,600
TransAmerican Refining Corp. expire 2/15/08 (a)........ 50,000 112,500
------------
126,100
------------
FOOD, BEVERAGES &
TOBACCO (0.0%) (b)
American Restaurant Group, Inc.
expire 7/31/06 (a)(c)................................. 960 7
Browne Bottling Co.
expire 8/15/03 (a).................................... 237 5,925
------------
5,932
------------
</TABLE>
<TABLE>
<CAPTION>

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

MEDIA (0.0%) (b)
General Media, Inc.
expire 12/31/96 (a).............................. 200 $ 2,000
------------
Total Warrants
(Cost $188,854).................................. 155,282
------------

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 (i)............................... $ 500,000 10,500
------------
Total Purchased Put Option
(Cost $10,000)................................... 10,500
------------
SHORT-TERM
INVESTMENTS (40.8%)
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
U.S. GOVERNMENT (40.8%)
United States Treasury Notes
8.875%, due 2/15/96.............................. $ 5,000,000 5,021,100
9.25%, due 1/15/96............................... 12,625,000 12,642,801
------------
Total Short-Term Investments
(Cost $17,702,345)............................... 17,663,901
------------
Total Investments
(Cost $42,338,187) (j)........................... 98.9% 42,859,020 (k)
Cash and Other Assets,
Less Liabilities................................. 1.1 455,451
----------- ------------
Net Assets........................................ 100.0% $ 43,314,471
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Security in default and issuer in bankruptcy.
(e) CIK ("Cash in Kind") interest payment is made with cash or additional
securities.
(f) Floating rate. Rate shown is the rate in effect at December 31, 1995.
(g) PIK ("Payment in Kind") interest payment is made with additional
securities.
(h1) 75 Units--each unit reflects ten $1,000 principal amount of Senior
Discounted Notes, plus 33 warrants to acquire common stock at a future
date.
(h2) 200 Units--each unit reflects $1,000 Senior Subordinate Discounted Notes,
plus 1 warrant to acquire 58 shares of common stock at a future date.
(h3) 300 Units--each unit reflects $1,000 Deferred Senior Coupon Bonds, plus 1
warrant to acquire 12,860 shares of common stock at a future date.
(i) 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
Nabisco bond less the yield on the U.S. Treasury Notes, 6.50% due 8/15/05,
less 3% multiplied by the notional principal.
(j) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(k) At December 31, 1995 net unrealized appreciation was $520,833, 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 $822,467 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $301,634.

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

64
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
HIGH YIELD CORPORATE BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the period May 1, 1995
(Commencement of Operations) through
December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $42,338,187).................................. $ 42,859,020
Cash............................................................ 10,951
Receivables:
Dividends and interest.......................................... 1,244,771
Fund shares sold................................................ 495,052
NYLIAC.......................................................... 21,247
Investment securities sold...................................... 16,875
Unamortized organization expense
(Note 2)....................................................... 63,634
Other assets.................................................... 392
------------
Total assets.................................................. 44,711,942
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 1,285,789
Organization.................................................... 72,839
Recordkeeping................................................... 10,422
Adviser......................................................... 9,921
Custodian....................................................... 4,944
Administrator................................................... 3,307
Accrued expenses................................................ 10,249
------------
Total liabilities............................................. 1,397,471
------------
Net assets applicable to
outstanding shares............................................. $ 43,314,471
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized.................................. $ 41,052
Additional paid-in capital...................................... 42,842,112
Accumulated distribution in excess of net realized gain on
investments.................................................... (89,526)
Net unrealized appreciation
on investments................................................. 520,833
------------
Net assets applicable to
outstanding shares............................................. $ 43,314,471
============
Shares of capital stock outstanding............................. 4,105,235
============
Net asset value per share outstanding........................... $ 10.55
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................ $ 16,519
Interest......................................................... 1,584,395
------------
Total income................................................... 1,600,914
------------
Expenses: (Note 2)
Recordkeeping.................................................... 69,460
Advisory (Note 3)................................................ 44,924
Administration (Note 3).......................................... 29,949
Auditing......................................................... 11,515
Amortization of organization expense............................. 9,866
Shareholder communication........................................ 8,267
Custodian........................................................ 7,480
Directors........................................................ 613
Legal............................................................ 345
Miscellaneous.................................................... 4,016
------------
Total expenses
before reimbursement.......................................... 186,435
Expense reimbursement from
Administrator (Note 3).......................................... (86,106)
------------
Net expenses................................................... 100,329
------------
Net investment income............................................ 1,500,585
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 172,097
Net unrealized appreciation
on investments.................................................. 520,833
------------
Net realized and unrealized gain
on investments.................................................. 692,930
------------
Net increase in net assets resulting
from operations................................................. $ 2,193,515
============
</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
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1995 (Commencement of Operations) through December 31,
1995

<TABLE>
<CAPTION>
1995
--------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................................... $ 1,500,585
Net realized gain on investments................................ 172,097
Net unrealized appreciation on investments...................... 520,833
------------
Net increase in net assets resulting from operations............ 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 shareholders.............. (1,762,208)
------------
Capital share transactions:
Net proceeds from sale of shares................................ 31,553,312
Net asset value of shares issued to shareholders in reinvestment
of dividends and distributions................................. 1,762,208
------------
33,315,520
Cost of shares redeemed......................................... (432,356)
------------
Increase in net assets derived from capital share transactions. 32,883,164
------------
Net increase in net assets..................................... 33,314,471
NET ASSETS:
Beginning of period............................................. 10,000,000
------------
End of period................................................... $ 43,314,471
============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1
1995 (A)
THROUGH
DECEMBER 31,
1995
----------
<S> <C>
Net asset value at beginning of period........................... $ 10.00
------------
Net investment income............................................ 0.37
Net realized and unrealized gain on investments.................. 0.61
------------
Total from investment operations................................. 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................................. $ 10.55
============
Total investment return (b)...................................... 10.06%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................................... 10.02%+
Net expenses.................................................... 0.67%+
Expenses (before reimbursement)................................. 1.25%+
Portfolio turnover rate.......................................... 95%
Net assets at end of period (in 000's)........................... $ 43,314
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.

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

66
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995

COMMON STOCKS (90.9%)+

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

AUSTRALIA (2.7%)
Amcor, Ltd.
(forest products & paper)............................ 3,500 $ 24,734
Boral, Ltd.
(building materials &
components).......................................... 3,000 7,587
Brambles Industries, Ltd.
(business & public services)......................... 1,600 17,853
Broken Hill Proprietary Co., Ltd.
(energy sources)..................................... 6,400 90,454
Coles Myer, Ltd.
(merchandising)...................................... 6,770 21,101
CRA, Ltd.
(metals-nonferrous).................................. 3,225 47,356
CSR, Ltd.
(multi-industry)..................................... 5,500 17,920
Foster's Brewing Group, Ltd.
(beverages & tobacco)................................ 5,520 9,074
M.I.M. Holdings, Ltd.
(metals-nonferrous).................................. 4,061 5,619
National Australian Bank, Ltd.
(banking)............................................ 5,900 53,105
News Corp., Ltd.
(broadcasting & publishing).......................... 5,913 31,581
Pacific Dunlop, Ltd.
(multi-industry)..................................... 3,600 8,435
Santos, Ltd.
(energy sources)..................................... 2,400 7,016
Westpac Banking Corp., Ltd.
(banking)............................................ 5,600 24,827
WMC, Ltd.
(metals-nonferrous).................................. 4,500 28,922
------------
395,584
------------
AUSTRIA (2.7%)
Austrian Airlines Oesterreichische Luftverkehrs AG
(transportation-airlines) (a)........................ 50 8,317
Bank Austria AG
(banking)............................................ 1,200 96,998
Creditanstalt-Bankverein Stamm
(banking)............................................ 950 52,734
EA-Generali AG
(insurance).......................................... 200 59,978
Oesterreichische
Brau-Beteiligungs AG
(beverages & tobacco)................................ 200 9,116
OMV AG
(energy sources)..................................... 650 56,478
Verbundgesellschaft-Oesterreichische
Elektrizitatswirtschafts AG Class A
(utilities-electrical & gas)......................... 800 48,142
Wienerberger Baustoffindustrie AG
(building materials & components).................... 300 59,581
------------
391,344
------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

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

BELGIUM (3.4%)
Bekaert, SA
(industrial components).............................. 20 $ 16,480
Cimenteries CBR Cementbedrijven
(building materials & components).................... 30 12,105
Delhaize-Le Lion, SA
(merchandising)...................................... 280 11,608
Electrabel, SA
(utilities-electrical & gas)......................... 440 104,658
Fortis AG
(insurance).......................................... 530 64,474
Fortis AG-VVPR
(insurance).......................................... 7 853
Generale de Banque, SA
(banking)............................................ 220 77,933
Groupe Bruxelles Lambert, SA
(multi-industry)..................................... 180 24,986
NV Union Miniere, SA
(metals-nonferrous)(a)............................... 170 11,380
Petrofina, SA
(energy sources)..................................... 250 76,540
Reunies Electrobel & Tractebel, SA
(multi-industry)..................................... 180 74,314
Solvay, SA Class A
(chemicals).......................................... 50 27,014
------------
502,345
------------
DENMARK (2.1%)
Carlsberg AS Class A
(beverages & tobacco)................................ 300 16,782
Carlsberg AS Class B
(beverages & tobacco)................................ 200 11,188
Dampskibsselskabet AF 1912 AS
Class B
(transportation-shipping)............................ 2 38,255
Dampskibsselskabet Svendborg AS
Class B
(transportation-shipping)............................ 1 27,608
Danisco AS
(food & household products).......................... 600 29,016
Den Danske Bank
(banking)............................................ 450 31,100
FLS Industries AS Class B
(machinery & engineering)............................ 100 7,759
Novo Nordisk AS Class B
(health & personal care)............................. 300 41,142
Sophus Berendsen AS Class B
(multi-industry)..................................... 250 28,195
Tele Danmark AS Class B
(telecommunications)................................. 1,000 54,675
Unidanmark AS Class A
(banking)............................................ 450 22,330
------------
308,050
------------
</TABLE>

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

67
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

FRANCE (10.2%)
Alcatel Alsthom
(electrical & electronics)............................ 653 $ 56,375
AXA Groupe
(insurance)........................................... 1,280 86,374
Carrefour Supermarche
(merchandising)....................................... 160 97,203
Compagnie de Saint Gobain
(misc.-materials & commodities) 675 74,810
Compagnie de Suez, SA
(banking)............................................. 937 38,703
Compagnie Financiere de Paribas, SA Class A
(banking)............................................. 582 31,954
Compagnie Francaise de Petroleum Total, SA Class B
(energy sources)...................................... 1,304 88,126
Compagnie Generale des Eaux
(business & public services).......................... 617 61,683
Elf Aquitaine
(energy sources)...................................... 1,092 80,565
Eridania Beghin-Say, SA
(food & household products)........................... 180 30,918
Groupe Danone
(food & household products)........................... 720 118,960
Havas
(business & public services).......................... 444 35,272
LaFarge Coppee
(building materials & components)..................... 839 54,128
L'Air Liquide
(chemicals)........................................... 854 141,624
L'Oreal
(health & personal care).............................. 510 136,719
LVMH-Moet Hennessy
Louis Vuitton
(beverages & tobacco)................................. 520 108,458
Lyonnaise des Eaux, SA
(multi-industry)...................................... 193 18,608
Michelin (CGDE) Class B
(tire & rubber)....................................... 320 12,779
Pernod-Ricard
(beverages & tobacco)................................. 430 24,470
Pinault-Printemps, SA
(building materials & components)..................... 110 21,976
PSA Peugeot Citroen, SA
(automobiles)......................................... 150 19,814
Rhone-Poulenc Class A
(chemicals)........................................... 1,439 30,867
Societe Generale
(banking)............................................. 808 99,960
Spie Batignolles, SA
(machinery & engineering) (a)......................... 400 13,692
Thomson CSF, SA
(aerospace & military technology) 506 11,288
------------
1,495,326
------------
</TABLE>
<TABLE>
<CAPTION>

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

GERMANY (3.4%)
Allianz AG Holding
(insurance).......................................... 50 $ 97,675
BASF AG
(chemicals).......................................... 100 22,323
Bayer AG
(chemicals).......................................... 100 26,445
Daimler Benz
Aktiengesellschaft AG
(automobiles)........................................ 100 50,445
Deutsche Bank AG
(banking)............................................ 1,050 49,864
Dresdner Bank AG
(banking)............................................ 950 25,421
Karstadt AG
(merchandising)...................................... 50 20,436
Linde AG
(machinery & engineering)............................ 50 29,240
Mannesmann AG
(machinery & engineering)............................ 50 15,954
Preussag AG
(multi-industry)..................................... 50 14,008
RWE AG
(utilities-electrical & gas)......................... 50 18,166
Siemens AG
(electrical & electronics)........................... 100 54,846
Thyssen AG
(metals-steel) (a)................................... 50 9,104
VEBA AG
(utilities-electrical & gas)......................... 850 36,167
Viag AG
(multi-industry)..................................... 50 20,087
Volkswagen AG
(automobiles)........................................ 50 16,754
------------
506,935
------------
HONG KONG (2.9%)
Cheung Kong (Holdings) Ltd.
(real estate)........................................ 11,000 67,008
China Light & Power Co. Ltd.
(utilities-electrical & gas)......................... 7,500 34,532
Hang Seng Bank Ltd.
(banking)............................................ 6,700 60,008
Hong Kong
Telecommunications Ltd.
(telecommunications)................................. 40,800 72,820
Hutchison Whampoa Ltd.
(multi-industry)..................................... 13,000 79,191
Sun Hung Kai Properties Ltd.
(real estate)........................................ 9,000 73,624
Swire Pacific Ltd. Class A
(multi-industry)..................................... 5,500 42,680
------------
429,863
------------
</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.

COMMON STOCKS (CONTINUED)

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

ITALY (5.0%)
Assicurazioni Generali SPA
(insurance).......................................... 6,800 $ 164,720
Banca Commerciale Italiana SPA
(banking)............................................ 9,000 19,221
Benetton Group SPA
(textiles & apparel)................................. 1,000 11,901
Credito Italiano SPA
(banking)............................................ 12,000 13,986
Edison SPA
(energy sources)..................................... 4,000 17,237
Fiat SPA
(automobiles)........................................ 25,000 81,270
Fiat SPA di Risp
(automobiles)........................................ 6,000 10,603
Istituto Bancario San Paolo di Torina SPA
(banking)............................................ 9,000 53,298
Italgas SPA
(utilities-electrical & gas)......................... 5,000 15,214
Mediobanca SPA
(financial services)................................. 10,000 69,268
Montedison SPA
(multi-industry) (a)................................. 31,000 20,780
Olivetti Group
(data processing &
reproduction) (a).................................... 30,000 24,060
Parmalat Finanziaria SPA
(food & household products).......................... 9,000 7,813
Pirelli SPA
(industrial components).............................. 8,000 10,332
Riunione Adriatica di Sicurta SPA
(insurance).......................................... 2,000 22,737
Sirti SPA
(construction & housing)............................. 3,000 16,859
Telecom Italia di Risp
(telecommunications)................................. 8,000 9,788
Telecom Italia SPA
(telecommunications)................................. 47,000 73,137
Telecom Italia Mobile di Risp
(telecommunications) (a)............................. 6,000 6,312
Telecom Italia Mobile SPA
(telecommunications) (a)............................. 45,000 79,238
------------
727,774
------------
JAPAN (37.2%)
Ajinomoto Co., Inc.
(food & household products).......................... 3,000 33,444
Asahi Bank, Ltd.
(banking)............................................ 7,000 88,215
Asahi Chemical Industry Co., Ltd.
(chemicals).......................................... 10,000 76,583
Asahi Glass Co., Ltd.
(misc.-materials & components) 10,000 111,481
Bank of Tokyo
(banking)............................................ 7,000 122,823
</TABLE>
<TABLE>
<CAPTION>

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

JAPAN (Continued)
Bridgestone Corp.
(industrial components).............................. 3,000 $ 47,694
Canon, Inc.
(recreation & other
consumer goods)...................................... 3,000 54,383
Chiba Bank, Ltd.
(banking)............................................ 2,000 18,031
Dai-Ichi Kangyo Bank, Ltd.
(banking)............................................ 8,000 157,431
Dai Nippon Printing Co., Ltd.
(business & public services)......................... 4,000 67,858
Daiei, Inc.
(merchandising)...................................... 3,000 36,353
Fanuc Co., Ltd.
(electronic components & instruments)................ 1,000 43,332
Fuji Bank, Ltd.
(banking)............................................ 7,000 154,716
Fuji Photo Film Co., Ltd.
(recreation & other
consumer goods)...................................... 2,000 57,776
Fujitsu, Ltd.
(data processing & reproduction)..................... 8,000 89,185
Furukawa Electric Co., Ltd.
(industrial components).............................. 15,000 73,432
Hankyu Corp.
(transportation-road & rail) (a)..................... 3,000 16,431
Hitachi, Ltd.
(electrical & electronics)........................... 10,000 100,818
Honda Motor Co., Ltd.
(automobiles)........................................ 2,000 41,296
Industrial Bank of Japan, Ltd.
(banking)............................................ 6,000 182,053
Ito-Yokado Co., Ltd.
(merchandising)...................................... 2,000 123,308
Itochu Corp.
(wholesale &
international trade)................................. 30,000 202,120
Japan Air Lines Co., Ltd.
(transportation-airlines) (a)........................ 9,000 59,764
Japan Energy Corp.
(energy sources)..................................... 28,000 93,915
Joyo Bank, Ltd.
(banking)............................................ 3,000 24,138
Kajima Corp.
(construction & housing)............................. 2,000 19,776
Kansai Electric Power Co., Inc.
(utilities-electrical & gas)......................... 3,000 72,705
Kao Corp.
(food & household products).......................... 3,000 37,225
Kawasaki Steel Corp.
(metals-steel)....................................... 6,000 20,939
Kinki Nippon Railway Co., Ltd.
(transportation-road & rail)......................... 7,000 52,929
</TABLE>

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

69
<PAGE>

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

JAPAN (Continued)
Kirin Brewery Co., Ltd.
(beverages & tobacco)................................ 6,000 $ 70,960
Komatsu, Ltd.
(machinery & engineering)............................ 3,000 24,720
Kubota Corp.
(machinery & engineering)............................ 5,000 32,233
Marubeni Corp.
(wholesale &
international trade)................................. 5,000 27,095
Matsushita Electric Industrial
Co., Ltd.
(appliances &
household durables).................................. 8,000 130,287
Mitsubishi Chemical Corp. (chemicals)................. 10,000 48,664
Mitsubishi Corp.
(multi-industry)..................................... 5,000 61,557
Mitsubishi Estate Co., Ltd. (construction & housing).. 3,000 37,516
Mitsubishi Heavy Industries, Ltd. (machinery &
engineering)......................................... 15,000 119,672
Mitsubishi Trust & Banking Corp. (financial services). 4,000 66,695
Mitsui Engineering & Shipbuilding Co., Ltd.
(machinery & engineering) (a)........................ 21,000 58,426
Mitsui Fudosan Co., Ltd. (construction & housing)..... 2,000 24,623
Mitsui Trust & Banking Co., Ltd. (financial services). 3,000 32,863
Mitsukoshi, Ltd.
(merchandising)...................................... 3,000 28,210
NEC Corp.
(electrical & electronics)........................... 7,000 85,501
New Oji Paper Co., Ltd.
(forest products & paper)............................ 2,000 18,108
Nippon Express Co., Ltd. (transportation-road & rail). 3,000 28,908
Nippon Paper Industries Co.
(forest products & paper)............................ 6,000 41,704
Nippon Steel Corp.
(metals-steel)....................................... 11,000 37,748
Nippon Yusen Kabushiki Kaish (transportation-
shipping)............................................ 5,000 29,034
Nippondenso Co., Ltd.
(industrial components).............................. 2,000 37,419
Nissan Motor Co., Ltd.
(automobiles)........................................ 5,000 38,437
NKK Corp.
(metals-steel) (a)................................... 10,000 26,949
Nomura Securities Co., Ltd.
(financial services)................................. 4,000 87,246
Obayashi Corp.
(construction & housing)............................. 5,000 39,745
Osaka Gas Co., Ltd.
(utilities-electrical & gas)......................... 6,000 20,765
</TABLE>
<TABLE>
<CAPTION>

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

JAPAN (Continued)
Sakura Bank, Ltd.
(banking)............................................ 9,000 $ 114,292
Sankyo Co., Ltd.
(health & personal care)............................. 1,000 22,490
Sanyo Electric Co., Ltd.
(appliances &
household durables).................................. 6,000 34,608
Sekisui Chemical Co.
(building materials & components).................... 2,000 29,470
Sekisui House, Ltd.
(construction & housing)............................. 2,000 25,592
Seven-Eleven of Japan Co., Ltd.
(merchandising)...................................... 1,000 70,572
Shimizu Corp.
(construction & housing)............................. 4,000 40,715
Sony Corp.
(appliances &
household durables).................................. 1,000 60,006
Sumitomo Bank, Ltd.
(banking)............................................ 8,000 169,839
Sumitomo Chemical Co., Ltd. (chemicals)............... 6,000 29,955
Sumitomo Corp.
(wholesale & international trade).................... 3,000 30,536
Sumitomo Electric Industries, Ltd. (industrial
components).......................................... 2,000 24,041
Sumitomo Marine & Fire Insurance Co., Ltd.
(insurance).......................................... 2,000 16,441
Sumitomo Metal Industries, Ltd. (metals-steel)........ 8,000 24,274
Sumitomo Metal Mining Co., Ltd. (metals-nonferrous)... 2,000 17,992
Taisei Corp.
(construction & housing)............................. 7,000 46,754
Taisho Pharmaceutical Co., Ltd. (health & personal
care)................................................ 1,000 19,776
Takeda Chemical Industries, Ltd. (health & personal
care)................................................ 6,000 98,879
Teijin, Ltd.
(chemicals).......................................... 15,000 76,776
Tobu Railway Co., Ltd. (transportation-road & rail)... 3,000 18,787
Tohoku Electric Power Co., Inc. (utilities-electrical
& gas)............................................... 1,010 24,379
Tokai Bank, Ltd.
(banking)............................................ 9,000 125,634
Tokio Marine & Fire Insurance Co., Ltd.
(insurance).......................................... 3,000 39,261
Tokyo Dome Corp.
(leisure & tourism).................................. 1,000 17,158
Tokyo Electric Power Co., Inc.
(utilities-electrical & gas)......................... 3,000 80,266
</TABLE>

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

70
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

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

JAPAN (Continued)
Tokyo Gas Co., Ltd.
(utilities-electrical & gas)......................... 15,000 $ 52,929
Tokyu Corp
(transportation-road & rail)......................... 5,000 35,335
Toppan Printing Co., Ltd.
(business & public services)......................... 8,000 105,471
Tostem Corp.
(building materials & components).................... 1,000 33,250
Toto, Ltd.
(building materials & components).................... 1,000 13,959
Toyota Motor Corp. (automobiles)...................... 12,000 254,758
Yamaichi Securities Co., Ltd. (financial services).... 12,000 93,411
Yamanouchi Pharmaceutical
Co., Ltd.
(health & personal care)............................. 1,000 21,521
Yamazaki Baking Co., Ltd.
(food & household products).......................... 1,000 18,612
Yasuda Trust & Banking Co., Ltd.
(financial services)................................. 3,000 17,769
------------
5,440,747
------------
NETHERLANDS (2.0%)
Elsevier NV
(broadcasting & publishing).......................... 1,500 20,025
Internationale Nederlanden
Groep NV
(insurance).......................................... 500 33,438
Koninklijke PTT Nederland NV (forest products &
paper)............................................... 1,000 36,370
Philips Electronics NV
(appliances &
household durables).................................. 600 21,709
Royal Dutch Petroleum Co.
(energy sources)..................................... 900 125,877
Unilever NV
(food & household products).......................... 300 42,202
Wolters Kluwer CVA
(broadcasting & publishing).......................... 100 9,470
------------
289,091
------------
NEW ZEALAND (1.8%)
Brierley Investments Ltd.
(multi-industry)..................................... 35,900 28,398
Carter Holt Harvey Ltd.
(forest products & paper)............................ 26,400 56,955
Fletcher Challenge Ltd.
(forest products & paper)............................ 19,900 45,924
Lion Nathan Ltd.
(beverages & tobacco)................................ 9,300 22,192
Telecom Corp. of New Zealand Ltd.
(telecommunications)................................. 25,100 108,301
------------
261,770
------------
</TABLE>
<TABLE>
<CAPTION>

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

NORWAY (2.6%)
Bergesen d.y. AS Class A (transportation-shipping).... 900 $ 17,949
Bergesen d.y. AS Class B (transportation-shipping).... 500 9,813
Dyno Industrier AS
(chemicals).......................................... 500 11,713
Hafslund Nycomed AS Class A
(health & personal care)............................. 1,000 26,196
Hafslund Nycomed AS Class B
(health & personal care)............................. 600 15,243
Kvaerner AS Class B
(machinery & engineering)............................ 400 13,422
Norsk Hydro AS
(energy sources)..................................... 4,700 197,884
Norske Skogindustrier AS Class A
(forest products & paper)............................ 1,300 38,273
Orkla Borregaard AS Class A
(multi-industry)..................................... 900 44,873
------------
375,366
------------
SINGAPORE (3.2%)
City Developments, Ltd.
(real estate)........................................ 6,000 43,692
DBS Land, Ltd.
(real estate)........................................ 10,000 33,794
Development Bank of Singapore, Ltd. Foreign Registered
(banking)............................................ 5,000 62,214
Fraser & Neave, Ltd.
(beverages & tobacco)................................ 2,000 25,451
Keppel Corp., Ltd.
(machinery & engineering)............................ 5,000 44,540
Oversea-Chinese Banking Corp., Ltd. Foreign Registered
(banking)............................................ 6,000 75,081
Singapore Airlines, Ltd.
Foreign Registered
(transportation-airlines)............................ 8,000 74,657
Singapore Press Holdings, Ltd.
Foreign Registered
(broadcasting & publishing).......................... 2,400 42,419
Straits Steamship Land, Ltd.
(multi-industry)..................................... 5,000 16,897
United Overseas Bank, Ltd.
Foreign Registered
(banking)............................................ 5,000 48,075
------------
466,820
------------
SPAIN (2.9%)
Acerinox, SA
(metals-steel)....................................... 110 11,126
Autopistas Concesionaria
Espanola, SA
(business & public services)......................... 1,376 15,652
Banco Bilbao Vizcaya, SA
(banking)............................................ 1,220 43,947
</TABLE>

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 (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

SPAIN (Continued)
Banco Central
Hispanoamericano, SA
(banking)............................................ 680 $ 13,789
Banco Santander, SA
(banking)............................................ 800 40,160
Corporacion Bancaria
de Espana, SA
(banking)............................................ 740 30,499
Corporacion Mapfre CIA Internacional de Reaseguros, SA
(insurance).......................................... 220 12,313
Empresa Nacional de
Electricidad, SA
(utilities-electrical & gas)......................... 1,250 70,787
Fomento de Construcciones y Contratas, SA
(construction & housing)............................. 90 6,899
Gas Natural SDG, SA
(utilities-electrical & gas)......................... 180 28,043
Iberdrola, SA
(utilities-electrical & gas)......................... 4,680 42,821
Repsol, SA
(energy sources)..................................... 1,510 49,476
Telefonica de Espana
(telecommunications)................................. 4,440 61,486
------------
426,998
------------
UNITED KINGDOM (8.8%)
Abbey National Plc
(banking)............................................ 2,420 23,896
Barclays Plc
(banking)............................................ 5,710 65,515
Bass British Plc
(beverages & tobacco)................................ 1,680 18,754
BAT Industries Plc
(beverages & tobacco)................................ 6,600 58,153
BOC Group Plc
(chemicals).......................................... 1,188 16,619
Boots Co. Plc
(merchandising)...................................... 1,707 15,531
British Airways Plc
(transportation-airlines)............................ 1,460 10,563
British Gas Plc
(energy sources)..................................... 11,990 47,284
British Petroleum Co. Plc
(energy sources)..................................... 9,837 82,321
British Telecommunications Plc
(telecommunications)................................. 11,110 61,063
BTR Plc
(multi-industry)..................................... 12,800 65,383
Cable & Wireless Plc
(telecommunications)................................. 3,990 28,497
Commercial Union Plc
(insurance).......................................... 1,740 16,966
Forte Plc
(leisure & tourism).................................. 1,658 8,508
General Electric Co. Plc
(electrical & electronics)........................... 8,620 47,511
</TABLE>
<TABLE>
<CAPTION>

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

UNITED KINGDOM (Continued)
GKN Plc
(machinery & engineering)............................ 647 $ 7,825
Glaxo Wellcome Plc
(health & personal care)............................. 6,800 96,603
Grand Metropolitan Plc
(multi-industry)..................................... 3,892 28,038
Great Universal Stores Plc
(merchandising)...................................... 890 9,466
Guinness Plc
(beverages & tobacco)................................ 2,990 22,004
Hanson Trust Plc
(multi-industry)..................................... 6,248 18,674
HSBC Holdings Plc (GBP par)
(financial services)................................. 1,212 18,930
Imperial Chemical Industries Plc
(chemicals).......................................... 830 9,833
Kingfisher Plc
(merchandising)...................................... 1,090 9,173
Lloyds TSB Group Plc
(banking)............................................ 12,655 65,132
Marks & Spencer Plc
(merchandising)...................................... 10,140 70,845
MEPC Plc
(real estate)........................................ 1,050 6,439
National Power Plc
(utilities-electrical & gas)......................... 1,700 11,864
Peninsular & Oriental Steam Navigation Co. Deferred
Stock
(transportation-shipping)............................ 1,264 9,342
Prudential Corp. Plc
(insurance).......................................... 4,040 26,031
Rank Organisation Plc
(leisure & tourism).................................. 1,920 13,892
Redland Plc
(building materials & components).................... 1,573 9,500
Reed International Plc
(broadcasting & publishing).......................... 5,590 85,228
Reuters Holdings Plc
(broadcasting & publishing).......................... 1,850 16,947
RMC Group Plc
(building materials & components).................... 700 10,770
RTZ Corp. Plc
(metals-nonferrous).................................. 1,540 22,380
Sainsbury Plc
(merchandising)...................................... 2,840 17,329
Scottish Power Plc
(utilities-electrical & gas)......................... 7,100 40,787
Thorn Emi Plc
(appliances &
household durables).................................. 990 23,317
Unilever Plc
(food & household products).......................... 2,820 57,925
Vodafone Group Plc
(multi-industry)..................................... 3,928 14,057
------------
1,288,895
------------
Total Common Stocks
(Cost $13,161,054)................................... 13,306,908
------------
</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.

