NEW YORK LIFE MFA SERIES FUND INC, 485BPOS, 1997-04-30

NEW YORK LIFE MFA SERIES FUND INC
485BPOS, 1997-04-30

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997

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. [ ]
POST-EFFECTIVE AMENDMENT NO. 23 [X]

AND

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 24 [X]
------------------

MAINSTAY VP SERIES FUND, INC.

(FORMERLY KNOWN AS 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, 1997, 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 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 25, 1997,
THE REGISTRANT SUBMITTED ITS RULE 24f-2 NOTICE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR ON EDGAR.

================================================================================
<PAGE> 2

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
---------------------------------------------- --------------------------------------------
<S> <C> <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;
Other Information About the Portfolios;
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............ MainStay VP Series Fund, Inc.; Investment
Policies
14. Management of the Registrant.................. Management of the Fund
15. Control Persons and Principal Holders of
Securities.................................. Management of the Fund; Purchase and
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> 3

MainStay VP Series Fund, Inc. Prospectus May 1, 1997

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

<TABLE>
<S> <C>
MAINSTAY VP SERIES FUND, INC.
OFFERS 11 PORTFOLIOS
Growth
Capital Appreciation Portfolio...... page A-8
Growth Equity Portfolio............. page A-9
Indexed Equity Portfolio............ page A-10
International Equity Portfolio...... page A-11
Growth & Income
Convertible Portfolio............... page A-12
Total Return Portfolio.............. page A-13
Value Portfolio..................... page A-14
Income
Bond Portfolio...................... page A-15
Government Portfolio................ page A-16
High Yield Corporate Bond
Portfolio......................... page A-17
Cash Management Portfolio........... page A-18

</TABLE>

(Read) This:

These Portfolios aren't federally
insured or guaranteed by the U.S.
Government. Shares of these Portfolios
are not deposits or obligations of, or
guaranteed or insured by any financial
institution, the Federal Deposit
Insurance Corporation or any other
government agency. Investments in the
Portfolios are subject to investment
risks, including possible loss of
principal.

NO GUARANTEES. There are no guarantees
that a Portfolio will meet its
objectives. All mutual funds involve
risk, including the potential to lose
some or all of your original investment.
Except for money market funds, the price
of a mutual fund share will fluctuate
and, when sold, may be higher or lower
than your original purchase price.
Furthermore, although the Cash
Management Portfolio attempts to
maintain a stable net asset value of $1
per share, there can be no assurance
that it will succeed in doing so.

THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

Please read this prospectus carefully
before you invest, and keep it for
future reference. We hope you will
easily find and understand the
information you need; but if you have
any suggestions for improvement--or if
you need any help--please ask your
registered representative.
This prospectus includes information
you should know before investing. For
even more details, write to MainStay
VP Series Fund, Inc., 51 Madison
Avenue, New York, NY 10010 or call
(800) 598-2019 for a free copy of the
current Statement of Additional
Information (SAI). The SAI is
incorporated by reference into this
prospectus and also has been filed
with the Securities and Exchange
Commission. The Securities and
Exchange Commission maintains a
website (http://www.sec.gov) that
contains the SAI, material
incorporated by reference and other
information regarding registrants that
file electronically with the SEC.
- ----------------------------------------
- -----------------------------------------

A-1
<PAGE> 4

WHAT'S INSIDE?

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND AND THE SEPARATE ACCOUNTS...................................................... A-3
Financial Highlights............................................................... A-4
OTHER INFORMATION ABOUT THE PORTFOLIOS.................................................. A-19
General Investment Considerations.................................................. A-19
Convertible Portfolio.............................................................. A-19
High Yield Corporate Bond Portfolio................................................ A-19
Indexed Equity Portfolio........................................................... A-20
International Equity Portfolio..................................................... A-20
Investments and Investment Practices............................................... A-21
Other Information.................................................................. A-25
THE FUND AND ITS MANAGEMENT............................................................. A-25
Investment Advisers................................................................ A-25
Administrator...................................................................... A-25
Capital Stock...................................................................... A-26
PURCHASE AND REDEMPTION OF SHARES....................................................... A-27
TAXES, DIVIDENDS AND DISTRIBUTIONS...................................................... A-27
Taxes.............................................................................. A-27
Dividends and Distributions........................................................ A-27
GENERAL INFORMATION..................................................................... A-28
Custodian.......................................................................... A-28
Performance and Yield Information.................................................. A-28
Reports to Shareholders............................................................ A-28
Other Information.................................................................. A-28
APPENDIX A.............................................................................. AA-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.

A-2
<PAGE> 5

THE FUND AND THE SEPARATE ACCOUNTS

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

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

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

Shares of the Portfolios are currently offered to the Separate Accounts to
fund multifunded retirement annuity policies and variable life insurance
policies issued by New York Life Insurance and Annuity Corporation ("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.

A-3
<PAGE> 6

FINANCIAL HIGHLIGHTS

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

The following per share data (for a share outstanding throughout the
period) and selected ratios with respect to each portfolio of the Fund has been
audited by Price Waterhouse LLP, Independent Accountants, whose report on the
Financial Statements containing such information is incorporated by reference in
the Statement of Additional Information. This information should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1996, 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 THE YEAR ENDED JAN. 29, FOR THE YEAR ENDED
DECEMBER 31, 1993** TO DECEMBER 31,
-------------------------------- DEC. 31, --------------------------------
1996 1995 1994 1993 1996 1995 1994
-------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD............................... $ 15.49 $ 11.45 $ 12.03 $ 10.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------- -------- -------- --------
Net investment income.................. 0.01 0.06 0.05 0.02 0.05 0.05 0.04
Net realized and unrealized gain (loss)
on investments....................... 2.90 4.04 (0.58) 2.03 -- -- --
-------- -------- -------- --------- -------- -------- --------
Total from investment operations....... 2.91 4.10 (0.53) 2.05 0.05 0.05 0.04
-------- -------- -------- --------- -------- -------- --------
Less dividends and distributions:
From net investment income........... (0.01) (0.06) (0.05) (0.02) (0.05) (0.05) (0.04)
From net realized gain on
investments........................ -- -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- --------
Total dividends and distributions...... (0.01) (0.06) (0.05) (0.02) (0.05) (0.05) (0.04)
-------- -------- -------- --------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD....... $ 18.39 $ 15.49 $ 11.45 $ 12.03 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======= =======
Total investment return#............... 18.75% 35.78% (4.38%) 20.54% 4.95% 5.59% 3.82%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income................ 0.09% 0.57% 0.63% 0.46%* 4.92% 5.44% 3.97%
Net expenses......................... 0.73% 0.73% 0.73% 0.73%* 0.62% 0.62% 0.62%
Expenses (before reimbursement)...... 0.75% 0.90% 0.91% 1.15%* 0.64% 0.94% 0.89%
Portfolio turnover rate................ 16% 35% 39% 28% -- -- --
Average commission rate paid........... $ 0.0600 (a) (a) (a) -- -- --
Net assets at end of period (in
000's)............................... $503,622 $244,536 $113,999 $43,485 $118,347 $87,839 $71,116

<CAPTION>
GOVERNMENT
CONVERTIBLE PORTFOLIO
PORTFOLIO ---------------------------------------------
-----------
JAN. 29, OCT. 1, FOR THE YEAR ENDED JAN. 29,
1993** TO 1996** TO DECEMBER 31, 1993** TO
DEC. 31, DEC. 31, -------------------------------- DEC. 31,
1993 1996 1996 1995 1994 1993
--------- ----------- -------- -------- -------- ---------
<S> <<C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD............................... $ 1.00 $ 10.00 $ 10.01 $ 9.21 $ 10.15 $ 10.00
--------- ----------- -------- -------- -------- ---------
Net investment income.................. 0.02 0.10 0.65 0.75 0.75 0.82
Net realized and unrealized gain (loss)
on investments....................... -- 0.29 (0.42) 0.80 (0.94) (0.25)
--------- ----------- -------- -------- -------- ---------
Total from investment operations....... 0.02 0.39 0.23 1.55 (0.19) 0.57
--------- ----------- -------- -------- -------- ---------
Less dividends and distributions:
From net investment income........... (0.02) (0.10) (0.65) (0.75) (0.75) (0.42)
From net realized gain on
investments........................ -- (0.02) -- -- -- --
--------- ----------- -------- -------- -------- ---------
Total dividends and distributions...... (0.02) (0.12) (0.65) (0.75) (0.75) (0.42)
--------- ----------- -------- -------- -------- ---------
NET ASSET VALUE AT END OF PERIOD....... $ 1.00 $ 10.27 $ 9.59 $ 10.01 $ 9.21 $ 10.15
======== ========= ======= ======= ======= ========
Total investment return#............... 2.40% 3.89% (2.28%) 16.72% (1.84%) 5.63%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income................ 2.65%* 5.14%* 6.66% 7.80% 8.16% 8.46%*
Net expenses......................... 0.62%* 0.73%* 0.67% 0.67% 0.67% 0.67%*
Expenses (before reimbursement)...... 1.10%* 1.46%* 0.71% 0.82% 0.87% 1.02%*
Portfolio turnover rate................ -- 15% 304% 592% 483% 501%
Average commission rate paid........... -- $0.0537 -- -- -- --
Net assets at end of period (in
000's)............................... $26,733 $15,464 $ 73,123 $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.

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

A-4
<PAGE> 7

FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL TOTAL RETURN
CORPORATE EQUITY PORTFOLIO
BOND PORTFOLIO PORTFOLIO ---------------------------------------------
-------------------- ----------------------
FOR YEAR MAY 1, FOR YEAR MAY 1, FOR THE YEAR ENDED JAN. 29,
ENDED 1995** TO ENDED 1995** TO DECEMBER 31, 1993** TO
DEC. 31, DEC. 31, DEC. 31, DEC. 31, -------------------------------- DEC. 31,
1996 1995 1996 1995 1996 1995 1994 1993
-------- -------- --------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD................. $ 10.55 $ 10.00 $ 10.20 $ 10.00 $ 13.26 $ 10.58 $ 11.32 $ 10.00
-------- -------- --------- --------- -------- -------- -------- ---------
Net investment income....... 0.59 0.37 0.44 0.64 0.30 0.31 0.27 0.16
Net realized and unrealized
gain (loss) on
investments............... 1.22 0.61 0.06 0.01 1.30 2.69 (0.72) 1.34
Net realized and unrealized
gain on foreign currency
transactions.............. -- -- 0.56 0.05 -- -- -- --
-------- -------- --------- --------- -------- -------- -------- ---------
Total from investment
operations................ 1.81 0.98 1.06 0.70 1.60 3.00 (0.45) 1.50
-------- -------- --------- --------- -------- -------- -------- ---------
Less dividends and
distributions:
From net investment
income.................. (0.59) (0.37) (0.60) (0.06) (0.30) (0.32) (0.29) (0.16)
From net realized gain on
investments and foreign
currency transactions... (0.16) (0.04) (0.01) (0.44) -- -- -- --
In excess of net realized
gain on investments..... -- (0.02) -- -- -- -- -- (0.02)
-------- -------- --------- --------- -------- -------- -------- ---------
Total dividends and
distributions............. (0.75) (0.43) (0.61) (0.50) (0.30) (0.32) (0.29) (0.18)
-------- -------- --------- --------- -------- -------- -------- ---------
NET ASSET VALUE AT END OF
PERIOD.................... $ 11.61 $ 10.55 $ 10.65 $ 10.20 $ 14.56 $ 13.26 $ 10.58 $ 11.32
======== ======= ======= ======== ======== ======== ======== ========
Total investment return#.... 17.16% 10.06% 10.54% 6.96% 12.08% 28.33% (3.99%) 15.04%
RATIOS (TO AVERAGE NET
ASSETS)/ SUPPLEMENTAL
DATA:
Net investment income..... 8.59% 10.02%* 1.01% 1.07%* 2.52% 3.06% 3.50% 3.48%*
Net expenses.............. 0.67% 0.67%* 0.97% 0.97%* 0.69% 0.69% 0.69% 0.69%*
Expenses (before
reimbursement).......... 0.71% 1.25%* 1.51% 2.51%* 0.71% 0.81% 0.88% 1.07%*
Portfolio turnover rate..... 149% 95% 16% 14% 175% 253% 297% 197%
Average commission rate
paid...................... $ 0.0613 (a) $0.0364 (a) $ 0.0599 (a) (a) (a)
Net assets at end of period
(in 000's)................ $205,001 $43,314 $34,509 $14,631 $332,897 $194,893 $122,333 $55,548

<CAPTION>
INDEXED EQUITY
VALUE PORTFOLIO
PORTFOLIO ---------------------------------------------
---------------------
FOR YEAR MAY 1, FOR THE YEAR ENDED JAN. 29,
ENDED 1995** TO DECEMBER 31, 1993** TO
DEC. 31, DEC. 31, -------------------------------- DEC. 31,
1996 1995 1996 1995 1994 1993
-------- --------- -------- -------- -------- ---------
<S> <<C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD................. $ 11.58 $ 10.00 $ 13.53 $ 10.38 $ 10.58 $ 10.00
-------- --------- -------- -------- -------- ---------
Net investment income....... 0.17 0.10 0.24 0.27 0.24 0.19
Net realized and unrealized
gain (loss) on
investments............... 2.52 1.58 2.79 3.55 (0.15) 0.67
Net realized and unrealized
gain on foreign currency
transactions.............. -- -- -- -- -- --
-------- --------- -------- -------- -------- ---------
Total from investment
operations................ 2.69 1.68 3.03 3.82 0.09 0.86
-------- --------- -------- -------- -------- ---------
Less dividends and
distributions:
From net investment
income.................. (0.17) (0.10) (0.24) (0.28) (0.24) (0.19)
From net realized gain on
investments and foreign
currency transactions... (0.20) -- (0.22) (0.39) (0.05) (0.08)
In excess of net realized
gain on investments..... -- -- -- -- -- (0.01)
-------- --------- -------- -------- -------- ---------
Total dividends and
distributions............. (0.37) (0.10) (0.46) (0.67) (0.29) (0.28)
-------- --------- -------- -------- -------- ---------
NET ASSET VALUE AT END OF
PERIOD.................... $ 13.90 $ 11.58 $ 16.10 $ 13.53 $ 10.38 $ 10.58
======== ======== ======== ======== ======= ========
Total investment return#.... 23.22% 16.76% 22.42% 36.89% 0.76% 8.53%
RATIOS (TO AVERAGE NET
ASSETS)/ SUPPLEMENTAL
DATA:
Net investment income..... 2.10% 2.57%* 2.14% 2.52% 2.61% 2.54%*
Net expenses.............. 0.73% 0.73%* 0.47% 0.47% 0.47% 0.47%*
Expenses (before
reimbursement).......... 0.79% 1.45%* 0.50% 0.62% 0.68% 0.96%*
Portfolio turnover rate..... 41% 20% 3% 5% 8% 7%
Average commission rate
paid...................... $ 0.0593 (a) $ 0.0498 (a) (a) (a)
Net assets at end of period
(in 000's)................ $120,415 $24,429 $223,945 $105,171 $63,164 $43,081
</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.