PREFERRED STOCK (0.1%)

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

AUSTRIA (0.1%)
Creditanstalt-Bankverein Vorzug
(banking)........................................ 250 $ 12,860
------------
Total Preferred Stock
(Cost $14,627)................................... 12,860
------------
SHORT-TERM
INVESTMENT (4.8%)
<CAPTION>
PRINCIPAL
AMOUNT
--------------
<S> <C> <C>

COMMERCIAL PAPER (4.8%)
Gillette Co.
5.75%, due 1/4/96................................ $ 700,000 699,665
------------
Total Short-Term Investment
(Cost $699,665).................................. 699,665
------------
Total Investments
(Cost $13,875,346) (b)........................... 95.8% 14,019,433 (c)
Cash and Other Assets,
Less Liabilities................................. 4.2 611,277
----------- ------------
Net Assets........................................ 100.0% $ 14,630,710
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) The cost for Federal income tax purposes is $13,913,478.
(c) At December 31, 1995 net unrealized appreciation for securities was
$105,955, 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 $571,532 and aggregate gross
unrealized depreciation for all investments on which there was an excess of
cost over market value of $465,577.

(d) Forward Foreign Currency Contracts Open at December 31, 1995:

<TABLE>
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- ---------------- --------------- -------- ------------
<S> <C> <C> <C>
BF 13,887,466 DM 675,442 1/30/96 $ 757
DM 1,414,750 $ 1,003,324 1/5/96 14,112
DM 478,233 IL 543,000,000 1/23/96 5,943
DM 871,302 FF 3,030,000 2/2/96 9,246
DM 215,264 $ 155,000 2/5/96 4,108
DM 213,203 DK 830,000 2/9/96 485
DM 996,460 $ 709,184 4/18/96 9,129
DM 1,055,000 $ 751,763 5/3/96 10,033
IL 545,000,000 DM 488,640 1/23/96 93
IL 270,800,000 DM 241,174 4/23/96 1,310
(Yen)371,852,000 $ 3,685,125 2/5/96 59,940
(Yen) 48,655,200 $ 485,000 7/2/96 1,075
N$ 410,875 $ 269,945 2/7/96 2,202
(Pounds) 238,000 DM 529,933 1/3/96 980
$ 570,000 DM 828,837 1/5/96 9,534
$ 370,000 A$ 502,717 2/26/96 2,894
$ 280,000 A$ 378,420 4/2/96 266
-------
132,107
-------
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE DEPRECIATION
- ---------------- --------------- -------- ------------
<S> <C> <C> <C>
A$ 520,000 $ 384,800 2/26/96 914
DK 1,545,000 DM 397,070 2/9/96 760
DM 534,310 (Pounds)238,000 1/3/96 4,039
DM 1,952,993 $ 1,340,751 1/5/96 24,807
DM 370,000 $ 250,110 2/5/96 9,246
DM 1,687,952 $ 1,151,753 2/21/96 31,246
DM 679,879 $ 470,000 3/25/96 7,078
DM 531,600 (Pounds)240,000 4/2/96 1,394
FF 3,945,000 DM 1,129,612 2/2/96 15,408
-------
94,892
-------
Net Appreciation..................................... $37,215
=======
</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)
December 31, 1995

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

(e) Foreign cash held at December 31, 1995:

<TABLE>
<CAPTION>
CURRENCY COST VALUE
- --------------- -------- --------
<S> <C> <C>
A$ 6,942 $ 5,210 $ 5,164
AS 2,714 270 269
BF 125,783 4,385 5,258
DK 5,202 931 939
DM 537,187 373,957 372,930
FF 4,323 884 884
HK 36,922 4,775 4,775
IL 397,662 249 909
(Yen) 126,306 1,239 1,224
NG 377 233 235
N$ 7,745 5,035 5,064
(Pounds)140,163 217,652 218,051
S$ 3,051 2,168 2,157
SP 388,273 3,220 3,200
-------- --------
$620,208 $621,059
======== ========
</TABLE>
(f) The following abbreviations are used in footnotes (d) and (e):

A$--Australian Dollar
AS--Austrian Schilling
BF--Belgian Franc
DK--Danish Krone
DM--Deutsche Mark
FF--French Franc
HK--Hong Kong Dollar
IL--Italian Lira
(Yen)--Japanese Yen
NG--Netherland Guilder
N$--New Zealand Dollar
(Pounds)--Pound Sterling
S$--Singapore Dollar
SP--Spanish Peseta
$--U.S. Dollar
COMMON STOCKS,PREFERRED STOCK &SHORT-TERM INVESTMENT

<TABLE>
<CAPTION>
VALUE PERCENT +
---------------------------------------------------------
<S> <C> <C>
Aerospace & Military Technology........................... $ 11,288 0.1%
Appliances & Household Durables........................... 269,928 1.8
Automobiles............................................... 513,377 3.5
Banking................................................... 2,389,784 16.3
Beverages & Tobacco....................................... 396,602 2.7
Broadcasting & Publishing................................. 205,670 1.4
Building Materials & Components........................... 252,328 1.7
Business & Public Services................................ 303,789 2.1
Chemicals................................................. 518,414 3.5
Construction & Housing.................................... 258,479 1.8
Data Processing & Reproduction............................ 113,244 0.8
Electrical & Electronics.................................. 345,051 2.4
Electronic Components
& Instruments............................................ 43,332 0.3
Energy Sources............................................ 1,013,175 6.9
Financial Services........................................ 386,183 2.6
Food & Household Products................................. 376,117 2.6
Forest Products & Paper................................... 262,067 1.8
Health & Personal Care.................................... 1,178,233 8.1
Industrial Components..................................... 209,399 1.4
Insurance................................................. 641,259 4.4
Leisure & Tourism......................................... 39,558 0.3
Machinery & Engineering................................... 367,483 2.5
Merchandising............................................. 531,132 3.6
Metals-Nonferrous......................................... 133,648 0.9
Metals-Steel.............................................. 130,140 0.9
Miscellaneous-Materials
& Commodities............................................ 74,810 0.5
Miscellaneous-Materials
& Components............................................. 111,481 0.8
Multi-Industry............................................ 627,082 4.3
Real Estate............................................... 224,556 1.5
Recreation & Other
Consumer Goods........................................... 112,159 0.8
Telecommunications........................................ 555,317 3.8
Textiles & Apparel........................................ 11,901 0.1
Tire & Rubber............................................. 12,779 0.1
Transportation-Airlines................................... 153,301 1.0
Transportation-Road & Rail................................ 152,390 1.0
Transportation-Shipping................................... 132,001 0.9
Utilities-Electrical & Gas................................ 702,225 4.8
Wholesale & International Trade........................... 259,751 1.8
----------- -----
14,019,433 95.8
Cash and Other Assets,
Less Liabilities......................................... 611,277 4.2
----------- -----
Net Assets................................................ $14,630,710 100.0%
=========== =====
</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.

74
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the period May 1, 1995
(Commencement of Operations) through
December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2) (identified cost
$13,875,346)................................................... $ 14,019,433
Cash denominated in foreign currencies (identified cost
$620,208)...................................................... 621,059
Cash............................................................ 338,644
Receivables:
Fund shares sold................................................ 89,622
NYLIAC.......................................................... 36,292
Dividends and interest.......................................... 17,907
Unrealized appreciation on foreign
currency contracts............................................. 132,107
Unamortized organization expense
(Note 2)....................................................... 63,674
Other assets.................................................... 27
------------
Total assets.................................................. 15,318,765
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 484,469
Organization.................................................... 72,839
Recordkeeping................................................... 7,986
Adviser......................................................... 7,110
Custodian....................................................... 6,000
Administrator................................................... 1,185
Directors....................................................... 216
Accrued expenses................................................ 13,358
Unrealized depreciation on foreign
currency contracts............................................. 94,892
------------
Total liabilities............................................. 688,055
------------
Net assets applicable to
outstanding shares............................................. $ 14,630,710
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized.................................. $ 14,350
Additional paid-in capital...................................... 14,372,208
Accumulated net realized loss
on investments................................................. (41,301)
Accumulated undistributed net realized gain on foreign currency
transactions................................................... 104,839
Net unrealized appreciation
on investments................................................. 144,087
Net unrealized appreciation on
translation of assets and liabilities in
foreign currencies............................................. 36,527
------------
Net assets applicable to
outstanding shares............................................. $ 14,630,710
============
Shares of capital stock outstanding............................. 1,434,988
============
Net asset value per share outstanding........................... $ 10.20
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................. $ 112,707
Interest....................................................... 44,585
------------
Total income................................................. 157,292
------------
Expenses: (Note 2)
Recordkeeping.................................................. 58,465
Advisory (Note 3).............................................. 46,344
Custodian...................................................... 30,110
Administration (Note 3)........................................ 15,448
Auditing....................................................... 11,515
Shareholder communication...................................... 11,241
Amortization of organization expense........................... 9,826
Portfolio pricing.............................................. 9,242
Directors...................................................... 610
Legal.......................................................... 344
Miscellaneous.................................................. 565
------------
Total expenses
before reimbursement........................................ 193,710
Expense reimbursement from
Administrator (Note 3)........................................ (118,787)
------------
Net expenses................................................. 74,923
------------
Net investment income.......................................... 82,369
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions.......................................... (41,301)
Foreign currency transactions.................................. 702,174
------------
Net realized gain on investments and foreign currency
transactions.................................................. 660,873
------------
Net unrealized appreciation
on investments:
Security transactions.......................................... 144,087
Translation of assets and liabilities in
foreign currencies............................................ 36,527
------------
Net unrealized gain on investments and
foreign currencies............................................ 180,614
------------
Net realized and unrealized gain
on investments and foreign
currency transactions......................................... 841,487
------------
Net increase in net assets resulting
from operations............................................... $ 923,856
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$14,704.

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
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1995 (Commencement of Operations) through December 31,
1995

<TABLE>
<CAPTION>
1995
--------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................................... $ 82,369
Net realized loss on investments................................ (41,301)
Net realized gain on foreign currency transactions.............. 702,174
Net unrealized appreciation on investments...................... 144,087
Net unrealized appreciation on translation of assets and liabil-
ities in foreign currencies.................................... 36,527
------------
Net increase in net assets resulting from operations............ 923,856
------------
Dividends and distributions to shareholders:
From net investment income...................................... (82,369)
From net realized gain on investments and foreign currency
transactions................................................... (597,335)
------------
Total dividends and distributions to shareholders.............. (679,704)
------------
Capital share transactions:
Net proceeds from sale of shares................................ 4,168,978
Net asset value of shares issued to shareholders in reinvestment
of dividends................................................... 679,704
------------
4,848,682
Cost of shares redeemed......................................... (462,124)
------------
Increase in net assets derived from capital share transactions. 4,386,558
------------
Net increase in net assets..................................... 4,630,710
NET ASSETS:
Beginning of period............................................. 10,000,000
------------
End of period................................................... $ 14,630,710
============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1
1995 (A)
THROUGH
DECEMBER 31,
1995
---------
<S> <C>
Net asset value at beginning of period.......................... $ 10.00
------------
Net investment income........................................... 0.64
Net realized and unrealized gain on investments................. 0.01
Net realized and unrealized gain on foreign currency transac-
tions.......................................................... 0.05
------------
Total from investment operations................................ 0.70
------------
Less dividends and distributions:
From net investment income..................................... (0.06)
From net realized gain on investments and foreign currency
transactions.................................................. (0.44)
------------
Total dividends and distributions:.............................. (0.50)
------------
Net asset value at end of period................................ $ 10.20
============
Total investment return (b)..................................... 6.96%
Ratios (to average net assets)/Supplemental Data:
Net investment income.......................................... 1.07%+
Net expenses................................................... 0.97%+
Expenses (before reimbursement)................................ 2.51%+
Portfolio turnover rate......................................... 14%
Net assets at end of period (in 000's).......................... $ 14,631
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.

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

76
<PAGE>

TOTAL RETURN PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995

LONG-TERM BONDS (39.8%)+
ASSET-BACKED SECURITIES (3.5%)

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

AUTO LEASES (0.3%)
Ford Credit Auto Lease Trust
Series 1995-1 Class A2
6.35%, due 10/15/98 ................................. $ 600,000 $ 604,878
------------
AUTO LOANS (1.1%)
Ford Credit Grantor Trust
Series 1995-B Class A
5.90%, due 10/15/00.................................. 802,467 805,998
NationsBank Auto Grantor Trust
Series 1995-A Class A
5.85%, due 6/15/02................................... 1,084,809 1,088,877
Union Acceptance Corp.
Series 1995-B Class A
6.575%, due 7/10/02.................................. 217,414 220,199
------------
2,115,074
------------
CREDIT CARD
RECEIVABLES (1.1%)
American Express Master Trust
Series 1992-1 Class A
6.05%, due 6/15/98................................... 400,000 403,320
Chemical Master Credit Card Trust 1
Series 1995-3 Class A
6.23%, due 4/15/05................................... 1,075,000 1,098,263
Standard Credit Card Master Trust
Series 1995-4 Class A
5.975%, due 2/15/00 (d).............................. 725,000 725,000
------------
2,226,583
------------
HOME EQUITY LOANS (1.0%)
Contitrade Services Home Equity Loan Trust
Series 1991-1 Class A
8.80%, due 1/15/06................................... 408,370 421,768
EQCC Home Equity Loan Trust
Series 1995-3 Class A1
6.25%, due 10/15/03.................................. 486,035 487,590
Green Tree Home Improvement Loan Trust
Series 1995-D Class A1
6.05%, due 9/15/25................................... 563,610 565,020
Series 1995-C Class A1
6.20%, due 7/15/20................................... 390,899 392,122
------------
1,866,500
------------
Total Asset-Backed Securities
(Cost $6,757,760).................................... 6,813,035
------------
CORPORATE BONDS (2.3%)
BANKS (1.2%)
First Union Bancorp
7.50%, due 4/15/35................................... 600,000 664,938
Regions Financial Corp.
7.75%, due 9/15/24................................... 1,125,000 1,266,289
</TABLE>

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

BANKS (Continued)
Southtrust Bank
Birmingham, Alabama
7.69%, due 5/15/25.................................. $ 400,000 $ 449,296
------------
2,380,523
------------
BROKERAGE (0.1%)
Smith Barney Holdings Inc.
7.98%, due 3/1/00................................... 250,000 268,052
------------
FINANCE (1.0%)
Associates Corp. of North America
7.75%, due 2/15/05.................................. 1,450,000 1,614,952
General Motors Acceptance Corp.
9.625%, due 12/15/01................................ 300,000 352,908
------------
1,967,860
------------
Total Corporate Bonds
(Cost $4,432,622)................................... 4,616,435
U.S. GOVERNMENT & ------------
FEDERAL AGENCIES (31.4%)
FEDERAL AGENCY (0.2%)
Tennessee Valley Authority
8.25%, due 4/15/42.................................. 315,000 374,163
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION (0.7%)
7.09%, due 6/1/05................................... 725,000 751,455
8.19%, due 10/6/04.................................. 600,000 646,044
------------
1,397,499
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (MORTGAGE
PASS-THROUGH SECURITY) (0.8%)
6.00%, due 8/1/24................................... 1,549,307 1,500,644
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION GOLD (MORTGAGE
PASS-THROUGH SECURITIES) (2.6%)
6.00%, due 2/20/26 TBA (b).......................... 2,300,000 2,225,250
7.00%, due 2/13/26 TBA (b).......................... 2,850,000 2,871,375
------------
5,096,625
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (1.7%)
6.25%, due 8/12/03.................................. 625,000 621,856
7.85%, due 9/10/04.................................. 525,000 559,466
8.50%, due 2/1/05................................... 2,000,000 2,188,160
------------
3,369,482
------------
</TABLE>

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

77
<PAGE>

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
YANKEE BONDS (2.6%)

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

FEDERAL NATIONAL MORTGAGE ASSOCIATION (COLLATERALIZED
MORTGAGE
OBLIGATIONS) (0.5%)
Series 1993-76 Class B
6.00%, due 6/25/08................................... $ 522,941 $ 494,995
Series 1993-89 Class D
7.00%, due 6/25/23................................... 475,000 458,152
-----------
953,147
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (MEDIUM-TERM
NOTE) (0.2%)
7.21%, due 8/18/05................................... 375,000 390,986
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITY) (2.0%)
7.00%, due 2/15/11 TBA (b)........................... 3,895,000 3,962,539
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (MORTGAGE
PASS-
THROUGH SECURITIES) (5.4%)
5.50%, due 2/22/26 ARM
TBA (b)(f)........................................... 3,125,000 3,125,000
7.50%, due 2/20/26 TBA (b)........................... 1,760,000 1,807,854
8.00%, due 2/20/26 TBA (b)........................... 5,480,000 5,699,200
-----------
10,632,054
-----------
UNITED STATES TREASURY BONDS (4.0%)
6.875%, due 8/15/25.................................. 2,860,000 3,225,537
7.625%, due 2/15/25.................................. 2,640,000 3,228,218
11.625%, due 11/15/04................................ 895,000 1,266,702
-----------
7,720,457
-----------
UNITED STATES TREASURY NOTES (13.3%)
5.625%, due 6/30/97 (c).............................. 7,300,000 7,345,625
5.625%, due 11/30/00................................. 5,500,000 5,549,830
6.375%, due 8/15/02.................................. 1,025,000 1,074,805
7.875%, due 11/15/04................................. 2,075,000 2,401,813
8.125%, due 2/15/98 (c).............................. 8,400,000 8,883,000
8.875%, due 2/15/99.................................. 525,000 578,813
-----------
25,833,886
-----------
Total U.S. Government &
Federal Agencies
(Cost $59,878,300)................................... 61,231,482
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------------------
<S> <C> <C>

African Development Bank
6.875%, due 10/15/15................................. $ 475,000 $ 488,452
BCH Cayman Islands
8.25%, due 6/15/04................................... 675,000 741,865
Celulosa Arauco y Constitucion S.A.
6.75%, due 12/15/03.................................. 705,000 708,271
China International Trust & Investing Corp.
9.00%, due 10/15/06.................................. 525,000 594,809
Dresdner Bank-New York
7.25%, due 9/15/15................................... 750,000 800,198
Grand Metropolitan
Investment Corp.
7.45%, due 4/15/35................................... 600,000 670,542
Republic of Italy
6.875%, due 9/27/23.................................. 550,000 536,630
Wharf Capital International Ltd.
8.875%, due 11/1/04.................................. 375,000 402,709
------------
Total Yankee Bonds
(Cost $4,731,245).................................... 4,943,476
------------
Total Long-Term Bonds
COMMON(STOCKSC(54.0%)ost $75,799,927)................................... 77,604,428
------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
AIRLINES (0.6%)
Atlantic Southeast Airlines, Inc. .................... 18,000 387,000
Southwest Airlines Co. ............................... 33,450 777,712
------------
1,164,712
------------
AUTO PARTS (0.5%)
Lear Seating Corp. (a)................................ 35,000 1,015,000
------------
BANKS (2.8%)
Bank of New York Co., Inc. ........................... 32,900 1,603,875
Barnett Banks, Inc. .................................. 23,500 1,386,500
First Interstate Bancorp.............................. 15,800 2,156,700
NationsBank Corp. .................................... 3,100 215,838
------------
5,362,913
------------
BROKERAGE (0.2%)
Schwab (Charles) Corp. ............................... 14,700 295,837
------------
BUILDINGS (0.9%)
Lennar Corp. ......................................... 17,200 432,150
Oakwood Homes Corp. .................................. 32,200 1,235,675
------------
1,667,825
------------
COMMERCIAL SERVICES (0.6%)
Service Corp. International........................... 26,000 1,144,000
------------
COMPUTERS & OFFICE EQUIPMENT (4.1%)
Alco Standard Corp. .................................. 53,600 2,445,500
Danka Business Systems Plc ADR (e) 33,300 1,232,100
</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.

COMMON STOCKS (CONTINUED)

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

COMPUTERS & OFFICE EQUIPMENT (Continued)
EMC Corp. (a)......................................... 35,000 $ 538,125
Hewlett-Packard Co. .................................. 16,700 1,398,625
Seagate Technology, Inc. (a).......................... 13,500 641,250
Sun Microsystems, Inc. (a)............................ 39,800 1,815,875
------------
8,071,475
------------
CONSUMER DURABLES (0.7%)
Black & Decker Corp. ................................. 37,600 1,325,400
------------
CONSUMER FINANCIAL SERVICES (0.7%)
First Data Corp. ..................................... 20,600 1,377,625
------------
CONSUMER SERVICES (0.1%)
CUC International, Inc. (a)........................... 6,400 218,400
------------
DRUGS (5.7%)
Amgen, Inc. (a)....................................... 49,400 2,933,125
Elan Corp. Plc ADR (a)(e)............................. 25,400 1,235,075
Genzyme Corp. (a)..................................... 22,100 1,378,487
Mylan Laboratories, Inc. ............................. 60,500 1,421,750
Pharmacia & Upjohn, Inc. ............................. 32,000 1,240,000
Schering-Plough Corp. ................................ 30,400 1,664,400
Teva Pharmaceutical Industries Ltd. ADR (e)........... 26,500 1,228,938
------------
11,101,775
------------
ELECTRONICS (0.8%)
General Instrument Corp. (a).......................... 15,500 362,313
Vishay Intertechnology, Inc. (a)...................... 40,374 1,271,781
------------
1,634,094
------------
FINANCE (4.8%)
Federal National
Mortgage Association................................. 12,700 1,576,387
Green Tree Financial Corp. ........................... 96,000 2,532,000
Household International Inc. ......................... 28,800 1,702,800
MGIC Investment Corp. ................................ 24,200 1,312,850
Travelers Group, Inc. ................................ 34,200 2,150,325
------------
9,274,362
------------
FINANCIAL SERVICES (1.9%)
First USA, Inc. ...................................... 34,000 1,508,750
SunAmerica Inc. ...................................... 47,250 2,244,375
------------
3,753,125
------------
HEALTH CARE (2.9%)
Columbia/HCA Healthcare Corp. ........................ 32,369 1,642,727
HealthCare COMPARE Corp. (a).......................... 18,900 822,150
Humana, Inc. (a)...................................... 37,000 1,012,875
United Healthcare Corp. .............................. 34,400 2,253,200
------------
5,730,952
------------
</TABLE>

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

HOSPITAL MANAGEMENT
& SERVICES (1.3%)
HEALTHSOUTH Corp. (a)................................. 42,500 $ 1,237,812
OrNda HealthCorp (a).................................. 37,200 864,900
Unison HealthCare Corp. (a)........................... 51,000 478,125
------------
2,580,837
------------
HOUSEHOLD PRODUCTS (0.1%)
Singer Company N.V. (The)............................. 3,600 100,350
------------
INSURANCE (1.1%)
American International Group, Inc. 24,150 2,233,875
------------
MEDIA (0.9%)
Viacom Inc. Class A (a)............................... 3,288 150,837
Viacom Inc. Class B (a)............................... 32,112 1,521,306
------------
1,672,143
------------
MEDICAL EQUIPMENT (2.4%)
Cordis Corp. (a)...................................... 19,300 1,939,650
Medtronic, Inc. ...................................... 40,200 2,246,175
Waters Corp. (a)...................................... 32,500 593,125
------------
4,778,950
------------
OIL & GAS
EXPLORATION (0.8%)
Triton Energy Corp. (a)............................... 27,300 1,566,338
------------
PUBLISHING (0.6%)
News Corp. Ltd. ADR (e)............................... 52,900 1,130,737
------------
RESTAURANTS &
LODGING (2.3%)
HFS, Inc. (a)......................................... 43,700 3,572,475
Lone Star Steakhouse &
Saloon, Inc. (a)..................................... 25,000 959,375
------------
4,531,850
------------
RETAIL (4.7%)
Bed, Bath & Beyond, Inc. (a).......................... 10,000 388,125
Cato Corp. Class A.................................... 26,000 201,500
Circuit City Stores, Inc. ............................ 30,500 842,562
Gymboree Corp. (a).................................... 27,000 556,875
Home Depot, Inc. (The)................................ 26,500 1,268,688
Kohl's Corp. (a)...................................... 17,100 897,750
Kroger Co. (The) (a).................................. 38,800 1,455,000
Lowe's Companies, Inc. ............................... 47,000 1,574,500
Office Depot, Inc. (a)................................ 48,950 966,762
Sunglass Hut International, Inc. (a).................. 39,000 926,250
------------
9,078,012
------------
SOFTWARE (1.6%)
Computer Associates
International, Inc. ................................. 45,900 2,610,563
Microsoft Corp. (a)................................... 6,800 596,700
------------
3,207,263
------------
</TABLE>

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

79
<PAGE>

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED) SHORT-TERMINVESTMENTS (14.5%)

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

TECHNOLOGY (7.0%)
General Motors Corp. Class E........................... 20,000 $ 1,040,000
Intel Corp. ........................................... 37,000 2,099,750
Lam Research Corp. (a)................................. 31,850 1,457,137
Linear Technology Corp. ............................... 28,000 1,099,000
Micron Technology Inc. ................................ 43,200 1,711,800
Motorola, Inc. ........................................ 17,500 997,500
Oracle Corp. (a)....................................... 42,250 1,790,344
3Com Corp. (a)......................................... 74,200 3,459,575
------------
13,655,106
------------
TELECOMMUNICATION SERVICES (1.3%)
Tele-Communications International, Inc. Class A (a).... 30,000 682,500
WorldCom, Inc. (a)..................................... 51,016 1,798,314
------------
2,480,814
------------
TEXTILE & APPAREL (1.7%)
Nine West Group, Inc. (a).............................. 37,700 1,413,750
Warnaco Group, Inc. (The)
Class A............................................... 43,000 1,075,000
Wolverine World Wide, Inc. ............................ 28,000 882,000
------------
3,370,750
------------
TURNKEY & SOFTWARE SYSTEMS (0.9%)
Sterling Software, Inc. (a)............................ 28,500 1,777,688
------------
Total Common Stocks
(Cost $74,592,643).................................... 105,302,208
PREFERRED STOCK (0.2%) ------------
PUBLISHING (0.2%)
News Corp. Ltd. ADR--
Preference Shares (e)................................. 18,900 363,825
------------
Total Preferred Stock
(Cost $302,632) ...................................... 363,825
------------
</TABLE>

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

COMMERCIAL PAPER (4.6%)
Chevron Oil Finance Co.
5.80%, due 1/3/96............................... $ 3,500,000 $ 3,500,000
Smith Barney Inc.
5.55%, due 1/2/96............................... 5,340,000 5,340,000
------------
Total Commercial Paper
(Cost $8,840,000)............................... 8,840,000
------------
U.S. GOVERNMENT (9.9%)
United States Treasury Note 4.625%, due 2/15/96
(c)............................................. 19,350,000 19,337,810
------------
Total U.S. Government
(Cost $19,334,914) ............................. 19,337,810
------------
Total Short-Term Investments (Cost $28,174,914).. 28,177,810
------------
Total Investments
(Cost $178,870,116) (g)......................... 108.5% 211,448,271 (h)
Liabilities in Excess of
Cash and Other Assets........................... (8.5) (16,554,865)
----------- ------------
Net Assets....................................... 100.0% $194,893,406
=========== ============
</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 determined upon settlement.
(c) Partially segregated as collateral for TBA.
(d) Floating rate. Rate shown is the rate in effect at December 31, 1995.
(e) ADR--American Depository Receipt.
(f) ARM--Adjustable Rate Mortgage. Resets annually.
(g) The cost for Federal income tax purposes is $178,885,619.
(h) At December 31, 1995 net unrealized appreciation was $32,562,652, 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 $34,690,869 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,128,217.