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

A-5
<PAGE> 8

FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
BOND PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR................................ $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
-------- -------- -------- -------- --------
Net investment income............................................... 0.87 0.88 0.88 0.95 0.92
Net realized and unrealized gain (loss) on investments.............. (0.59) 1.33 (1.34) 0.53 0.13
-------- -------- -------- -------- --------
Total from investment operations.................................... 0.28 2.21 (0.46) 1.48 1.05
-------- -------- -------- -------- --------
Less dividends:
From net investment income........................................ (0.87) (0.88) (0.88) (0.96) (0.91)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF YEAR...................................... $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91
======== ======== ======== ======== ========
Total investment return#............................................ 2.05% 18.31% (3.39%) 11.40% 8.26%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income............................................. 6.31% 6.55% 6.53% 6.79% 7.54%
Net expenses...................................................... 0.58% 0.62% 0.62%++ 0.27%++ 0.25%
Expenses (before reimbursement)................................... 0.58% 0.91% 0.67%++ 0.27%++ 0.25%
Portfolio turnover rate............................................. 103% 81% 88% 41% 10%
Net assets at end of year (in 000's)................................ $226,375 $235,030 $206,686 $228,683 $203,947

1991 1990 1989 1988 1987

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

<S> <<C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR................................ $ 11.86 $ 12.09 $ 11.80 $ 11.99 $ 13.55

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

Net investment income............................................... 1.02 1.12 1.11 1.20 1.06

Net realized and unrealized gain (loss) on investments.............. 0.91 (0.23) 0.30 (0.21) (0.91)

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

Total from investment operations.................................... 1.93 0.89 1.41 0.99 0.15

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

Less dividends:
From net investment income........................................ (1.02) (1.12) (1.12) (1.18) (1.71)

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

NET ASSET VALUE AT END OF YEAR...................................... $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99

======== ======== ======== ======== ========

Total investment return#............................................ 16.27% 7.36% 11.95% 8.26% 1.07%

RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income............................................. 8.22% 8.88% 8.83% 8.66% 8.15%

Net expenses...................................................... 0.25% 0.25% 0.25% 0.26% 0.25%

Expenses (before reimbursement)................................... 0.25% 0.25% 0.25% 0.26% 0.25%

Portfolio turnover rate............................................. 57% 81% 20% 105% 53%

Net assets at end of year (in 000's)................................ $164,124 $138,826 $134,542 $122,725 $130,901

</TABLE>

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

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

# 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.

A-6
<PAGE> 9
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
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FOR THE YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR................................ $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
-------- -------- -------- -------- --------
Net investment income............................................... 0.18 0.22 0.22 0.24 0.22
Net realized and unrealized gain (loss) on investments.............. 4.06 4.06 (0.03) 1.88 1.72
-------- -------- -------- -------- --------
Total from investment operations.................................... 4.24 4.28 0.19 2.12 1.94
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income........................................ (0.18) (0.22) (0.22) (0.25) (0.22)
From net realized gain on investments............................. (2.65) (1.53) (0.92) (1.76) (1.76)
-------- -------- -------- -------- --------
Total dividends and distributions................................... (2.83) (1.75) (1.14) (2.01) (1.98)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF YEAR...................................... $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53
======== ======== ======== ======== ========
Total investment return# 24.50% 29.16% 1.20% 13.71% 12.42%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income............................................. 0.98% 1.29% 1.41% 1.42% 1.50%
Net expenses...................................................... 0.58% 0.62% 0.62%++ 0.27%++ 0.27%
Expenses (before reimbursement)................................... 0.58% 0.91% 0.65%++ 0.27%++ 0.27%
Portfolio turnover rate............................................. 104% 104% 108% 121% 82%
Average commission rate paid........................................ $ 0.0595 (a) (a) (a) (a)
Net assets at end of year (in 000's)................................ $564,685 $427,507 $330,161 $319,196 $272,834

<CAPTION>
GROWTH EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1991 1990 1989 1988 1987
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<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR................................ $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87
-------- -------- -------- -------- --------
Net investment income............................................... 0.27 0.32 0.42 0.46 0.36
Net realized and unrealized gain (loss) on investments.............. 4.10 (1.20) 2.82 1.43 (0.49)
-------- -------- -------- -------- --------
Total from investment operations.................................... 4.37 (0.88) 3.24 1.89 (0.13)
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income........................................ (0.29) (0.33) (0.44) (0.41) (0.52)
From net realized gain on investments............................. (1.51) (0.01) (1.28) -- --
-------- -------- -------- -------- --------
Total dividends and distributions................................... (1.80) (0.34) (1.72) (0.41) (0.52)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF YEAR...................................... $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22
======== ======== ======== ======== ========
Total investment return# 33.62% (6.19%) 25.51% 16.85% (1.13%)
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Net investment income............................................. 1.78% 2.33% 2.80% 3.32% 2.71%
Net expenses...................................................... 0.29% 0.29% 0.28% 0.30% 0.26%
Expenses (before reimbursement)................................... 0.29% 0.29% 0.28% 0.30% 0.26%
Portfolio turnover rate............................................. 100% 114% 108% 111% 71%
Average commission rate paid........................................ (a) (a) (a) (a) (a)
Net assets at end of year (in 000's)................................ $204,147 $152,824 $171,116 $150,538 $156,198

</TABLE>

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

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

A-7
<PAGE> 10

Capital Appreciation Portfolio

The Portfolio's objective is:

to seek long-term growth of capital. Dividend income, if any, is an incidental
consideration.

WHO SHOULD INVEST? Investors who seek growth and are willing to accept a higher
level of risk for higher return potential.

The Portfolio invests in:

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.

Under normal market conditions...

....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 Standard & Poor's 500 Composite
Price Index (S&P 500); or

- - increasing return on investment.

....ANY OTHER SECURITIES WHICH, IN THE JUDGMENT OF MACKAY-SHIELDS ARE READY FOR A
RISE IN PRICE, or expected to undergo an acceleration in growth of earnings
because of special factors such as new management, new products, changes in
consumer demand or changes in the economy.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? 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.

WHO'S MANAGING YOUR MONEY?

EDMUND SPELMAN AND RUDY CARRYL OF MACKAY-SHIELDS FINANCIAL CORPORATION.

Mr. Spelman is a Director at MacKay-Shields who specializes in equities. He
joined the firm in 1991 after working as an analyst at Oppenheimer & Co. since
1983. Mr. Spelman has acted as a portfolio manager of the Capital Appreciation
and Total Return Portfolios since their inceptions. Mr. Carryl joined
MacKay-Shields Financial Corporation as a Director in 1992. He has fifteen years
of investment management and research experience. Mr. Carryl was research
director and senior portfolio manager at Value Line, Inc. from 1978-1992. Mr.
Carryl has acted as a portfolio manager of the Capital Appreciation and Total
Return Portfolios since their inceptions.

A-8
<PAGE> 11

Growth Equity Portfolio

The Portfolio's objective is:

to seek long term growth of capital, with income as a secondary consideration.

WHO SHOULD INVEST? Investors who seek growth and are willing to accept a higher
level of risk for higher return potential.

The Portfolio invests in:

Under normal market conditions...

....COMMON STOCKS of well established, well managed companies which appear to
have better than average growth potential.

....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.

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.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? 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 Portfolio invests primarily in common stocks and, therefore, is
exposed to the risks of investing in those securities, including fluctuations in
value.

WHO'S MANAGING YOUR MONEY?

JAMES AGOSTISI AND PATRICIA S. ROSSI OF NEW YORK LIFE INSURANCE COMPANY.

Mr. Agostisi is an Investment Vice President of 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. 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.

A-9
<PAGE> 12

Indexed Equity Portfolio

The Portfolio's objective is:

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.

WHO SHOULD INVEST? Investors who seek growth and are willing to accept a higher
level of risk for higher return potential.

SEE PAGE 20 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

....AT LEAST 80% OF ITS TOTAL ASSETS IN STOCKS LISTED IN THE INDEX. The Portfolio
will attempt to be fully invested at all times, and will invest in stocks in the
same proportions as they are invested in the Index.

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

The Portfolio may invest in securities of foreign issuers included in the Index.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? An investment in this Portfolio involves risks similar to those of
investing directly in common stocks. The Portfolio uses the Index because it
represents about two-thirds of the total market value of all common stocks and
is well-known to investors. The Index also represents total return performance
including reinvested dividends of the stocks in the Index. If the value of the
Index declines, the NAV of shares of the Portfolio will also decline.

WHO'S MANAGING YOUR MONEY?

JAMES MEHLING OF MONITOR CAPITAL ADVISORS, INC.

Mr. Mehling joined Monitor Capital Advisors in 1991 after working as director of
risk management in the investment department of New York Life Insurance Company.
Mr. Mehling is currently Chief Investment Officer for Monitor. He began his
career in financial services with Merrill Lynch in 1976 and was with County
NatWest Government Securities from 1987-1989. Mr. Mehling has served as
portfolio manager to the Portfolio since 1993.

The Index is a broad measurement of stock market performance composed of 500
common stocks selected by Standard & Poor's ("S&P").

The Portfolio is neither sponsored by nor affiliated with S&P.

By including a stock in the Index, neither S&P nor the Portfolio's Adviser takes
any stance on the stock's investment value.

A-10
<PAGE> 13

International Equity Portfolio

The Portfolio's 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.

WHO SHOULD INVEST? Investors who prefer the higher return potential of
international equities or want to add diversification to their domestic
investments.

SEE PAGE 20 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

....AT LEAST 65% OF ITS TOTAL ASSETS IN A DIVERSIFIED PORTFOLIO OF EQUITY
SECURITIES, which may include common stocks, preferred stocks, warrants, and
other equity securities of issuers, wherever organized, who do business mainly
outside the U.S. Eligible investments include any equity or equity-related
investments, domestic or foreign, whether denominated in foreign currencies or
U.S. dollars.

....A VARIETY OF COUNTRIES and will be invested in a minimum of five countries
exclusive of the United States. This includes countries with established
economies, 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 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. (For more details, see page
20, "Other Information About the Portfolios--International Equity Portfolio.")

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

THIS PORTFOLIO IS FOR LONG-TERM INVESTORS WHO SEEK GROWTH OVER CURRENT INCOME.
It is not designed as a way to speculate on short-term stock market swings.
Investors should be able to tolerate sudden, sometimes substantial fluctuations
in value.

RISKS? Alone, this Portfolio is not a balanced investment plan. It is
appropriate for investors wanting investments in markets outside the U.S. while
seeking to avoid undue volatility. The orientation is in avoiding excessive
risk, although there are risks associated with any investment. Due to this
philosophy, the Portfolio may not attain as high a return as more aggressively
managed international funds--although the Portfolio is expected to outperform
some funds in down markets. There is no guarantee that the Portfolio will
succeed in achieving its objective.

Investments in foreign securities could be more volatile and more difficult to
sell than U.S. investments, and involve additional risks. (For more on risks of
investing in foreign securities, see page 22, "Investments and Investment
Practices--Foreign Securities.")

WHO'S MANAGING YOUR MONEY?

SHIGEMI TAKAGI OF MACKAY-SHIELDS FINANCIAL CORPORATION.

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. He has served as a portfolio manager since the Portfolio
was started in 1995.

Securities of issuers in one country may be denominated in the currency of
another country.

A-11
<PAGE> 14

Convertible Portfolio

The Portfolio's objective is:

to seek capital appreciation together with current income. Certain of the
Portfolio's investments have speculative characteristics.

WHO SHOULD INVEST? Investors who want income from securities that may offer
growth potential if converted into common stock.

SEE PAGE 19 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

....AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN "CONVERTIBLE SECURITIES",
that is, bonds, debentures, corporate notes, preferred stocks or other
securities which are convertible into common stock.

The Portfolio takes a flexible approach, investing in a broad range of
securities of a variety of companies and industries.

....NOT MORE THAN 5% OF ITS TOTAL ASSETS IN SECURITIES rated less than B by S&P
or B by Moody's Investors Service, Inc. ("Moody's"), or, if unrated, that are
judged to be of comparable quality by MacKay-Shields.

The Portfolio may invest without restriction in securities rated BB or B by S&P
or Ba or B by Moody's.

....THE BALANCE OF THE PORTFOLIO MAY BE INVESTED IN NON-CONVERTIBLE DEBT OR
EQUITY SECURITIES or U.S. Government securities or may be held in cash or cash
equivalents.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? The total return for a convertible security will be partly dependent upon
the performance of the underlying common stock into which it can be converted.

Securities rated in categories lower than Baa by Moody's or BBB by S&P,
sometimes referred to as "junk bonds", are not considered "investment grade" and
generally involve more investment risks than securities rated investment grade,
including risks of price volatility, greater risk of issuer default on payments
of interest or repayment of principal, and other characteristics that may be
regarded as speculative. In addition, Moody's regards securities rated Baa as
having speculative characteristics. (See page 24, "Risks of Investing in High
Yield Securities" for more details; and Appendix A for a description of
ratings.)

WHO'S MANAGING YOUR MONEY?

DENIS LAPLAIGE,
NEIL FEINBERG AND
THOMAS WYNN OF MACKAY-SHIELDS FINANCIAL CORPORATION.

Mr. Laplaige is President, Managing Director and Chief Investment Officer of
MacKay-Shields. He joined the firm in 1982, became a Director in 1988, Managing
Director in 1991 and a member of the Board of Directors in 1993. He has managed
this Portfolio since its inception and is also a portfolio manager of the Value
Portfolio and the High Yield Corporate Bond Portfolio. Mr. Feinberg is a
Director of MacKay-Shields and has been a portfolio manager for the Convertible
Portfolio since its inception. He joined MacKay-Shields in 1992. Prior to
joining MacKay-Shields, Mr. Feinberg was employed by National Securities and
Research Corporation as an analyst (1989-1992). Mr. Wynn has been a portfolio
manager for the Portfolio since 1997 and joined the firm in 1995 as a research
analyst. He was previously a portfolio manager at Fiduciary Trust for nine years
and has over twelve years experience in investment management and research.

A-12
<PAGE> 15

Total Return Portfolio

The Portfolio's 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, preferred stocks, convertible securities,
warrants and fixed-income securities, such as bonds and other debt obligations,
including money market instruments.

WHO SHOULD INVEST? Investors who seek a combination of income and growth
potential and want to manage risk through diversification.

The Portfolio invests in:

Under normal market conditions...

....A MINIMUM OF 30% OF THE PORTFOLIO'S NET 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.

....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.

....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 Ba by
Moody's, or BB by S&P, or, if unrated, deemed to be of comparable
creditworthiness by MacKay-Shields.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? The Portfolio may allocate its assets among equity and debt securities
and, therefore, has some exposure to the risks of both common stocks and bonds.
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, or 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 page 24, "Risks of Investing in High Yield Securities" for
more details; and Appendix A for rating descriptions.)

WHO'S MANAGING YOUR MONEY?

RAVI AKHOURY, EDMUND SPELMAN AND RUDY CARRYL OF MACKAY-SHIELDS FINANCIAL
CORPORATION.

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. He has been a portfolio manager of the Total Return Portfolio
since 1993, and also manages the Government Portfolio. Biographies for Mr.
Spelman and Mr. Carryl appear on page 8.

A-13
<PAGE> 16

Value Portfolio

The Portfolio's 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.

WHO SHOULD INVEST? Investors who seek to maximize total return from securities
which may have more potential than the market currently sees.

The Portfolio invests in:

The Portfolio takes a flexible approach emphasizing investment in common stocks
which are, in the opinion of MacKay-Shields, undervalued at the time of
purchase.

Under normal market conditions...

....AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCKS WHICH:

- - it believes to be undervalued in the market relative to comparable securities;

- - are dividend-paying common stocks that are listed on a national securities
exchange or traded in the over-the-counter market but the Portfolio may also
invest in non-dividend paying stocks in accordance with MacKay-Shields'
judgment.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

Usually stocks deemed to be fully valued will be replaced by securities which
are deemed to be undervalued in the marketplace.

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.

RISKS? The Portfolio invests primarily in common stocks and, therefore, is
exposed to the risks of investing in those securities, including fluctuations in
value.

WHO'S MANAGING YOUR MONEY?

DENIS LAPLAIGE AND JEFFREY SIMON OF MACKAY-SHIELDS FINANCIAL CORPORATION.

Mr. Laplaige, President, Managing Director and Chief Investment Officer of
MacKay-Shields, has served as a portfolio manager of the Value Portfolio since
1995. His biography is on page 12. Mr. Simon is a Director of MacKay-Shields and
specializes in equity securities. He joined MacKay-Shields in 1993 after working
as a senior equity research analyst and portfolio manager at National Securities
and Research Corporation (1991-1992) and Neuberger & Berman (1987-1991). Mr.
Simon has served as a portfolio manager of the Portfolio since 1996.

A-14
<PAGE> 17

Bond Portfolio

The Portfolio's objective is:

to seek the highest income over the long term consistent with preservation of
principal.

WHO SHOULD INVEST? Investors who seek to combine high current income and safety
of principal.

The Portfolio invests in:

Under normal market conditions...

....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.

....UP TO 25% OF ITS TOTAL ASSETS 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.

The Portfolio may also make loans of portfolio securities and may invest in
foreign securities.

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.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? 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 24.)

WHO'S MANAGING YOUR MONEY?

ALBERT R. CORAPI, JR. AND CELIA M. HOLTZBERG OF NEW YORK LIFE INSURANCE COMPANY.

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

A-15
<PAGE> 18

Government Portfolio

The Portfolio's objective is:

to seek a high level of current income, consistent with safety of principal.

WHO SHOULD INVEST? Investors who seek to combine high current income and safety
of principal.

The Portfolio invests in:

Under normal market conditions...

....65% OF ITS TOTAL ASSETS IN U.S. GOVERNMENT SECURITIES, WHICH INCLUDE THE
FOLLOWING:

- - 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

- - 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); (ii) the right of the issuer to borrow an amount limited to a
specific line of credit from the U.S. Government (e.g., bonds issued by the
Federal National Mortgage Association ("FNMA")); (iii) the credit of the
instrumentality (e.g., bonds issued by the Federal Home Loan Mortgage
Corporation ("FHLMC")); or (iv) the discretionary authority of the U.S.
Government to purchase certain obligations of U.S. Government agencies or
instrumentalities.

The remaining 35% of the value of the Portfolio's total assets may be invested
in cash or cash equivalent obligations. Such assets may also be invested in
securities such as privately-issued collateralized mortgage obligations which
are not U.S. Government securities.

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? Although some of the instruments the Portfolio purchases are backed by
the U.S. Government and its agencies, shares of the Portfolio are not guaranteed
and the Portfolio's NAV will fluctuate. Generally, when interest rates fall, the
NAV rises; and when interest rates rise, the NAV declines.

Mortgage-backed securities may be prepaid prior to maturity. Prepayment rates
may be affected by changes in mortgage rates. During periods of falling rates,
prepayments tend to increase; during periods of rising rates, they tend to
decrease. Prepayments usually are reinvested at different rates than the
original investment. As a result, these securities can increase in value less
than "non-callable" bonds during falling rate periods, yet involve comparable
risks during rising rate periods.

WHO'S MANAGING YOUR MONEY?

RAVI AKHOURY AND EDWARD MUNSHOWER OF MACKAY-SHIELDS FINANCIAL CORPORATION.

Mr. Akhoury, Chairman and CEO of MacKay-Shields, has served as portfolio manager
of the Government Portfolio since 1993. His biography appears on page 13. Mr.
Munshower is a Director of MacKay-Shields and has been a portfolio manager for
the Government Portfolio since 1993. He joined MacKay-Shields as a fixed income
investment specialist in 1985 after having been an investment analyst for New
York Life Insurance Company. Mr. Munshower has over 14 years of experience in
investment management and research.

A-16
<PAGE> 19

High Yield Corporate Bond Portfolio

The Portfolio's 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). Capital appreciation is a secondary objective. THE POTENTIAL
FOR A HIGHER YIELD IS ACCOMPANIED BY HIGHER RISK. CERTAIN OF THE PORTFOLIO'S
INVESTMENTS ARE SPECULATIVE.

WHO SHOULD INVEST? Investors who want to maximize current income and can accept
the higher risk of securities with high yield potential.

SEE PAGE 19 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

....AT LEAST 65% OF ITS TOTAL ASSETS IN CORPORATE DEBT SECURITIES: all types of
foreign and domestic debt securities ordinarily in the lower rating categories
of Moody's (Baa to B) and S&P (BBB to B). These securities tend to offer yields
above those that are rated higher and are considered speculative.

....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).

....OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 19, "General
Investment Considerations" and pages 21-25, "Investments and Investment
Practices," for details.)

RISKS? Generally, when interest rates fall, the NAV rises; and when interest
rates rise, the NAV declines.

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." These securities are considered speculative and involve greater
volatility of price and risk of principal and income default than securities in
the higher rating categories. (For a more complete discussion of those risks,
see page 24, "Risks of Investing in High Yield Securities".) MacKay-Shields
seeks to reduce risk through diversification, credit analysis and attention to
current developments and trends in both the economy and financial markets. (See
Appendix A for a description of ratings.)

If MacKay-Shields is incorrect in its expectations of changes in interest rates,
or in its evaluation of the normal yield relationship between two securities,
the Portfolio's income, NAV and potential capital gains could decrease; or the
potential loss could increase. This and other factors may affect the income
available for distribution to shareholders.

WHO'S MANAGING YOUR MONEY?

DENIS LAPLAIGE AND STEVEN TANANBAUM OF MACKAY-SHIELDS FINANCIAL CORPORATION.

Mr. Laplaige, President Managing Director and Chief Investment Officer of
MacKay-Shields, has served as portfolio manager of the High Yield Corporate Bond
Portfolio since 1993. His biography is on page 12. Mr. Tananbaum is a Director
of MacKay-Shields. He specializes in high yield securities and has been a
portfolio manager for the Portfolio since 1993. 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.

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Cash Management Portfolio

The Portfolio's 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.

WHO SHOULD INVEST? Investors who are averse to risk or want to earn competitive
yields on cash they're planning to spend or invest in the near future.

The Portfolio invests in:

....SHORT-TERM (maturing in 397 days or less) U.S. Government securities;

....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;

....COMMERCIAL PAPER (short-term unsecured promissory notes of corporations
including variable rate master demand notes);

....SHORT-TERM (maturing in one year or less) corporate obligations; and

....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.

....UP TO 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 securities of a single issuer if they are rated in the highest
category by at least two major rating agencies 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.

....UP TO 5% OF ITS TOTAL ASSETS IN SECURITIES THAT WERE rated in the top two
categories by at least two nationally recognized rating agencies, but not rated
in the highest category by two or more major rating agencies ("Second Tier");
or, if unrated, deemed to be of comparable quality by MacKay-Shields when
acquired.

....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.

RISKS? 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.

This Portfolio generally can't invest in securities with remaining maturities
longer than 397 days (13 months). In addition, the weighted average portfolio
maturity may not exceed 90 days. (See the SAI for a more detailed explanation.)

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OTHER INFORMATION ABOUT THE PORTFOLIOS

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

GENERAL INVESTMENT CONSIDERATIONS

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.

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.

Each Portfolio is also expected to have a different portfolio turnover
rate, which may be higher during periods of significant market volatility.
Increased turnover usually results in higher brokerage costs, which must be
borne directly by the Portfolios; however, a high turnover rate may not have any
effect on the tax obligations of the Fund since the Fund intends to qualify as a
"regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code, as amended which allows the Fund to avoid federal income
tax. (See "Taxes" at page 27 and the Statement of Additional Information.)

In times of unusual or adverse market conditions, for temporary defensive
purposes, each Portfolio, except the Indexed Equity Portfolio, may invest
without limit in cash and cash equivalents (see "Cash Equivalents" on page 22).

CONVERTIBLE PORTFOLIO

In selecting convertible securities for purchase or sale, MacKay-Shields
takes into account a variety of investment considerations, including credit
risk, projected interest return and the premium for the convertible security
relative to the underlying common stock.

During the fiscal year ended December 31, 1996, based upon the
dollar-weighted average ratings of the Portfolio holdings at the end of each
month in the Portfolio's fiscal year, the Portfolio had the following
percentages of its net assets invested in securities rated in the categories
indicated (all ratings are by S&P):

31.05% in securities rated AAA
4.15% in securities rated AA
15.21% in securities rated A
15.88% in securities rated BBB
13.51% in securities rated BB
15.05% in securities rated B
0.62% in securities rated CCC
0.85% in cash and cash equivalents
3.68% in equity securities

These figures are intended solely to provide disclosure about the
Portfolio's asset composition during its fiscal year ended December 31, 1996.
The asset composition after this time may or may not be the same as represented
by such figures. In addition, the categories reflect ratings by S&P, and ratings
assigned by Moody's may not be consistent with ratings assigned by S&P or other
credit rating services, and MacKay-Shields may not necessarily agree with a
rating assigned by any credit rating agency.

HIGH YIELD CORPORATE BOND PORTFOLIO

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.

The Portfolio may invest up to 40% of the value of its total assets in each
of the electric utility and telephone industries, but will not invest more than
25% in either of those industries unless yields available for four consecutive
weeks in the four highest rating categories on new issue bonds in such industry
(issue size of $50 million or more) have averaged in excess of 105% of yields of
new issue long-term industrial bonds similarly rated (issue size of $50 million
or more). Concentration of the Portfolio's assets in these industries may
subject the Portfolio to greater price volatility and lessen the benefits of
reducing risk typically associated with greater asset diversification.

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 "Foreign Securities" on page 22 and
"Risks of Investing in High Yield Securities" on page 24.)

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<PAGE> 22

During the fiscal year ended December 31, 1996, based upon the
dollar-weighted average ratings of the Portfolio's holdings at the end of each
month in the Portfolio fiscal year, the Portfolio had the following percentages
of its net assets invested in securities rated in the categories indicated (all
ratings are by S&P):

30.64% in securities rated AAA
1.30% in securities rated BBB
10.77% in securities rated BB
40.35% in securities rated B
5.98% in securities rated CCC
0.15% in securities rated D
3.09% in unrated securities
0.94% in cash and cash equivalents
6.78% in equity securities

For temporary defensive purposes the Portfolio may invest more than 25% of
its total assets in U.S. Government securities during periods of abnormal market
conditions. Also, 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 deemed appropriate by MacKay-Shields in response to market conditions.

INDEXED EQUITY PORTFOLIO

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

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

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.

INTERNATIONAL EQUITY PORTFOLIO

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

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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 "Ratings of Debt
Securities and Commercial Paper").

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

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

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.

INVESTMENTS AND INVESTMENT PRACTICES

Information about the following types of investments, investment practices
and related risks appears below: Asset-Backed and Mortgage-Backed Securities;
Brady Bonds; Cash Equivalents; Debt Securities; Floaters and Inverse Floaters;
Foreign Securities; Lending of Portfolio Securities; Liquidity; Options on
Securities; Repurchase Agreements; Reverse Repurchase Agreements; Risk
Management Techniques; Risks of Investing in High Yield Securities; Short Sales
Against the Box; When-Issued Securities; and Zero Coupon Bonds. For more
information about the investments, investment practices and risks described in
this section, please see the SAI.

ASSET-BACKED AND MORTGAGE-BACKED SECURITIES

Each Portfolio, except the Indexed Equity Portfolio, may purchase
asset-backed and mortgage-backed securities. Asset-backed and mortgage-backed
securities are securities which derive their value from underlying pools of
loans that may include interests in pools of lower-rated debt securities,
consumer loans or mortgages, or complex instruments such as collateralized
mortgage obligations and stripped mortgage-backed securities. The value of these
securities may be significantly affected by changes in interest rates, the
market's perception of issuers and the creditworthiness of the parties involved.
The ability of a Portfolio to successfully utilize these instruments may depend
in part upon the ability of the Adviser to forecast interest rates and other
economic factors correctly. Some securities may have a structure that makes
their reaction to interest rate changes and other factors difficult to predict,
making their value highly volatile. These securities may also be subject to
prepayment risk and if the security has been purchased at a premium the amount
of the premium would be lost in the event of prepayment.

BRADY BONDS

The Convertible, High Yield Corporate Bond and Total Return Portfolios may
each invest a portion of its assets in Brady Bonds, which are securities created
through

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the exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructurings.

For further information see "Brady Bonds" in the SAI.

CASH EQUIVALENTS

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

DEBT SECURITIES

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

FLOATERS AND INVERSE FLOATERS

FOREIGN SECURITIES

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

LENDING OF PORTFOLIO SECURITIES

Each Portfolio except the Cash Management Portfolio may lend securities in
accordance with procedures adopted by the Board of Directors, to certain
broker-dealers and institutions as a means of earning additional income. This
practice could result in a loss or a delay in recovering the

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Portfolio's securities from the borrower if the borrower were to fail
financially and the collateral is insufficient to replace the full amount of the
loaned securities. The borrower would be liable for the shortage, but recovery
by the Portfolio cannot be assured.

LIQUIDITY

In order to assure that each Portfolio of the Fund has sufficient
liquidity, as a matter of operating policy the Capital Appreciation,
Convertible, Government, International Equity, Total Return and Indexed Equity
Portfolios may not invest more than 15% of their respective net assets in
illiquid securities. These are 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,
securities for which market quotations are not readily available or other
securities which legally, or in the opinion of the applicable investment
adviser, are deemed illiquid. 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.

OPTIONS ON SECURITIES

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

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

The Government Portfolio may not write any covered put options on U.S.
Government securities if, as a result, more than 50% of its total assets (taken
at current value) would be subject to put options written by such Portfolio. The
Fund has adopted a nonfundamental policy that each of the Capital Appreciation,
Convertible, Government, High Yield Corporate Bond, Total Return and Value
Portfolios may write covered call or put options with respect to no more than
25% of the value of its net assets, may purchase protective puts (in which the
security to be sold is identical or substantially identical to a security
already held by the Portfolio or to a security which the Portfolio has the right
to purchase) with a value up to 25% of its net assets and may purchase calls and
puts other than protective puts, with a value of up to 5% of the Portfolio's net
assets.

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

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

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements, including foreign
repurchase agreements, to earn income. A repurchase agreement is an agreement
whereby a Portfolio purchases securities and the seller agrees to repurchase the
securities within a particular time at a specified price. Such price will exceed
the original purchase price, the difference being income to the Portfolio, and
will be unrelated to the interest rate on the purchased security. The Directors
have reviewed and approved certain sellers who they believe to be creditworthy
and have authorized the Portfolios to enter into repurchase agreements with such
sellers. In the event of the bankruptcy of the seller or the failure of the
seller to repurchase the securities as agreed, a Portfolio could suffer losses,
including loss of interest on or principal of the security and costs associated
with delay and enforcement of the repurchase agreement.

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REVERSE REPURCHASE AGREEMENTS

RISK MANAGEMENT TECHNIQUES

The Portfolios can use various techniques to increase or decrease their
exposure to changing security prices, interest rates, currency exchange rates,
commodity prices or other factors that affect security values. These techniques
may involve derivative transactions such as buying and selling futures contracts
and options on futures contracts, entering into foreign currency transactions
(such as forward foreign currency exchange contracts and options on foreign
currencies) and purchasing put or call options on securities indexes.