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

80
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
TOTAL RETURN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the year ended December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2) (identified cost
$178,870,116).................................................. $211,448,271
Cash............................................................ 5,367
Receivables:
Investment securities sold...................................... 9,738,421
Dividends and interest.......................................... 1,454,025
Fund shares sold................................................ 361,346
Other assets.................................................... 348
------------
Total assets.................................................. 223,007,778
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 27,956,817
Adviser......................................................... 51,731
Recordkeeping................................................... 23,947
NYLIAC.......................................................... 20,405
Administrator................................................... 16,017
Custodian....................................................... 5,754
Directors....................................................... 530
Accrued expenses................................................ 39,171
------------
Total liabilities............................................. 28,114,372
------------
Net assets applicable to
outstanding shares............................................. $194,893,406
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized................................... $ 146,988
Additional paid-in capital...................................... 166,366,672
Accumulated net realized loss
on investments................................................. (4,198,409)
Net unrealized appreciation
on investments................................................. 32,578,155
------------
Net assets applicable to
outstanding shares............................................. $194,893,406
============
Shares of capital stock outstanding............................. 14,698,789
============
Net asset value per share outstanding........................... $ 13.26
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 517,865
Interest......................................................... 5,142,016
------------
Total income................................................... 5,659,881
------------
Expenses: (Note 2)
Advisory (Note 3)................................................ 482,518
Administration (Note 3).......................................... 301,574
Recordkeeping.................................................... 299,205
Shareholder communication........................................ 50,966
Custodian........................................................ 32,677
Auditing......................................................... 24,989
Directors........................................................ 11,346
Legal............................................................ 9,898
Amortization of organization expense............................. 1,535
Miscellaneous.................................................... 10,413
------------
Total expenses
before reimbursement.......................................... 1,225,121
Expense reimbursement from
Administrator (Note 3).......................................... (184,691)
------------
Net expenses................................................... 1,040,430
------------
Net investment income............................................ 4,619,451
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 1,771,355
Net change in unrealized appreciation
on investments.................................................. 29,979,674
------------
Net realized and unrealized gain
on investments.................................................. 31,751,029
------------
Net increase in net assets resulting
from operations................................................. $ 36,370,480
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$2,749.

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
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 4,619,451 $ 3,244,271
Net realized gain (loss) on investments........... 1,771,355 (5,792,589)
Net change in unrealized appreciation on invest-
ments............................................ 29,979,674 (108,863)
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. 36,370,480 (2,657,181)
------------ ------------
Dividends to shareholders:
From net investment income........................ (4,571,400) (3,194,834)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 52,019,281 72,065,497
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 4,571,400 3,194,834
------------ ------------
56,590,681 75,260,331
Cost of shares redeemed........................... (15,828,916) (2,623,995)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 40,761,765 72,636,336
------------ ------------
Net increase in net assets....................... 72,560,845 66,784,321
NET ASSETS:
Beginning of year................................. 122,332,561 55,548,240
------------ ------------
End of year....................................... $194,893,406 $122,332,561
============ ============
Accumulated undistributed net investment income... $ -- $ 7,807
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (A)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1995 1994 1993
-----------------------------
<S> <C> <C> <C>
Net asset value at beginning of pe-
riod.............................. $ 10.58 $ 11.32 $ 10.00
------------ ------------ ------------
Net investment income.............. 0.31 0.27 0.16
Net realized and unrealized gain
(loss) on investments............. 2.69 (0.72) 1.34
------------ ------------ ------------
Total from investment operations... 3.00 (0.45) 1.50
------------ ------------ ------------
Less dividends and distributions:
From net investment income........ (0.32) (0.29) (0.16)
In excess of net realized gain on
investments...................... -- -- (0.02)
------------ ------------ ------------
Total dividends and distributions.. (0.32) (0.29) (0.18)
------------ ------------ ------------
Net asset value at end of period... $ 13.26 $ 10.58 $ 11.32
============ ============ ============
Total investment return (b)........ 28.33% (3.99%) 15.04%
Ratios (to average net
assets)/Supplemental Data:
Net investment income............. 3.06% 3.50% 3.48%+
Net expenses...................... 0.69% 0.69% 0.69%+
Expenses (before reimbursement)... 0.81% 0.88% 1.07%+
Portfolio turnover rate............ 253% 297% 197%
Net assets at end of period (in
000's)............................ $ 194,893 $ 122,333 $ 55,548
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.

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

82
<PAGE>

VALUE PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995

COMMON STOCKS (78.9%)+

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

AEROSPACE (1.3%)
McDonnell Douglas Corp................................ 3,500 $ 322,000
------------
AUTO MANUFACTURING (1.1%)
General Motors Corp. ................................. 5,200 274,950
------------
BANKS (5.7%)
Bankers Trust New York Corp........................... 5,200 345,800
First Bank System, Inc................................ 7,600 377,150
First Fidelity Bancorp................................ 1,600 120,600
First Interstate Bancorp.............................. 900 122,850
National City Corp.................................... 7,700 255,063
PNC Bank Corp......................................... 5,100 164,475
------------
1,385,938
------------
BEVERAGES (0.6%)
Anheuser-Busch Cos., Inc. ............................ 2,300 153,813
------------
BUILDING MATERIALS (1.3%)
Armstrong World Industries, Inc....................... 5,000 310,000
------------
CAPITAL GOODS (1.9%)
Case Corp............................................. 6,500 297,375
Honeywell Inc. ....................................... 3,400 165,325
------------
462,700
------------
CHEMICALS (8.6%)
Agrium, Inc. ......................................... 3,700 166,500
Arcadian Corp......................................... 3,800 73,625
FMC Corp. (a)......................................... 4,700 317,838
Geon Co. (The)........................................ 9,600 234,000
Georgia Gulf Corp..................................... 6,900 212,175
IMC Global, Inc....................................... 3,400 138,975
Lyondell Petrochemical Co. ........................... 9,300 212,737
Potash Corp. of Saskatchewan Inc...................... 1,600 113,400
PPG Industries, Inc................................... 1,900 86,925
Terra Industries Inc.................................. 21,300 300,863
Vigoro Corp. (The).................................... 4,000 247,000
------------
2,104,038
------------
DEFENSE ELECTRONICS (3.2%)
Litton Industries, Inc. (a)........................... 6,000 267,000
Lockheed Martin Corp. ................................ 2,900 229,100
Loral Corp............................................ 8,400 297,150
------------
793,250
------------
DOMESTIC OILS (3.9%)
Enron Oil & Gas Co.................................... 11,700 280,800
Noble Affiliates, Inc................................. 2,000 59,750
Parker & Parsley Petroleum Co......................... 13,400 294,800
Unocal Corp........................................... 11,000 320,375
------------
955,725
------------
</TABLE>
- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

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

DRUGS (0.9%)
Merck & Co., Inc. .................................... 1,800 $ 118,350
Warner-Lambert Co. ................................... 1,000 97,125
------------
215,475
------------
ENERGY (3.8%)
Coastal Corp. ........................................ 9,400 350,150
Horsham Corp.......................................... 4,000 54,000
MAPCO, Inc............................................ 1,400 76,475
Panhandle Eastern Corp................................ 9,900 275,963
Tosco Corp. .......................................... 4,400 167,750
------------
924,338
------------
FINANCE (0.9%)
Travelers Group Inc. ................................. 3,500 220,063
------------
FOOD (2.0%)
Archer Daniels Midland Co............................. 17,170 309,060
IBP, Inc. ............................................ 3,600 181,800
------------
490,860
------------
FOOD, BEVERAGES & TOBACCO (2.9%)
Philip Morris Cos. Inc. .............................. 3,300 298,650
RJR Nabisco Holdings Corp. ........................... 13,200 407,550
------------
706,200
------------
HEALTH CARE (2.7%)
FHP International Corp. (a)........................... 5,500 156,750
Humana Inc. (a)....................................... 6,500 177,938
U.S. Healthcare, Inc.................................. 6,800 316,200
------------
650,888
------------
HOUSEHOLD PRODUCTS (1.3%)
Premark International, Inc............................ 6,500 329,062
------------
INSURANCE (9.6%)
Aetna Life and Casualty Co............................ 5,800 401,650
Allstate Corp. (The).................................. 4,797 197,277
American International Group, Inc. ................... 2,800 259,000
Chubb Corp. (The)..................................... 1,800 174,150
Providian Corp........................................ 7,300 297,475
Prudential Reinsurance
Holdings Inc......................................... 9,000 210,375
SAFECO Corp........................................... 4,200 144,900
St. Paul Cos., Inc. (The)............................. 5,500 305,937
Torchmark Corp. ...................................... 8,100 366,525
------------
2,357,289
------------
INTERNATIONAL OILS (2.0%)
British Petroleum Company,
Plc ADR (b).......................................... 3,000 306,375
Occidental Petroleum Corp............................. 8,500 181,687
------------
488,062
------------
</TABLE>

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

83
<PAGE>

VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED) SHORT-TERMINVESTMENTS (19.6%)

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

MACHINERY (1.2%)
Agco Corp. ........................................... 6,000 $ 306,000
------------
PAPER & FOREST
PRODUCTS (4.3%)
Champion International Corp........................... 6,900 289,800
Chesapeake Corp....................................... 3,500 103,687
Rayonier, Inc. ....................................... 6,800 226,950
Stone Container Corp.................................. 14,100 202,688
Temple-Inland Inc..................................... 5,000 220,625
------------
1,043,750
------------
PHOTOGRAPHY (0.7%)
Eastman Kodak Co. .................................... 2,600 174,200
------------
RAILROADS (3.2%)
Conrail Inc........................................... 4,600 322,000
Illinois Central Corp................................. 8,100 310,837
Union Pacific Corp. .................................. 2,100 138,600
------------
771,437
------------
REAL ESTATE (0.9%)
Meditrust............................................. 6,000 209,250
------------
RETAIL (7.1%)
American Stores Co. .................................. 3,000 80,250
Dillard Department Stores, Inc. ...................... 8,000 228,000
Federated Department
Stores, Inc. (a)..................................... 7,000 192,500
Kroger Co. (The) (a).................................. 11,000 412,500
Limited Inc. (The).................................... 13,400 232,825
Payless Cashways, Inc. (a)............................ 7,000 29,750
Penney (J.C.) Co., Inc. .............................. 4,000 190,500
Sears, Roebuck and Co................................. 8,000 312,000
Stop & Shop Cos., Inc. (The) (a)...................... 2,300 53,187
------------
1,731,512
------------
TECHNOLOGY (1.7%)
International Business
Machines Corp........................................ 4,600 422,050
------------
TEXTILE & APPAREL (1.3%)
Jones Apparel Group, Inc. (a)......................... 7,900 311,062
------------
TIRE & RUBBER (1.2%)
Goodyear Tire & Rubber Co. (The) 6,300 285,862
------------
UTILITIES--ELECTRIC (3.6%)
Entergy Corp. ........................................ 11,000 321,750
Long Island Lighting Co............................... 9,000 147,375
Pinnacle West Capital Corp. .......................... 7,300 209,875
Unicom Corp........................................... 6,000 196,500
------------
875,500
------------
Total Common Stocks
(Cost $17,756,267)................................... 19,275,274
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------
<S> <C> <C>

COMMERCIAL PAPER (19.6%)
American Express Credit Corp.
5.60%, due 1/9/96................................... $ 963,000 $ 963,000
Beneficial Corp.
5.80%, due 1/3/96................................... 986,000 986,000
Ford Motor Credit Co.
5.72%, due 1/2/96................................... 671,000 671,000
General Electric Capital Corp.
5.83%, due 1/8/96................................... 893,000 893,000
Prudential Funding Corp.
5.92%, due 1/4/96................................... 640,000 640,000
Texaco Inc.
5.92%, due 1/5/96................................... 640,000 640,000
------------
Total Short-Term Investments (Cost $4,793,000)....... 4,793,000
------------
Total Investments
(Cost $22,549,267) (c).............................. 98.5% 24,068,274
Cash and Other Assets,
Less Liabilities.................................... 1.5 361,176
----------- ------------
Net Assets........................................... 100.0% $ 24,429,450
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) ADR-American Depository Receipt.
(c) The cost for Federal income tax purposes is $22,552,646.
(d) At December 31, 1995 net unrealized appreciation was $1,515,628, 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 $1,872,481 and aggregate gross unrealized de-
preciation for all investments on which there was an excess of cost over
market value of $356,853.

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.
VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the period May 1, 1995
(Commencement of Operations) through
December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2) (identified cost
$22,549,267)..................................................... $24,068,274
Cash.............................................................. 157
Receivables:
Fund shares sold.................................................. 333,210
Dividends and interest............................................ 45,826
Investment securities sold........................................ 29,081
NYLIAC............................................................ 15,800
Unamortized organization expense
(Note 2)......................................................... 63,634
Other assets...................................................... 13
-----------
Total assets.................................................... 24,555,995
-----------
LIABILITIES:
Payables:
Organization...................................................... 73,173
Investment securities purchased................................... 33,153
Adviser........................................................... 6,528
Recordkeeping..................................................... 5,471
Custodian......................................................... 2,604
Administrator..................................................... 1,813
Accrued expenses.................................................. 3,803
-----------
Total liabilities............................................... 126,545
-----------
Net assets applicable to
outstanding shares............................................... $24,429,450
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized.................................... $ 21,095
Additional paid-in capital........................................ 22,842,255
Accumulated undistributed net
investment income................................................ 131
Accumulated undistributed net realized gain
on investments................................................... 46,962
Net unrealized appreciation
on investments................................................... 1,519,007
-----------
Net assets applicable to
outstanding shares............................................... $24,429,450
===========
Shares of capital stock outstanding............................... 2,109,524
===========
Net asset value per share outstanding............................. $ 11.58
===========
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)...................................................... $ 148,848
Interest........................................................... 103,926
----------
Total income..................................................... 252,774
----------
Expenses: (Note 2)
Recordkeeping...................................................... 35,622
Advisory (Note 3).................................................. 27,605
Administration (Note 3)............................................ 15,336
Auditing........................................................... 10,750
Amortization of organization expense............................... 9,866
Custodian.......................................................... 9,789
Shareholder communication.......................................... 1,056
Directors.......................................................... 326
Legal.............................................................. 184
Miscellaneous...................................................... 960
----------
Total expenses
before reimbursement............................................ 111,494
Expense reimbursement from
Administrator (Note 3)............................................ (55,518)
----------
Net expenses..................................................... 55,976
----------
Net investment income.............................................. 196,798
----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................... 46,962
Net unrealized appreciation
on investments.................................................... 1,519,007
----------
Net realized and unrealized gain
on investments.................................................... 1,565,969
----------
Net increase in net assets resulting
from operations................................................... $1,762,767
==========
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of $182.

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

85
<PAGE>

VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1995 (Commencement of Operations)through December 31,
1995

<TABLE>
<CAPTION>
1995
--------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................................... $ 196,798
Net realized gain on investments................................ 46,962
Net unrealized appreciation on investments...................... 1,519,007
------------
Net increase in net assets resulting from operations............ 1,762,767
------------
Dividends to shareholders:
From net investment income...................................... (196,667)
------------
Capital share transactions:
Net proceeds from sale of shares................................ 17,977,153
Net asset value of shares issued to shareholders in reinvestment
of dividends................................................... 196,667
------------
18,173,820
Cost of shares redeemed......................................... (310,470)
------------
Increase in net assets derived from capital share transactions. 17,863,350
------------
Net increase in net assets..................................... 19,429,450
NET ASSETS:
Beginning of period............................................. 5,000,000
------------
End of period................................................... $ 24,429,450
------------
Accumulated undistributed net investment income................. $ 131
============
</TABLE>

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

86
<PAGE>

BOND PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995

LONG-TERM BONDS (93.9%)+
CORPORATE BONDS (45.2%)

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

BANKS (7.1%)
BankAmerica Corp.
7.75%, due 7/15/02................................... $ 4,000,000 $ 4,355,000
First Union Corp.
9.45%, due 6/15/99................................... 5,000,000 5,562,500
Golden West Financial Corp.
10.25%, due 12/1/00.................................. 1,000,000 1,178,750
Republic New York Corp.
7.75%, due 5/15/09................................... 5,000,000 5,625,000
------------
16,721,250
------------
CONTAINERS (1.7%)
Federal Paper Board Inc.
10.00%, due 4/15/11.................................. 3,100,000 3,999,000
------------
DATA PROCESSING (1.3%)
International Business
Machines Corp.
6.375%, due 6/15/00.................................. 3,000,000 3,071,250
------------
DIVERSIFIED UTILITIES (6.3%)
Consumers Power Co.
7.375%, due 9/15/23.................................. 2,000,000 1,997,500
Long Island Lighting Co.
8.75%, due 2/15/97................................... 2,000,000 2,025,000
Niagara Mohawk Power Corp.
7.375%, due 8/1/03................................... 2,000,000 1,905,000
Pacific Gas & Electric Co.
6.25%, due 3/1/04.................................... 3,000,000 2,996,250
Philadelphia Electric Co.
5.625%, due 11/1/01.................................. 3,000,000 2,932,500
Public Service Co. of Colorado
6.00%, due 1/1/01.................................... 3,000,000 3,007,500
------------
14,863,750
------------
ELECTRIC UTILITIES (2.0%)
Commonwealth Edison Co.
9.75%, due 2/15/20................................... 1,450,000 1,691,062
Ohio Edison Co.
8.50%, due 5/1/96 (a)................................ 1,100,000 1,109,625
Southern California Edison Corp.
5.875%, due 2/1/98................................... 2,000,000 2,010,000
------------
4,810,687
------------
FINANCE (11.0%)
American General Finance Corp.
7.00%, due 10/1/97................................... 7,000,000 7,166,250
Chrysler Financial Corp.
8.125%, due 12/15/96 (a)............................. 6,000,000 6,128,100
Ford Motor Credit Co.
6.25%, due 2/26/98................................... 3,000,000 3,037,500
General Motors Acceptance Corp.
7.75%, due 4/15/97................................... 5,000,000 5,131,250
9.625%, due 12/15/01................................. 1,000,000 1,175,000
</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 $ 3,187,500
------------
25,825,600
------------
FOOD (0.5%)
ConAgra, Inc.
9.875%, due 11/15/05................................. 1,000,000 1,260,000
------------
FOREIGN (3.5%)
British Telecommunications Plc
9.375%, due 2/15/99.................................. 4,200,000 4,646,250
9.625%, due 2/15/19.................................. 1,000,000 1,127,500
National Westminster Bancorp, Inc.
9.375%, due 11/15/03................................. 2,000,000 2,400,000
------------
8,173,750
------------
MOTION PICTURES/T.V. PROGRAMMING (1.0%)
Harcourt General, Inc.
9.50%, due 3/15/00................................... 2,000,000 2,242,500
------------
OIL & GAS (1.1%)
Phillips Petroleum Co.
9.18%, due 9/15/21................................... 1,200,000 1,408,500
Tennessee Gas Pipeline Co.
9.25%, due 5/15/96 (a)............................... 1,060,000 1,073,250
------------
2,481,750
------------
PAPER/PRODUCTS (2.2%)
Champion International Corp.
9.875%, due 6/1/00................................... 4,500,000 5,175,000
------------
RAILROADS (1.1%)
CSX Corp.
9.00%, due 8/15/06................................... 2,200,000 2,659,250
------------
RETAIL STORES (5.4%)
Price/Costco, Inc.
7.125%, due 6/15/05.................................. 5,000,000 5,218,750
Sears Roebuck & Co.
8.45%, due 11/1/98................................... 7,000,000 7,498,750
------------
12,717,500
------------
TELECOMMUNICATIONS (1.0%)
AT&T Corp.
8.625%, due 12/1/31.................................. 2,000,000 2,292,500
------------
Total Corporate Bonds
(Cost $99,151,184)................................... 106,293,787
------------
</TABLE>

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

87
<PAGE>

BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

U.S. GOVERNMENT &FEDERAL AGENCY (48.7%) SHORT-TERM INVESTMENTS (4.8%)

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

FEDERAL NATIONAL MORTGAGE ASSOCIATION (4.2%)
4.95%, due 9/30/98................................. $10,000,000 $ 9,863,300
------------
UNITED STATES TREASURY BONDS (19.1%)
6.875%, due 8/15/25................................ 17,000,000 19,165,290
7.625%, due 2/15/07................................ 10,000,000 11,002,600
7.625%, due 2/15/25................................ 12,000,000 14,660,160
------------
44,828,050
------------
UNITED STATES TREASURY NOTES (25.4%)
5.375%, due 11/30/97............................... 15,000,000 15,046,350
6.50%, due 5/15/05................................. 5,000,000 5,321,000
7.125%, due 2/29/00................................ 10,000,000 10,646,600
7.50%, due 11/15/01................................ 4,300,000 4,739,159
7.50%, due 5/15/02................................. 5,000,000 5,544,600
7.50%, due 2/15/05................................. 5,000,000 5,667,600
8.50%, due 11/15/00................................ 11,200,000 12,676,496
------------
59,641,805
------------
Total U.S. Government &
Federal Agency
(Cost $107,085,052)................................ 114,333,155
------------
Total Long-Term Bonds
(Cost $206,236,236)................................ 220,626,942
------------
</TABLE>

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

COMMERCIAL PAPER (4.8%)
Anheuser-Busch Companies, Inc.
5.85%, due 1/4/96................................. $ 3,000,000 $ 2,998,537
Associates Corp. of North America
5.444%, due on demand (b)......................... 2,235,000 2,235,000
Dupont (E.I.) De Nemours
5.80%, due 1/5/96................................. 2,058,000 2,056,674
Nike Inc.
5.95%, due 1/3/96................................. 4,000,000 3,998,678
------------
Total Short-Term Investments
(Cost $11,288,889)................................ 11,288,889
------------
Total Investments
(Cost $217,525,125) (c)........................... 98.7% 231,915,831(d)
Cash and Other Assets,
Less Liabilities.................................. 1.3 3,114,613
----------- ------------
Net Assets......................................... 100.0% $235,030,444
=========== ============
</TABLE>
- --------
(a) Long-term securities maturing within the subsequent twelve month period.
(b) Adjustable rate. Rate shown is the rate in effect at December 31, 1995.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At December 31, 1995 net unrealized appreciation was $14,390,706, 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 $14,479,179 and aggregate gross unrealized depre-
ciation of all investments on which there was an excess of cost over market
value of $88,473.

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

88
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the year ended December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $217,525,125)................................. $ 231,915,831
Cash............................................................ 6,695
Receivables:
Interest........................................................ 3,532,379
Fund shares sold................................................ 61,428
NYLIAC.......................................................... 48,271
Other assets.................................................... 583
-------------
Total assets.................................................. 235,565,187
-------------
LIABILITIES:
Payables:
Adviser......................................................... 146,646
Recordkeeping................................................... 130,435
Fund shares redeemed............................................ 89,311
Administrator................................................... 19,764
Directors....................................................... 1,971
Accrued expenses................................................ 146,616
-------------
Total liabilities............................................. 534,743
-------------
Net assets applicable to
outstanding shares............................................. $235,030,444
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized.................................. $ 175,142
Additional paid-in capital...................................... 223,209,347
Accumulated undistributed net
investment income.............................................. 3,457
Accumulated net realized loss
on investments................................................. (2,748,208)
Net unrealized appreciation
on investments................................................. 14,390,706
-------------
Net assets applicable to
outstanding shares............................................. $235,030,444
=============
Shares of capital stock outstanding............................. 17,514,191
=============
Net asset value per share outstanding........................... $ 13.42
=============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................... $ 15,866,827
------------
Expenses: (Note 2)
Recordkeeping (Note 3)........................................... 767,438
Advisory (Note 3)................................................ 553,053
Administration (Note 3).......................................... 442,443
Shareholder communication........................................ 149,447
Auditing......................................................... 39,598
Legal............................................................ 19,575
Directors........................................................ 17,362
Portfolio pricing................................................ 9,859
Miscellaneous.................................................... 4,164
------------
Total expenses
before reimbursement.......................................... 2,002,939
Expense reimbursement from
Administrator (Note 3).......................................... (631,367)
------------
Net expenses................................................... 1,371,572
------------
Net investment income............................................ 14,495,255
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 4,716,932
Net change in unrealized depreciation
on investments.................................................. 17,768,492
------------
Net realized and unrealized gain
on investments.................................................. 22,485,424
------------
Net increase in net assets resulting
from operations................................................. $ 36,980,679
============
</TABLE>

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

89
<PAGE>

BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................. $ 14,495,255 $ 14,086,182
Net realized gain (loss) on investments........... 4,716,932 (4,481,302)
Net change in unrealized appreciation
(depreciation) on investments.................... 17,768,492 (17,363,837)
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. 36,980,679 (7,758,957)
------------ ------------
Dividends to shareholders:
From net investment income........................ (14,491,993) (14,085,987)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 22,956,887 21,844,680
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 14,491,993 14,085,987
------------ ------------
37,448,880 35,930,667
Cost of shares redeemed........................... (31,593,131) (36,082,699)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... 5,855,749 (152,032)
------------ ------------
Net increase (decrease) in net assets............ 28,344,435 (21,996,976)
NET ASSETS:
Beginning of year................................. 206,686,009 228,682,985
------------ ------------
End of year....................................... $235,030,444 $206,686,009
============ ============
Accumulated undistributed net investment income... $ 3,457 $ 195
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86
------------ ------------ ------------ ------------ ------------
Net investment income... 0.88 0.88 0.95 0.92 1.02
Net realized and
unrealized gain (loss)
on investments......... 1.33 (1.34) 0.53 0.13 0.91
------------ ------------ ------------ ------------ ------------
Total from investment
operations............. 2.21 (0.46) 1.48 1.05 1.93
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment
income................ (0.88) (0.88) (0.96) (0.91) (1.02)
------------ ------------ ------------ ------------ ------------
Net asset value at end
of year................ $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
============ ============ ============ ============ ============
Total investment return. 18.31% (3.39%) 11.40% 8.26% 16.27%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 6.55% 6.53% 6.79% 7.54% 8.22%
Net expenses........... 0.62% 0.62%# 0.27%# 0.25% 0.25%
Expenses (before
reimbursement)........ 0.91% 0.67%# 0.27%# 0.25% 0.25%
Portfolio turnover rate. 81% 88% 41% 10% 57%
Net assets at end of
year (in 000's)........ $ 235,030 $ 206,686 $ 228,683 $ 203,947 $ 164,124
</TABLE>
- --------
# 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.

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

90
<PAGE>

GROWTH EQUITY PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995

COMMON STOCKS (96.3%)+

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

AEROSPACE/DEFENSE (3.0%)
Boeing Co. (The)...................................... 30,000 $ 2,351,250
Lockheed Martin Corp.................................. 61,200 4,834,800
Loral Corp............................................ 164,000 5,801,500
------------
12,987,550
------------
AUTO & AUTO SERVICES (0.4%)
ITT Industries Inc. .................................. 70,000 1,680,000
------------
BANKS (4.3%)
AmSouth Bancorp. ..................................... 62,400 2,519,400
Bank of Boston Corp. ................................. 83,000 3,838,750
Chase Manhattan Corp. (The)........................... 90,000 5,456,250
Commerce Bancshares Inc............................... 74,550 2,851,537
Morgan, J.P. & Co., Inc............................... 47,600 3,819,900
------------
18,485,837
------------
BUILDING &
MAINTENANCE (0.9%)
ADT Ltd. (a).......................................... 250,000 3,750,000
------------
BUILDING PRODUCTS (0.9%)
USG Corp. (a)......................................... 131,200 3,936,000
------------
CHEMICALS (3.9%)
Engelhard Corp........................................ 160,000 3,480,000
IMC Global Inc........................................ 120,000 4,905,000
Sealed Air Corp. (a).................................. 300,000 8,437,500
------------
16,822,500
------------
COMMERCIAL SERVICES (3.3%)
Equifax Inc........................................... 201,800 4,313,475
Primark Corp. (a)..................................... 125,000 3,750,000
Service Corp. International........................... 138,000 6,072,000
------------
14,135,475
------------
COMMUNICATIONS (2.5%)
ADC Telecommunications Inc. (a) 90,000 3,285,000
Allen Group Inc....................................... 150,000 3,356,250
Mobilemedia Corp. (a)................................. 175,000 3,893,750
------------
10,535,000
------------
COMPUTER & BUSINESS EQUIPMENT (9.8%)
Checkfree Corp. (a)................................... 100,000 2,150,000
Cisco Systems Inc. (a)................................ 60,000 4,477,500
Danka Business Systems PLC ADR (b) 110,000 4,070,000
First Data Corp....................................... 91,030 6,087,631
FIserv Inc. (a)....................................... 111,000 3,330,000
Gateway 2000 Inc. (a)................................. 100,000 2,450,000
General Motors CL E................................... 125,000 6,500,000
Global Directmail Corp. (a)........................... 100,000 2,750,000
Intel Corp. .......................................... 65,000 3,688,750
Oracle Corp. (a)...................................... 50,000 2,118,750
Quantum Corp. (a)..................................... 105,000 1,693,125
Sungard Data Systems Inc. (a)......................... 100,000 2,850,000
------------
42,165,756
------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

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

DRUGS (8.9%)
Allergan Inc.......................................... 92,400 $ 3,003,000
American Home Products Corp. ......................... 49,500 4,801,500
Elan Corp. Plc ADR (a)(b)............................. 81,000 3,938,625
Johnson & Johnson..................................... 94,400 8,083,000
Merck & Co., Inc...................................... 69,200 4,549,900
Pfizer Inc............................................ 58,800 3,704,400
Schering-Plough Corp. ................................ 116,000 6,351,000
Warner-Lambert Co..................................... 38,700 3,758,738
------------
38,190,163
------------
ELECTRICAL (4.3%)
Emerson Electric Co................................... 70,000 5,722,500
General Electric Co. ................................. 119,000 8,568,000
Mark IV Industries, Inc. ............................. 213,103 4,208,784
------------
18,499,284
------------
ELECTRONICS (3.6%)
Applied Materials, Inc. (a)........................... 59,900 2,358,563
Avnet Inc............................................. 92,800 4,152,800
Hewlett-Packard Co. .................................. 48,700 4,078,625
LSI Logic Corp. (a)................................... 35,000 1,146,250
MEMC Electronic Materials Inc. (a).................... 110,500 3,605,062
------------
15,341,300
------------
FINANCE (6.1%)
Chelsea GCA Realty, Inc. ............................. 96,300 2,889,000
Federal Home Loan
Mortgage Corp. ...................................... 70,000 5,845,000
Federal National
Mortgage Association................................. 40,000 4,965,000
Great Western Financial Corp. ........................ 100,000 2,550,000
Republic New York Corp................................ 100,000 6,212,500
Signet Banking Corp. ................................. 146,900 3,488,875
------------
25,950,375
------------
FOODS (2.1%)
ConAgra, Inc.......................................... 114,100 4,706,625
General Mills, Inc.................................... 75,000 4,331,250
------------
9,037,875
------------
HOSPITAL & MEDICAL SERVICES (4.7%)
Columbia/HCA Healthcare Corp.......................... 120,800 6,130,600
Guidant Corp. ........................................ 105,000 4,436,250
HEALTHSOUTH Corp. (a)................................. 181,400 5,283,275
Sybron International Corp. (a)........................ 186,200 4,422,250
------------
20,272,375
------------
HOUSEHOLD PRODUCTS (2.3%)
Colgate-Palmolive Co. ................................ 65,000 4,566,250
Gillette Co. ......................................... 100,000 5,212,500
------------
9,778,750
------------
</TABLE>

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

91
<PAGE>

GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

INSURANCE-PROPERTY & CASUALTY (2.5%)
American International Group, Inc. 52,500 $ 4,856,250
Amerin Corp. (a)...................................... 85,000 2,273,750
ITT Hartford Group Inc. (a)........................... 70,000 3,386,250
------------
10,516,250
------------
LEARNING &
EDUCATIONAL (0.7%)
Kinder Care Learning
Centers, Inc. (a).................................... 227,000 2,865,875
------------
LEISURE/AMUSEMENT (0.8%)
Harrah's Entertainment, Inc. (a)...................... 144,900 3,513,825
------------
LODGING &
RESTAURANTS (3.5%)
Bristol Hotel Co. (a)................................. 30,000 731,250
ITT Corp. (New) (a)................................... 70,000 3,710,000
Marriott International, Inc. ......................... 125,000 4,781,250
McDonald's Corp. ..................................... 125,000 5,640,625
------------
14,863,125
------------
MACHINERY/CAPITAL
GOODS (0.6%)
Donaldson Co., Inc.................................... 100,000 2,512,500
------------
MANUFACTURING (2.3%)
AlliedSignal Inc. .................................... 96,000 4,560,000
Honeywell Inc......................................... 105,000 5,105,625
------------
9,665,625
------------
MEDIA & INFORMATION
SERVICES (3.0%)
Heritage Media Corp. CL A (a)......................... 105,000 2,690,625
Viacom Inc. Class B (a)............................... 100,000 4,737,500
Walt Disney Co. (The)................................. 88,800 5,239,200
------------
12,667,325
------------
METALS (1.1%)
Aluminum Co. of America............................... 85,000 4,494,375
------------
OIL & ENERGY SERVICES (6.6%)
Aquila Gas Pipeline Corp. ............................ 107,800 1,387,925
Enron Corp. .......................................... 120,000 4,575,000
Mobil Corp. .......................................... 45,000 5,040,000
Quaker State Corp. ................................... 295,900 3,735,737
Schlumberger Ltd. .................................... 60,750 4,206,938
Smith International, Inc. (a)......................... 180,500 4,241,750
Triton Energy Corp. (a)............................... 80,000 4,590,000
XCL Ltd. (a).......................................... 1,316,800 493,800
------------
28,271,150
------------
</TABLE>

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

PAPER & FOREST
PRODUCTS (0.9%)
Bemis Co.............................................. 154,200 $ 3,951,375
------------
REAL ESTATE (0.8%)
Liberty Property Trust................................ 166,500 3,454,875
------------
RETAIL TRADE &
MERCHANDISING (4.4%)
Eckerd Corp. (a)...................................... 65,000 2,900,625
Federated Department Stores,
Inc. (a)............................................. 147,000 4,042,500
Home Depot Inc........................................ 50,000 2,393,750
Price/Costco, Inc. (a)................................ 250,000 3,812,500
Smart & Final, Inc.................................... 163,000 3,463,750
Staples Inc. (a)...................................... 86,300 2,103,563
------------
18,716,688
------------
TRANSPORTATION (3.2%)
Canadian National Railway Co. (a)(c).................. 22,500 337,500
Conrail Inc........................................... 63,500 4,445,000
Consolidated Freightways Inc.......................... 100,000 2,650,000
Rollins Truck Leasing Corp............................ 380,500 4,233,063
UNC Inc. (a).......................................... 300,000 1,800,000
------------
13,465,563
------------
UTILITIES--ELECTRIC (0.9%)
CMS Energy Corp....................................... 135,000 4,033,125
------------
UTILITIES--TELEPHONE (4.0%)
Ameritech Corp. ...................................... 80,000 4,720,000
Midcom Communication Inc. (a)......................... 136,600 2,492,950
Paging Network, Inc. (a).............................. 60,000 1,462,500
Qualcomm Inc. (a)..................................... 90,000 3,870,000
WorldCom Inc. (a)..................................... 130,000 4,582,500
------------
17,127,950
------------
Total Common Stocks
(Cost $337,852,994).................................. 411,687,866
------------
</TABLE>

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

92
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
SHORT-TERM INVESTMENTS (3.7%)

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

COMMERCIAL PAPER (3.7%)
Amoco Corp.
5.80%, due 1/2/96............................ $ 4,540,000 $ 4,539,268
Associates Corp. of North America
5.44%, due on demand (d)..................... 2,050,000 2,050,000
Nike Corp.
5.95%, due 1/5/96............................ 4,780,000 4,776,840
Raython Co.
5.95%, due 1/4/96............................ 4,500,000 4,497,769
------------
Total Short-Term Investments
(Cost $15,863,877)........................... 15,863,877
------------
Total Investments
(Cost $353,716,871) (f)...................... 100.0% 427,551,743 (g)
Liabilities In Excess of
Cash and Other Assets........................ (0.0)(e) (44,922)
----------- ------------
Net Assets.................................... 100.0% $427,506,821
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) ADR--American Depository Receipt.
(c) Security purchased, in accordance with the public offering, on an
installment receipt basis. The initial payment was $12.00 per share with an
obligation to pay $7.93 per share on November 16, 1996. If the security is
sold prior to November 16, 1996, the purchaser assumes the obligation.
(d) Adjustable Rate. Rate shown is the rate in effect at December 31, 1995.
(e) Less than one tenth of a percent.
(f) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(g) At December 31, 1995 net unrealized appreciation was $73,834,872, 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 $83,763,599 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $9,928,727.

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

93
<PAGE>

GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the year ended December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $353,716,871).................................. $427,551,743
Cash............................................................. 6,534
Receivables:
Dividends and interest........................................... 448,495
Fund shares sold................................................. 280,848
NYLIAC........................................................... 80,948
Other assets..................................................... 971
------------
Total assets................................................... 428,369,539
------------
LIABILITIES:
Payables:
Adviser.......................................................... 262,817
Recordkeeping.................................................... 245,911
Fund shares redeemed............................................. 91,803
Administrator.................................................... 35,851
Directors........................................................ 2,559
Accrued expenses................................................. 223,777
------------
Total liabilities.............................................. 862,718
------------
Net assets applicable to
outstanding shares.............................................. $427,506,821
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
100 million shares authorized................................... $ 248,227
Additional paid-in capital....................................... 353,423,722
Net unrealized appreciation
on investments.................................................. 73,834,872
------------
Net assets applicable to outstanding shares...................... $427,506,821
============
Shares of capital stock outstanding.............................. 24,822,737
============
Net asset value per share outstanding............................ $ 17.22
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 6,132,248
Interest......................................................... 1,109,794
------------
Total income................................................... 7,242,042
------------
Expenses: (Note 2)
Recordkeeping (Note 3)........................................... 1,347,572
Advisory (Note 3)................................................ 950,231
Administration (Note 3).......................................... 760,185
Shareholder communication........................................ 279,150
Auditing......................................................... 59,474
Legal............................................................ 30,782
Directors........................................................ 29,411
Miscellaneous.................................................... 9,851
------------
Total expenses
before reimbursement.......................................... 3,466,656
Expense reimbursement from
Administrator (Note 3).......................................... (1,110,083)
------------
Net expenses................................................... 2,356,573
------------
Net investment income............................................ 4,885,469
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 34,444,510
Net change in unrealized appreciation
on investments.................................................. 56,914,338
------------
Net realized and unrealized gain
on investments.................................................. 91,358,848
------------
Net increase in net assets resulting
from operations................................................. $ 96,244,317
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$35,609.

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

94
<PAGE>

GROWTH EQUITY PORTFOLIO NEW YORK LIFE MFA
STATEMENT OF CHANGES IN NET ASSETS SERIES FUND, INC.
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income.............................. $ 4,885,469 $ 4,561,447
Net realized gain on investments................... 34,444,510 19,138,882
Net change in unrealized appreciation on
investments....................................... 56,914,338 (19,784,672)
------------ ------------
Net increase in net assets resulting from
operations........................................ 96,244,317 3,915,657
------------ ------------
Dividends and distributions to shareholders:
From net investment income......................... (4,897,272) (4,567,801)
From net realized gain on investments.............. (34,471,675) (19,120,138)
------------ ------------
Total dividends and distributions to
shareholders.................................... (39,368,947) (23,687,939)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares................... 35,852,696 32,631,494
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions.... 39,368,947 23,687,939
------------ ------------
75,221,643 56,319,433
Cost of shares redeemed............................ (34,751,127) (25,581,882)
------------ ------------
Increase in net assets derived from capital share
transactions..................................... 40,470,516 30,737,551
------------ ------------
Net increase in net assets........................ 97,345,886 10,965,269
NET ASSETS:
Beginning of year.................................. 330,160,935 319,195,666
------------ ------------
End of year........................................ $427,506,821 $330,160,935
============ ============
Accumulated undistributed net investment income.... $ -- $ 2,749
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00
------------ ------------ ------------ ------------ ------------
Net investment income... 0.22 0.22 0.24 0.22 0.27
Net realized and
unrealized gain (loss)
on investments......... 4.06 (0.03) 1.88 1.72 4.10
------------ ------------ ------------ ------------ ------------
Total from investment
operations............. 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 year................ $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
============ ============ ============ ============ ============
Total investment return. 29.16% 1.20% 13.71% 12.42% 33.62%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 1.29% 1.41% 1.42% 1.50% 1.78%
Net expenses........... 0.62% 0.62%# 0.27%# 0.27% 0.29%
Expenses (before
reimbursement)........ 0.91% 0.65%# 0.27%# 0.27% 0.29%
Portfolio turnover rate. 104% 108% 121% 82% 100%
Net assets at end of
year (in 000's)........ $ 427,507 $ 330,161 $ 319,196 $ 272,834 $ 204,147
</TABLE>
- --------
# 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.

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

95
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1995

COMMON STOCKS (86.3%)+

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

AIR TRANSPORTATION (0.3%)
AMR Corp. (a)......................................... 1,518 $ 112,712
Delta Air Lines, Inc.................................. 1,011 74,688
Pittston Services Group............................... 868 27,234
Southwest Airlines Co................................. 2,922 67,936
USAir Group, Inc. (a)................................. 1,138 15,078
------------
297,648
------------
AIRCRAFT (1.3%)
Boeing Company (The).................................. 6,704 525,426
Lockheed Martin Corp.................................. 3,926 310,154
McDonnell Douglas Corp................................ 2,261 208,012
Northrop Grumman Corp................................. 1,006 64,384
United Technologies Corp.............................. 2,414 229,028
------------
1,337,004
------------
ALUMINUM (0.4%)
Alcan Aluminum Limited................................ 4,532 141,059
Aluminum Co. of America............................... 3,526 186,437
Reynolds Metals Company............................... 1,245 70,498
------------
397,994
------------
APPAREL (0.4%)
Brown Group, Inc...................................... 382 5,444
Fruit Of The Loom Inc. Class A (a) 1,538 37,489
Liz Claiborne, Inc.................................... 1,534 42,568
Nike, Inc............................................. 2,832 197,178
Reebok International Ltd.............................. 1,549 43,759
Russell Corp.......................................... 866 24,031
Stride Rite Corp...................................... 1,012 7,590
VF Corp............................................... 1,257 66,307
------------
424,366
------------
BANKS (5.5%)
Banc One Corp......................................... 7,823 295,318
Bank of Boston Corp................................... 2,226 102,952
Bank of New York Company, Inc. (The).................. 3,788 184,665
BankAmerica Corp...................................... 7,382 477,984
Bankers Trust New York Corp........................... 1,536 102,144
Barnett Banks, Inc.................................... 1,912 112,808
Boatmen's Bancshares, Inc............................. 2,540 103,822
Chase Manhattan Corp. (The)........................... 3,433 208,126
Chemical Banking Corp................................. 5,030 295,512
Citicorp.............................................. 7,866 528,988
Comerica Inc.......................................... 2,200 88,275
CoreStates Financial Corp............................. 2,747 104,043
First Bank System, Inc................................ 2,700 133,987
First Chicago Corp.................................... 6,344 250,588
First Fidelity Bancorp................................ 1,623 122,334
First Interstate Bancorp.............................. 1,528 208,572
First Union Corp...................................... 3,494 194,354
Fleet Financial Group, Inc............................ 5,039 205,339
KeyCorp............................................... 4,534 164,358
MBNA Corp............................................. 2,975 109,703
Mellon Bank Corp...................................... 2,990 160,713
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>

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

BANKS (Continued)
Morgan (J.P.) & Company, Inc.......................... 3,693 $ 296,363
NationsBank Corp...................................... 5,299 368,943
Norwest Corp.......................................... 6,465 213,345
PNC Bank Corp......................................... 4,562 147,125
Republic New York Corp................................ 1,125 69,891
Suntrust Banks, Inc................................... 2,299 157,482
U.S. Bancorp (Portland, OR)........................... 2,019 67,889
Wachovia Corp......................................... 3,484 159,393
Wells Fargo & Company................................. 926 200,016
------------
5,835,032
------------
BEVERAGES (3.2%)
Anheuser-Busch Companies, Inc......................... 5,116 342,133
Brown-Forman Corp..................................... 1,413 51,574
Coca-Cola Company (The)............................... 24,764 1,838,727
Coors (Adolph) Co..................................... 748 16,550
PepsiCo, Inc.......................................... 15,490 865,504
Seagram Company Ltd................................... 7,334 253,939
------------
3,368,427
------------
BROADCASTING (1.2%)
Capital Cities/ABC, Inc............................... 3,021 372,716
Comcast Corp. Class A................................. 4,757 86,518
Tele-Communications TCI Group, Class A (a)............ 12,935 257,083
Tellabs, Inc. (a)..................................... 1,738 64,306
U.S. West Media Group (a)............................. 9,313 176,947
Viacom Inc. Class B (a)............................... 7,150 338,731
------------
1,296,301
------------
BUSINESS EQUIPMENT & SERVICES (1.4%)
Block (H & R), Inc.................................... 2,042 82,701
Browning-Ferris Industries, Inc....................... 4,165 122,867
Ceridian Corp. (a).................................... 1,291 53,254
Deluxe Corp........................................... 1,642 47,618
Donnelley (R.R.) &
Sons Company......................................... 3,052 120,173
Dun & Bradstreet Corp. (The).......................... 3,420 221,445
Federal Express Corp. (a)............................. 1,127 83,257
Harland (John H.) Co. (The)........................... 629 13,130
Interpublic Group of Cos., Inc........................ 1,517 65,800
Moore Corp. Ltd....................................... 2,006 37,362
National Service Industries, Inc...................... 1,011 32,731
Ogden Corp............................................ 990 21,161
Pitney Bowes Inc...................................... 3,055 143,585
Ryder System, Inc..................................... 1,521 37,645
Safety-Kleen Corp..................................... 1,135 17,734
Service Corp. International........................... 1,958 86,152
WMX Technologies, Inc................................. 9,609 287,069
------------
1,473,684
------------
CAPITAL EQUIPMENT (0.8%)
Caterpillar Inc....................................... 4,049 237,879
Cincinnati Milacron Inc............................... 632 16,590
</TABLE>

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

96
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

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

CAPITAL EQUIPMENT (Continued)
Cummins Engine Company, Inc........................... 875 $ 32,375
Fluor Corp............................................ 1,639 108,174
Foster Wheeler Corp................................... 639 27,157
General Signal Corp................................... 998 32,310
Giddings & Lewis Inc.................................. 635 10,478
Harnischfeger Industries, Inc......................... 920 30,590
Illinois Tool Works Inc............................... 2,262 133,458
Ingersoll-Rand Company................................ 2,137 75,062
Paccar Inc............................................ 808 34,037
Parker Hannifin Corp.................................. 1,508 51,649
Snap-On, Inc.......................................... 889 40,227
Timken Company (The).................................. 624 23,868
Trinova Corp.......................................... 517 14,799
------------
868,653
------------
CHEMICALS--PETROLEUM (1.8%)
Dow Chemical Company (The)............................ 5,342 375,943
Du Pont (E.I.) De
Nemours & Company.................................... 11,038 771,280
Goodrich (B.F.) Company............................... 508 34,607
Grace (W.R.) & Co..................................... 1,883 111,332
Hercules Inc.......................................... 2,340 131,918
Monsanto Company...................................... 2,281 279,423
Rohm & Haas Company................................... 1,379 88,773
Union Carbide Corp.................................... 2,709 101,588
------------
1,894,864
------------
CHEMICALS--SPECIALTY (0.8%)
Air Products & Chemicals, Inc......................... 2,164 114,151
Avery Dennison Corp................................... 1,035 51,879
Eastman Chemical Co................................... 1,640 102,705
Ecolab, Inc........................................... 1,252 37,560
Engelhard Corp........................................ 2,925 63,619
Great Lakes Chemical Corp. ........................... 1,306 94,032
Morton International, Inc............................. 3,021 108,378
Nalco Chemical Company................................ 1,399 42,145
Pall Corp............................................. 2,271 61,033
Praxair, Inc.......................................... 2,656 89,308
Sigma-Aldrich Corp.................................... 1,011 50,045
------------
814,855
------------
COMMUNICATIONS
EQUIPMENT (0.5%)
Andrew Corp. (a)...................................... 814 31,136
DSC Communications Corp. (a).......................... 2,209 81,457
General Dynamics Corp................................. 1,252 74,024
Harris Corp........................................... 865 47,251
Northern Telecom Limited.............................. 5,041 216,763
Scientific-Atlanta, Inc............................... 1,502 22,530
------------
473,161
------------
COMPUTERS--MAIN &
MINI (2.8%)
Amdahl Corp. (a)...................................... 2,379 20,222
Cisco Systems, Inc. (a)............................... 5,376 401,184
</TABLE>
<TABLE>
<CAPTION>

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

COMPUTERS--MAIN &
MINI (Continued)
Cray Research, Inc. (a)............................... 509 $ 12,598
Data General Corp. (a)................................ 739 10,161
Digital Equipment Corp. (a)........................... 2,971 190,515
Hewlett-Packard Company............................... 10,003 837,751
Honeywell Inc......................................... 2,552 124,091
International Business
Machines Corp........................................ 11,178 1,025,582
Tandem Computers Inc. (a)............................. 2,264 24,055
Unisys Corp. (a)...................................... 3,397 19,108
Xerox Corp............................................ 2,121 290,577
------------
2,955,844
------------
COMPUTERS--MICRO (0.5%)
Apple Computer Inc.................................... 2,392 76,245
Compaq Computer Corp. (a)............................. 5,241 251,568
Sun Microsystems Inc. (a)............................. 3,836 175,017
------------
502,830
------------
COMPUTERS--
PERIPHERALS (2.3%)
Autodesk, Inc......................................... 1,003 34,353
Cabletron Systems, Inc. (a)........................... 1,438 116,478
Computer Associates
International Inc.................................... 4,765 271,009
First Data Corp....................................... 4,463 298,463
Intergraph Corp. (a).................................. 899 14,159
Microsoft Corp. (a)................................... 11,481 1,007,458
Novell Inc. (a)....................................... 7,296 103,968
Oracle Corp. (a)...................................... 8,579 363,535
Silicon Graphics, Inc. (a)............................ 3,175 87,313
3Com Corp. (a)........................................ 3,100 144,537
------------
2,441,273
------------
CONSTRUCTION
MATERIALS (0.4%)
Black & Decker Corp................................... 1,643 57,916
Crane Co.............................................. 622 22,936
PPG Industries Inc.................................... 4,083 186,797
Sherwin-Williams Company.............................. 1,654 67,401
Stanley Works (The)................................... 895 46,092
------------
381,142
------------
CONSUMER
ELECTRONICS (0.0%) (b)
Zenith Electronics Corp. (a).......................... 444 3,053
------------
CONSUMER SERVICES (0.1%)
CUC International Inc. (a)............................ 3,488 119,028
------------
CONTAINERS (0.1%)
Ball Corp............................................. 618 16,995
Bemis Company, Inc.................................... 1,014 25,984
Crown Cork & Seal
Company, Inc. (a).................................... 1,760 73,480
------------
116,459
------------
</TABLE>

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

97
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

COSMETICS &
TOILETRIES (0.6%)
Alberto-Culver Company................................ 516 $ 17,737
Avon Products, Inc.................................... 1,306 98,440
Gillette Company...................................... 8,829 460,212
International Flavors &
Fragrances, Inc. .................................... 2,149 103,152
------------
679,541
------------
DEFENSE (0.6%)
EG & G, Inc........................................... 1,028 24,929
Loral Corp............................................ 3,256 115,181
Raytheon Company...................................... 4,920 232,470
Rockwell International Corp........................... 4,303 227,521
------------
600,101
------------
ELECTRICAL
COMPONENTS (0.1%)
LSI Logic Corp. (a)................................... 2,600 85,150
------------
ELECTRICAL
EQUIPMENT (3.1%)
Cooper Industries, Inc. .............................. 2,167 79,637
Dover Corp. .......................................... 2,266 83,558
Emerson Electric Co................................... 4,433 362,398
General Electric Company.............................. 33,263 2,394,936
Grainger (W.W.), Inc. ................................ 1,015 67,244
Johnson Controls, Inc. ............................... 765 52,594
Tyco International Ltd................................ 3,024 107,730
Westinghouse Electric Corp. .......................... 7,752 127,908
------------
3,276,005
------------
ELECTRONIC
COMPONENTS (2.3%)
Advanced Micro Devices, Inc. (a)...................... 2,083 34,369
AMP Inc. ............................................. 4,172 160,100
Applied Materials, Inc. (a)........................... 3,476 136,867
Intel Corp. .......................................... 16,145 916,229
Micron Technology Inc................................. 4,100 162,463
Motorola, Inc......................................... 11,720 668,040
National Semiconductor Corp. (a) 2,483 55,247
Raychem Corp. ........................................ 873 49,652
Teledyne, Inc. (a).................................... 1,129 28,931
Texas Instruments, Inc................................ 3,740 193,545
Thomas & Betts Corp. ................................. 388 28,615
------------
2,434,058
------------
ELECTRONIC
INSTRUMENTS (0.1%)
Perkin-Elmer Corp. (The).............................. 891 33,635
Tektronix, Inc........................................ 623 30,605
------------
64,240
------------
ENVIRONMENTAL
CONTROL (0.1%)
Laidlaw, Inc. Class B................................. 5,538 56,765
------------
</TABLE>
<TABLE>
<CAPTION>

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

FARM MACHINERY (0.2%)
Deere & Company....................................... 5,217 $ 183,899
Navistar International Corp. (a)...................... 1,526 16,023
Varity Corp. (a)...................................... 865 32,113
------------
232,035
------------
FINANCE COMPANIES (0.6%)
Beneficial Corp....................................... 1,017 47,417
Household International Inc........................... 1,997 118,073
National City Corp.................................... 2,975 98,547
Travelers Group Inc................................... 6,293 395,672
------------
659,709
------------
FOOD & RELATED (2.4%)
Archer Daniels Midland Company........................ 10,733 193,194
Campbell Soup Company................................. 4,941 296,460
ConAgra, Inc.......................................... 4,938 203,693
CPC International, Inc. .............................. 2,917 200,179
Fleming Companies, Inc. .............................. 744 15,345
General Mills, Inc. .................................. 3,166 182,837
Heinz (H.J.) Company.................................. 7,249 240,123
Hershey Foods Corp.................................... 1,559 101,335
Kellogg Company....................................... 4,265 329,471
Quaker Oats Company................................... 2,685 92,632
Ralston Purina Group.................................. 2,027 126,434
Sara Lee Corp......................................... 9,593 305,777
SuperValu Inc......................................... 1,406 44,289
Sysco Corp............................................ 3,568 115,960
Wrigley (Wm.) Jr. Company............................. 2,275 119,437
------------
2,567,166
------------
FOOD PROCESSING (0.1%)
Pioneer Hi-Bred
International, Inc. ................................ 1,691 94,062
------------
FOREST & PAPER
PRODUCTS (1.4%)
Boise Cascade Corp. .................................. 958 33,171
Champion International Corp. ......................... 1,884 79,128
Crown Vantage, Inc. (a)............................... 163 2,323
Federal Paper Board
Company, Inc. ...................................... 872 45,235
Georgia-Pacific Corp. ................................ 1,773 121,672
International Paper Company........................... 5,018 190,057
James River Corp. of Virginia......................... 1,637 39,493
Kimberly-Clark Corp. ................................. 5,128 424,347
Louisiana-Pacific Corp................................ 2,150 52,137
Mead Corp............................................. 1,139 59,513
Potlatch Corp. ....................................... 518 20,720
Stone Container Corp. ................................ 1,849 26,579
Temple-Inland Inc. ................................... 1,129 49,817
Union Camp Corp. ..................................... 1,386 66,008
Westvaco Corp......................................... 2,065 57,304
Weyerhaeuser Company.................................. 4,051 175,206
Willamette Industries, Inc............................ 1,125 63,281
------------
1,505,991
------------
</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.