The Portfolios can use these practices in an attempt to adjust the risk and
return characteristics of their portfolios of investments. When a Portfolio uses
such techniques in an attempt to reduce risk it is known as "hedging". If a
Portfolio's investment adviser judges market conditions incorrectly or employs a
strategy that does not correlate well with the Portfolio's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Portfolio and may involve a small investment of cash relative to the magnitude
of the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised. For more
information on risk management techniques used by the Portfolios, see
"Investment Practices Common to Two or More Portfolios" in the SAI.

RISKS OF INVESTING IN HIGH YIELD SECURITIES

Securities rated lower than Baa by Moody's or lower than BBB by S&P or, if
not rated, deemed to be of equivalent quality by the Portfolio's investment
adviser, are sometimes referred to as "high yield" or "junk" bonds and are
considered speculative. In addition, securities rated Baa are considered by
Moody's to have some speculative characteristics. Investors should consider the
following risks associated with high yield bonds before investing in the Bond,
Convertible, High Yield Corporate Bond and Total Return Portfolios. High yield
securities tend to be less sensitive to interest rate changes than higher-rated
investments, but are more sensitive to adverse economic changes and corporate
developments. This may affect the issuer's ability to make principal and
interest payments on these securities. There is also a greater risk of price
declines due to changes in the issuer's creditworthiness. Because the market for
high yield securities may be less active than for higher-rated securities, it
may be difficult for a Portfolio to sell the securities. Less liquidity in the
trading market for high yield securities could also adversely affect the price
of the securities. See the Appendix for more information on debt security
ratings.

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

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

WHEN-ISSUED SECURITIES

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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 liquid assets at least equal in value to commitments for when-issued
securities. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date.

ZERO COUPON BONDS

OTHER INFORMATION

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

THE FUND AND ITS MANAGEMENT

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

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

INVESTMENT ADVISERS

MacKay-Shields Financial Corporation, 9 West 57th Street, New York, NY
10019, is the investment adviser to the Capital Appreciation, Cash Management,
Convertible, Government, High Yield Corporate Bond, International Equity, Total
Return and Value Portfolios. MacKay-Shields is a wholly-owned subsidiary of
NYLIFE Inc. and an indirect wholly-owned subsidiary of New York Life.
MacKay-Shields was incorporated in 1960 as an independent investment advisory
firm and was privately held until 1984 when it became an autonomously managed
subsidiary of New York Life. As of December 31, 1996, MacKay-Shields managed
over $23.7 billion in assets, primarily for institutional clients.

New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010 is
the investment adviser to the Bond and Growth Equity Portfolios. New York Life
manages other assets, including assets held in its own general account and
various separate accounts (amounting to $78.8 billion as of December 31, 1996)
and in the general account and various separate accounts of NYLIAC (amounting to
$17.0 billion as of December 31, 1996).

The investment adviser to the Indexed Equity Portfolio is Monitor Capital
Advisers, Inc., 504 Carnegie Center, Princeton, NJ 08540. As of December 31,
1996, Monitor managed over $1.8 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"), is subject to the supervision of the Directors and in conformity
with the stated policies of each Portfolio, continuously manages the portfolio
of each Portfolio that it advises, including the purchase, retention and
disposition of securities and other supervision of its assets, and maintains
certain records relating thereto.

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

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

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
has, pursuant to a subadministration agreement, retained NYLIFE Distributors
Inc. ("NYLIFE Distributors"), an indirect wholly-owned subsidiary of

A-25
<PAGE> 28

New York Life, to perform certain of the services to be provided by NYLIAC
pursuant to the terms of the Administration Agreement.

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

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

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

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

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

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

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 Investment Company
Act of 1940 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.

A-26
<PAGE> 29

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

TAXES, DIVIDENDS AND DISTRIBUTIONS

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

TAXES

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

In order for the Separate Accounts to comply with regulations under Section
817(h) of the Code, each Portfolio will diversify its investments so that on the
last day of each quarter of a calendar year, no more than 55% of the value of
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 of $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. Each Portfolio other than the Cash
Management Portfolio declares and distributes 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 of the following
year) to avoid the excise tax on income not distributed in accordance with the
applicable timing requirements.

A-27
<PAGE> 30

GENERAL INFORMATION

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

CUSTODIAN

For the Capital Appreciation, Cash Management, Convertible, Government,
High Yield Corporate Bond, International Equity, Total Return, Value, and
Indexed Equity Portfolios, The Bank of New York, 110 Washington Street, New
York, New York 10286 is the custodian of the Portfolios' assets. For the Bond
and Growth Equity Portfolios, The Chase Manhattan Bank, N.A. (formerly Chemical
Bank), 3 Chase Metro Tech Center, Brooklyn, New York 11245 is the custodian of
the Portfolios' assets.

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. Information on the calculation
of performance data is included in the SAI.

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 (800) 598-2019 or 51 Madison Avenue, New York, New
York 10010.

A-28
<PAGE> 31

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:

<TABLE>
<S> <C>
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.
</TABLE>

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

<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's Corporation. The
capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree.
A 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 together with B issues
rated CCC, CC and C.
B Debt in these categories is regarded on balance as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some quality and
protective characteristics these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
</TABLE>

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.

AA-1
<PAGE> 32

<TABLE>
<S> <C>
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.
</TABLE>

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.

-- 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.

AA-2
<PAGE> 33

MAINSTAY VP SERIES FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1997

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

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, 1997 which may be obtained by calling the Fund at (800)
598-2019, 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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MAINSTAY VP SERIES FUND, INC. INVESTMENT POLICIES............................. 2
Fundamental Investment Policies Applicable to the MainStay VP Capital
Appreciation, Cash Management, Convertible, Government, Total Return,
Value and Indexed Equity Portfolios..................................... 2
Fundamental Investment Policies Applicable to the MainStay VP High Yield
Corporate Bond Portfolio................................................ 3
Fundamental Investment Policies Applicable to the MainStay VP
International Equity Portfolio.......................................... 4
Fundamental Investment Policies Applicable to the MainStay VP Bond and
MainStay VP Growth Equity Portfolios.................................... 5
Additional Non-Fundamental Investment Restrictions Applicable to Certain
Portfolios.............................................................. 6
Other Investment Policies of the High Yield Corporate Bond Portfolio..... 9
Other Investment Policies of the Bond and Growth Equity Portfolios....... 9
Other Investment Policies of the Government Portfolio.................... 9
Cash Management Portfolio................................................ 11
Investment Practices Common to Two or More Portfolios.................... 12
Additional Investment Policies Applicable to the International Equity
Portfolio............................................................... 35
State Insurance Law Requirements......................................... 37
Portfolio Turnover....................................................... 37
MANAGEMENT OF THE FUND........................................................ 38
Investment Advisers...................................................... 39
Administration Agreements................................................ 40
Portfolio Brokerage...................................................... 41
DETERMINATION OF NET ASSET VALUE.............................................. 41
How Portfolio Securities Will Be Valued.................................. 41
INVESTMENT PERFORMANCE CALCULATIONS........................................... 42
Cash Management Portfolio Yield.......................................... 42
Convertible, Government, High Yield Corporate Bond and
Bond Portfolio Yield................................................... 43
Total Return Calculations................................................ 44
PURCHASE AND REDEMPTION OF SHARES............................................. 44
TAXES......................................................................... 45
GENERAL INFORMATION........................................................... 46
LEGAL COUNSEL................................................................. 47
FINANCIAL STATEMENTS.......................................................... 47
</TABLE>

<PAGE> 34

MAINSTAY VP SERIES FUND, INC. INVESTMENT POLICIES

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

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

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

None of the above-designated Portfolios will:

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

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

2
<PAGE> 35

(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; or

(8) 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.

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

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

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

The High Yield Corporate Bond Portfolio will not:

(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 the
Portfolio's investment objectives and policies directly from the issuer
thereof and the later disposition thereof may be deemed to be underwriting;

(5) purchase securities if such purchase would cause more than 25% in
the aggregate of the market value of the total assets of the Portfolio to
be invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation in respect to investments in U.S. Government securities (for the
purposes of this restriction, telephone companies

3
<PAGE> 36

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 Portfolio'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.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP INTERNATIONAL
EQUITY PORTFOLIO

The investment restrictions set forth below apply to the MainStay VP
International Equity ("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);

(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

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<PAGE> 37

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; or

(9) issue senior securities, except as appropriate to evidence
indebtedness that the Portfolio is permitted to incur and except for shares
of existing or additional series of the Fund.

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

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

(1) purchase securities on margin or otherwise borrow money or issue
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;

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<PAGE> 38

(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 U.S. 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 U.S.
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 backed
certificates in accordance with their investment objectives and policies;
or

(10) 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.

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.

ADDITIONAL NON-FUNDAMENTAL INVESTMENT RESTRICTIONS APPLICABLE TO CERTAIN
PORTFOLIOS

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

None of the designated Portfolios will:

(1) enter into repurchase agreements or purchase any "illiquid
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) if, as a result thereof, more than 15% of the total
assets of a Portfolio (10% with respect to the Cash Management, High Yield
Corporate Bond and Value Portfolios) 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

6
<PAGE> 39

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

(3) purchase securities of any issuer with a record of less than three
years' continuous operation, including predecessors, except obligations
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;

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

(5) purchase warrants of any issuer, except on a limited basis when,
as a result of such purchases by a Portfolio, no more than 2% of the value
of the Portfolio's total assets would be invested in warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange, and
no more than 5% of the value of the total assets of a Portfolio may be
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 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 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; or

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

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<PAGE> 40

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

(9) acquire or retain the securities of any other investment company
if, as a result, more than 3% of such investment company's outstanding
shares would be held by the Portfolio, more than 5% of the value of the
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

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<PAGE> 41

aggregate, except in connection with a merger, consolidation, acquisition,
or reorganization.

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.

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.

OTHER INVESTMENT POLICIES OF THE 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

9
<PAGE> 42

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 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 that do not meet the
requirements of Rule 3a-7 under the 1940 Act 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.

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<PAGE> 43

CASH MANAGEMENT PORTFOLIO

The Portfolio may invest its assets in U.S. dollar-denominated securities
of U.S. or foreign issuers and in securities of foreign branches of U.S. banks,
such as negotiable certificates of deposit (Eurodollars). Since the Portfolio
may contain such securities, an investment therein involves investment risks
that are different in some respects from an investment in a fund which invests
only in debt obligations of U.S. domestic issuers. Such risks may include 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> 44

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.

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> 45

FLOATERS AND INVERSE FLOATERS

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

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

HIGH YIELD SECURITIES

Securities rated lower than Baa by Moody's or lower than BBB by S&P or, if
not rated, of equivalent quality, are sometimes referred to as "high yield" (or
"junk") bonds. In addition, securities rated Baa are considered by Moody's to
have some speculative characteristics. Owners should consider the following
risks associated with high yield bonds before investing in the Convertible, High
Yield Corporate Bond, Total Return and Bond Portfolios.

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

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

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

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<PAGE> 46

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.

ZERO COUPON BONDS

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

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

REPURCHASE AGREEMENTS

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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

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).

LENDING OF PORTFOLIO SECURITIES

Each Portfolio, except the Cash Management Portfolio, may seek to increase
its income by lending portfolio securities. A Portfolio would have the right to
call a loan and obtain the securities loaned at any time generally on less than
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

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<PAGE> 48

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.

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.

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. 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

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<PAGE> 49

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 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).

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<PAGE> 50

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 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.

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

BRADY BONDS

The Convertible, High Yield Corporate Bond and Total Return Portfolios may
each invest a portion of its assets in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to sovereign entities for
new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas
F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been
implemented in several countries, including Mexico, Uruguay, Venezuela,
Argentina, Costa Rica, Nigeria, the Philippines, Bulgaria, the Dominican
Republic, Bolivia, Ecuador, Niger, Poland and Jordan (collectively, the "Brady
Countries"). In

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<PAGE> 51

addition, Brazil has concluded a Brady-like plan. It is expected that other
countries will undertake a Brady Plan debt restructuring in the future,
including Peru and Panama.

Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market.

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

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

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

Brady Bonds are not considered U.S. Government securities. In light of
factors, including the history of defaults with respect to commercial bank loans
by public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds are to be viewed as speculative.

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

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<PAGE> 52

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 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
liquid assets 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 Backed Securities,"
below). The Portfolios may also invest in debt securities which are secured with
collateral consisting of mortgage-related securities (see "Collateralized
Mortgage Obligations," at page 20), 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-BACKED 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.

Payment of principal and interest on some mortgage backed securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities 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 backed securities created by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers or the mortgage poolers.

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

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(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.
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.

Early repayment of principal on mortgage backed securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a Portfolio
to a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, the value of the premium
would be lost in the event of prepayment. Like other fixed-income securities,
when interest rates rise, the value of a mortgage-related security generally
will decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities.

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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 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

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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.

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 these securities. If the
underlying mortgage assets experience greater than

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<PAGE> 56

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

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

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<PAGE> 57

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.

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 Capital Appreciation, Convertible, Government, High
Yield Corporate Bond, Total Return 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. 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 assets 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.

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 liquid assets in a segregated account
with its custodian.

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

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<PAGE> 58

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.

PURCHASING CALL OPTIONS. Each Portfolio, except the Cash Management,
Bond and Growth Equity Portfolios, may purchase call options on any securities
in which it may invest in anticipation of an increase in the market value of
such securities. The purchase of a call option would entitle the Portfolio, in
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.

WRITING PUT OPTIONS. Each Portfolio, except the Cash Management, Bond
and Growth Equity Portfolios, may also write covered put options. A put option
written by a Portfolio is "covered" if a Portfolio maintains liquid assets with
a value equal to the exercise price in a segregated account with its custodian;
however, the Capital Appreciation, Convertible, High Yield Corporate Bond, Total
Return and Value Portfolios may not write any covered put options, if, as a
result, more than 25% of a Portfolio's total assets (taken at current value)
would be subject to put options written by such Portfolio, and the Government
Portfolio may not write any covered put options on U.S. Government securities
if, as a result, more than 50% of its total assets (taken at current value)
would be subject to put options written by such Portfolio. A put option is also
"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 liquid assets 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.

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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 PUT OPTIONS. Each Portfolio, except the Cash Management,
Bond and Growth Equity Portfolios, may purchase put options on any securities in
which it may invest in anticipation of a decline in the market value of such
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 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.

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 Cash
Management, Government, Bond and Growth Equity Portfolios 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

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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 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 liquid assets in a
segregated account with its Custodian.

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

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foreign currency may constitute an effective hedge against exchange rate
fluctuations, although, in the event of rate movements adverse to a Portfolio's
position, a Portfolio may forfeit the entire amount of the premium plus related
transaction costs. Options on foreign currencies to be written or purchased by a
Portfolio will be traded on U.S. and foreign exchanges or over-the-counter. A
Portfolio also may use foreign currency options to protect against potential
losses in positions denominated in one foreign currency against another foreign
currency in which the Portfolio's assets are or may be denominated. There can be
no assurance that a liquid market will exist when a Portfolio seeks to close out
an option position. Furthermore, if trading restrictions or suspensions are
imposed on the options markets, a Portfolio may be unable to close out a
position.

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

FUTURES TRANSACTIONS

The Convertible, Government, High Yield Corporate Bond, International
Equity and Total Return Portfolios may purchase and sell futures contracts on
debt securities and on indexes of debt securities to hedge against anticipated
changes in interest rates that might otherwise have an adverse effect upon the
value of a Portfolio's portfolio securities. Each of such Portfolios may also
enter into such futures contracts in order to lengthen or shorten the average
maturity or duration of the Portfolio's portfolio. For example, a Portfolio may
purchase futures contracts as a substitute for the purchase of longer-term debt
securities to lengthen the average duration of a Portfolio's portfolio of
fixed-income securities. The Capital Appreciation, Convertible, High Yield
Corporate Bond, International Equity, Total Return, Value and Indexed Equity
Portfolios may purchase and sell futures contracts on stock index futures to
hedge the equity portion of those Portfolio's securities portfolios with 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

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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 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.

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 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. 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.

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

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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 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

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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 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 Cash Management, 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

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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 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.

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

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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) liquid assets 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 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

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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.

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.

It is also possible that, when a Portfolio has sold stock index futures to
hedge its portfolio against a decline in the market, the market may advance
while the value of the particular securities held in the Portfolio's portfolio
may decline. If this occurred, the Portfolio would incur a loss on the futures
contracts and also experience a decline in the value of its portfolio
securities. The Portfolios do not intend to use U.S. stock index futures to
hedge positions in securities of non-U.S. companies. In the case of a futures
contract on an index, the amount of cash is equal to a specific dollar amount
times the difference between the price at which the agreement is made and the
value of an index at the close of the last trading day of the contract. No
physical delivery of the underlying securities in the index is made.

In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid

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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.

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.

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.

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

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for periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include (i)
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap", (ii) interest rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor" and (iii) interest rate collars, 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 liquid assets 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

37
<PAGE> 70

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 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 portfolio turnover rate,
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 portfolio turnover rate 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, 1996, December 31, 1995 and December 31,
1994, the portfolio turnover rate for each of the following Portfolios was as
follows: Capital Appreciation Portfolio, 15.64%, 34.83% and 38.84%,
respectively; Government Portfolio, 303.83%, 591.59% and 483.06%, respectively;
Total Return Portfolio, 174.77%, 253.00% and 297.16%, respectively; Bond
Portfolio, 103.02%, 80.86% and 88.32%, respectively; Growth Equity Portfolio,
104.13%, 104.07% and 108.21%, respectively; and Indexed Equity, 3.11%, 4.99% and
8.30%, respectively. With respect to the Cash Management Portfolio, the
portfolio turnover rate for the years ended December 31, 1996, December 31,
1995, and December 31, 1994 as calculated in accordance with applicable SEC
regulations, was 0%. For the year ended December 31, 1996, the portfolio
turnover rate for the High Yield Corporate Bond, International Equity and Value
Portfolios was as follows: 148.74%, 15.88% and 40.79%, respectively. For the
period May 1, 1995 (Commencement of Operations) through December 31, 1995, the
unannualized portfolio turnover rate for these Portfolios was as follows:
94.98%, 13.65% and 19.75%, respectively. For the period October 1, 1996
(Commencement of Operations) through December 31, 1996, the unannualized
portfolio turnover rate for the Convertible Portfolio was 15.09%. A turnover
rate in excess of 100% is likely to result in a Portfolio's bearing higher
brokerage costs.

38
<PAGE> 71

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......... 63 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 Di-
rector of the following Corpora-
tions; New York Life Settlement
Corporation, MONY Series Fund,
J.P. Food Services, Inc., and
United States Leather.

Jill Feinberg............ 42 Director Consultant, Jill Feinberg & Company
from 1989 to date. Ms. Feinberg
is also a Director of New York
Life Settlement Corporation.

Daniel Herrick........... 76 Director Treasurer and Senior Executive, Na-
tional Gallery of Art,
Washington, D.C. from December
1985 to June 1995.

Richard M. Kernan, Jr.*.. 56 Chairman of the Board, Executive Vice President and Chief
Chief Executive Officer Investment Officer of New York
and Director Life Insurance Company from
September 1995 to date; Executive
Vice President prior thereto.

Anne F. Pollack*......... 41 President, Chief Senior Vice President of New York
Administrative Officer Life Insurance Company from March
and Director 1992 to date.

Robert D. Rock*.......... 42 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............ 56 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 August
1996.
</TABLE>

39
<PAGE> 72

Anthony W. Polis......... 52 Treasurer Vice President of New York Life In-
surance Company from 1988 to
date.

Marc J. Chalfin.......... 50 Controller Senior Vice President and
Controller of New York Life
Insurance Company from March 1995
to date; Vice 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.

For services rendered to the Fund during the fiscal year ended December 31,
1996, the directors received an aggregate of $85,000 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 year ended December 31, 1996,
for each of the following persons:

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION FROM
RETIREMENT REGISTRANT AND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL 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................ $21,250 $0 $0 $ 21,250
Jill Feinberg, Director... 21,250 0 0 21,250
Daniel Herrick,
Director................ 21,250 0 0 21,250
Richard M. Kernan, Jr.,
Director................ 0 0 0 0
Anne F. Pollack,
Director................ 0 0 0 0
Robert D. Rock,
Director................ 0 0 0 0
Roman L. Weil, Director... 21,250 0 0 21,250
--------
TOTAL................ $ 85,000
========
</TABLE>

INVESTMENT ADVISERS

Pursuant to the Investment Advisory Agreements for the Capital
Appreciation, Cash Management, Government, High Yield Corporate Bond,
International Equity, Total Return Value and Indexed Equity Portfolios, dated
December 15, 1996 and the Investment Advisory Agreement for the Convertible
Portfolio dated August 22, 1996, MacKay-Shields or Monitor, 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, 1996.

40
<PAGE> 73

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

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

NYLIAC has agreed to limit the "Other Expenses" of each of the Convertible,
High Yield Corporate Bond, International Equity and Value Portfolios to .17%
annually through December 31, 1997.

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

PORTFOLIO BROKERAGE

41
<PAGE> 74

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, 1996, December 31, 1995 and December 31,
1994, the Fund paid total brokerage commissions of $2,121,056, $1,506,976 and
$1,266,182, respectively.

DETERMINATION OF NET ASSET VALUE

The Fund determines the net asset value per share of each Portfolio on each
day the New York Stock Exchange is open for trading. 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.

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 of any premium paid or
discount received.

42
<PAGE> 75

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.

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.

43
<PAGE> 76

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.

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, 1996, the Cash Management
Portfolio yield was 4.96%, and the effective yield was 5.08%.

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

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

<TABLE>
<S> <C>
a-b
---
YIELD = 2[( cd +1)(6)-1]
</TABLE>

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 Convertible, Government, High Yield Corporate Bond
and Bond Portfolios normally will fluctuate over time. Therefore, the disclosed
yield for any given past period is not an indication or representation of future
yields or rates of return. Each of the Convertible, Government, High Yield
Corporate Bond and Bond Portfolios' 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, Convertible, 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 compounded rates of return
over one, five and ten year periods that would

44
<PAGE> 77

equate the initial amount invested to the ending redeemable value, according to
the following formula:

<TABLE>
<S> <C> <C> <C>
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ending redeemable value of a hypothetical $1,000 payment made at
ERV = the
beginning of the one, five, or ten-year period at the end of the
one, five,
or ten-year period (or fractional portion thereof).
</TABLE>

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, 1996, the
average annual total returns for the Bond Portfolio were 2.05%, 7.03% and 8.23%,
respectively.

For the one, five and ten year periods ending December 31, 1996, the
average annual total returns for the Growth Equity Portfolio were 24.50%, 15.81%
and 14.48%, respectively.

For the one year period ending December 31, 1996, the average annual total
returns for the Capital Appreciation, Cash Management, Government, Total Return
and Indexed Equity Portfolios were 18.75%, 4.95%, 2.28%, 12.08% and 22.42%,
respectively. For the period beginning January 29, 1993 (inception date) through
December 31, 1996, the average annual total returns for the Capital
Appreciation, Cash Management, Government, Total Return and Indexed Equity
Portfolios were 17.13%, 4.22%, 5.59%, 12.53% and 16.71%, respectively. For the
one year period ending December 31, 1996, the annual total returns for the High
Yield Corporate Bond, International Equity and Value Portfolios were 17.16%,
10.54% and 23.22%, respectively. For the period beginning May 1, 1995 (inception
date) through December 31, 1996, the average annual total returns for the High
Yield Corporate Bond, International Equity and Value Portfolios were 16.44%,
10.55% and 24.33%, respectively.

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.

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 more insurance company separate

45
<PAGE> 78

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.

GENERAL INFORMATION

The Fund was incorporated under Maryland law on June 3, 1983. The Fund was
formerly known as the New York Life MFA Series Fund, Inc. On August 22, 1996,
the Fund's name was changed to its present form. The authorized capital stock of
the Fund

46
<PAGE> 79

consists of 2,000,000,000 shares of common stock, par value $0.01 per share. The
shares of common stock are divided into eleven classes as set forth below:

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

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

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).

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

47
<PAGE> 80

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

48
<PAGE> 81

(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 82
MAINSTAY VP SERIES FUND, INC.

CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (95.4%)+
SHARES VALUE
-----------------------
<S> <C> <C>
AUTO PARTS (0.9%)
Lear Seating Corp. (a)........... 137,500 $ 4,692,187
------------
BANKS (2.2%)
NationsBank Corp. ............... 55,500 5,425,125
Wells Fargo & Co. ............... 20,566 5,547,678
------------
10,972,803
------------
BROKERAGE (1.1%)
Schwab (Charles) Corp. .......... 170,400 5,452,800
------------
BUILDINGS (0.7%)
Oakwood Homes Corp. ............. 158,000 3,614,250
------------
COMPUTER SERVICES (0.7%)
SABRE Group Holdings Inc. Class
A............................... 122,000 3,400,750
------------
COMPUTERS & OFFICE EQUIPMENT
(6.0%)
Alco Standard Corp. ............. 146,400 7,557,900
Danka Business Systems PLC ADR
(b)............................. 128,500 4,545,687
Hewlett-Packard Co. ............. 114,000 5,728,500
Seagate Technology (a)........... 126,600 5,000,700
Sun Microsystems (a)............. 281,600 7,233,600
------------
30,066,387
------------
CONSUMER DURABLES (1.5%)
Black & Decker Corp. ............ 62,700 1,888,837
Harley-Davidson, Inc. ........... 123,900 5,823,300
------------
7,712,137
------------
CONSUMER FINANCIAL
SERVICES (1.2%)
First Data Corp. ................ 171,600 6,263,400
------------
CONSUMER SERVICES (2.2%)
CUC International Inc. (a)....... 216,600 5,144,250
Service Corp. International...... 206,400 5,779,200
------------
10,923,450
------------
CREDIT & FINANCE (0.8%)
Equifax Inc. .................... 135,000 4,134,375
------------
DRUGS (7.1%)
Amgen Inc. (a)................... 171,600 9,330,750
Elan Corp. PLC ADR (a)(b)........ 186,000 6,184,500
Genzyme Corp. (a)................ 133,000 2,892,750
Pharmacia & Upjohn, Inc. ........ 115,400 4,572,725
Schering-Plough Corp. ........... 125,200 8,106,700
Teva Pharmaceutical Industries
Ltd. ADR (b).................... 93,000 4,673,250
------------
35,760,675
------------
- ------------
+ Percentages indicated are based on Fund net assets.

<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
ELECTRONICS (1.1%)
Harman International Industries,
Inc. ........................... 50,000 $ 2,781,250
Vishay Intertechnology, Inc.
(a)............................. 105,861 2,474,501
------------
5,255,751
------------
ENERGY (2.0%)
Abacan Resource Corp. (a)........ 652,000 5,664,250
Triton Energy Ltd. (a)........... 92,400 4,481,400
------------
10,145,650
------------
FINANCIAL SERVICES (13.1%)
Associates First Capital
Corp. .......................... 77,000 3,397,625
Federal National Mortgage
Association..................... 130,800 4,872,300
First USA, Inc. ................. 245,400 8,496,975
Green Tree Financial Corp. ...... 318,400 12,298,200
Household International, Inc. ... 101,300 9,344,925
MGIC Investment Corp. ........... 95,800 7,280,800
SunAmerica Inc. ................. 253,200 11,235,750
Travelers Group Inc. ............ 196,332 8,908,564
------------
65,835,139
------------
FOOD DISTRIBUTOR (0.4%)
Richfood Holdings, Inc. ......... 85,500 2,073,375
------------
HEALTH CARE (8.2%)
Cardinal Health Inc. ............ 90,000 5,242,500
Columbia/HCA Healthcare Corp. ... 172,218 7,017,883
HealthCare COMPARE Corp. (a)..... 94,800 4,017,150
HEALTHSOUTH Corp. (a)............ 195,000 7,531,875
Humana Inc. (a).................. 128,000 2,448,000
OrNda HealthCorp. (a)............ 155,500 4,548,375
PacifiCare Health Systems, Inc.
Class B (a)..................... 38,900 3,316,225
Unison HealthCare Corp. (a)...... 54,000 708,750
United Healthcare Corp. ......... 148,000 6,660,000
------------
41,490,758
------------
INDUSTRIAL (1.4%)
Tyco International Ltd. ......... 130,000 6,873,750
------------
INSURANCE (1.7%)
American International Group,
Inc. ........................... 80,250 8,687,063
------------
LEISURE (0.9%)
Mirage Resorts Inc. (a).......... 209,000 4,519,625
------------
MACHINERY (0.6%)
U.S. Robotics Corp. (a).......... 41,000 2,952,000
------------
MEDICAL EQUIPMENT (6.3%)
Guidant Corp. ................... 147,000 8,379,000
Heartport, Inc. ................. 63,000 1,441,125
Johnson & Johnson................ 173,462 8,629,735
Medtronic, Inc. ................. 136,900 9,309,200
</TABLE>

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

F-1
<PAGE> 83

CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
MEDICAL EQUIPMENT (Continued)
Waters Corp. (a)................. 136,000 $ 4,131,000
------------
31,890,060
------------
RESTAURANTS &
LODGING (3.4%)
HFS Inc. (a)..................... 233,000 13,921,750
Lone Star Steakhouse &
Saloon, Inc. (a)................ 118,000 3,156,500
------------
17,078,250
------------
RETAIL (9.6%)
AutoZone, Inc. (a)............... 130,200 3,580,500
Bed Bath & Beyond, Inc. (a)...... 144,000 3,492,000
CompUSA Inc. (a)................. 88,000 1,815,000
Gymboree Corp. (The) (a)......... 50,000 1,143,750
Home Depot, Inc. (The)........... 113,000 5,664,125
Kohl's Corp. (a)................. 158,500 6,221,125
Kroger Co. (a)................... 125,000 5,812,500
Lowe's Cos., Inc. ............... 182,900 6,492,950
Mattel, Inc. .................... 133,000 3,690,750
Safeway Inc. (a)................. 166,500 7,117,875
Staples, Inc. (a)................ 186,200 3,363,238
------------
48,393,813
------------
SOFTWARE (6.7%)
Computer Associates
International, Inc. ............ 235,375 11,709,906
Microsoft Corp. (a).............. 66,400 5,486,300
Oracle Corp. (a)................. 221,000 9,226,750
Sterling Commerce, Inc. ......... 125,482 4,423,241
Sterling Software Inc. (a)....... 85,000 2,688,125
------------
33,534,322
------------
TECHNOLOGY (8.4%)
Cisco Systems, Inc. (a).......... 142,000 9,034,750
Electronic Data Systems Corp. ... 100,400 4,342,300
Intel Corp. ..................... 74,800 9,794,125
Lam Research Corp. (a)........... 69,000 1,940,625
Linear Technology Corp. ......... 81,000 3,553,875
3Com Corp. (a)................... 188,400 13,823,850
------------
42,489,525
------------
TELECOMMUNICATION (0.9%)
Lucent Technologies Inc. ........ 100,000 4,625,000
------------

<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (1.6%)
WorldCom, Inc. (a)............... 305,388 $ 7,959,175
------------
TEXTILE & APPAREL (3.6%)
Nike, Inc. Class B............... 163,800 9,787,050
Nine West Group Inc. (a)......... 127,100 5,894,263
Wolverine World Wide, Inc. ...... 85,500 2,479,500
------------
18,160,813
------------
TRANSPORTATION (1.1%)
Tidewater Inc. .................. 121,000 5,475,250
------------
Total Common Stocks
(Cost $362,179,735)............. 480,432,533
------------
<CAPTION>
SHORT-TERM
INVESTMENT (4.5%)
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
COMMERCIAL PAPER (4.5%)
American Express Credit Corp.
6.55%, due 1/2/97............... $22,434,000 22,434,000
------------
Total Short-Term Investment
(Cost $22,434,000).............. 22,434,000
------------
Total Investments
(Cost $384,613,735) (c)......... 99.9% 502,866,533(d)
Cash and Other Assets,
Less Liabilities................ 0.1 755,379
------------
Net Assets....................... 100.0% $503,621,912
============
</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, 1996 net unrealized appreciation was $118,252,798, 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 $128,366,734 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $10,113,936.