COMMON STOCKS (CONTINUED)

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

FURNITURE &
FURNISHINGS (0.3%)
Armstrong World Industries, Inc....................... 745 $ 46,190
Masco Corp............................................ 3,132 98,267
Newell Co............................................. 3,157 81,687
Owens-Corning Fiberglas Corp. (a) 990 44,426
------------
270,570
------------
GOLD & PRECIOUS
METALS (0.2%)
Echo Bay Mines Ltd.................................... 2,159 22,400
Homestake Mining Company.............................. 2,666 41,656
Placer Dome Inc....................................... 4,675 112,784
------------
176,840
------------
HEALTH CARE--DRUGS (4.5%)
Abbott Laboratories................................... 15,709 655,851
Allergan Inc.......................................... 1,257 40,852
Alza Corp. (a)........................................ 1,629 40,318
Amgen Inc. (a)........................................ 5,313 315,459
Baxter International Inc.............................. 5,562 232,909
Lilly (Eli) & Company................................. 10,802 607,612
Merck & Co., Inc...................................... 24,286 1,596,805
Millipore Corp........................................ 831 34,175
Pfizer Inc............................................ 12,517 788,571
Schering-Plough Corp.................................. 7,391 404,657
------------
4,717,209
------------
HEALTH CARE--GENERAL (3.3%)
American Home Products Corp........................... 6,073 589,081
Bausch & Lomb Inc..................................... 1,140 45,173
Becton, Dickinson & Company........................... 1,314 98,550
Biomet Inc. (a)....................................... 2,270 40,576
Bristol-Myers Squibb Company.......................... 9,920 851,880
Johnson & Johnson..................................... 12,780 1,094,288
Mallinckrodt Group, Inc............................... 1,523 55,399
Pharmacia & Upjohn, Inc............................... 10,459 405,286
St. Jude Medical, Inc. (a)............................ 1,351 58,093
Warner-Lambert Company................................ 2,657 258,061
------------
3,496,387
------------
HOMEBUILDERS, MOBILE
HOMES (0.1%)
Centex Corp........................................... 526 18,279
Fleetwood Enterprises, Inc............................ 897 23,098
Kaufman & Broad Home Corp............................. 632 9,401
Pulte Corp............................................ 513 17,249
------------
68,027
------------
HOSPITAL SUPPLY &
MANAGEMENT (1.0%)
Bard (C.R.), Inc...................................... 1,018 32,831
Beverly Enterprises, Inc. (a)......................... 1,830 19,444
Columbia/HCA Healthcare Corp.......................... 8,818 447,513
Community Psychiatric Centers (a) 889 10,890
</TABLE>
<TABLE>
<CAPTION>

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

HOSPITAL SUPPLY &
MANAGEMENT (Continued)
Humana Inc. (a)....................................... 2,700 $ 73,913
Manor Care, Inc....................................... 1,243 43,505
Medtronic, Inc........................................ 4,552 254,343
Shared Medical Systems Corp........................... 499 27,133
Tenet Healthcare Corp. (a)............................ 4,008 83,166
United States Surgical Corp........................... 1,131 24,175
------------
1,016,913
------------
HOTELS & GAMING (0.2%)
Bally Entertainment Corp. (a)......................... 999 13,986
Harrah's Entertainment, Inc. (a)...................... 2,050 49,713
Hilton Hotels Corp.................................... 1,004 61,746
Marriott International, Inc........................... 2,477 94,745
------------
220,190
------------
HOUSEHOLD--GENERAL
PRODUCTS (2.1%)
American Greetings Corp............................... 1,500 41,437
Clorox Company (The).................................. 1,023 73,272
Colgate-Palmolive Company............................. 2,842 199,651
Corning Inc........................................... 4,570 146,240
Jostens, Inc.......................................... 896 21,728
Premark International, Inc............................ 1,253 63,433
Procter & Gamble Company (The) 13,627 1,131,041
Rubbermaid, Inc....................................... 3,170 80,835
Unilever, N.V......................................... 3,164 445,333
------------
2,202,970
------------
HOUSEHOLD--MAJOR
APPLIANCES (0.1%)
Briggs & Stratton Corp................................ 635 27,543
Maytag Corp........................................... 2,144 43,416
Whirlpool Corp........................................ 1,495 79,609
------------
150,568
------------
INSURANCE--LIFE (1.0%)
American General Corp................................. 4,083 142,395
Jefferson-Pilot Corp.................................. 1,365 63,472
Loews Corp............................................ 2,250 176,344
Providian Corp........................................ 1,903 77,547
Torchmark Corp........................................ 1,411 63,848
United Healthcare Corp................................ 3,151 146,522
U.S. Healthcare, Inc.................................. 3,483 228,136
UNUM Corp............................................. 1,468 80,740
USLIFE Corp........................................... 750 22,406
------------
1,001,410
------------
INSURANCE--PROPERTY &
CASUALTY (2.4%)
Aetna Life & Casualty Company......................... 2,258 156,366
Allstate Corp. (The).................................. 8,941 367,699
American International Group, Inc. 9,326 862,655
Chubb Corp. (The)..................................... 1,756 169,893
</TABLE>

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

99
<PAGE>

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

INSURANCE--PROPERTY &
CASUALTY (Continued)
CIGNA Corp............................................ 1,409 $ 145,479
General Re Corp. ..................................... 1,643 254,665
ITT Hartford Group, Inc. (a).......................... 2,278 110,198
Lincoln National Corp. ............................... 2,102 112,982
SAFECO Corp. ......................................... 2,502 86,319
St. Paul Companies, Inc. (The)........................ 1,633 90,836
Transamerica Corp. ................................... 1,315 95,831
USF&G Corp............................................ 1,961 33,092
------------
2,486,015
------------
LEISURE TIME INDUSTRY (0.8%)
Brunswick Corp. ...................................... 1,892 45,408
Handleman Co. ........................................ 633 3,640
Hasbro Inc............................................ 1,656 51,336
Mattel, Inc........................................... 4,491 138,098
Outboard Marine Corp. ................................ 389 7,926
Walt Disney Company (The)............................. 10,293 607,287
------------
853,695
------------
MEDICAL SUPPLIES (0.1%)
Boston Scientific Corp. (a)........................... 2,975 145,775
------------
METALS--DIVERSIFIED (0.1%)
Freeport-McMoRan Copper &
Gold Inc............................................. 4,000 112,500
------------
MINING (0.5%)
Asarco, Inc. ......................................... 869 27,808
Barrick Gold Corp. ................................... 7,070 186,471
Cyprus Amax Minerals Co. ............................. 1,936 50,578
INCO Limited.......................................... 2,376 79,002
Nacco Industries, Inc. ............................... 128 7,104
Newmont Mining Corp................................... 1,741 78,780
Phelps Dodge Corp..................................... 1,403 87,337
Santa Fe Pacific Gold Corp. .......................... 2,582 31,307
------------
548,387
------------
MOTION PICTURES (0.0%) (b)
King World Productions, Inc. (a)...................... 645 25,074
------------
MOTOR VEHICLE PARTS (0.3%)
Dana Corp............................................. 2,008 58,734
Eaton Corp............................................ 1,497 80,276
Echlin Inc............................................ 1,137 41,501
Genuine Parts Company................................. 2,511 102,951
------------
283,462
------------
MOTOR VEHICLES (1.7%)
Chrysler Corp......................................... 7,553 418,247
Ford Motor Company.................................... 21,319 618,251
General Motors Corp................................... 14,817 783,449
------------
1,819,947
------------
</TABLE>
<TABLE>
<CAPTION>

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

MULTIPLE INDUSTRY (1.4%)
Alco Standard Corp.................................... 2,230 $ 101,744
AlliedSignal, Inc..................................... 5,672 269,420
Dial Corp. (The)...................................... 1,899 56,258
FMC Corp. (a)......................................... 741 50,110
Harcourt General, Inc. ............................... 1,424 59,630
ITT Corp. (New) (a)................................... 2,278 120,734
ITT Industries, Inc................................... 2,278 54,672
Minnesota Mining &
Manufacturing Company................................ 8,282 548,682
Textron Inc........................................... 1,658 111,915
TRW Inc............................................... 1,270 98,425
Whitman Corp.......................................... 2,041 47,453
------------
1,519,043
------------
PETROLEUM--DOMESTIC (2.2%)
Amerada Hess Corp..................................... 1,885 99,905
Amoco Corp............................................ 9,856 708,400
Ashland Inc........................................... 1,143 40,148
Atlantic Richfield Company............................ 3,163 350,302
Burlington Resources, Inc. ........................... 2,486 97,575
Coastal Corp.......................................... 2,036 75,841
Kerr-McGee Corp....................................... 1,012 64,262
Louisiana Land & Exploration
Company (The)........................................ 625 26,797
Noram Energy Corp..................................... 2,505 22,232
Occidental Petroleum Corp............................. 6,277 134,171
Oryx Energy Company (a)............................... 2,098 28,061
Pennzoil Company...................................... 976 41,236
Phillips Petroleum Company............................ 5,174 176,563
Santa Fe Energy Resources, Inc. (a) 1,763 16,969
Sun Company, Inc. .................................... 1,530 41,884
Tenneco, Inc.......................................... 3,606 178,947
Unocal Corp........................................... 4,800 139,800
USX-Marathon Group.................................... 5,992 116,844
------------
2,359,937
------------
PETROLEUM--
INTERNATIONAL (5.1%)
Chevron Corp.......................................... 12,901 677,303
Exxon Corp............................................ 24,434 1,957,774
Mobil Corp. .......................................... 7,740 866,880
Royal Dutch Petroleum Company......................... 10,520 1,484,635
Texaco Inc............................................ 5,067 397,760
------------
5,384,352
------------
PETROLEUM--SERVICES (0.7%)
Baker Hughes Inc...................................... 2,773 67,592
Dresser Industries, Inc............................... 3,571 87,043
Halliburton Company................................... 2,266 114,716
Helmerich & Payne, Inc. .............................. 505 15,024
McDermott International, Inc. ........................ 1,019 22,418
Rowan Companies, Inc. (a)............................. 1,644 16,235
Schlumberger Limited.................................. 4,804 332,677
Western Atlas, Inc. (a)............................... 1,093 55,196
------------
710,901
------------
</TABLE>

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

100
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

COMMON STOCKS (CONTINUED)

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

PHOTOGRAPHIC
EQUIPMENT (0.5%)
Eastman Kodak Company................................. 6,673 $ 447,091
Polaroid Corp......................................... 900 42,637
------------
489,728
------------
PUBLISHING (0.9%)
Dow Jones & Company, Inc.............................. 2,021 80,587
Gannett Company, Inc. ................................ 2,795 171,543
Knight-Ridder Inc..................................... 1,024 64,000
McGraw-Hill Companies, Inc. .......................... 1,009 87,909
Meredith Corp......................................... 531 22,235
New York Times Company (The).......................... 1,988 58,895
Time Warner, Inc...................................... 7,556 286,184
Times Mirror Company.................................. 2,225 75,372
Tribune Company....................................... 1,276 77,996
------------
924,721
------------
RAILROAD (0.9%)
Burlington Northern Santa
Fe Corp.............................................. 2,811 219,258
Conrail, Inc.......................................... 1,531 107,170
CSX Corp. ............................................ 4,070 185,694
Norfolk Southern Corp. ............................... 2,568 203,835
Union Pacific Corp.................................... 4,044 266,904
------------
982,861
------------
RESTAURANTS (0.7%)
Darden Restaurants, Inc. (a).......................... 3,166 37,596
Luby's Cafeterias, Inc................................ 511 11,370
McDonald's Corp. ..................................... 13,648 615,866
Ryan's Family Steak Houses, Inc. (a) 1,021 7,147
Shoney's, Inc. (a).................................... 867 8,887
Wendy's International, Inc. .......................... 2,020 42,925
------------
723,791
------------
RETAIL--FOOD STORES (0.7%)
Albertson's, Inc...................................... 5,064 166,479
American Stores Co.................................... 3,007 80,437
Bruno's, Inc.......................................... 33 355
Giant Food, Inc....................................... 1,141 35,942
Great Atlantic & Pacific Tea Company, Inc. .......... 748 17,204
Kroger Company (The) (a).............................. 2,445 91,687
Longs Drug Stores Corp................................ 393 18,815
Rite Aid Corp......................................... 1,653 56,615
Walgreen Company...................................... 5,015 149,823
Winn-Dixie Stores, Inc. .............................. 3,032 111,805
------------
729,162
------------
RETAIL--GENERAL
MERCHANDISE (2.2%)
Dayton Hudson Corp.................................... 1,405 105,375
Dillard Department Stores, Inc........................ 2,163 61,645
Federated Department Stores, Inc. .................... 4,100 112,750
</TABLE>
<TABLE>
<CAPTION>

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

RETAIL--GENERAL
MERCHANDISE (Continued)
Kmart Corp. .......................................... 9,102 $ 65,989
May Department Stores Company......................... 5,019 212,053
Mercantile Stores Company, Inc........................ 743 34,364
Nordstrom, Inc. ...................................... 1,639 66,380
Penney (J.C.) Company, Inc............................ 4,466 212,693
Price/Costco, Inc. (a)................................ 3,929 59,917
Sears, Roebuck & Company.............................. 7,760 302,640
TJX Companies, Inc. (The)............................. 1,412 26,652
Wal-Mart Stores, Inc. ................................ 45,116 1,009,471
Woolworth Corp........................................ 2,648 34,424
------------
2,304,353
------------
RETAIL--SPECIALTY
STORES (1.1%)
Charming Shoppes, Inc. ............................... 2,030 5,836
Circuit City Stores, Inc. ............................ 1,895 52,349
Gap, Inc. (The)....................................... 2,901 121,842
Home Depot, Inc. (The)................................ 9,395 449,786
Limited, Inc. (The)................................... 7,093 123,241
Lowe's Companies, Inc................................. 3,136 105,056
Melville Corp. ....................................... 2,038 62,669
Pep Boys-Manny, Moe & Jack............................ 1,146 29,366
Tandy Corp............................................ 1,266 52,539
Toys "R" Us (a)....................................... 5,493 119,473
------------
1,122,157
------------
SAVINGS & LOANS (1.1%)
Ahmanson (H.F.) & Company............................. 2,389 63,309
Federal Home Loan Mortgage Corp. .................... 3,539 295,507
Federal National Mortgage Association................. 5,339 662,703
Golden West Financial Corp. .......................... 1,150 63,537
Great Western Financial Corp. ........................ 2,650 67,575
------------
1,152,631
------------
SECURITY & COMMISSION BROKERS (1.0%)
Alexander & Alexander
Services, Inc. ...................................... 873 16,587
American Express Company.............................. 9,618 397,945
Dean Witter Discover & Company 3,416 160,552
Marsh & McLennan
Companies, Inc....................................... 1,412 125,315
Merrill Lynch & Co., Inc. ............................ 3,532 180,132
Morgan Stanley Group Inc. ............................ 1,500 120,937
Salomon Inc. ......................................... 2,145 76,148
------------
1,077,616
------------
STEEL (0.2%)
Armco Inc. (a)........................................ 2,134 12,537
Bethlehem Steel Corp. (a)............................. 2,208 30,912
Inland Steel Industries, Inc. (a)..................... 965 24,246
Nucor Corp. .......................................... 1,670 95,399
</TABLE>

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 (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

STEEL (Continued)
USX-U.S. Steel Group Inc. ............................ 1,494 $ 45,941
Worthington Industries, Inc. ......................... 1,827 38,024
------------
247,059
------------
TEXTILE (0.0%) (b)
Springs Industries, Inc. ............................. 383 15,847
------------
TIMESHARING &
SOFTWARE (0.3%)
Automatic Data Processing, Inc. ...................... 2,791 207,232
Computer Sciences Corp. (a)........................... 1,123 78,890
------------
286,122
------------
TIRE & RUBBER
PRODUCTS (0.2%)
Cooper Tire & Rubber Company.......................... 1,642 40,434
Goodyear Tire & Rubber Company 3,013 136,715
------------
177,149
------------
TOBACCO (1.7%)
American Brands, Inc. ................................ 3,721 166,050
Philip Morris Companies, Inc. ........................ 16,540 1,496,870
Schweitzer-Mauduit
International, Inc. (a).............................. 316 7,308
UST Inc. ............................................. 3,950 131,831
------------
1,802,059
------------
TRUCKING & SHIPPING (0.1%)
Consolidated Freightways, Inc. ....................... 852 22,578
Roadway Services, Inc. ............................... 863 42,179
Yellow Corp. ......................................... 516 6,386
------------
71,143
------------
UTILITIES--ELECTRIC (3.2%)
American Electric Power
Company, Inc. ....................................... 3,668 148,554
Baltimore Gas & Electric Company 3,004 85,614
Carolina Power & Light Company 3,065 105,743
Central & South West Corp. ........................... 3,782 105,422
CINergy Corp. ........................................ 3,102 94,999
Consolidated Edison Company of
New York............................................. 4,665 149,280
Detroit Edison Company................................ 2,909 100,360
Dominion Resources Inc. .............................. 3,497 144,251
Duke Power Company.................................... 4,043 191,537
Entergy Corp. ........................................ 4,542 132,853
FPL Group, Inc. ...................................... 3,661 169,778
General Public Utilities Corp. ....................... 2,250 76,500
Houston Industries Inc. .............................. 5,286 128,186
Niagara Mohawk Power Corp. ........................... 2,894 27,855
Northern States Power Company......................... 1,375 67,547
Ohio Edison Company................................... 3,026 71,111
Pacific Gas & Electric Company........................ 8,580 243,458
PacifiCorp ........................................... 5,651 120,084
</TABLE>
<TABLE>
<CAPTION>

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

UTILITIES--ELECTRIC (Continued)
Peco Energy Company................................ 4,422 $ 133,213
PP&L Resources, Inc. .............................. 3,000 75,000
Public Service Enterprise Group Inc. 4,806 147,184
SCEcorp. .......................................... 8,848 157,052
Southern Company (The)............................. 13,256 326,429
Texas Utilities Company............................ 4,529 186,255
Unicom Corp. ...................................... 4,186 137,092
Union Electric Company............................. 2,029 84,711
------------
3,410,068
------------
UTILITIES--GAS & PIPELINE (0.7%)
Columbia Gas System, Inc. (a)...................... 1,013 44,445
Consolidated Natural Gas Company 1,885 85,532
Eastern Enterprises................................ 396 13,959
Enron Corp. ....................................... 5,010 191,006
Enserch Corp. ..................................... 1,376 22,360
Nicor Inc. ........................................ 1,024 28,160
Oneok, Inc. ....................................... 511 11,689
Pacific Enterprises................................ 1,639 46,302
Panhandle Eastern Corp. ........................... 3,008 83,848
Peoples Energy Corp. .............................. 637 20,225
Sonat Inc. ........................................ 1,668 59,423
Williams Companies, Inc. (The)..................... 2,032 89,154
------------
696,103
------------
UTILITIES--TELEPHONE (7.3%)
Airtouch Communications (a)........................ 9,769 275,974
Alltel Corp. ...................................... 3,688 108,796
Ameritech Corp. ................................... 10,964 646,876
AT&T Corp. ........................................ 31,171 2,018,322
Bell Atlantic Corp. ............................... 8,696 581,545
BellSouth Corp. ................................... 19,704 857,124
GTE Corp. ......................................... 19,032 837,408
MCI Communications Corp. .......................... 13,460 351,643
NYNEX Corp. ....................................... 8,414 454,356
Pacific Telesis Group.............................. 8,413 282,887
SBC Communications, Inc. .......................... 12,104 695,980
Sprint Corp. ...................................... 6,912 275,616
US West, Inc. ..................................... 9,313 332,940
------------
7,719,467
------------
Total Common Stocks
(Cost $71,303,356)................................ 90,758,650 (c)
------------

PREFERRED STOCK (0.0%) (B)

ELECTRONIC
COMPONENTS (0.0%) (b)
Teledyne, Inc.
$1.20, Series E................................... 29 417
------------
Total Preferred Stock
(Cost $427)....................................... 417
------------
</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.

SHORT-TERM FUTURES CONTRACTS (0.3%)
INVESTMENTS (13.4%)

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

COMMERCIAL PAPER (6.4%)
American Honda Finance
Corp. 5.83%, due
1/12/96................. $ 700,000 $ 698,753
Banco Itau S.A., Cayman
Islands
5.95%, due 1/22/96...... 370,000 368,716
Dic Americas, Inc.
6.00%, due 1/26/96...... 790,000 786,709
Dynamic Funding Corp.
6.00%, due 2/2/96....... 200,000 198,933
6.05%, due 1/4/96....... 408,000 407,537
6.05%, due 1/17/96...... 300,000 299,193
Epson America Inc.
6.05%, due 1/4/96....... 1,140,000 1,139,425
Industrial Funding Corp.
5.83%, due 1/10/96...... 330,000 329,519
Iris Partners, L.P.
6.00%, due 1/18/96...... 295,000 294,164
6.03%, due 1/12/96...... 415,000 414,235
Mitsubishi Bank, Limited
5.85%, due 1/18/96...... 270,000 269,254
Shinhan Bank
5.90%, due 1/22/96...... 1,475,000 1,469,880
------------
Total Commercial Paper
(Cost $6,676,318)....... 6,676,318
------------
U.S. GOVERNMENT &
FEDERAL AGENCY (7.0%)
Federal National
Mortgage Association
5.45%, due 1/17/96...... 5,360,000 5,347,124
United States Treasury
Bill
4.94%, due 3/7/96 (d)... 2,040,000 2,020,959
------------
Total U.S. Government &
Federal Agency
(Cost $7,369,064)....... 7,368,083
------------
Total Short-Term
Investments
(Cost $14,045,382)...... 14,044,401
------------
Total Investments
(Cost $85,349,165) (f).. 99.7% 104,803,468 (g)
Cash and Other Assets,
Less Liabilities........ 0.3 367,064
----------- ------------
Net Assets............... 100.0% $105,170,532
=========== ============
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
LONG APPRECIATION
---------------------------------------------------------
<S> <C> <C>

Standard & Poor's 500
March 1996..................................... 45 $ 328,850
------------
Total Futures Contracts (Settlement Value
$13,915,125) $ 328,850 (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 99.5% of net assets.
(d) Partially segregated as collateral for futures contracts.
(e) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1995.
(f) The cost for Federal income tax purposes is $85,469,863.
(g) At December 31, 1995 net unrealized appreciation was $19,333,606, 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 $20,787,389 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,453,783.

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
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
As of December 31, 1995 For the year ended December 31, 1995

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (Note 2)
(identified cost $85,349,165)................................... $104,803,468
Cash............................................................. 93,869
Receivables:
Fund shares sold................................................. 261,413
Dividends and interest........................................... 181,300
NYLIAC........................................................... 13,552
Variation margin receivable on futures contracts................. 15,062
Unamortized organization expense
(Note 2)........................................................ 10,496
Other assets..................................................... 419
------------
Total assets................................................... 105,379,579
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 144,925
Recordkeeping.................................................... 17,254
Administrator.................................................... 8,743
Adviser.......................................................... 8,743
Custodian........................................................ 3,565
Directors........................................................ 397
Accrued expenses................................................. 25,420
------------
Total liabilities.............................................. 209,047
------------
Net assets applicable to
outstanding shares.............................................. $105,170,532
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
50 million shares authorized.................................... $ 77,756
Additional paid-in capital....................................... 85,175,710
Accumulated undistributed net
realized gain on investments.................................... 133,913
Net unrealized appreciation
on investments.................................................. 19,783,153
------------
Net assets applicable to
outstanding shares.............................................. $105,170,532
============
Shares of capital stock outstanding.............................. 7,775,567
============
Net asset value per share outstanding............................ $ 13.53
============
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 1,737,373
Interest......................................................... 657,235
------------
Total income................................................... 2,394,608
------------
Expenses: (Note 2)
Recordkeeping.................................................... 161,976
Administration (Note 3).......................................... 159,932
Advisory (Note 3)................................................ 79,966
Shareholder communication........................................ 27,943
Custodian........................................................ 21,118
Auditing......................................................... 14,601
Amortization of organization expense............................. 7,801
Directors........................................................ 5,970
Legal............................................................ 5,731
Portfolio pricing................................................ 4,199
Miscellaneous.................................................... 5,057
------------
Total expenses
before reimbursement.......................................... 494,294
Expense reimbursement from
Administrator (Note 3).......................................... (118,455)
------------
Net expenses................................................... 375,839
------------
Net investment income............................................ 2,018,769
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain from:
Securities transactions.......................................... 863,214
Futures transactions............................................. 2,317,233
------------
Net realized gain on investments................................. 3,180,447
------------
Net change in unrealized appreciation
on investments:
Securities transactions.......................................... 18,946,588
Futures transactions............................................. 404,950
------------
Net unrealized gain on investments............................... 19,351,538
------------
Net realized and unrealized gain
on investments.................................................. 22,531,985
------------
Net increase in net assets resulting
from operations................................................. $ 24,550,754
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$11,459.

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

104
<PAGE>

INDEXED EQUITY PORTFOLIO NEW YORK LIFE MFA
STATEMENT OF CHANGES IN NET ASSETS SERIES FUND, INC.
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................ $ 2,018,769 $ 1,387,787
Net realized gain on investments................. 3,180,447 306,434
Net change in unrealized appreciation on
investments..................................... 19,351,538 (1,143,715)
------------- ------------
Net increase in net assets resulting from
operations...................................... 24,550,754 550,506
------------- ------------
Dividends and distributions to shareholders:
From net investment income....................... (2,044,642) (1,386,710)
From net realized gain on investments............ (2,898,925) (275,140)
------------- ------------
Total dividends and distributions to
shareholders................................... (4,943,567) (1,661,850)
------------- ------------
Capital share transactions:
Net proceeds from sale of shares................. 32,292,361 21,300,925
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions.. 4,943,567 1,661,850
------------- ------------
37,235,928 22,962,775
Cost of shares redeemed.......................... (14,837,036) (1,768,151)
------------- ------------
Increase in net assets derived from capital
share transactions............................. 22,398,892 21,194,624
------------- ------------
Net increase in net assets...................... 42,006,079 20,083,280
NET ASSETS:
Beginning of year................................ 63,164,453 43,081,173
------------- ------------
End of year...................................... $ 105,170,532 $ 63,164,453
============= ============
Accumulated undistributed net investment income.. $ -- $ 1,077
============= ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29
1993 (A)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31
1995 1994 1993
----------------------------
<S> <C> <C> <C>
Net asset value at beginning of
period............................. $ 10.38 $ 10.58 $ 10.00
------------ ------------ ------------
Net investment income............... 0.27 0.24 0.19
Net realized and unrealized gain
(loss) on investments.............. 3.55 (0.15) 0.67
------------ ------------ ------------
Total from investment operations.... 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....................... (0.39) (0.05) (0.08)
In excess of net realized gain on
investments....................... -- -- (0.01)
------------ ------------ ------------
Total dividends and distributions... (0.67) (0.29) (0.28)
------------ ------------ ------------
Net asset value at end of period.... $ 13.53 $ 10.38 $ 10.58
============ ============ ============
Total investment return (b)......... 36.89% 0.76% 8.53%
Ratios (to average net
assets)/Supplemental Data:
Net investment income.............. 2.52% 2.61% 2.54%+
Net expenses....................... 0.47% 0.47% 0.47%+
Expenses (before reimbursement).... 0.62% 0.68% 0.96%+
Portfolio turnover rate............. 5% 8% 7%
Net assets at end of period (in
000's)............................. $ 105,171 $ 63,164 $ 43,081
</TABLE>
- --------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.

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

105
<PAGE>

NOTES TO FINANCIAL STATEMENTS
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 LifeStagesSM Annuity Separate
Account. The Separate Account is used to fund flexible premium retirement
annuity 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.

106
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

(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 year end to credit loss in the event of a counterparty's failure
to perform its obligations.

107
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(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 year. The changes
in net assets arising from fluctuations in exchange rates and the changes in
net assets resulting from changes in market prices are not separately
presented. However, gains and losses from certain foreign currency
transactions are treated as ordinary income for Federal income tax purposes.

108
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

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 year-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.

109
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

All of the initial shares purchased by NYLIAC in Capital Appreciation, Cash
Management, Government and Total Return Portfolios were redeemed on
February 21, 1995. A portion of the initial shares purchased by NYLIAC in
Indexed Equity Portfolio were redeemed between February 14, 1995 and December
19, 1995. (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.

110
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

<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 year ended December 31, 1995 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 December 31, 1995 NYLIAC held shares of each Portfolio with a net
asset value as follows:

<TABLE>
<S> <C>
High Yield Corporate Bond Portfolio................................ $10,551,365
International Equity Portfolio..................................... 10,195,702
Value Portfolio.................................................... 5,790,316
Indexed Equity Portfolio........................................... 19,068,546
</TABLE>

(E)

RECORDKEEPING FEES. NYLIAC provides recordkeeping services for Cash
Management, Bond and Growth Equity Portfolios. For the year ended December 31,
1995 the Portfolios accrued recordkeeping fees as follows:

<TABLE>
<S> <C>
Cash Management Portfolio........................................... $ 153,011
Bond Portfolio...................................................... 710,786
Growth Equity Portfolio............................................. 1,270,983
</TABLE>

111
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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>

Government Portfolio, Total Return Portfolio and Bond Portfolio utilized
$714,386, $696,197 and $4,716,932, respectively, of capital loss carryforwards
during the current year.

- -------------------------------------------------------------------------------
NOTE 5--Financial Investments:
- -------------------------------------------------------------------------------

High Yield Corporate Bond Portfolio invests primarily in high yield bonds.
These bonds may involve special risks in addition to the risks associated with
investment in higher rated debt securities. High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher grade bonds. Also, the secondary market on which high
yield bonds are traded may be less liquid than the market for higher grade
bonds.

Each Portfolio may enter into repurchase agreements to earn income. In the
event of the bankruptcy of the seller or the failure of the seller to
repurchase the securities as agreed, a Portfolio could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement.

- -------------------------------------------------------------------------------
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.

112
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

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 December 19, 1995, NYLIAC redeemed
a portion of its initial investment in Indexed Equity Portfolio. NYLIAC
reimbursed Indexed Equity Portfolio $11,280 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 on each
of the dates above.

113
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------

During the year ended December 31, 1995, 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 (A) PORTFOLIO (A)
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Securi-
ties................... $ -- $ -- $327,619 $341,450 $ -- $ -- $ -- $ --
All others.............. 132,694 51,990 -- -- 35,137 11,157 14,549 1,356
-----------------------------------------------------------------------------
Total................... $ 132,694 $ 51,990 $327,619 $341,450 $35,137 $11,157 $14,549 $1,356
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
- --------
(a)For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.