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

F-2
<PAGE> 84

MAINSTAY VP SERIES FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $384,613,735)....... $502,866,533
Cash................................... 908
Receivables:
Investment securities sold........... 1,268,344
Fund shares sold..................... 918,634
Dividends and interest............... 119,802
Other assets........................... 888
------------
Total assets..................... 505,175,109
------------
LIABILITIES:
Payables:
Investment securities purchased...... 1,176,174
Adviser.............................. 152,375
Administrator........................ 42,326
NYLIAC............................... 41,060
Custodian............................ 5,493
Directors............................ 194
Accrued expenses....................... 135,575
------------
Total liabilities................ 1,553,197
------------
Net assets applicable to
outstanding shares................... $503,621,912
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share)
50 million shares authorized......... $ 273,931
Additional paid-in capital............. 392,246,305
Accumulated undistributed net
investment income.................... 679
Accumulated net realized loss
on investments....................... (7,151,801)
Net unrealized appreciation
on investments....................... 118,252,798
------------
Net assets applicable to
outstanding shares................... $503,621,912
============
Shares of capital stock outstanding.... 27,393,060
============
Net asset value per share
outstanding.......................... $ 18.39
============
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 1,770,842
Interest............................. 1,273,302
------------
Total income..................... 3,044,144
------------
Expenses:
Advisory............................. 1,341,804
Administration....................... 745,446
Shareholder communication............ 334,148
Recordkeeping........................ 241,301
Professional......................... 86,923
Custodian............................ 39,195
Directors............................ 17,294
Miscellaneous........................ 6,102
------------
Total expenses
before reimbursement........... 2,812,213
Expense reimbursement from
Administrator........................ (91,333)
------------
Net expenses..................... 2,720,880
------------
Net investment income.................. 323,264
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments....... 184,606
Net change in unrealized appreciation
on investments....................... 61,390,345
------------
Net realized and unrealized gain
on investments....................... 61,574,951
------------
Net increase in net assets resulting
from operations...................... $ 61,898,215
===========
</TABLE>

- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $7,469.

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

F-3
<PAGE> 85
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................. $ 323,264 $ 966,842
Net realized gain (loss) on investments........................................... 184,606 (4,093,457)
Net change in unrealized appreciation on investments.............................. 61,390,345 52,411,784
------------ ------------
Net increase in net assets resulting from operations.............................. 61,898,215 49,285,169
------------ ------------
Dividends to shareholders:
From net investment income........................................................ (322,585) (967,677)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 204,401,461 92,210,559
Net asset value of shares issued to shareholders in reinvestment of dividends..... 322,585 967,677
------------ ------------
204,724,046 93,178,236
Cost of shares redeemed........................................................... (7,213,582) (10,959,038)
------------ ------------
Increase in net assets derived from capital share transactions.................. 197,510,464 82,219,198
------------ ------------
Net increase in net assets...................................................... 259,086,094 130,536,690
NET ASSETS:
Beginning of year................................................................... 244,535,818 113,999,128
------------ ------------
End of year......................................................................... $503,621,912 $244,535,818
=========== ===========
Accumulated undistributed net investment income..................................... $ 679 $ --
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1995 1994 1993
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 15.49 $ 11.45 $ 12.03 $ 10.00
------------ ------------ ------------ ------------
Net investment income.................................. 0.01 0.06 0.05 0.02
Net realized and unrealized gain (loss) on
investments.......................................... 2.90 4.04 (0.58) 2.03
------------ ------------ ------------ ------------
Total from investment operations....................... 2.91 4.10 (0.53) 2.05
------------ ------------ ------------ ------------
Less dividends:
From net investment income........................... (0.01) (0.06) (0.05) (0.02)
------------ ------------ ------------ ------------
Net asset value at end of period....................... $ 18.39 $ 15.49 $ 11.45 $ 12.03
=========== =========== =========== =============
Total investment return (b)............................ 18.75% 35.78% (4.38%) 20.54%
Ratios (to average net assets)/Supplemental Data:
Net investment income................................ 0.09% 0.57% 0.63% 0.46%+
Net expenses......................................... 0.73% 0.73% 0.73% 0.73%+
Expenses (before reimbursement)...................... 0.75% 0.90% 0.91% 1.15%+
Portfolio turnover rate................................ 16% 35% 39% 28%
Average commission rate paid........................... $ 0.0600 (c) (c) (c)
Net assets at end of period (in 000's)................. $ 503,622 $ 244,536 $ 113,999 $ 43,485
</TABLE>
- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE> 86
MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.2%)+
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
BANK NOTES (6.3%)
American Express Centurion Bank
5.57%, due 9/12/97 (b)(c)........ $1,000,000 $ 999,927
Bank of America-Illinois
5.82%, due 3/24/97 (c)........... 1,500,000 1,500,000
Boatmens Credit Card Bank
5.54%, due 8/8/97 (b)(c)......... 3,000,000 2,999,656
First National Bank of Maryland
5.13%, due 2/26/97 (c)........... 1,000,000 1,000,037
PNC Bank N.A.-Pittsburgh,
Pennsylvania
5.25%, due 2/6/97 (b)(c)......... 1,000,000 999,938
------------
7,499,558
------------
CERTIFICATES OF DEPOSIT (10.2%)
Deutsche Bank
5.85%, due 11/19/97
(call date 2/19/97) (c).......... 5,000,000 5,000,000
Industrial Bank of Japan
5.61%, due 1/7/97 (c)............ 2,000,000 2,000,003
Sanwa Bank Ltd.
5.56%, due 2/11/97 (c)........... 1,000,000 1,000,011
5.85%, due 1/17/97 (c)........... 4,000,000 4,000,089
------------
12,000,103
------------
COMMERCIAL PAPER (74.2%)
Alfa Corp.
5.75%, due 1/29/97............... 4,400,000 4,380,322
Astro Capital Corp.
5.48%, due 1/6/97 (a)............ 1,500,000 1,498,858
Banca CRT Financial Corp.
5.35%, due 1/14/97............... 2,000,000 1,996,136
5.35%, due 1/15/97............... 1,500,000 1,496,879
5.35%, due 1/21/97............... 1,000,000 997,028
5.40%, due 2/18/97............... 500,000 496,400
5.50%, due 1/14/97............... 170,000 169,662
Bex America Finance Inc.
5.32%, due 2/3/97................ 1,700,000 1,691,710
Caisse Centrale des Banques
Populaires
5.33%, due 1/10/97 (a)........... 4,100,000 4,094,537
Cariplo Finance Inc.
5.45%, due 1/24/97............... 400,000 398,607
China International Marine
Containers (Group) Ltd.
5.57%, due 1/9/97................ 2,500,000 2,496,906
Compagnie Bancaire USA Finance
Corp.
5.33%, due 1/10/97............... 4,700,000 4,693,737
Credito Italiano (DE) Inc.
5.39%, due 4/15/97............... 2,000,000 1,968,858
Galicia Funding Corp.
5.59%, due 3/5/97 (a)............ 2,500,000 2,475,544
Goldman, Sachs & Co.
5.45%, due 1/8/97................ 1,450,000 1,448,463
6.50%, due 1/2/97................ 3,725,000 3,724,327
- ------------
+ Percentages indicated are based on Fund net assets.

<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Gotham Funding Corp.
5.40%, due 1/9/97 (a)............ $5,500,000 $ 5,493,400
International Securitization Corp.
5.35%, due 1/15/97 (a)........... 3,000,000 2,993,758
Kamehameha Schools-Bishop Estate
5.38%, due 1/15/97 (a)........... 1,000,000 997,908
Kingdom of Sweden
5.65%, due 2/4/97................ 1,105,000 1,099,104
Minmetals Capital & Securities
Inc.
5.39%, due 4/3/97................ 3,000,000 2,958,677
Mitsui & Co. (USA) Inc.
6.00%, due 1/10/97............... 2,500,000 2,496,250
National Fleet Funding Corp.
5.37%, due 1/15/97............... 4,000,000 3,991,647
Nationwide Building Society
5.32%, due 2/24/97............... 2,500,000 2,480,050
5.33%, due 2/24/97............... 1,400,000 1,388,807
Nebraska Higher Education Loan
Program Inc.
5.45%, due 1/13/97............... 1,157,000 1,154,898
Petroleo Brasileiro S.A.-Petrobras
5.42%, due 1/14/97............... 2,000,000 1,996,086
Premium Funding Inc., Series E
5.50%, due 1/13/97 (a)........... 2,150,000 2,146,058
San Paolo U.S. Financial Co.
5.41%, due 2/4/97................ 1,100,000 1,094,380
5.42%, due 3/19/97............... 1,500,000 1,482,611
Sheffield Receivables Corp.
6.50%, due 1/2/97................ 3,000,000 2,999,458
Societe Generale (Canada)
5.40%, due 1/31/97............... 1,800,000 1,791,900
SRD Finance Inc.
5.50%, due 1/23/97............... 3,000,000 2,989,917
Svenska Handelsbanken Inc.
5.45%, due 2/20/97............... 2,000,000 1,984,861
Union Bank of Switzerland
5.90%, due 1/7/97................ 6,000,000 5,994,100
Wood Street Funding Corp.
5.35%, due 1/6/97 (a)............ 2,800,000 2,797,919
Xerox Corp.
6.75%, due 1/2/97................ 3,400,000 3,399,362
------------
87,759,125
------------
FEDERAL AGENCY (2.1%)
Federal Home Loan Bank
5.84%, due 11/24/97 (c).......... 2,500,000 2,500,000
------------
MEDIUM-TERM NOTES (7.4%)
Abbey National Treasury Services
PLC
5.05%, due 3/3/97 (c)............ 3,300,000 3,299,408
Bankers Trust Corp.-New York
5.74%, due 2/14/97 (b)(c)........ 1,500,000 1,500,000
Ford Motor Credit Corp.
5.81%, due 1/5/97 (b)(c)......... 1,000,000 1,000,023
Huntington Bancshares
5.70%, due 3/14/97 (c)........... 1,000,000 1,000,050
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-5
<PAGE> 87

CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996

<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
MEDIUM-TERM NOTES (Continued)
Sony Capital Corp.
5.47%, due 8/29/97 (a)(b)(c)..... $2,000,000 $ 2,000,000
------------
8,799,481
------------
Total Short-Term Investments
(Amortized Cost $118,558,267)
(d).............................. 100.2% 118,558,267
Liabilities in Excess of
Cash and Other Assets............ (0.2) (211,345)
---------- ------------
Net Assets........................ 100.0% $118,346,922
========== ============
</TABLE>

- ------------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1996.
(c) Coupon interest bearing security.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.

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

SHORT-TERM
INVESTMENTS

<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
------------------------
<S> <C> <C>
Banks #..................... $ 80,501,362 68.0%
Brokerage................... 5,172,791 4.4
Computers & Office
Equipment................. 3,399,362 2.9
Conglomerates............... 4,496,250 3.8
Consumer Financial
Services.................. 4,991,670 4.2
Education................... 997,908 0.9
Federal Agency.............. 2,500,000 2.1
Finance..................... 15,399,820 13.0
Foreign Government.......... 1,099,104 0.9
------------ ---------
118,558,267 100.2
Liabilities in Excess of
Cash and Other Assets..... (211,345) (0.2)
------------ ---------
Net Assets.................. $118,346,922 100.0%
=========== =========
</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 certificates of
deposit, bankers' acceptances and securities guaranteed by banks and bank
holding companies.

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

F-6
<PAGE> 88

MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(amortized cost $118,558,267)........ $118,558,267
Cash................................... 21,589
Interest receivable.................... 367,285
Other assets........................... 268
------------
Total assets..................... 118,947,409
------------
LIABILITIES:
Payables:
Adviser.............................. 23,240
NYLIAC............................... 18,338
Administrator........................ 9,296
Custodian............................ 3,029
Directors............................ 45
Accrued expenses....................... 44,793
Dividend payable....................... 501,746
------------
Total liabilities................ 600,487
------------
Net assets applicable to outstanding
shares............................... $118,346,922
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 200 million shares
authorized........................... $ 1,183,498
Additional paid-in capital............. 117,165,490
Accumulated net realized loss on
investments.......................... (2,066)
------------
Net assets applicable to outstanding
shares............................... $118,346,922
============
Shares of capital stock outstanding.... 118,349,803
============
Net asset value per share
outstanding.......................... $ 1.00
============
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 5,319,060
------------
Expenses:
Advisory............................. 240,234
Administration....................... 192,187
Shareholder communication............ 63,697
Recordkeeping........................ 61,266
Professional......................... 31,563
Custodian............................ 20,981
Directors............................ 4,640
Miscellaneous........................ 4,067
------------
Total expenses before
reimbursement.................. 618,635
Expense reimbursement from
Administrator........................ (22,854)
------------
Net expenses..................... 595,781
------------
Net investment income.................. 4,723,279
------------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments....... (733)
------------
Net increase in net assets resulting
from operations...................... $ 4,722,546
===========
</TABLE>

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

F-7
<PAGE> 89

CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................. $ 4,723,279 $ 3,649,839
Net realized loss on investments.................................................. (733) (949)
------------ ------------
Net increase in net assets resulting from operations.............................. 4,722,546 3,648,890
------------ ------------
Dividends to shareholders:
From net investment income........................................................ (4,723,279) (3,649,839)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 237,101,140 128,846,016
Net asset value of shares issued to shareholders in reinvestment of dividends..... 4,585,514 3,587,829
------------ ------------
241,686,654 132,433,845
Cost of shares redeemed........................................................... (211,178,343) (115,709,733)
------------ ------------
Increase in net assets derived from capital share transactions.................. 30,508,311 16,724,112
------------ ------------
Net increase in net assets...................................................... 30,507,578 16,723,163
NET ASSETS:
Beginning of year................................................................... 87,839,344 71,116,181
------------ ------------
End of year......................................................................... $118,346,922 $ 87,839,344
=========== ===========
</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.