- --------------------------------------------------------------------------------
NOTE 9--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------

Transactions in capital shares throughout each year ended December 31, 1995 and
December 31, 1994 were as follows:

<TABLE>
<CAPTION>
HIGH YIELD
CORPORATE
CAPITAL APPRECIATION CASH MANAGEMENT GOVERNMENT BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1995 1994 1995 1994 1995 1994 1995 (A)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 6,644 6,383 128,846 99,252 1,197 2,392 2,979
Shares issued in
reinvestment of
dividends and
distributions.......... 62 43 3,588 2,011 448 498 167
Shares issued in
connection with
acquisition of Money
Market Portfolio....... -- -- -- 37,601 -- -- --
---------------------------------------------------------
6,706 6,426 132,434 138,864 1,645 2,890 3,146
Shares redeemed......... 874 88 115,710 94,481 1,859 808 41
---------------------------------------------------------
Net increase (decrease). 5,832 6,338 16,724 44,383 (214) 2,082 3,105
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
- --------
(a)For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.

114
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

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

<TABLE>
<CAPTION>
TOTAL RETURN VALUE BOND GROWTH EQUITY INDEXED EQUITY
PORTFOLIO PORTFOLIO (A) PORTFOLIO PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$298,506 $285,160 $ -- $ -- $161,939 $149,343 $ -- $ -- $ -- $ --
97,990 74,367 19,682 1,977 24,868 19,504 396,667 373,184 22,348 3,454
- --------------------------------------------------------------------------------------------
$396,496 $359,527 $19,682 $1,977 $186,807 $168,847 $396,667 $373,184 $22,348 $3,454
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY TOTAL RETURN VALUE BOND GROWTH EQUITY INDEXED EQUITY
PORTFOLIO PORTFOLIO PORTFOLIPORTFOLIOO PORTFOLIO PORTFOLIO
1995 (A) 1995 1994 1995 (A) 1995 1994 1995 1994 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
414 4,196 6,594 1,621 1,732 1,676 2,118 2,091 2,580 2,024
67 345 301 17 1,080 1,165 2,286 1,616 367 160
-- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
481 4,541 6,895 1,638 2,812 2,841 4,404 3,707 2,947 2,184
46 1,404 240 28 2,397 2,776 2,060 1,642 1,259 169
- --------------------------------------------------------------------------------
435 3,137 6,655 1,610 415 65 2,344 2,065 1,688 2,015
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

115
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------

To the Board of Directors and Shareholders of
New York Life MFA Series Fund, Inc.

In our opinion, the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Capital Appreciation Portfo-
lio, Cash Management Portfolio, Government Portfolio, High Yield Corporate
Bond Portfolio, International Equity Portfolio, Total Return Portfolio, Value
Portfolio, Bond Portfolio, Growth Equity Portfolio, and Indexed Equity Portfo-
lio, (separate portfolios constituting New York Life MFA Series Fund, Inc.,
hereafter referred to as the "Funds") at December 31, 1995, the results of
each of their operations for the year then ended and the changes in each of
their net assets and the financial highlights for each of the periods present-
ed, in conformity with generally accepted accounting principles. These finan-
cial statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibil-
ity is to express an opinion on these financial statements based on our au-
dits. We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodians and brokers and the
application of alternative auditing procedures where confirmations from bro-
kers were not received, provide a reasonable basis for the opinion expressed
above.

Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 16, 1996

116
<PAGE>

PROSPECTUS
FOR
NEW YORK LIFE MFA SERIES FUND, INC.

51 MADISON AVENUE
NEW YORK, NEW YORK 10010

TELEPHONE (212) 576-7243

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

THE 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
Cash Management 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 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 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.

There can be no assurance that the objectives will be realized. For a
discussion of the investment risks associated with each Portfolio, see
"Investment Objectives and Policies," at page of this Prospectus.

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

NEW YORK LIFE MFA SERIES FUND, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND AND THE VARIABLE ACCOUNTS......................................... 3
FINANCIAL HIGHLIGHTS....................................................... 4
Performance and Yield Information........................................ 7
INVESTMENT OBJECTIVES AND POLICIES......................................... 7
Cash Management Portfolio................................................ 8
Bond Portfolio........................................................... 9
Growth Equity Portfolio.................................................. 10
Investment Practices Common to Two or More Portfolios.................... 11
Other Information........................................................ 17
THE FUND AND ITS MANAGEMENT................................................ 17
Investment Advisers...................................................... 17
Portfolio Managers....................................................... 17
Administrator............................................................ 18
Capital Stock............................................................ 19
PURCHASE AND REDEMPTION OF SHARES.......................................... 19
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 20
Taxes.................................................................... 20
Dividends and Distributions.............................................. 20
GENERAL INFORMATION........................................................ 21
Custodian................................................................ 21
Reports to Shareholders.................................................. 21
Other Information........................................................ 21
APPENDIX A................................................................. A-1
</TABLE>

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

2
<PAGE>

THE FUND AND THE VARIABLE ACCOUNTS

This Prospectus describes certain shares offered by New York Life MFA 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 Variable Accounts three separate
classes of capital stock, each of which represents a separate portfolio of
investments-the Cash Management Portfolio, the Bond Portfolio and the Growth
Equity Portfolio. 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.

The terms "shareholder" or "shareholders" in this Prospectus refer to the
Variable Accounts, and the rights of the Variable Accounts as shareholders are
different from the rights of an owner ("Owner") of multifunded retirement
annuity policies and variable life insurance policies issued by NYLIAC
(collectively, "Policies" and individually, "Policy") funded by shares of the
Portfolios. 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 Variable Accounts as shareholders and the rights
of an Owner. The Variable Accounts invest in shares of the Portfolios in
accordance with allocation instructions received from Owners. The Fund has
certain other Portfolios which are not available under the Policies.

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 each
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 appears 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.

CASH MANAGEMENT PORTFOLIO

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR JAN. 29, 1993**
ENDED ENDED TO
DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
------------- ------------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD........................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Net investment income............. 0.05 0.04 0.02
------- ------- -------
Less dividends:
From net investment income...... (0.05) (0.04) (0.02)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD.. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total investment return***........ 5.59% 3.82% 2.40%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income .......... 5.44% 3.97% 2.65%*
Net expenses ................... 0.62% 0.62% 0.62%*
Expenses (before reimbursement)
............................... 0.94% 0.89% 1.10%*
Net assets at end of period (in
000's)........................... $87,839 $71,116 $26,733
</TABLE>
- --------

* 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.

4
<PAGE>

<TABLE>
<CAPTION>
BOND PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD..... $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99 $ 13.55 $ 12.21
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income... 0.88 0.88 0.95 0.92 1.02 1.12 1.11 1.20 1.06 1.04
Net realized and
unrealized gain (loss)
on investments.......... 1.33 (1.34) 0.53 0.13 0.91 (0.23) 0.30 (0.21) (0.91) 0.61
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. 2.21 (0.46) 1.48 1.05 1.93 0.89 1.41 0.99 0.15 1.65
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.88) (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18) (1.71) (0.20)
From net realized gain
on investments......... -- -- -- -- -- -- -- -- -- (0.11)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions........... (0.88) (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18) (1.71) (0.31)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END
OF PERIOD............... $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99 $ 13.55
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment
return*................. 18.31% (3.39)% 11.40% 8.26% 16.27% 7.36% 11.95% 8.26% 1.07% 13.55%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Net investment income
........................ 6.55% 6.53% 6.79% 7.54% 8.22% 8.88% 8.83% 8.66% 8.15% 7.98%
Net expenses .......... 0.62% 0.62%# 0.27%# 0.25% 0.25% 0.25% 0.25% 0.26% 0.25% 0.26%
Expenses (before
reimbursement)......... 0.91% 0.67%# 0.27%# 0.25% 0.25% 0.25% 0.25% 0.26% 0.25% 0.26%
Portfolio turnover
rate.................... 81% 88% 41% 10% 57% 81% 20% 105% 53% 68%
Net assets at end of
period (in 000's)....... $235,030 $206,686 $228,683 $203,947 $164,124 $138,826 $134,542 $122,725 $130,901 $132,942
</TABLE>
- ----

5
<PAGE>

<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD...... $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87 $ 11.60
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income.... 0.22 0.22 0.24 0.22 0.27 0.32 0.42 0.46 0.36 0.34
Net realized and
unrealized gain (loss) on
investments.............. 4.06 (0.03) 1.88 1.72 4.10 (1.20) 2.82 1.43 (0.49) 0.03
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............... 4.28 0.19 2.12 1.94 4.37 (0.88) 3.24 1.89 (0.13) 0.37
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
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) (0.06)
From net realized gain
on investments ......... (1.53) (0.92) (1.76) (1.76) (1.51) (0.01) (1.28) -- -- (0.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............ (1.75) (1.14) (2.01) (1.98) (1.80) (0.34) (1.72) (0.41) (0.52) (0.10)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD................... $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment
return*.................. 29.16% 1.20% 13.71% 12.42% 33.62% (6.19)% 25.51% 16.85% (1.13)% 3.21%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income .. 1.29% 1.41% 1.42% 1.50% 1.78% 2.33% 2.80% 3.32% 2.71% 2.76%
Net expenses ........... 0.62% 0.62%# 0.27%# 0.27% 0.29% 0.29% 0.28% 0.30% 0.26% 0.26%
Expenses
(before reimbursement)
......................... 0.91% 0.65%# 0.27%# 0.27% 0.29% 0.29% 0.28% 0.30% 0.26% 0.26%
Portfolio turnover rate.. 104% 108% 121% 82% 100% 114% 108% 111% 71% 43%
Net assets at end of
period (in 000's)........ $427,507 $330,161 $319,196 $272,834 $204,147 $152,824 $171,116 $150,538 $156,198 $122,100
</TABLE>
- ----

# At the MFA Series Fund, Inc.'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.

6
<PAGE>

PERFORMANCE AND YIELD INFORMATION

The yield of the Bond Portfolio refers to the annualized income generated by
an investment in that 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 Bond or Growth 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

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 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.

7
<PAGE>

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, such 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." (See "Taxes" at page 20 and the Statement of Additional
Information).

CASH MANAGEMENT PORTFOLIO

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

(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

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 portfolio 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

8
<PAGE>

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 Financial Corporation ("MacKay-Shields"), the
Portfolio's investment adviser, shall determine whether a security presents
minimal credit risk under procedures adopted by the Directors.

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 the
Prospectus.

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 Standard &
Poor's Corporation ("S&P") or Moody's Investors Services, Inc. ("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. These debt securities are "bonds"
and may have fixed, variable or floating (including inverse floating) rates of
interest.

See Appendix A to the Prospectus for further details about the ratings given
by S&P and Moody's.

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 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. 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. (See "Risks of Investing in
High Yield Securities at page 15"). The Portfolio may also make loans of
portfolio securities and may invest in foreign securities. These strategies
may involve

9
<PAGE>

additional risks. (See "Lending of Portfolio Securities" at page 16 and
"Foreign Securities" at page 12.) 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 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 (formerly named the Common Stock 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.

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

10
<PAGE>

INVESTMENT PRACTICES COMMON TO TWO OR MORE PORTFOLIOS

As described below, each Portfolio, except the Cash Management Portfolio,
may lend portfolio securities if such loans are fully collateralized. Each
Portfolio may engage in arbitrage. In addition, each Portfolio may buy
securities on a "when-issued" basis, buy zero coupon bonds, invest in cash
equivalents and enter into repurchase agreements. Each Portfolio may also
invest in foreign securities.

CASH EQUIVALENTS

11
<PAGE>

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements to earn income, provided
less than 10% of the net assets of a portfolio 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 16). 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 Fund's Custodian
will maintain the custody of the purchased securities for the duration of the
agreement. The value of the purchased securities, including accrued interest,
will at all times exceed the value of the repurchase agreement. 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. 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.

REVERSE REPURCHASE AGREEMENTS

Each Portfolio may enter into 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 proceeds 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 enters 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). 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.

FOREIGN SECURITIES

Each 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. 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

12
<PAGE>

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.

FOREIGN CURRENCY TRANSACTIONS

Each Portfolio, except the Cash Management Portfolio, may, to the extent it
invests in foreign securities, enter into forward foreign currency exchange
contracts in order to protect 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.

Each Portfolio, except the Cash Management Portfolio, may enter into
contracts to purchase foreign currencies to protect against an anticipated
rise in the U.S. dollar price of securities it intends to purchase. Each
Portfolio, except the Cash Management Portfolio, may enter into contracts to
sell foreign currencies to protect against the decline in value of its foreign
currency-denominated portfolio securities due to a decline in the value of
foreign currencies against the U.S. dollar. The Portfolios may use one
currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are correlated. Contracts to sell foreign currency
could limit any potential gain which might be realized by a Portfolio if the
value of the hedge currency increases.

WHEN-ISSUED SECURITIES

MORTGAGE PASS-THROUGH SECURITIES

Each Portfolio may purchase mortgage pass-through securities. Mortgage pass-
through 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 pass-through 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.

13
<PAGE>

Other mortgage-related and asset-backed securities include securities other
than those described above that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property, such as CMO residuals or stripped mortgaged-backed securities, and
may be structured in classes with rights to receive varying proportions of
principal and interest. Each Portfolio may invest in other asset-backed
securities that have been offered to investors. For a discussion of the
characteristics of some of these instruments, see the Statement of Additional
Information.

ZERO COUPON BONDS

FLOATERS AND INVERSE FLOATERS

Each Portfolio, other than the Growth Equity Portfolio 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 Fund
with a certain degree of protection against rises in interest rates, a
Portfolio will participate in any declines in interest rates as well.

14
<PAGE>

The Bond Portfolio 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 to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. 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. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Portfolio's limitation on investments in such securities.

RISKS OF INVESTING IN HIGH YIELD SECURITIES

The Bond Portfolio may, 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 it 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 New York Life Insurance Company ("New York Life"), the
Portfolio's investment adviser. 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 Bond Portfolio.

15
<PAGE>

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 New York Life deems it in the best interest of the
Portfolio's shareholders.

LIQUIDITY

In order to assure that each Portfolio of the Fund has sufficient liquidity,
as a matter of operating policy the Cash Management Portfolio may not invest
more than 10% of its net assets in securities for which market disposition is
not readily available. The Bond and Growth Equity Portfolios are also limited
to an investment of no more than 10% of their respective net assets in 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.

LENDING OF PORTFOLIO SECURITIES

ARBITRAGE

16
<PAGE>

OTHER INFORMATION

THE FUND AND ITS MANAGEMENT

INVESTMENT ADVISERS

MacKay-Shields Financial Corporation, 9 West 57th Street, New York, NY
10019, is the investment adviser to the Cash Management Portfolio. 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 December
31, 1995, MacKay-Shields managed over $18.28 billion in assets, primarily for
institutional clients.

New York Life, 51 Madison Avenue, New York, NY 10010 is the investment
adviser to the Bond and Growth Equity Portfolios. New York Life, which also
advises the Fund, manages other assets, including assets held in its own
general account and various separate accounts (amounting to $74.3 billion as
of December 31, 1995) and in the general account and various separate accounts
of NYLIAC (amounting to $16.0 billion as of December 31, 1995).

Pursuant to the Investment Advisory Agreements for each Portfolio, MacKay-
Shields or New York Life (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 or New York Life
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>
Cash Management Portfolio...................................... .25%
Bond Portfolio................................................. .25%
Growth Equity Portfolio........................................ .25%
</TABLE>

PORTFOLIO MANAGERS

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

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

17
<PAGE>

with New York Life's insurance products since 1990. Prior to that he served on
the bond trading desk. Before joining New York Life, Mr. Corapi was a U.S.
Government securities sales representative with Harris Trust and Savings Bank.

Cecilia M. Holtzberg (Bond Portfolio)

James Agostisi (Growth Equity Portfolio)

Patricia S. Rossi (Growth Equity Portfolio)

ADMINISTRATOR

New York Life Insurance and Annuity Corporation ("NYLIAC" or 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 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.

(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.

18
<PAGE>

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.

CAPITAL STOCK

PURCHASE AND REDEMPTION OF SHARES

Shares in each of the Portfolios of the Fund are offered to and are redeemed
by the Variable 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.

19
<PAGE>

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXES

In order for the Variable 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 of a calendar year, no more than 55% of the value
on each Variable Account's 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 the Variable 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

20
<PAGE>

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 Cash Management 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.

OTHER INFORMATION

Inquiries and requests for the Statement of Additional Information should be
directed to the Fund at (212) 576-7243 or 51 Madison Avenue, New York, New
York 10010.

21
<PAGE>

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>
New York Life MFA Series Fund, Inc. Investment Policies................... 2
Fundamental Investment Policies Applicable to the Cash Management
Portfolio of the Fund.................................................. 2
Other Investment Policies With Respect to the Cash Management
Portfolio.............................................................. 3
Fundamental Investment Policies Applicable to the Bond and Growth Equity
Portfolios............................................................. 4
Other Investment Policies of the Bond and Growth Equity Portfolios...... 5
Cash Management Portfolio............................................... 6
Investment Practices Common to Two or More Portfolios................... 8
State Insurance Law Requirements........................................ 17
Portfolio Turnover...................................................... 18
Management of the Fund.................................................... 18
Investment Advisers..................................................... 20
Administration Agreements............................................... 21
Portfolio Brokerage..................................................... 21
Determination of Net Asset Value.......................................... 22
How Portfolio Securities Will be Valued................................. 22
Investment Performance Calculations....................................... 23
Cash Management Portfolio Yield......................................... 23
Bond Portfolio Yield.................................................... 24
Total Return Calculations............................................... 25
Purchase and Redemption of Shares......................................... 25
Taxes..................................................................... 26
General Information....................................................... 27
Legal Counsel............................................................. 28
Financial Statements...................................................... 28
</TABLE>

22
<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.

BB BStandard & Poor's Corporation describes the BB and B rated issues
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
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days.

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

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-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.

A-3
<PAGE>

NEW YORK LIFE MFA SERIES FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

MAY 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 May 1, 1996, which may be obtained by calling
the Fund at (212) 576-7243, 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>
NEW YORK LIFE MFA SERIES FUND, INC. INVESTMENT POLICIES............... 2
Fundamental Investment Policies Applicable to the Cash Management
Portfolio of the Fund.............................................. 2
Other Investment Policies with Respect to the Cash Management
Portfolio.......................................................... 3
Fundamental Investment Policies Applicable to the Bond and Growth
Equity Portfolios.................................................. 4
Other Investment Policies of the Bond and Growth Equity Portfolios.. 5
Cash Management Portfolio........................................... 6
Investment Practices Common to Two or More Portfolios............... 8
State Insurance Law Requirements.................................... 17
Portfolio Turnover.................................................. 18
MANAGEMENT OF THE FUND................................................ 18
Investment Advisers................................................. 20
Administration Agreements........................................... 21
Portfolio Brokerage................................................. 21
DETERMINATION OF NET ASSET VALUE...................................... 22
How Portfolio Securities Will Be Valued............................. 22
INVESTMENT PERFORMANCE CALCULATIONS................................... 23
Cash Management Portfolio Yield..................................... 23
Bond Portfolio Yield................................................ 24
Total Return Calculations........................................... 25
PURCHASE AND REDEMPTION OF SHARES..................................... 25
TAXES................................................................. 26
GENERAL INFORMATION................................................... 27
LEGAL COUNSEL......................................................... 28
FINANCIAL STATEMENTS.................................................. 28
</TABLE>
- ----------------
/1Numbers/in parentheses refer to page numbers of corresponding sections of
the Fund's current Prospectus.
<PAGE>

NEW YORK LIFE MFA SERIES FUND, INC. INVESTMENT POLICIES
- -------------------------------------------------------------------------------

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE CASH MANAGEMENT PORTFOLIO OF
- ------------------------------------------------------------------------------
THE FUND
- --------

The investment objectives and investment restrictions set forth below apply
to the Cash Management Portfolio and are fundamental policies of the
Portfolio; i.e., they may not be changed with respect to the Portfolio without
a majority vote of the outstanding shares of the Portfolio. Except for those
investment policies of a Portfolio specifically identified as fundamental in
this Statement of Additional Information, all other investment policies and
practices described in the Prospectus and this Statement of Additional
Information may be changed by the Directors without the approval of
shareholders.

The Portfolio will not:

(1) invest more than 5% of the value of the total assets of the 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 the
Portfolio, except that this restriction does not apply to U.S.
Government securities;

(3) borrow money (except from banks on a temporary basis for extraordinary
or emergency purposes), issue senior securities (except as appropriate
to evidence indebtedness that the Portfolio is permitted to incur)
and/or pledge, mortgage or hypothecate its assets, except that the
Portfolio may (i) borrow money or enter into reverse repurchase
agreements, but only if immediately after each borrowing there is asset
coverage of 300%, (ii) enter into transactions 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 respect to
initial or variation margin deposits for futures contracts and related
options contracts will not be deemed to be pledges of the Portfolio's
assets), and (iii) to secure permitted borrowings, pledge securities
having a market value at the time of pledge not exceeding 15% of the
cost of the 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 the
Portfolio's investment objectives and policies directly from the issuer
thereof and the later disposition thereof, may be deemed to be
underwriting;

2
<PAGE>

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
companies are considered to be a separate industry from gas or electric
utilities, and wholly-owned finance companies are considered to be in
the industry 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),
interests in oil, gas or mineral leases, commodities or commodity
contracts (other than securities of companies that invest in or sponsor
those programs and except futures contracts, including but not limited
to contracts for the future delivery of securities and futures
contracts based on securities indexes or related options thereon), the
Portfolio reserving the freedom of action to hold and to sell real
estate acquired for the 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 investments in a prohibited commodity or
commodity contract for the purpose of this restriction; or

(7) lend any funds or other assets, except that the Portfolio may,
consistent with its investment objectives and policies: (i) invest in
debt obligations including bonds, debentures or other debt securities,
bankers' acceptances and commercial paper, even though the purchase of
such obligations may be deemed to be the making of loans; (ii) enter
into repurchase agreements; and (iii) lend its portfolio securities in
accordance with applicable guidelines established by the Securities and
Exchange Commission ("SEC") and any guidelines established by the
Fund's Board of Directors.

OTHER INVESTMENT POLICIES WITH RESPECT TO THE CASH MANAGEMENT PORTFOLIO
- -----------------------------------------------------------------------

In addition to the fundamental investment policies described above, the Fund
has also adopted the following Investment policies for the Cash Management
Portfolio which unlike those described above, may be changed without
shareholder approval.

The Portfolio will not:

(1) 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, except that the Portfolio may obtain such short-
term credits as may be necessary for the clearance of purchases and
sales of securities and in connection with transactions involving
forward foreign currency exchange contracts, options, futures and
options on futures;

(2) purchase or sell any put or call options, straddles, spreads or any
combination thereof, except that the Portfolio may: (i) purchase and
sell or write (a) options on any futures contracts into which it may
enter, and (b) put and call options on currencies, securities indexes
and covered put and call options on securities; and (ii) engage in
closing purchase transactions with respect to any put and call option
position it has entered into.

3
<PAGE>

(3) purchase from or sell portfolio securities of the 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
advisers or principal underwriter;

(4) enter into repurchase agreements or purchase any illiquid securities
if, as a result thereof, more than 10% of the total assets of the
Portfolio (taken at market value) would be, in the aggregate, invested
in repurchase agreements maturing in more than seven days and illiquid
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

(5) invest assets in securities of other open-end investment companies
(except in connection with a merger, consolidation, reorganization or
acquisition of assets), but, to the extent permitted by the Investment
Company Act of 1940 (the "1940 Act"), the 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 the 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).

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE BOND AND GROWTH EQUITY
- ------------------------------------------------------------------------
PORTFOLIOS
- ----------

Neither Portfolio will:

(1) purchase securities on margin or otherwise borrow money or issue senior
securities, except that any Portfolio may (a) borrow up to 5% of the
value of its total assets from banks for extraordinary or emergency
purposes (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 extent
permitted by applicable law, the Portfolios may enter into such
agreements.

(2) lend money, except that a Portfolio may purchase privately placed bonds
notes, debentures or other obligations customarily purchased by
institutional 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 obligations 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 Portfolio's total assets.

4
<PAGE>

(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, together with other securities of the same issuer or 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
companies principally engaged in any one industry except that this
restriction does not apply to securities issued or guaranteed by the
United States Government, its agencies and instrumentalities. Neither
utilities nor energy companies are considered to be a single industry
for purposes of this restriction. Instead, they will be divided
according to their services. For example, gas, electric and telephone
utilities will each be considered a separate industry.

(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.

OTHER INVESTMENT POLICIES OF THE BOND AND GROWTH EQUITY PORTFOLIOS
- ------------------------------------------------------------------

Neither Portfolio will:

(1) write or or purchase any call options.

(2) purchase the securities of other investment companies, unless it
acquires 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
development 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.

5
<PAGE>

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

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 its 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
future 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
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of the
principal of and interest on securities in the Portfolio.

All of the assets of the Portfolio will be invested in obligations which
mature 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
dollar-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
invests 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
recognized 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
obligations 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 invest in money market instruments that are in the second-
highest rating category 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.

6
<PAGE>

$1,000,000, measured at the time of investment, in securities of any one
issuer that are in the second-highest rating category, except that this
limitation shall not apply to U.S. Government securities. In the event that an
instrument acquired by the Portfolio is downgraded or otherwise ceases to be
of the quality that is eligible for the Portfolio, MacKay-Shields, under
procedures 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
business days) shall promptly reassess whether such security presents minimal
credit risk and determine whether or not to retain the instrument.

The extent of deviation between the Portfolio's net asset value 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
deviation exceeds 1/2 or 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 investors 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 (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.

7
<PAGE>

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
repurchase agreements, with any member bank of the Federal Reserve System or a
member firm of the National Association of Securities Dealers, Inc. A
repurchase 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
respect 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.

REVERSE REPURCHASE AGREEMENTS

8
<PAGE>

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 enters 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). 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.

LENDING OF PORTFOLIO SECURITIES

Each Portfolio, except the Cash Management Portfolio, may 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 would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government or other high quality debt securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. A Portfolio would have the right to call a loan and obtain the
securities loaned at any time on five days' notice. 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 collateral. 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 material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery of,
or even loss of rights in, the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed 20% of the total assets of the Bond or Growth Equity Portfolio.

BORROWING

9
<PAGE>

costs which may or may not be recovered by appreciation of the securities
purchased. A Portfolio 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 credit; either of these requirements would increase the
cost of borrowing over the stated interest rate.

FOREIGN SECURITIES

Each Portfolio may invest, 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 investments), and in certificates of
deposit issued by foreign banks and foreign branches of United States banks,
to any extent deemed appropriate by the Adviser. The Bond and Growth Equity
Portfolios may purchase foreign securities up to a maximum of 10% of the
Portfolio's total assets. Under current SEC rules relating to the use of the
amortized cost method of portfolio securities valuation, the Cash Management
Portfolio is restricted to purchasing U.S. dollar-denominated securities, but
it is not otherwise precluded from purchasing securities of foreign issuers.

FOREIGN CURRENCY TRANSACTIONS

Each Portfolio, except the Cash Management Portfolio, may, to the extent it
invests in foreign securities, enter into forward foreign currency exchange
contracts in order to protect against uncertainty in the level of future
foreign currency exchange rates. A Portfolio will conduct its foreign currency
exchange transactions 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 market 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.

Normally, consideration of the prospect for currency parities will be
incorporated in a longer term investment decision made with regard to overall
diversification strategies.

10
<PAGE>

However, New York Life 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, New York Life believes 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 transaction, a Portfolio will be able to
insulate itself from a possible loss resulting 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 "settlement hedge" or
"transaction hedge."

Second, when New York Life 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 portfolio securities denominated in such foreign currency. Such a
hedge (sometimes referred to as a "position hedge") will tend to offset both
positive and negative 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 sufficiently correlated ("proxy hedge"). The precise matching
of the forward contract 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 consummation of such contracts would obligate a Portfolio to
deliver an amount of foreign 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).

11
<PAGE>

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 had been a
change in forward contract 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
transactions 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 generally will not enter into a forward contract with a term of
greater than one year.

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

WHEN-ISSUED SECURITIES

12
<PAGE>

settlement date. The Directors 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 basis. 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.

MORTGAGE-RELATED AND OTHER ASSETS-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
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations (see "Mortgage
Pass-Through Securities"). The Portfolios may also invest in debt securities
which are secured with collateral consisting of mortgage-related securities
(see "Collateralized Mortgage Obligations"), and in other types of mortgage-
related securities.

MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related
--------------------------------
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment 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 issuer or guarantor of such securities. Additional payments are caused
by repayments of principal resulting from the sale of the underlying
residential property, 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" securities. These securities entitle the holder to receive all
interest and principal payments owned on the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.

13
<PAGE>

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
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental insurers generally offer a higher rate
of interest than government and government-related pools because there are no
direct 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-
related security meets a Portfolio's investment quality standards. There can
be no assurance that the private insurers, or guarantors can meet their
obligations 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
determines 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 mortgagerelated securities or any other
assets which in the opinion of the Portfolio's Adviser are illiquid if, as a
result, more than 10% of the value of the Portfolio's net assets 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.

14
<PAGE>

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
mandatory 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
individual 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 payments) on the mortgage loans during
any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on 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 re
present 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, partnerships, 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.

15
<PAGE>

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 an
d/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
mortgage assets. In particular, the yield to maturity on CMO residuals is
extremely 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 series 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 investment in a CMO residual.

CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as broker 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
after 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.

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
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.

SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. 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 underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on a Portfolio's yield to maturity
from these securities. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, a Portfolio may fail to fully
recoup its initial investment in these securities even if the security is in
one of the highest rating categories.

16
<PAGE>

OTHER ASSET-BACKED SECURITIES. Similarly, the Advisers expect that other
-----------------------------
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile Receivables.
("CARS SM") 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 CARS SM are passed-through monthly to
certificate holders, and are guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. An investor's return
on CARS SM may be affected by early prepayment of principal on the underlying
vehicles' 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 laws requirements and restrictions relating to foreclosure sales of
vehicles 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, certificate 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.

FLOATERS AND INVERSE FLOATERS

Each Portfolio, other than the Growth Equity Portfolio 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.

STATE INSURANCE LAW REQUIREMENTS
- --------------------------------

Applicable state insurance laws and regulations permit NYLIAC to invest the
assets allocated to MFA Separate Account I and MFA Separate Account II and VLI
Separate

17
<PAGE>

Account (collectively "Variable Accounts") in mutual funds, which are the
investments contractually permitted 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 invest such assets prudently. Subject to the
direction of the Directors, the Advisers will make investments satisfying this
requirement for each Portfolio. In addition, the Fund will comply with
restrictions contained in any other insurance laws in order that the assets of
NYLIAC's Variable Accounts may be invested in Fund shares.

PORTFOLIO TURNOVER
- ------------------

For the years ending December 31, 1995, December 31, 1994, and December 31,
1993, the rate of portfolio turnover was as follows: for the Bond Portfolio,
80.86%, 88.32%, and 41.24%, respectively; and for the Growth Equity Portfolio,
104.07%, 108.21%, and 120.62%, respectively.

For the year ended December 31, 1995, the portfolio turnover for the Cash
Management Portfolio, as calculated in accordance with applicable SEC
regulations, was 0%.

MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------

<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 Director
of O'Brien Asset Management, Inc.,
from August 1993 to date, Executive
Vice President of The Mutual Life
Insurance Company of New York ("MONY")
from May 1989 to April 1992. Mr. Drabb
is also a Director of the following
Corporations: MONY Series Fund;
Webcraft Technologies, Inc.; and J.P.
Food Services, Inc.
Jill Feinberg........... 41 Director Consultant, Jill Feinberg & Company
from 1989 to date.
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
POSITIONS(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS** AGE WITH REGISTRANT DURING PAST FIVE YEARS
------------------ --- ----------------- -----------------------
<S> <C> <C> <C>
Daniel Herrick.......... 75 Director Treasurer and Senior Executive,
National Gallery of Art, Washington,
D.C., from December 1985 to June
1995.
Richard M. Kernan, 55 Chairman of the Executive Vice President in charge
Jr.*................... 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
Investment Department prior thereto.
Anne F. Pollack*........ 40 President, Chief Senior Vice President of New York
Administrative Life Insurance Company from March
Officer and 1992 to date; Vice President from
Director 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
Accounting, Graduate School of
Business, University of Chicago,
from September 1976 to present,
Visiting Professor of Law, Stanford
University Law School, from
September 1990 to date.
OFFICERS (OTHER THAN DIRECTORS)
Anthony W. Polis........ 52 Treasurer Vice President of New York Life
Insurance 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
President and Controller from
February 1994 to date; Vice
President and Deputy Controller from
March 1991 to February 1994.
</TABLE>
- --------
* Directors identified with an asterisk are considered to be interested
persons of the Fund within the meaning of the 1940 Act because of their
affiliation 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.

19
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION FROM
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL REGISTRANT AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME OF PERSON, POSITION FROM REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------------ --------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Michael J. Drabb, Direc-
tor.................... $22,000 $0 $0 $22,000
Jill Feinberg, Direc-
tor.................... 15,750 0 0 15,750
Daniel Herrick, Direc-
tor.................... 22,000 0 0 22,000
Richard M. Kernan, Jr.,
Director............... 0 0 0 0
James Quigg Newton, Jr.
(Director, Retired
2/20/95)............... 6,250 0 0 6,250
Anne F. Pollack, Direc-
tor.................... 0 0 0 0
Robert D. Rock, Direc-
tor.................... 0 0 0 0
Roman L. Weil, Direc-
tor.................... 22,000 0 0 22,000
-------
TOTAL.................. $88,000
=======
</TABLE>

INVESTMENT ADVISERS
- -------------------

Pursuant to the Investment Advisory Agreement for the Cash Management
Portfolio, dated December 15, 1995, MacKay-Shields, subject to the supervision
of the Directors of the Fund and in conformity with the stated policies of the
Portfolio, manages the investment operations of the portfolio that it advises
and the compensation of such Portfolio's portfolio, including the purchase,
retention, 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.

The Advisers have each authorized any of their 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 been elected or appointed.
In connection with the services it renders, MacKay-Shields or New York Life
bears the salaries and expenses of all of its personnel.

20
<PAGE>

Other than as imposed by law, the Investment Advisory Agreements provide
that MacKay-Shields or New York Life shall not be liable to the Portfolios for
any error of judgment by MacKay-Shields or New York Life or for any loss
sustained by the Funds of 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.

ADMINISTRATION AGREEMENTS
- -------------------------

NYLIAC ("Administrator") acts as administrator for the Portfolios pursuant
to Administration Agreements dated December 15, 1995. 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 been elected or appointed. In connection with its
administration of the business 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
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 Fund.

PORTFOLIO BROKERAGE
- -------------------

21
<PAGE>

For the years ending December 31, 1995, December 31, 1994 and December 31,
1993, the Fund paid total brokerage commissions to NYLIFE Securities, Inc. of
$1,506,976, $1,266,182 and $1,342,116, respectively.

DETERMINATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------

HOW PORTFOLIO SECURITIES WILL BE VALUED
- ---------------------------------------

22
<PAGE>

appraising all other securities and other assets including over-the-counter
common and preferred stocks not quoted on the NASDAQ system, securities listed
or traded on certain foreign exchanges whose operations are similar 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 representative of
market values, but excluding money market instruments with a remaining
maturity of 60 days or less and including restricted securities and securities
for which no market quotation is available, at fair value in accordance 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 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.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business 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 securities used in such calculation. Events affecting the values of
portfolio securities 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' calculation 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
- -------------------------------

23
<PAGE>

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 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
return. 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 December 31, 1995, the Cash Management
Portfolio yield was 5.20%, and the effective yield was 5.34%.

BOND PORTFOLIO YIELD
- --------------------

The Fund may from time to time disclosure the current annualized yield of
the Bond Portfolio for 30-day periods. The annualized yield of the Bond
Portfolio 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 dividing 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.

Because of the charges and deductions imposed by the Variable Accounts, the
yield realized by Owners in the Investment Divisions of the Variable Accounts
will be lower than the yield for the corresponding Portfolio of the Fund. The
yield on amounts held in the Bond Portfolio normally will fluctuate over time.
Therefore, the disclosed yield will for any given past period is not an
indication or representation of future yields or rates of return. The Bond

24
<PAGE>

Portfolio's actual yield will be affected by the types and quality of
portfolio securities held by the Portfolio, and its operating expenses.

TOTAL RETURN CALCULATIONS

The Fund may from time to time also disclose average annual total returns
for the Bond and Growth Equity Portfolios for various periods of time. Average
annual total return 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 por-
tion thereof).

For the one year period ending December 31, 1995, the average annual total
return for the Cash Management Portfolio was 5.59%. For the period beginning
January 29, 1993 (inception date) through December 31, 1995, the average
annual total return (unannualized) for the Cash Management Portfolio was
3.97%.

For the one, five and ten year periods ending December 31, 1995, the average
annual total returns for the Bond Portfolio were 18.31%, 9.89% and 9.12%,
respectively.

For the one, five and ten year periods ended December 31, 1995, the average
annual total returns for the Growth Equity Portfolio were 29.16%, 17.43% and
12.10%, respectively.

PURCHASE AND REDEMPTION OF SHARES
- -------------------------------------------------------------------------------

The Portfolios currently offer their shares only to NYLIAC for allocation to
NYLIAC's variable annuity and variable life insurance separate accounts 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 variable annuity contracts.
Due, however, to differences in tax treatment or other considerations, it is
theoretically possible that the interests of owners of various contracts
participating in the Fund might at some time be in conflict. However, the
Board of Directors and insurance companies whose separate accounts invest in
the Fund are required to monitor events in order to identify any material
conflicts between variable annuity

25
<PAGE>

contract owners and variable life policy owners. The Board of Directors will
determine what action, if any, should be taken in the event of such a
conflict. If such a conflict were to occur, one or more insurance company
separate accounts might withdraw their investment in the Fund. This might
force the Fund to sell securities at disadvantageous prices. The Portfolios do
not presently intend to offer their shares directly to the public.

TAXES
- -------------------------------------------------------------------------------

The discussion of "Taxes" in the Prospectus, in conjunction with the
foregoing, is a general summary of applicable provisions of the Code and U.S.
Treasury Regulations now in effect as currently interpreted by the courts and
the Internal Revenue Services. The Code and these Regulations, as well as the
current interpretations thereof, may be changed at any time by legislative,
judicial or administrative action.

26
<PAGE>

GENERAL INFORMATION
- -------------------------------------------------------------------------------

The shares of the Capital Appreciation, Cash Management, Government, High
Yield Corporate Bond, International Equity, Total Return, Value, Bond, Growth
Equity and Indexed Equity Portfolios are eligible for investment by the
Separate Accounts.

Only the shares of the Cash Management Portfolio, the Bond Portfolio and the
Growth Equity Portfolio are eligible for investment by the Variable Accounts.
There exist 1,100,000,000 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 transferable.

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
Portfolio 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
expenses are not clearly allocable to a particular Portfolio (such as fees for
noninterested 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.

27
<PAGE>

The vote of a majority of the Fund shares (or of the shares of any
Portfolio) 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).

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

28
<PAGE>

CASH MANAGEMENT PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995
SHORT-TERM INVESTMENTS (100.0%)+

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

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

29
<PAGE>

CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
SHORT-TERM INVESTMENTS (CONTINUED)

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

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>
Auto Parts............................................. $ 1,991,056 2.3%
Banks #................................................ 53,665,121 61.1
Brokerage.............................................. 2,484,562 2.8
Conglomerates.......................................... 1,000,000 1.1
Finance................................................ 13,434,855 15.3
Food................................................... 1,098,770 1.3
Foreign Government..................................... 2,695,264 3.1
Utilities.............................................. 9,472,423 10.8
Utilities-Gas.......................................... 993,901 1.1
Utilities-Telephone.................................... 1,008,433 1.1
----------- -----
87,844,385 100.0
Liabilities in Excess of
Cash and Other Assets................................. (5,041) (0.0)(a)
----------- -----
Net Assets............................................. $87,839,344 100.0%
=========== =====
</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.
(a) Less than one tenth of a percent.

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

30
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995

STATEMENT OF OPERATIONS
For the year ended December 31, 1995

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................... $ 4,065,628
------------
Expenses: (Note 2)
Recordkeeping (Note 3)........................................... 237,763
Advisory (Note 3)................................................ 167,656
Administration (Note 3).......................................... 134,125
Shareholder communication........................................ 44,802
Auditing......................................................... 20,689
Custodian........................................................ 9,381
Legal............................................................ 5,662
Directors........................................................ 5,332
Amortization of organization expense............................. 1,535
Miscellaneous.................................................... 5,437
------------
Total expenses
before reimbursement.......................................... 632,382
Expense reimbursement from
Administrator (Note 3).......................................... (216,593)
------------
Net expenses................................................... 415,789
------------
Net investment income............................................ 3,649,839
------------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments................................. (949)
------------
Net increase in net assets resulting
from operations................................................. $ 3,648,890
============
</TABLE>

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

31
<PAGE>

CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 3,649,839 $ 2,310,893
Net realized loss on investments.................. (949) (342)
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 3,648,890 2,310,551
------------ ------------
Dividends to shareholders:
From net investment income........................ (3,649,839) (2,310,893)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 128,846,016 99,252,119
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 3,587,829 2,011,001
Net asset value of shares issued in connection
with acquisition of Money Market Portfolio....... -- 37,601,126
------------ ------------
132,433,845 138,864,246
Cost of shares redeemed........................... (115,709,733) (94,480,925)
------------ ------------
Increase in net assets derived from capital share
transactions.................................... 16,724,112 44,383,321
------------ ------------
Net increase in net assets....................... 16,723,163 44,382,979
NET ASSETS:
Beginning of year................................. 71,116,181 26,733,202
------------ ------------
End of year....................................... $ 87,839,344 $ 71,116,181
============ ============
</TABLE>

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

32
<PAGE>

BOND PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995

LONG-TERM BONDS (93.9%)+
CORPORATE BONDS (45.2%)

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

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

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

33
<PAGE>

BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

U.S. GOVERNMENT &FEDERAL AGENCY (48.7%) SHORT-TERM INVESTMENTS (4.8%)

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

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

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

34
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995

STATEMENT OF OPERATIONS
For the year ended December 31, 1995

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................... $ 15,866,827
------------
Expenses: (Note 2)
Recordkeeping (Note 3)........................................... 767,438
Advisory (Note 3)................................................ 553,053
Administration (Note 3).......................................... 442,443
Shareholder communication........................................ 149,447
Auditing......................................................... 39,598
Legal............................................................ 19,575
Directors........................................................ 17,362
Portfolio pricing................................................ 9,859
Miscellaneous.................................................... 4,164
------------
Total expenses
before reimbursement.......................................... 2,002,939
Expense reimbursement from
Administrator (Note 3).......................................... (631,367)
------------
Net expenses................................................... 1,371,572
------------
Net investment income............................................ 14,495,255
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 4,716,932
Net change in unrealized depreciation
on investments.................................................. 17,768,492
------------
Net realized and unrealized gain
on investments.................................................. 22,485,424
------------
Net increase in net assets resulting
from operations................................................. $ 36,980,679
============
</TABLE>

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

35
<PAGE>

BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................. $ 14,495,255 $ 14,086,182
Net realized gain (loss) on investments........... 4,716,932 (4,481,302)
Net change in unrealized appreciation
(depreciation) on investments.................... 17,768,492 (17,363,837)
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. 36,980,679 (7,758,957)
------------ ------------
Dividends to shareholders:
From net investment income........................ (14,491,993) (14,085,987)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................. 22,956,887 21,844,680
Net asset value of shares issued to shareholders
in reinvestment of dividends..................... 14,491,993 14,085,987
------------ ------------
37,448,880 35,930,667
Cost of shares redeemed........................... (31,593,131) (36,082,699)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... 5,855,749 (152,032)
------------ ------------
Net increase (decrease) in net assets............ 28,344,435 (21,996,976)
NET ASSETS:
Beginning of year................................. 206,686,009 228,682,985
------------ ------------
End of year....................................... $235,030,444 $206,686,009
============ ============
Accumulated undistributed net investment income... $ 3,457 $ 195
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86
------------ ------------ ------------ ------------ ------------
Net investment income... 0.88 0.88 0.95 0.92 1.02
Net realized and
unrealized gain (loss)
on investments......... 1.33 (1.34) 0.53 0.13 0.91
------------ ------------ ------------ ------------ ------------
Total from investment
operations............. 2.21 (0.46) 1.48 1.05 1.93
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment
income................ (0.88) (0.88) (0.96) (0.91) (1.02)
------------ ------------ ------------ ------------ ------------
Net asset value at end
of year................ $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
============ ============ ============ ============ ============
Total investment return. 18.31% (3.39%) 11.40% 8.26% 16.27%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 6.55% 6.53% 6.79% 7.54% 8.22%
Net expenses........... 0.62% 0.62%# 0.27%# 0.25% 0.25%
Expenses (before
reimbursement)........ 0.91% 0.67%# 0.27%# 0.25% 0.25%
Portfolio turnover rate. 81% 88% 41% 10% 57%
Net assets at end of
year (in 000's)........ $ 235,030 $ 206,686 $ 228,683 $ 203,947 $ 164,124
</TABLE>
- --------
# 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.

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

36
<PAGE>

GROWTH EQUITY PORTFOLIO NEW YORK LIFE MFA
PORTFOLIO OF INVESTMENTS SERIES FUND, INC.
December 31, 1995

COMMON STOCKS (96.3%)+

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

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

37
<PAGE>

GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995

COMMON STOCKS (CONTINUED)

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

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

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

38
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.
SHORT-TERM INVESTMENTS (3.7%)

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

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

39
<PAGE>

GROWTH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995

STATEMENT OF OPERATIONS
For the year ended December 31, 1995

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 6,132,248
Interest......................................................... 1,109,794
------------
Total income................................................... 7,242,042
------------
Expenses: (Note 2)
Recordkeeping (Note 3)........................................... 1,347,572
Advisory (Note 3)................................................ 950,231
Administration (Note 3).......................................... 760,185
Shareholder communication........................................ 279,150
Auditing......................................................... 59,474
Legal............................................................ 30,782
Directors........................................................ 29,411
Miscellaneous.................................................... 9,851
------------
Total expenses
before reimbursement.......................................... 3,466,656
Expense reimbursement from
Administrator (Note 3).......................................... (1,110,083)
------------
Net expenses................................................... 2,356,573
------------
Net investment income............................................ 4,885,469
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments................................. 34,444,510
Net change in unrealized appreciation
on investments.................................................. 56,914,338
------------
Net realized and unrealized gain
on investments.................................................. 91,358,848
------------
Net increase in net assets resulting
from operations................................................. $ 96,244,317
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$35,609.

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

40
<PAGE>

GROWTH EQUITY PORTFOLIO NEW YORK LIFE MFA
STATEMENT OF CHANGES IN NET ASSETS SERIES FUND, INC.
For the years ended December 31, 1995 and December 31, 1994

<TABLE>
<CAPTION>
1995 1994
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income.............................. $ 4,885,469 $ 4,561,447
Net realized gain on investments................... 34,444,510 19,138,882
Net change in unrealized appreciation on
investments....................................... 56,914,338 (19,784,672)
------------ ------------
Net increase in net assets resulting from
operations........................................ 96,244,317 3,915,657
------------ ------------
Dividends and distributions to shareholders:
From net investment income......................... (4,897,272) (4,567,801)
From net realized gain on investments.............. (34,471,675) (19,120,138)
------------ ------------
Total dividends and distributions to
shareholders.................................... (39,368,947) (23,687,939)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares................... 35,852,696 32,631,494
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions.... 39,368,947 23,687,939
------------ ------------
75,221,643 56,319,433
Cost of shares redeemed............................ (34,751,127) (25,581,882)
------------ ------------
Increase in net assets derived from capital share
transactions..................................... 40,470,516 30,737,551
------------ ------------
Net increase in net assets........................ 97,345,886 10,965,269
NET ASSETS:
Beginning of year.................................. 330,160,935 319,195,666
------------ ------------
End of year........................................ $427,506,821 $330,160,935
============ ============
Accumulated undistributed net investment income.... $ -- $ 2,749
============ ============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00
------------ ------------ ------------ ------------ ------------
Net investment income... 0.22 0.22 0.24 0.22 0.27
Net realized and
unrealized gain (loss)
on investments......... 4.06 (0.03) 1.88 1.72 4.10
------------ ------------ ------------ ------------ ------------
Total from investment
operations............. 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 year................ $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
============ ============ ============ ============ ============
Total investment return. 29.16% 1.20% 13.71% 12.42% 33.62%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 1.29% 1.41% 1.42% 1.50% 1.78%
Net expenses........... 0.62% 0.62%# 0.27%# 0.27% 0.29%
Expenses (before
reimbursement)........ 0.91% 0.65%# 0.27%# 0.27% 0.29%
Portfolio turnover rate. 104% 108% 121% 82% 100%
Net assets at end of
year (in 000's)........ $ 427,507 $ 330,161 $ 319,196 $ 272,834 $ 204,147
</TABLE>
- --------
# 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.

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

41
<PAGE>

NOTES TO FINANCIAL STATEMENTS

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. Cash Management Portfolio, which
commenced operations on January 29, 1993, and Bond and Growth Equity
Portfolios, which commenced operations on January 23, 1984, (the "Funds") 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 MFA Separate Account I, MFA Separate Account II and VLI
Separate Account ("Separate Accounts", collectively). The MFA Separate
Accounts are used to fund multi-funded retirement annuity policies and the VLI
Separate Account is used to fund variable life insurance policies issued by
NYLIAC.

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:

Cash Management: to seek as high a level of current income as is considered
consistent with the preservation of capital and liquidity.

Bond: to seek the highest income over the long term consistent with preser-
vation of principal.

Growth Equity: to seek long-term growth of capital with income as a second-
ary consideration.

The following is a summary of significant accounting policies followed by the
Company:

(A)

(B)

42
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

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 represen-
tative of market values, but excluding money market instruments with a remain-
ing maturity of sixty days or less and including restricted securities and se-
curities for which no market quotations are available, at fair value in accor-
dance 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.

(C)

(D)

(E)

Investment income received by a Fund from foreign sources may be subject to
foreign income taxes withheld at the source.

(F)

43
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.

(G)

All of the initial shares purchased by NYLIAC in Cash Management Portfolio
were redeemed on February 21, 1995. (Also see Note 7 for further discussion of
this redemption).

(H)

(I)

(A)

INVESTMENT ADVISORY AND ADMINISTRATION FEES. MacKay-Shields Financial
Corporation ("MacKay-Shields") acts as investment adviser to Cash Management
Portfolio under an Investment Advisory Agreement. MacKay-Shields is a
registered investment adviser, a wholly-owned subsidiary of NYLIFE Inc. and an
indirect wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"). New York Life acts as investment adviser to Bond and Growth Equity
Portfolios under an Investment Advisory agreement.

NYLIAC is Administrator for the Company.

<TABLE>
<CAPTION>
ADVISER ADMINISTRATOR
------- -------------
<S> <C> <C>
Cash Management Portfolio................................. .25% .20%
Bond Portfolio............................................ .25% .20%
Growth Equity Portfolio................................... .25% .20%
</TABLE>

44
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

<TABLE>
<S> <C>
Cash Management Portfolio.................................................. .62%
Bond Portfolio............................................................. .62%
Growth Equity Portfolio.................................................... .62%
</TABLE>

In connection with the expense limitation the Administrator assumed certain
of the expenses of the Funds for the year ended December 31, 1995 as shown on
the Statement of Operations.

(B)

(C)

45
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--Federal Income Tax:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S)
----------------- --------------
<S> <C> <C>
Cash Management Portfolio...................... 2003 $ 1
======
Bond Portfolio................................. 2002 $2,748
======
</TABLE>

Bond Portfolio utilized $4,716,932 of capital loss carryforwards during the
current year.

- --------------------------------------------------------------------------------
NOTE 5--Financial Investments:
- --------------------------------------------------------------------------------

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.

46
<PAGE>

NEW YORK LIFE MFA
SERIES FUND, INC.

NOTE 7--Redemption by NYLIAC of Initial Investment:
- --------------------------------------------------------------------------------

On February 21, 1995, NYLIAC redeemed all of its initial investment in Cash
Management Portfolio. In connection with the redemption of the initial shares,
NYLIAC reimbursed the Portfolio $28,042, which represented the unamortized
deferred organization expense of the Portfolio on the date of the redemption.

- --------------------------------------------------------------------------------
NOTE 8--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------

During the year ended December 31, 1995, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were as follows:

<TABLE>
<CAPTION>
BOND GROWTH EQUITY
PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES
-------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities............... $161,939 $149,343 $ -- $ --
All others............................... 24,868 19,504 396,667 373,184
-------------------------------------
Total.................................... $186,807 $168,847 $396,667 $373,184
-------------------------------------
-------------------------------------
</TABLE>

Transactions in capital shares throughout each year ended December 31, 1995 and
December 31, 1994 were as follows:

<TABLE>
<CAPTION>
CASH MANAGEMENT BOND GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
1995 1994 1995 1994 1995 1994
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.......................... 128,846 99,252 1,732 1,676 2,118 2,091
Shares issued in reinvestment of
dividends and
distributions....................... 3,588 2,011 1,080 1,165 2,286 1,616
Shares issued in connection with
acquisition of
Money Market Portfolio.............. -- 37,601 -- -- -- --
-----------------------------------------
132,434 138,864 2,812 2,841 4,404 3,707
Shares redeemed...................... 115,710 94,481 2,397 2,776 2,060 1,642
-----------------------------------------
Net increase (decrease).............. 16,724 44,383 415 65 2,344 2,065
-----------------------------------------
-----------------------------------------
</TABLE>

47
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------

To the Board of Directors and Shareholders of
New York Life MFA Series Fund, Inc.

In our opinion, the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Cash Management Portfolio,
Bond Portfolio and Growth Equity Portfolio, (three of the ten portfolios con-
stituting New York Life MFA Series Fund, Inc., hereafter referred to as the
"Funds") at December 31, 1995, the results of each of their operations for the
year then ended and the changes in each of their net assets and the financial
highlights for each of the periods presented, in conformity with generally ac-
cepted accounting principles. These financial statements and financial high-
lights (hereafter referred to as "financial statements") are the responsibil-
ity of the Funds' management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reason-
able assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence support-
ing the amounts and disclosures in the financial statements, assessing the ac-
counting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by cor-
respondence with the custodians and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, pro-
vide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 16, 1996

48
<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:

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.

STANDARD & POOR'S CORPORATION DESCRIBES THE GRADES OF CORPORATE DEBT
SECURITIES 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.

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 to indicate the relative degree of safety.

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.

A-2
<PAGE>

--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-3
<PAGE>

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

a. Financial Statements:

All required financial statements, including the report of the
Independent Accountants, are included in Part B.

b. Exhibits:

1 - Articles of Incorporation of Registrant-Previously filed as Exhibit
No. 1 to Post-Effective Amendment No. 9.
2 - By-laws of Registrant-Previously filed as Exhibit No. 2 to Post
Effective Amendment No. 9.
3 - None.
4 - Form of Specimen certificate for shares of common stock of newly
created Portfolios-Previously filed as Exhibit No. 4 to Post
Effective Amendment No. 9.
5(a)- Form of Investment Advisory Agreement with MacKay-Shields Financial
Corporation -Previously filed as Exhibit 5 to Post-Effective
Amendment No. 16 of The Mainstay Funds (File No. 33-2610).
5(b)- Form of Investment Advisory Agreement with Monitor Capital
Advisors, Inc.- Previously filed as Exhibit 5 to Post-Effective
Amendment No. 4 of New York Life Institutional Funds Inc. File No.
33-36962).
5(c)- Form of Investment Advisory Agreement with New York Life Insurance
Company-Previously filed as Exhibit 5(c) to Post-Effective
Amendment No. 15.
6 - None.
7 - None.
8 - Form of Custodian Agreement-Previously filed as Exhibit 8 to Pre-
Effective Amendment No. 1.
9(a)- Form of Stock Sale Agreement-Previously filed as Exhibit 9(a) to
Pre-Effective Amendment No. 1.
9(b)- Form of Stock License Agreement relating to the use of the New York
Life name and service marks-Previously filed as Exhibit 9(b) to
Post-Effective Amendment No. 1.
10(a)- Opinion and Consent of Counsel as to legality of securities being
registered.
10(b)- Consent of Jorden Burt Berenson & Johnson LLP
11 - Consent of Price Waterhouse LLP, Independent Public Accountants.
12 - None
13(a)- Form of Initial Stock Subscription Letter-Previously filed as
Exhibit 13(a) to Pre-Effective Amendment No. 1.
13(b)- Form of Investment Undertaking-Previously filed as Exhibit
13(b) to Pre-Effective Amendment No. 1.
14 - None.
15 - None.
16 - None.
17 - None.

C-1
<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Shares of the Registrant are currently offered only to separate accounts
of New York Life Insurance and Annuity Corporation ("NYLIAC"), a wholly-owned
subsidiary of New York Life Insurance Company ("New York Life"), for allocation
to, among others, NYLIAC's Variable Annuity Separate Account-I and Variable
Annuity Separate Account-II (the "Separate Accounts"); NYLIAC MFA Separate
Account I and NYLIAC MFA Separate Account II and VLI Separate Account and NYLIAC
LifeStages Annuity Separate Account (the "Variable Accounts"); and NYLIAC
Variable Universal Life Separate Account-I and NYLIAC Variable Universal Life
Separate Account-II (the "VUL Accounts," collectively with the Separate Accounts
and the Variable Accounts, the "Accounts"). The Accounts are segregated asset
accounts of NYLIAC. NYLIAC has provided the initial investment in the Accounts,
and affiliates, New York Life, MacKay-Shields and Monitor, serve as investment
advisers to the Portfolios.