F-8
<PAGE> 90
MAINSTAY VP SERIES FUND, INC.

CONVERTIBLE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
CONVERTIBLE SECURITIES (64.3%)+
BONDS (28.7%)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
BANKS (2.3%)
Banco de Galicia y Buenos Aires
S.A.
7.00%, due 8/1/02................ $ 300,000 $ 352,875
-------------
ELECTRICAL EQUIPMENT (2.1%)
Cypress Semiconductor Corp.
3.15%, due 3/15/01 (b)........... 100,000 107,500
S3, Incorporated
5.75%, due 10/1/03 (b)........... 200,000 218,000
-------------
325,500
-------------
FINANCE (4.5%)
Berkshire Hathaway, Inc.
1.00%, due 12/3/01............... 400,000 369,000
UBS Finance Delaware, Inc.
Medium-Term Note
2.00%, due 12/15/00.............. 350,000 325,500
-------------
694,500
-------------
FOOD, BEVERAGES & TOBACCO (1.5%)
Grand Metropolitan, PLC
6.50%, due 1/31/00 (b)........... 200,000 233,250
-------------
HOUSEHOLD PRODUCTS (2.5%)
Whirlpool Corp.
(zero coupon), due 5/14/11....... 1,000,000 393,750
-------------
OIL SERVICES (2.0%)
Nabors Industries, Inc.
5.00%, due 5/15/06............... 250,000 306,563
-------------
POLLUTION & RELATED (1.6%)
U.S. Filter Corp.
4.50%, due 12/15/01.............. 250,000 253,750
-------------
PUBLISHING (3.4%)
Hollinger, Inc., Series US
(zero coupon), due 10/5/13 (g)... 1,500,000 530,625
-------------
REAL ESTATE (2.6%)
New World China Finance Ltd.
4.00%, due 12/31/99 (b).......... 400,000 399,500
-------------
RETAIL (3.1%)
Home Depot, Inc.
3.25%, due 10/1/01............... 500,000 487,500
-------------
STEEL, ALUMINUM & OTHER METALS
(1.6%)
Inco Ltd.
5.75%, due 7/1/04 (g)............ 200,000 244,250
-------------
- ------------
+ Percentages indicated are based on Fund net assets.

<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
TELECOMMUNICATION
SERVICES (1.5%)
Tele-Communications International,
Inc.
4.50%, due 2/15/06............... $ 300,000 $ 224,250
-------------
Total Bonds
(Cost $4,390,700)................ 4,446,313
-------------

PREFERRED STOCKS (35.6%)
<CAPTION>
SHARES
-----------
<S> <C> <C>
CABLE (2.9%)
Merrill Lynch & Co., Inc.
6.00% (d)........................ 20,000 445,000
-------------
COMPUTERS & OFFICE EQUIPMENT
(4.2%)
Microsoft Corp.
$2.196, Series A................. 8,000 641,000
-------------
DOMESTIC OIL & GAS (2.3%)
Enron Corp.
6.25%............................ 15,000 360,000
-------------
DOMESTIC OILS (3.6%)
Atlantic Richfield Co.
9.00%............................ 16,000 344,000
Nuevo Financing I
5.75%, Series A.................. 4,000 214,500
-------------
558,500
-------------
ELECTRICAL EQUIPMENT (0.6%)
Elsag Bailey Process Automation
N.V.
5.50% (b)........................ 2,500 96,250
-------------
ENERGY (1.5%)
Unocal Corp.
6.25%............................ 4,000 229,000
-------------
FINANCE (4.2%)
Fuji International Finance Trust
0.25% (b)(f)..................... 25 655,447
-------------
FINANCIAL SERVICES (1.7%)
Finova Finance Trust
5.50%............................ 5,000 262,500
-------------
PAPER & FOREST PRODUCTS (3.1%)
James River Corp. of Virginia
9.00%, Series P (c1)............. 15,000 472,500
-------------
</TABLE>

The notes to the financial statements are an integral part of, and should be
read in conjunction with the financial statements.
F-9
<PAGE> 91

CONVERTIBLE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
PREFERRED STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
RESTAURANTS &
LODGING (2.4%)
Host Marriott Financial Trust
6.75% (b)........................ 7,000 $ 371,875
-----------
STEEL, ALUMINUM & OTHER METALS
(1.7%)
Bethlehem Steel Corp.
$3.50 (b)........................ 7,000 264,250
-----------
TELECOMMUNICATION EQUIPMENT (3.6%)
Loral Space & Communications Ltd.
6.00% (b)........................ 10,000 562,500
-----------
TEXTILE & APPAREL (3.8%)
Fieldcrest Cannon, Inc.
$3.00, Series A.................. 15,000 588,750
-----------
Total Preferred Stocks
(Cost $5,312,216)................ 5,507,572
-----------
Total Convertible Securities
(Cost $9,702,916)................ 9,953,885
-----------
U.S. GOVERNMENT (26.6%)
PRINCIPAL
AMOUNT
-----------
UNITED STATES TREASURY NOTE
(26.6%)
8.875%, due 11/15/97............. $ 4,000,000 4,107,480
-----------
Total U.S. Government
(Cost $4,132,188)................ 4,107,480
-----------
COMMON STOCKS (3.7%)
SHARES
-----------
CHEMICALS (2.3%)
IMC Global, Inc. ................. 9,000 352,125
-----------
ELECTRIC UTILITIES (0.3%)
Potomac Electric Power Co. ....... 2,000 51,500
-----------
HEALTH CARE (1.1%)
Regency Health Services, Inc.
(a).............................. 17,200 165,550
-----------
Total Common Stocks
(Cost $542,468).................. 569,175
-----------
PREFERRED STOCK (1.7%)

<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
MINING (1.7%)
Freeport-McMoRan Copper & Gold,
Inc.
Series Silver (c2)(e)............ 15,000 $ 255,000
-----------
Total Preferred Stock
(Cost $255,750).................. 255,000
-----------
<CAPTION>
SHORT-TERM
INVESTMENT (2.9%)
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
COMMERCIAL PAPER (2.9%)
American Express Credit Corp.
6.55%, due 1/2/97................ $ 448,000 448,000
-----------
Total Short-Term Investment
(Cost $448,000).................. 448,000
-----------
Total Investments
(Cost $15,081,322) (h)........... 99.2% 15,333,540(i)
Cash and Other Assets, Less
Liabilities...................... 0.8 130,820
----------- -----------
Net Assets........................ 100.0% $15,464,360
============ ===========
</TABLE>

- ------------
(a) Non-income producing security.
(b) May be sold to institutional investors only.
(c1) Depository Shares--each share represents one-hundredth of a share of Series
P preferred stock.
(c2) Depository Shares--each share represents 0.025 shares of silver denominated
preferred stock.
(d) STRYPES--Structured Yield Product Exchangeable for Cox Communications, Inc.
common stock.
(e) Dividend equals U.S. dollar equivalent of 0.04125 oz. of silver per share.
(f) 25 Units--each unit reflects an interest in 1,000 Noncumulative Mandatory
Convertible preference shares of the Fuji Bank, Limited. The preference
shares are convertible into ordinary shares at an initial conversion price
of Y(Japanese Yen) 2,002 per ordinary share at a future date.
(g) Yankee bond.
(h) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(i) At December 31, 1996 net unrealized appreciation was $252,218, 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 $381,920 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $129,702.

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

F-10
<PAGE> 92

MAINSTAY VP SERIES FUND, INC.
CONVERTIBLE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $15,081,322)........ $ 15,333,540
Cash................................... 2,177
Receivables:
Dividends and interest............... 90,394
Fund shares sold..................... 55,640
NYLIAC............................... 8,768
Unamortized organization expense....... 43,683
-----------
Total assets..................... 15,534,202
-----------
LIABILITIES:
Payables:
Organization......................... 41,000
Adviser.............................. 4,272
Administrator........................ 1,187
Custodian............................ 218
Directors............................ 150
Accrued expenses....................... 23,015
-----------
Total liabilities................ 69,842
-----------
Net assets applicable to outstanding
shares............................... $15,464,360
COMPOSITION OF NET ASSETS: ===========
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 15,064
Additional paid-in capital............. 15,189,934
Accumulated undistributed net
investment income.................... 2,378
Accumulated undistributed net realized
gain on investments.................. 4,766
Net unrealized appreciation on
investments.......................... 252,218
------------
Net assets applicable to outstanding
shares............................... $ 15,464,360
============
Shares of capital stock outstanding.... 1,506,367
============
Net asset value per share
outstanding.......................... $ 10.27
============
</TABLE>

STATEMENT OF OPERATIONS
For the period October 1, 1996 (Commencement of
Operations) through December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends............................ $ 33,132
Interest............................. 142,602
------------
Total income..................... 175,734
------------
Expenses:
Professional......................... 20,961
Advisory............................. 10,776
Administration....................... 5,986
Amortization of organization
expense............................ 2,317
Shareholder communication............ 1,804
Custodian............................ 1,050
Directors............................ 150
Miscellaneous........................ 547
------------
Total expenses before
reimbursement.................. 43,591
Expense reimbursement from
Administrator........................ (21,740)
------------
Net expenses..................... 21,851
------------
Net investment income.................. 153,883
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments....... 31,320
Net unrealized appreciation on
investments.......................... 252,218
------------
Net realized and unrealized gain on
investments.......................... 283,538
------------
Net increase in net assets resulting
from operations...................... $ 437,421
===========
</TABLE>

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

F-11
<PAGE> 93

CONVERTIBLE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the period October 1, 1996 (Commencement of Operations)
through December 31, 1996

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

Operations:
Net investment income......................................................................... $ 153,883
Net realized gain on investments.............................................................. 31,320
Net unrealized appreciation on investments.................................................... 252,218
------------
Net increase in net assets resulting from operations.......................................... 437,421
------------
Dividends and distributions to shareholders:
From net investment income.................................................................... (153,822)
From net realized gain on investments......................................................... (26,554)
------------
Total dividends and distributions to shareholders........................................... (180,376)
------------
Capital share transactions:
Net proceeds from sale of shares.............................................................. 5,079,116
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions................................................................................ 180,376
------------
5,259,492
Cost of shares redeemed....................................................................... (52,177)
------------
Increase in net assets derived from capital share transactions.............................. 5,207,315
------------
Net increase in net assets.................................................................. 5,464,360
NET ASSETS:
Beginning of period............................................................................. 10,000,000
------------
End of period................................................................................... $15,464,360
=============
Accumulated undistributed net investment income................................................. $ 2,378
=============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
OCTOBER 1,
1996 (a)
THROUGH
DECEMBER 31,
1996
------------
<S> <C>
Net asset value at beginning of period............................................................ $ 10.00
------------
Net investment income............................................................................. 0.10
Net realized and unrealized gain on investments................................................... 0.29
------------
Total from investment operations.................................................................. 0.39
------------
Less dividends and distributions:
From net investment income...................................................................... (0.10)
From net realized gain on investments........................................................... (0.02)
------------
Total dividends and distributions................................................................. (0.12)
------------
Net asset value at end of period.................................................................. $ 10.27
=============
Total investment return (b)....................................................................... 3.89%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................................................................... 5.14%+
Net expenses.................................................................................... 0.73%+
Expenses (before reimbursement)................................................................. 1.46%+
Portfolio turnover rate........................................................................... 15%
Average commission rate paid...................................................................... $ 0.0537
Net assets at end of period (in 000's)............................................................ $ 15,464
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.

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

F-12
<PAGE> 94
MAINSTAY VP SERIES FUND, INC.

GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996

<TABLE>
<CAPTION>
LONG-TERM U.S. GOVERNMENT
& FEDERAL AGENCIES (98.2%)+
PRINCIPAL
AMOUNT VALUE
---------------------
<S> <C> <C>
FEDERAL HOME LOAN
MORTGAGE CORPORATION
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (2.2%)
Series 1858 Class B
6.00%, due 12/15/05............... $ 925,000 $ 914,881
Series 1783-A Class A
8.00%, due 2/15/00................ 685,108 700,311
------------
1,615,192
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION
GOLD (MORTGAGE PASS-
THROUGH SECURITY) (0.7%)
7.00%, due 12/1/01................ 500,000 505,155
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (COLLATERALIZED
MORTGAGE OBLIGATIONS) (3.2%)
Series 1993-224 Class PD
5.25%, due 8/25/15................ 1,000,000 991,560
Series 1993-93 Class C
5.50%, due 2/25/06................ 1,343,482 1,327,104
------------
2,318,664
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-THROUGH
SECURITIES) (19.1%)
6.00%, due 11/1/23................ 1,182,077 1,103,765
6.00%, due 1/23/27
ARM COFI TBA (b)(c)(d)............ 1,500,000 1,492,500
6.52%, due 12/1/03................ 525,000 519,298
6.595%, due 1/31/03
TBA (b)........................... 525,000 521,414
6.605%, due 2/25/07
TBA (b)........................... 825,000 809,177
6.765%, due 1/1/07................ 1,100,000 1,090,870
6.80%, due 1/31/04
TBA (b)........................... 775,000 778,139
6.83%, due 12/1/02
TBA (b)........................... 1,015,000 1,011,062
6.835%, due 1/22/07
TBA (b)........................... 1,100,000 1,096,106
7.00%, due 8/1/11-1/1/24.......... 3,350,068 3,339,135
9.00%, due 1/1/05-6/1/25.......... 2,105,504 2,221,162
------------
13,982,628
------------

- ------------
+ Percentages indicated are based on Fund net assets.
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH
SECURITIES) (12.6%)
6.50%, due 7/15/23................ $ 494,663 $ 474,258
8.00%, due 12/15/23............... 4,439,191 4,555,009
9.50%, due 12/15/17-5/15/22....... 3,857,628 4,196,075
------------
9,225,342
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II
(MORTGAGE PASS-THROUGH
SECURITIES) (2.4%)
6.50%, due 1/20/23-2/20/23
ARM (c)........................... 1,106,412 1,128,243
7.00%, due 11/20/21-11/20/22 ARM
(c)............................... 625,757 638,868
------------
1,767,111
------------
UNITED STATES TREASURY BONDS
(22.2%)
6.25%, due 8/15/23................ 3,545,000 3,323,437
6.50%, due 11/15/26............... 5,125,000 5,029,726
8.875%, due 8/15/17............... 3,425,000 4,230,423
11.25%, due 2/15/15............... 2,450,000 3,617,964
------------
16,201,550
------------
UNITED STATES TREASURY NOTES
(35.8%)
5.50%, due 11/15/98............... 3,565,000 3,541,043
5.625%, due 11/30/00.............. 1,275,000 1,251,884
6.375%, due 3/31/01............... 5,850,000 5,889,312
6.375%, due 8/15/02............... 4,425,000 4,454,028
6.50%, due 5/15/05................ 4,875,000 4,907,760
7.875%, due 11/15/99.............. 650,000 680,979
7.875%, due 11/15/04 (a).......... 1,150,000 1,254,938
9.00%, due 5/15/98................ 4,025,000 4,194,815
------------
26,174,759
------------
Total Long-Term U.S. Government
& Federal Agencies
(Cost $71,512,688)................ 71,790,401
------------
</TABLE>

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

F-13
<PAGE> 95

GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996

<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (7.9%)
PRINCIPAL
AMOUNT VALUE
---------------------
<S> <C> <C>
COMMERCIAL PAPER (1.3%)
American Express Credit Corp.
6.55%, due 1/2/97................. $ 945,000 $ 945,000
------------
FEDERAL AGENCY (6.6%)
Federal Home Loan Bank
6.82%, due 1/14/97 (a)............ 4,850,000 4,838,312
------------
Total Short-Term Investments
(Cost $5,787,866)................. 5,783,312
------------
Total Investments
(Cost $77,300,554) (e)............ 106.1% 77,573,713(f)
Liabilities in Excess of
Cash and Other Assets............. (6.1) (4,451,173)
---------- ------------
Net Assets......................... 100.0% $73,122,540
========== ============
</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 monthly.
(d) COFI--Cost of Funds Indexed.
(e) The cost for Federal income tax purposes is $77,572,943.
(f) At December 31, 1996 net unrealized appreciation was $770, 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 $360,025 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $359,255.