The following chart indicates the persons presumed to be controlled by
New York Life: /+/

<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- --------------- -----------------
<S> <C> <C>

Eagle Strategies Corp. Arizona 100%

Greystone Realty Corporation, which owns Delaware 100%
100% of the shares of:
Greystone Realty Advisers, Inc.
Greystone Realty Finance, Inc.
Greystone Realty Management, Inc.
Greystone Realty Partners, Inc.
Greystone Realty Investors, Inc.

MacKay-Shields Financial Corporation Delaware 100%

MSC Holding, Inc. Georgia 3.8%

The MainStay Funds Massachusetts ***

Monitor Capital Advisors, Inc. Delaware 100%

NAFCO Inc., Delaware 100%
which owns 83.33% of the shares of:
NYLIFE Structured Asset
Management Company, Ltd.
(the remainder is owned by NYLIFE
Depositary Corp.)

NYLICO Inc. New York 100%

New York Life Capital Corporation Delaware 100%
</TABLE>

- ----------------------
/+/ By including the indicated corporations in this list, New York Life is
not stating or admitting that said corporations are under its actual
control; rather, these corporations are listed here to ensure full
compliance with the requirements of this Form N-1A.

C-2
<PAGE>

<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- --------------- -----------------
<S> <C> <C>

New York Life Foundation New York **

New York Life Fund, Inc. New York *

New York Life and Health Insurance Company Delaware 100%

MainStay Institutional Funds, Inc. Maryland 100%

New York Life Insurance and Annuity Corporation Delaware 100%

New York Life International Investment Inc., Delaware 100%
which owns 95% of the shares of:
Monetary Research Ltd.
and 100% of the shares of:
Quorum Capital Management Limited

New York Life MFA Series Fund, Inc. Maryland *

New York Life Settlement Corporation Delaware 100%

New York Life Worldwide Holding, Inc., Delaware 100%
which owns 100% of the shares of:
New York Life Worldwide (Bermuda) Ltd. Bermuda
New York Life Worldwide Capital Inc. and Delaware
New York Life Worldwide Development Inc. Delaware
New York Life Insurance Worldwide Ltd.,
and 99.97% of the shares of
New York Life (U.K.) Ltd., which owns United Kingdom
100% of the shares of
Windsor Home Loans Limited
Windsor Trust Managers Limited
Windsor Investment Management Limited,
which owns:
WIM (Nominees) Limited
Windsor Construction Company, Ltd.
Gresham Unit Trust Managers Limited
Gresham Mortgage Limited
Gresham Trustees Limited
Gresham Financial Services Limited
Windsor (U.K.) Holding Co., Ltd.,
which owns 100% of:
Windsor Financial Management International
Ltd.
Windsor Unit Trust Nominees, Ltd.
Windsor Trust, Ltd.
WIM (AIM Ltd.)
Windsor Life Assurance Co., Ltd., which
owns 100% of Aetna Pension Trustees, Ltd.
</TABLE>

C-3
<PAGE>

<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------
<S> <C> <C>
and owns 51% of the shares of:
KOHAP New York Life Insurance Ltd. South Korea
and owns 50.2% of the shares of:
P.T. Asuransi Jiwa Sewu-New York Life Indonesia
and owns 35% of the shares of:
GEO New York Life, S.A. Mexico
and owns 33.345% of the shares of
Japan Gamma Asset Management Limited
and owns 31.25% of Life Assurance Holding
Corporation which owns Windsor Life
Assurance Company Limited which owns
Gresham Life Assurance Limited

NYLCO, Inc. New York 100%

NYLIFE Administration Corp. Texas 80%

NYLIFE Depositary Corporation Delaware 100%
which owns 16.67% of the shares of
NYLIFE Structured Asset Management
Company Ltd. (the remainder is owned by
NAFCO Inc.)

NYL Benefit Services Company, Inc. Massachusetts 100%

NYL Trust Company New York 100%

NYLIFE Distributors Inc. Delaware 100%

NYLIFE Equity Inc Delaware 100%

NYLIFE Funding Inc. Delaware 100%

NYLIFE Inc. New York 100%

NYLIFE Insurance Company of Arizona Arizona 100%

NYLIFE Realty Inc., Delaware 100%
which owns 100% of the shares of
CNP Realty Investments, Inc.

NYLIFE Refinery Inc. Delaware 100%

NYLIFE Resources Inc. Delaware 100%

NYLIFE Securities Inc. New York 100%

NYLTEMPS, Inc. Delaware 100%
</TABLE>

C-4
<PAGE>

Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------

NYLIFE Healthcare Management, Inc., Delaware 96%
which owns 100% of the shares of
NYLCare Health Plans, Inc. and approximately
71.4% of the total combined common stock
and 96.2% of the voting rights of Express
Scripts, Inc. which owns Great Plains
Reinsurance Company, Practice Patterns
Science, Inc. and ESI Canada Holdings, Inc.
which owns 100% of ESI Canada, Inc. and
IV TX of Houston and IV TX of Dallas
and owns 100% of the shares of:
New York Life and Health Insurance
Company
The Ethix Corporation (which owns
various subsidiaries)
Prime Provider Corp.
which owns 100% of the shares of:
Prime Provider Corp. of Texas
Sanus Texas Health Plan, Inc.
Sanus of Texas, Inc. which
owns 100% of the shares of:
Sanus Preferred Physicians, Inc.
Sanus Dental Plan of Texas, Inc.
Sanus Preferred Services, Inc.
Sanus Preferred Providers West, Inc.
NYLCare Health Plans of New Jersey, Inc.
Sanus Dental Plan of New Jersey, Inc.
NYLCare Health Plans of Connecticut, Inc.
Sanus Preferred Services of Illinois
NYLCare Health Plans of New York, Inc.
Sanus of Connecticut, Inc.
NYLCare Health Plans of the Midwest, Inc.
NYLCare Health Plans of the Southwest, Inc.
Sanus - New England, Inc.
Sanus Reinsurance Company
and owns 80% of the shares of
NYLCare Health Plans of the
Mid-Atlantic, Inc., which owns 20% of
the shares of Physician Health Services
Foundation Inc. and HealthPlus D.C. Inc.
Avanti Health Systems, Inc.
which owns 100% of the shares of:
Avanti of Illinois, Inc., Avanti of
the District Inc., Avanti of New York,
Inc., and Avanti of New Jersey, Inc.

C-5
<PAGE>

Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------

and 94.445% of the shares of:
LoneStar Holding Company
which owns 90% of the shares of:
LoneStar Health Plan, Inc.
which owns 100% of the shares of:
NYLCare Health Plans of the Gulf Coast, Inc.
NYLCare Health Plans of Louisiana, Inc.
(99.98%; Patrick D. Seiter an E. L. Henry
each own .02% of the remaining stock)
Sanus of Maine, Inc.
Sanus - Northeast, Inc.
NYLCare Health Plans of Maine, Inc.
WellPath of Carolina, Inc.
WellPath Community Health Plans, Inc.
Sanus of New York and New Jersey, Inc.
NYLCare NC Holdings, Inc. which owns 100% of the shares of
Wellpath Community Health Plans Holdings, LLC
NYLCare of Maine, L.P.

- ---------------------------
/*/ New York Life serves as investment adviser to these entities, the
shares of which are held of record by separate accounts of New York
Life (for the New York Life Fund, Inc.) and NYLIAC (for the New York
Life MFA Series Fund, Inc.). New York Life disclaims any beneficial
ownership and control of these entities.

/**/ New York Life Foundation does not issue voting securities.

/***/ New York Life, MacKay-Shields Financial Corporation and/or Monitor
Capital Advisors, Inc. serve as investment advisers to these entities.

C-6
<PAGE>

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

Number of
Record Holders at
Title of Class April 15, 1996
- -------------- -----------------

Growth Equity Portfolio, par value $0.01 per share 8
Bond Portfolio, par value $0.01 par share 8
Cash Management Portfolio, par value $0.01 per share 8
Government Portfolio, par value $0.01 per share 5
Capital Appreciation Portfolio, par value $0.01 per share 5
Indexed Equity Portfolio, par value $0.01 per share 5
Total Return Portfolio, par value $0.01 per share 5
High Yield Corporate Bond Portfolio, par value $0.01 per share 5
Value Portfolio, par value $0.01 per share 5
International Equity Portfolio, par value $0.01 per share 5

ITEM 27. INDEMNIFICATION

(a) Maryland Law and By-Laws.

Under Maryland law and Registrant's By-Laws, the Registrant is required to
indemnify its directors (and former directors) and hold them harmless from
damages and expenses in connection with legal proceedings or threatened legal
proceedings by reason of their service to the Registrant. The Registrant,
however, is not required to and may not indemnify or hold harmless directors as
a result of certain forms of serious misconduct. The Registrant also may (and in
limited circumstances is required to) indemnify and hold harmless officers and
former officers from damages and expenses in connection with legal proceedings
or threatened legal proceedings by reason of their services to Registrant.

Notwithstanding the foregoing, in no event will any payment be made to
indemnify or hold harmless any director or officer (or former director or
officer) for amounts incurred as a result of such director's or officer's
willful misfeasance, bad faith, gross negligence or reckless disregard of duties
in the conduct of his or her office.

The applicable Maryland statute further provides that an officer or director
(or former officer or director) shall be indemnified to such further extent as a
court may deem fair and reasonable under the circumstances; provided that, the
indemnification shall be limited to expenses, if the proceeding is by or in the
right of the Registrant or if the officer or director has been adjudged liable
on the basis of improper receipt of personal benefit.

(b) Insurance.

Under an endorsement to a directors and officers liability/corporation
reimbursement (D&O) insurance policy issued to New York Life by National Union
Fire Insurance Company of Pittsburgh, Pa., directors and officers of the
Registrant, New York Life and its subsidiaries are insured on a claims-made
basis for certain liabilities, which they may incur in such capacity.

Directors and officers of the Registrant, New York Life and its subsidiaries
are also insured on a claims made basis for certain liabilities which they may
incur in such capacity, under D&O insurance policies issued to New York Life by
Sargasso Mutual Insurance Company Ltd., an off-shore insurer owned by U.S. Life
Insurance Companies.

C-7
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in said Act and will be governed by the final adjudication
of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The business of MacKay-Shields, Monitor and New York Life is summarized
under "Investment Advisers" in the Prospectus constituting Part A of this
Registration Statement, which summary is incorporated herein by reference.

The business or other connections of each director and officer of MacKay-
Shields, Monitor and New York Life active in investment management is currently
listed in the investment adviser registration on Form ADV for MacKay-Shields
(File No. 801-5594), Monitor (File No. 801-34412) and New York Life (File No.
80119525), respectively, and are hereby incorporated herein by reference.

ITEM 29. PRINCIPAL UNDERWRITERS

Not applicable.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31 (a) of the 1940 Act and the rules thereunder are maintained at the offices of
the Registrant and of New York Life. The address of each, respectively, is 51
Madison Avenue, New York, New York 10010 and at Cokesbury Road, Lebanon, New
Jersey 08833.

ITEM 31. MANAGEMENT SERVICES

None.

ITEM 32. UNDERTAKINGS

(a) The Registrant agrees to file a post-effective amendment relating to the
Portfolios described in this post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of this post-effective amendment.

(b) The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.

C-8
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this post-effective amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to be signed on its behalf by the
undersigned, thereto duly authorized in the City of New York, and State of New
York, on the 18th day of April, 1996.

New York Life MFA Series Fund, Inc.
(Registrant)

By Anne F. Pollack*
--------------------------------
Anne F. Pollack, President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been duly signed by the following persons in
the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----
<S> <C> <C>

Michael J. Drabb* Director April 18,1996
- --------------------------------------
Michael J. Drabb

Jill Feinberg* Director April 18, 1996
- --------------------------------------
Jill Feinberg

Daniel Herrick* Director April 18, 1996
- --------------------------------------
Daniel Herrick

Richard M. Kernan. Jr.* Chairman of the Board April 18, 1996
- --------------------------------------
Richard M. Kernan, Jr. (Chief Executive Officer)

Anne F. Pollack* President and Director April 18, 1996
- --------------------------------------
Anne F. Pollack (Chief Administrative Officer)

Robert D. Rock* Director April 18, 1996
- --------------------------------------
Robert D. Rock

Roman L. Weil* Director April 18, 1996
- --------------------------------------
Roman L. Weil

Anthony W. Polis* Treasurer April 18, 1996
- --------------------------------------
Anthony W. Polis (Principal Financial Officer)

Marc J. Chalfin* Controller April 18, 1996
- --------------------------------------
Marc J. Chalfin (Principal Financial Officer)

*By /s/Gregory J. Mulligan
----------------------------------
Gregory J. Mulligan
Attorney-in-Fact
</TABLE>

S-1

J:\WINDATA\WPWIN\CORPMUT\MULLIGAN\MFAFUND\PART.C
<PAGE>

EXHIBITS

<PAGE>

EXHIBIT 10(a)

OPINION AND CONSENT OF A. THOMAS SMITH III

<PAGE>

April 18, 1996

New York Life Insurance
and Annuity Corporation
51 Madison Avenue
New York, New York 10010

Re: New York Life MFA Series Fund, Inc.
----------------------------------

Ladies and Gentlemen:

This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 20 to the registration statement on Form N-1A ("Registration
Statement") under the Investment Company Act of 1940, as amended, of New York
Life MFA Series Fund, Inc. (the "Fund"). The Fund is a diversified, open-end
management investment company. The Fund has ten different portfolios, which are
available for investment by certain separate accounts established by New York
Life Insurance and Annuity Corporation ("NYLIAC").

Based upon my examination of the relevant documents contained in the Fund's
Registration Statement on Form N-1A and such other documents as deemed
appropriate, I am of the opinion that the shares sold pursuant to the Fund's
prospectus will be legally issued, fully paid and nonassessable.

I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name therein.

Very truly yours,

/s/ A. Thomas Smith III

A. Thomas Smith III
Associate General Counsel

<PAGE>

EXHIBIT 10(b)

CONSENT OF JORDEN BURT BERENSON & JOHNSON

<PAGE>

[LETTERHEAD OF JORDEN BURT BERENSON & JOHNSON LLP APPEARS HERE]

April 17, 1996

New York Life MFA Series Fund, Inc.
51 Madison Avenue
New York, New York 10010

Gentlemen:

We hereby consent to the reference to our name under the caption "Legal
Counsel" in the Statement of Additional Information contained in Post-Effective
Amendment No. 20 to the Registration Statement on Form N1-A (File No. 2-86082)
filed by New York Life MFA Series Fund, Inc. with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940.

Very truly yours,

JORDEN BURT BERENSON
& JOHNSON LLP

by: /s/ Michael Berenson
--------------------
Michael Berenson

<PAGE>

EXHIBIT 11

CONSENT OF PRICE WATERHOUSE LLP

<PAGE>

Consent of Independent Accounts

We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 20 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 16, 1996, relating to the financial statements and financial highlights
of the New York Life MFA Series Fund, Inc., which appears in such Statements of
Additional Information, and to the incorporation by reference of our reports
into the Prospectuses which constitute part of this Registration Statement. We
also consent to the reference to us under the heading "Financial Statements" in
such Statements of Additional Information and to the reference to us under the
heading "Financial Highlights" in such Prospectuses.

/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 17, 1996

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW YORK
LIFE MFA FUND, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<SERIES>
<NUMBER> 001
<NAME> MFA BOND FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 217,525,125
<INVESTMENTS-AT-VALUE> 231,915,831
<RECEIVABLES> 3,642,078
<ASSETS-OTHER> 7,278
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 235,565,187
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 534,743
<TOTAL-LIABILITIES> 534,743
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 223,384,489
<SHARES-COMMON-STOCK> 17,514,191
<SHARES-COMMON-PRIOR> 17,098,849
<ACCUMULATED-NII-CURRENT> 3,457
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,748,208)
<ACCUM-APPREC-OR-DEPREC> 14,390,706
<NET-ASSETS> 235,030,444
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,866,827
<OTHER-INCOME> 0
<EXPENSES-NET> (1,371,572)
<NET-INVESTMENT-INCOME> 14,495,255
<REALIZED-GAINS-CURRENT> 4,716,932
<APPREC-INCREASE-CURRENT> 17,768,492
<NET-CHANGE-FROM-OPS> 36,980,679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,491,993)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,732,580
<NUMBER-OF-SHARES-REDEEMED> (2,397,235)
<SHARES-REINVESTED> 1,079,997
<NET-CHANGE-IN-ASSETS> 28,344,435
<ACCUMULATED-NII-PRIOR> 195
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,465,140)
<GROSS-ADVISORY-FEES> 553,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,003,000
<AVERAGE-NET-ASSETS> 221,221,000
<PER-SHARE-NAV-BEGIN> 12.090
<PER-SHARE-NII> 0.880
<PER-SHARE-GAIN-APPREC> 1.330
<PER-SHARE-DIVIDEND> (0.880)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.420
<EXPENSE-RATIO> 0.620
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW YORK
LIFE MFA SERIES FUND, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<SERIES>
<NUMBER> 002
<NAME> MFA SERIES CAPITAL APPRECIATION PORTFOLIO

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 186,485,114
<INVESTMENTS-AT-VALUE> 243,347,567
<RECEIVABLES> 1,364,085
<ASSETS-OTHER> 1,227
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 244,712,879
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,061
<TOTAL-LIABILITIES> 177,061
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 195,011,472
<SHARES-COMMON-STOCK> 15,784,450
<SHARES-COMMON-PRIOR> 9,951,949
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (7,338,107)
<ACCUM-APPREC-OR-DEPREC> 56,862,453
<NET-ASSETS> 244,535,818
<DIVIDEND-INCOME> 947,338
<INTEREST-INCOME> 1,254,492
<OTHER-INCOME> 0
<EXPENSES-NET> 1,234,988
<NET-INVESTMENT-INCOME> 966,842
<REALIZED-GAINS-CURRENT> (4,093,457)
<APPREC-INCREASE-CURRENT> 52,411,784
<NET-CHANGE-FROM-OPS> 49,285,169
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (967,677)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,644,439
<NUMBER-OF-SHARES-REDEEMED> (874,411)
<SHARES-REINVESTED> 62,473
<NET-CHANGE-IN-ASSETS> 130,536,690
<ACCUMULATED-NII-PRIOR> 835
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,244,650)
<GROSS-ADVISORY-FEES> 609,035
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,529,939
<AVERAGE-NET-ASSETS> 169,176,310
<PER-SHARE-NAV-BEGIN> 11,450
<PER-SHARE-NII> 0.060
<PER-SHARE-GAIN-APPREC> 4.040
<PER-SHARE-DIVIDEND> (0.060)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.490
<EXPENSE-RATIO> 0.730
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 74,472,470
<INVESTMENTS-AT-VALUE> 75,973,861
<RECEIVABLES> 1,568,449
<ASSETS-OTHER> 295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77,542,605
<PAYABLE-FOR-SECURITIES> 12,654,858
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 75,369
<TOTAL-LIABILITIES> 12,730,227
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,771,085
<SHARES-COMMON-STOCK> 6,476,696
<SHARES-COMMON-PRIOR> 6,690,887
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,460,098)
<ACCUM-APPREC-OR-DEPREC> 1,501,391
<NET-ASSETS> 64,812,378
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,907,647
<OTHER-INCOME> 0
<EXPENSES-NET> (388,416)
<NET-INVESTMENT-INCOME> 4,519,231
<REALIZED-GAINS-CURRENT> 1,575,754
<APPREC-INCREASE-CURRENT> 2,860,304
<NET-CHANGE-FROM-OPS> 8,955,289
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,482,125)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,197,340
<NUMBER-OF-SHARES-REDEEMED> (1,859,430)
<SHARES-REINVESTED> 447,899
<NET-CHANGE-IN-ASSETS> 3,171,504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,074,883
<OVERDIST-NET-GAINS-PRIOR> (17,378)
<GROSS-ADVISORY-FEES> 553,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,003,000
<AVERAGE-NET-ASSETS> 57,973,000
<PER-SHARE-NAV-BEGIN> 9.210
<PER-SHARE-NII> 0.750
<PER-SHARE-GAIN-APPREC> 0.800
<PER-SHARE-DIVIDEND> (0.750)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.010
<EXPENSE-RATIO> 0.670
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 353,895,296
<INVESTMENTS-AT-VALUE> 427,551,743
<RECEIVABLES> 810,291
<ASSETS-OTHER> 185,930
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 428,547,964
<PAYABLE-FOR-SECURITIES> 178,425
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 862,718
<TOTAL-LIABILITIES> 1,041,143
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 353,704,373
<SHARES-COMMON-STOCK> 24,822,737
<SHARES-COMMON-PRIOR> 22,479,489
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (9,054)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (23,370)
<ACCUM-APPREC-OR-DEPREC> 73,834,872
<NET-ASSETS> 427,506,821
<DIVIDEND-INCOME> 6,132,248
<INTEREST-INCOME> 1,109,794
<OTHER-INCOME> 0
<EXPENSES-NET> (2,356,573)
<NET-INVESTMENT-INCOME> 4,885,469
<REALIZED-GAINS-CURRENT> 34,444,510
<APPREC-INCREASE-CURRENT> 56,914,338
<NET-CHANGE-FROM-OPS> 96,244,317
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,897,272)
<DISTRIBUTIONS-OF-GAINS> (34,471,675)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,852,696
<NUMBER-OF-SHARES-REDEEMED> (34,751,127)
<SHARES-REINVESTED> 39,368,947
<NET-CHANGE-IN-ASSETS> 97,345,886
<ACCUMULATED-NII-PRIOR> 2,749
<ACCUMULATED-GAINS-PRIOR> 3,795
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 950,231
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,466,656
<AVERAGE-NET-ASSETS> 380,092,519
<PER-SHARE-NAV-BEGIN> 14.690
<PER-SHARE-NII> 0.220
<PER-SHARE-GAIN-APPREC> 4.060
<PER-SHARE-DIVIDEND> (0.220)
<PER-SHARE-DISTRIBUTIONS> (1.530)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.220
<EXPENSE-RATIO> 0.620
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 42,338,187
<INVESTMENTS-AT-VALUE> 42,859,020
<RECEIVABLES> 1,777,945
<ASSETS-OTHER> 74,977
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,711,942
<PAYABLE-FOR-SECURITIES> 1,285,789
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 111,682
<TOTAL-LIABILITIES> 1,397,471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,883,164
<SHARES-COMMON-STOCK> 4,105,235
<SHARES-COMMON-PRIOR> 1,000,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (89,526)
<ACCUM-APPREC-OR-DEPREC> 520,833
<NET-ASSETS> 43,314,471
<DIVIDEND-INCOME> 16,519
<INTEREST-INCOME> 1,584,395
<OTHER-INCOME> 0
<EXPENSES-NET> (100,329)
<NET-INVESTMENT-INCOME> 1,500,585
<REALIZED-GAINS-CURRENT> 172,097
<APPREC-INCREASE-CURRENT> 520,833
<NET-CHANGE-FROM-OPS> 2,193,515
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,500,585)
<DISTRIBUTIONS-OF-GAINS> (172,097)
<DISTRIBUTIONS-OTHER> (89,526)
<NUMBER-OF-SHARES-SOLD> 2,979,314
<NUMBER-OF-SHARES-REDEEMED> (41,091)
<SHARES-REINVESTED> 167,012
<NET-CHANGE-IN-ASSETS> 33,314,471
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 45,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 186,000
<AVERAGE-NET-ASSETS> 22,309,000
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.370
<PER-SHARE-GAIN-APPREC> 0.610
<PER-SHARE-DIVIDEND> (0.370)
<PER-SHARE-DISTRIBUTIONS> (0.060)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.550
<EXPENSE-RATIO> 0.670
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 85,349,165
<INVESTMENTS-AT-VALUE> 104,803,468
<RECEIVABLES> 456,265
<ASSETS-OTHER> 119,846
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,379,579
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 209,047
<TOTAL-LIABILITIES> 209,047
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,149,410
<SHARES-COMMON-STOCK> 7,775,567
<SHARES-COMMON-PRIOR> 6,087,747
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (24,796)
<ACCUMULATED-NET-GAINS> 262,765
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,783,153
<NET-ASSETS> 105,170,532
<DIVIDEND-INCOME> 1,737,373
<INTEREST-INCOME> 657,235
<OTHER-INCOME> 0
<EXPENSES-NET> (375,839)
<NET-INVESTMENT-INCOME> 2,018,769
<REALIZED-GAINS-CURRENT> 3,180,447
<APPREC-INCREASE-CURRENT> 19,351,538
<NET-CHANGE-FROM-OPS> 24,550,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,044,642)
<DISTRIBUTIONS-OF-GAINS> (2,898,925)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,579,795
<NUMBER-OF-SHARES-REDEEMED> (1,259,131)
<SHARES-REINVESTED> 367,156
<NET-CHANGE-IN-ASSETS> 42,006,079
<ACCUMULATED-NII-PRIOR> 1,077
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (18,757)
<GROSS-ADVISORY-FEES> 159,932
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 494,294
<AVERAGE-NET-ASSETS> 79,965,812
<PER-SHARE-NAV-BEGIN> 10.380
<PER-SHARE-NII> 0.270
<PER-SHARE-GAIN-APPREC> 3.550
<PER-SHARE-DIVIDEND> (0.280)
<PER-SHARE-DISTRIBUTIONS> (0.390)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.530
<EXPENSE-RATIO> 0.470
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 13,875,346
<INVESTMENTS-AT-VALUE> 14,019,433
<RECEIVABLES> 143,821
<ASSETS-OTHER> 1,155,484
<OTHER-ITEMS-ASSETS> 27
<TOTAL-ASSETS> 15,318,765
<PAYABLE-FOR-SECURITIES> 484,469
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203,586
<TOTAL-LIABILITIES> 688,055
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,386,558
<SHARES-COMMON-STOCK> 1,434,988
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 104,839
<OVERDISTRIBUTION-GAINS> (41,301)
<ACCUM-APPREC-OR-DEPREC> 180,614
<NET-ASSETS> 14,630,710
<DIVIDEND-INCOME> 112,707
<INTEREST-INCOME> 44,585
<OTHER-INCOME> 0
<EXPENSES-NET> (74,923)
<NET-INVESTMENT-INCOME> 82,369
<REALIZED-GAINS-CURRENT> 660,873
<APPREC-INCREASE-CURRENT> 180,614
<NET-CHANGE-FROM-OPS> 923,856
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (679,704)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 413,987
<NUMBER-OF-SHARES-REDEEMED> (45,665)
<SHARES-REINVESTED> 66,666
<NET-CHANGE-IN-ASSETS> 4,630,710
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 46,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194,000
<AVERAGE-NET-ASSETS> 11,554,000
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.410)
<PER-SHARE-GAIN-APPREC> 1.110
<PER-SHARE-DIVIDEND> (0.500)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.200
<EXPENSE-RATIO> 0.970
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 87,844,385
<INVESTMENTS-AT-VALUE> 87,844,385
<RECEIVABLES> 584,129
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<TOTAL-ASSETS> 88,428,680
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<OTHER-ITEMS-LIABILITIES> 589,336
<TOTAL-LIABILITIES> 589,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,840,677
<SHARES-COMMON-STOCK> 87,841,000
<SHARES-COMMON-PRIOR> 71,116,525
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,333)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 87,839,344
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,065,628
<OTHER-INCOME> 0
<EXPENSES-NET> (415,789)
<NET-INVESTMENT-INCOME> 3,649,839
<REALIZED-GAINS-CURRENT> (949)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,648,890
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,649,839)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 128,846,984
<NUMBER-OF-SHARES-REDEEMED> (115,710,359)
<SHARES-REINVESTED> 3,587,850
<NET-CHANGE-IN-ASSETS> 16,723,163
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 168,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 632,000
<AVERAGE-NET-ASSETS> 67,063,000
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.055
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.055)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.620
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 178,870,116
<INVESTMENTS-AT-VALUE> 211,448,271
<RECEIVABLES> 11,553,792
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<TOTAL-ASSETS> 223,007,778
<PAYABLE-FOR-SECURITIES> 27,956,817
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<OTHER-ITEMS-LIABILITIES> 157,555
<TOTAL-LIABILITIES> 28,114,372
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166,513,177
<SHARES-COMMON-STOCK> 14,698,789
<SHARES-COMMON-PRIOR> 11,561,812
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (53)
<ACCUMULATED-NET-GAINS> (4,197,873)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,578,155
<NET-ASSETS> 194,893,406
<DIVIDEND-INCOME> 517,865
<INTEREST-INCOME> 5,142,016
<OTHER-INCOME> 0
<EXPENSES-NET> (1,040,430)
<NET-INVESTMENT-INCOME> 4,619,451
<REALIZED-GAINS-CURRENT> 1,771,355
<APPREC-INCREASE-CURRENT> 29,979,674
<NET-CHANGE-FROM-OPS> 36,370,480
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,571,400)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,196,302
<NUMBER-OF-SHARES-REDEEMED> (1,404,182)
<SHARES-REINVESTED> 344,858
<NET-CHANGE-IN-ASSETS> 72,560,845
<ACCUMULATED-NII-PRIOR> 7,807
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,225,000
<AVERAGE-NET-ASSETS> 150,787,000
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</TABLE>

<PAGE>

<S> <C>
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</TABLE>