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

F-14
<PAGE> 96

MAINSTAY VP SERIES FUND, INC.
GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $77,300,554)........ $ 77,573,713
Cash................................... 2,128
Receivables:
Interest............................. 834,086
Investment securities sold........... 445,628
Fund shares sold..................... 89,523
Other assets........................... 199
------------
Total assets..................... 78,945,277
------------
LIABILITIES:
Payables:
Investment securities purchased...... 5,753,923
Adviser.............................. 18,494
Administrator........................ 6,165
Custodian............................ 3,728
NYLIAC............................... 1,948
Directors............................ 31
Accrued expenses....................... 38,448
------------
Total liabilities................ 5,822,737
------------
Net assets applicable to outstanding
shares............................... $ 73,122,540
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares
authorized........................... $ 76,234
Additional paid-in capital............. 77,882,555
Accumulated net realized loss on
investments.......................... (5,109,408)
Net unrealized appreciation on
investments.......................... 273,159
------------
Net assets applicable to outstanding
shares............................... $ 73,122,540
============
Shares of capital stock outstanding.... 7,623,425
============
Net asset value per share
outstanding.......................... $ 9.59
============
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 5,111,317
------------
Expenses:
Advisory............................. 209,179
Administration....................... 139,453
Shareholder communication............ 47,140
Recordkeeping........................ 45,657
Professional......................... 28,059
Custodian............................ 18,166
Portfolio pricing.................... 3,417
Directors............................ 3,200
Miscellaneous........................ 2,492
------------
Total expenses before
reimbursement.................. 496,763
Expense reimbursement from
Administrator........................ (29,596)
------------
Net expenses..................... 467,167
------------
Net investment income.................. 4,644,150
------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investments....... (1,685,892)
Net change in unrealized appreciation
on investments....................... (1,228,232)
------------
Net realized and unrealized loss on
investments.......................... (2,914,124)
------------
Net increase in net assets resulting
from operations...................... $ 1,730,026
===========
</TABLE>

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

F-15
<PAGE> 97

GOVERNMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

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

Operations:
Net investment income............................................................. $ 4,644,150 $ 4,519,231
Net realized gain (loss) on investments........................................... (1,685,892) 1,575,754
Net change in unrealized appreciation (depreciation) on investments............... (1,228,232) 2,860,304
------------ ------------
Net increase in net assets resulting from operations.............................. 1,730,026 8,955,289
------------ ------------
Dividends to shareholders:
From net investment income........................................................ (4,616,401) (4,482,125)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 18,643,180 12,152,261
Net asset value of shares issued to shareholders in reinvestment of dividends..... 4,616,401 4,482,125
------------ ------------
23,259,581 16,634,386
Cost of shares redeemed........................................................... (12,063,044) (17,936,046)
------------ ------------
Increase (decrease) in net assets derived from capital share transactions....... 11,196,537 (1,301,660)
------------ ------------
Net increase in net assets...................................................... 8,310,162 3,171,504
NET ASSETS:
Beginning of year................................................................... 64,812,378 61,640,874
------------ ------------
End of year......................................................................... $ 73,122,540 $ 64,812,378
=========== ===========
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 10.01 $ 9.21 $ 10.15 $ 10.00
------------ ------------ ------------ ------------
Net investment income................................... 0.65 0.75 0.75 0.82
Net realized and unrealized gain (loss) on
investments........................................... (0.42) 0.80 (0.94) (0.25)
------------ ------------ ------------ ------------
Total from investment operations........................ 0.23 1.55 (0.19) 0.57
------------ ------------ ------------ ------------
Less dividends:
From net investment income............................ (0.65) (0.75) (0.75) (0.42)
------------ ------------ ------------ ------------
Net asset value at end of period........................ $ 9.59 $ 10.01 $ 9.21 $ 10.15
=========== =========== =========== =============
Total investment return (b)............................. 2.28% 16.72% (1.84%) 5.63%
Ratios (to average net assets)/Supplemental Data:
Net investment income................................. 6.66% 7.80% 8.16% 8.46% +
Net expenses.......................................... 0.67% 0.67% 0.67% 0.67% +
Expenses (before reimbursement)....................... 0.71% 0.82% 0.87% 1.02% +
Portfolio turnover rate................................. 304% 592% 483% 501%
Net assets at end of period (in 000's).................. $ 73,123 $ 64,812 $ 61,641 $ 46,766
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.

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

F-16
<PAGE> 98
MAINSTAY VP SERIES FUND, INC.

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996

<TABLE>
<CAPTION>
LONG-TERM BONDS (60.5%)+
CONVERTIBLE BONDS (4.8%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CELLULAR TELEPHONE (1.3%)
United States Cellular Corp.
(zero coupon), due 6/15/15...... $ 7,960,000 $ 2,661,665
------------
PUBLISHING (1.2%)
Hollinger, Inc., Series US
(zero coupon), due 10/5/13
(o)............................. 7,030,000 2,486,862
------------
TELECOMMUNICATION
SERVICES (2.3%)
PLD Telekom, Inc.
9.00%, due 6/1/06 (c)........... 500,000 500,000
Rogers Communications, Inc.
(zero coupon), due 5/20/13
(o)............................. 6,100,000 2,379,000
Tele-Communications
International, Inc.
4.50%, due 2/15/06.............. 2,500,000 1,868,750
------------
4,747,750
------------
Total Convertible Bonds
(Cost $9,810,873)............... 9,896,277
------------
CORPORATE BONDS (44.2%)
AEROSPACE (1.2%)
K&F Industries, Inc.
11.875%, due 12/1/03............ 75,000 80,813
Sequa Corp.
9.375%, due 12/15/03............ 2,000,000 2,040,000
9.625%, due 10/15/99............ 400,000 412,000
------------
2,532,813
------------
AUTO PARTS (1.1%)
CSK Auto, Inc.
11.00%, due 11/1/06 (c)......... 1,600,000 1,680,000
Great Dane Holdings, Inc.
12.75%, due 8/1/01.............. 620,000 615,350
------------
2,295,350
------------
BUILDING MATERIALS (1.7%)
American Standard, Inc.
(zero coupon), due 6/1/05
10.50%, beginning 6/1/98........ 3,000,000 2,790,000
Associated Materials, Inc.
11.50%, due 8/15/03............. 650,000 666,250
------------
3,456,250
------------
BUILDINGS (1.9%)
Greystone Homes, Inc.
10.75%, due 3/1/04.............. 1,600,000 1,636,000
NVR, Inc.
11.00%, due 4/15/03............. 2,200,000 2,310,000
------------
3,946,000
------------
- ------------
+ Percentages indicated are based on Fund net assets.
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CABLE (2.6%)
American Telecasting, Inc.
Series B
(zero coupon), due 8/15/05
14.50%, beginning 8/15/00....... $ 2,142,000 $ 771,120
Heartland Wireless
Communications, Inc.
14.00%, due 10/15/04 (c)........ 1,670,000 1,732,625
United International Holdings,
Inc.
(zero coupon), due 11/15/99..... 2,400,000 1,728,000
Series B
(zero coupon), due 11/15/99..... 1,600,000 1,152,000
------------
5,383,745
------------
CASINOS (5.5%)
Argosy Gaming Co.
13.25%, due 6/1/04.............. 2,000,000 1,865,000
Casino America, Inc.
12.50%, due 8/1/03.............. 2,650,000 2,510,875
Casino Magic Finance Corp.
11.50%, due 10/15/01............ 2,000,000 1,810,000
El Comandante Capital Corp.
11.75%, due 12/15/03............ 2,900,000 2,813,000
Horseshoe Gaming LLC, Series B
12.75%, due 9/30/00............. 500,000 542,500
President Riverboat Casinos, Inc.
13.00%, due 9/15/01............. 2,000,000 1,670,000
------------
11,211,375
------------
CELLULAR TELEPHONE (1.0%)
Centennial Cellular Corp.
8.875%, due 11/1/01............. 1,500,000 1,447,500
10.125%, due 5/15/05............ 500,000 503,750
PriCellular Wireless Corp.,
Series B
(zero coupon), due 11/15/01
14.00%, beginning 11/15/97...... 50,000 49,000
------------
2,000,250
------------
CHEMICALS (0.4%)
Uniroyal Chemical Co., Inc.
9.00%, due 9/1/00............... 800,000 818,000
------------
CHILD CARE SERVICES (0.5%)
La Petite Holdings Corp.
9.625%, due 8/1/01.............. 1,100,000 1,111,000
------------
COMPUTERS & OFFICE EQUIPMENT
(1.2%)
Unisys Corp.
10.625%, due 10/1/99............ 1,500,000 1,554,375
11.75%, due 10/15/04............ 750,000 800,625
------------
2,355,000
------------
CONSUMER DURABLES (0.4%)
Selmer Co., Inc.
11.00%, due 5/15/05............. 650,000 706,875
------------
</TABLE>

F-17
<PAGE> 99

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
ELECTRIC UTILITIES (1.2%)
Midland Funding Corp. I
Series C-94
10.33%, due 7/23/02............. $ 1,784,382 $ 1,900,367
Panda Funding Corp.
11.625%, due 8/20/12 (c)........ 600,000 621,000
------------
2,521,367
------------
EQUIPMENT FINANCING (1.2%)
Atlas Air, Inc.
12.25%, due 12/1/02............. 650,000 724,750
GPA Delaware, Inc.
8.75%, due 12/15/98............. 1,600,000 1,632,000
------------
2,356,750
------------
FOOD, BEVERAGES & TOBACCO (1.5%)
Great American Cookie Co.
Series B
10.875%, due 1/15/01............ 450,000 411,750
National Tobacco Holding, LLC
13.50%, due 5/17/03
16.50%, beginning 6/1/01
(e)(g)(q)....................... 1,821,748 1,514,784
Penn Traffic Co.
8.625%, due 12/15/03............ 950,000 781,375
11.50%, due 4/15/06............. 450,000 396,000
------------
3,103,909
------------
INDUSTRIAL (1.9%)
Monarch Marking Systems, Inc.
12.50%, due 7/1/03.............. 1,400,000 1,638,000
Newflo Corp., Series B
13.25%, due 11/15/02............ 350,000 387,187
Thermadyne Holdings Corp.
10.75%, due 11/1/03............. 1,900,000 1,957,000
------------
3,982,187
------------
LEISURE (1.5%)
Bally's Health & Tennis Corp.
13.00%, due 1/15/03............. 3,174,000 3,047,040
------------
MACHINERY (1.1%)
Specialty Equipment Cos., Inc.
11.375%, due 12/1/03............ 2,000,000 2,185,000
------------
MEDIA (4.6%)
Affiliated Newspaper Investments,
Inc.
(zero coupon), due 7/1/06
13.25%, beginning 7/1/99........ 1,000,000 820,000
Allbritton Communications Co.
Series B
9.75%, due 11/30/07............. 1,400,000 1,358,000
American Media, Inc.
Series XW
(zero coupon), due 5/15/97...... 750,000 727,500
Comcast Cellular Corp.
Series A
(zero coupon), due 3/5/00....... 1,700,000 1,224,000

<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
MEDIA (Continued)
Garden State Newspapers, Inc.
12.00%, due 7/1/04.............. $ 300,000 $ 327,000
General Media, Inc.
10.625%, due 12/31/00........... 1,600,000 1,368,000
Park Communications, Inc.
Series B
13.75%, due 5/15/04 (g)......... 1,000,000 1,125,000
Park Newspapers, Inc.
Series B
11.875%, due 5/15/04............ 1,000,000 1,175,000
Spanish Broadcasting System, Inc.
7.50%, due 6/15/02
12.50%, beginning 6/15/97....... 250,000 263,750
12.75%, due 6/1/01 (c)(h)(m).... 926,718 926,718
------------
9,314,968
------------
PAPER & FOREST PRODUCTS (0.5%)
Gaylord Container Corp.
11.50%, due 5/15/01............. 900,000 972,000
------------
POLLUTION & RELATED (0.3%)
ICF Kaiser International, Inc.
13.00%, due 12/31/03............ 200,000 190,500
13.00%, due 12/31/03 (t1)....... 450 429,750
------------
620,250
------------
RECREATION & ENTERTAINMENT (1.9%)
Affinity Group, Inc.
11.50%, due 10/15/03............ 2,000,000 2,080,000
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05............. 2,100,000 1,540,875
Marvel Holdings, Inc.
Series B
(zero coupon), due 4/15/98
(a)(l)(w)....................... 2,055,000 308,250
------------
3,929,125
------------
RESTAURANTS & LODGING (1.7%)
American Restaurant Group, Inc.
Series 93
13.00%, due 9/15/98............. 167,252 153,872
AmeriKing, Inc.
10.75%, due 12/1/06............. 650,000 672,750
Family Restaurant, Inc.
9.75%, due 2/1/02............... 2,700,000 1,957,500
Flagstar Corp.
10.875%, due 12/1/02............ 800,000 730,000
------------
3,514,122
------------
</TABLE>

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

F-18
<PAGE> 100

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
RETAIL (1.4%)
Brylane L.P., Series B
10.00%, due 9/1/03.............. $ 200,000 $ 206,000
Guitar Center Management Co.
11.00%, due 7/1/06 (c).......... 250,000 265,000
IHF Holdings, Inc.
Series B
(zero coupon), due 11/15/04
15.00%, beginning 11/15/99...... 2,200,000 1,738,000
Petro PSC Properties L.P.
12.50%, due 6/1/02.............. 400,000 406,000
Waban, Inc.
11.00%, due 5/15/04............. 250,000 277,500
------------
2,892,500
------------
STEEL, ALUMINUM & OTHER METALS
(1.5%)
Easco Corp.
Series B
10.00%, due 3/15/01............. 800,000 814,000
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05............. 2,000,000 2,305,000
------------
3,119,000
------------
TELECOMMUNICATION EQUIPMENT
(2.5%)
Telex Communications, Inc.
12.00%, due 7/15/04............. 4,680,000 5,171,400
------------
TELECOMMUNICATION SERVICES (2.0%)
Microcell Telecommunications,
Inc.
Series B
(zero coupon), due 6/1/06
14.00%, beginning 12/1/01....... 1,700,000 947,750
Paging Network, Inc.
11.75%, due 5/15/02............. 2,000,000 2,155,000
ProNet, Inc.
11.875%, due 6/15/05............ 1,050,000 989,625
------------
4,092,375
------------
TEXTILE & APPAREL (1.6%)
Hosiery Corp. of America, Inc.
13.75%, due 8/1/02.............. 3,029,000 3,347,045
------------
UTILITIES (0.3%)
Consolidated Hydro, Inc.
Series B
(zero coupon), due 7/15/03
12.00%, beginning 7/15/98....... 1,575,000 551,250
------------
Total Corporate Bonds
(Cost $87,085,618).............. 90,536,946
------------

<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCY (2.7%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (2.6%)
Series B
12.00%, due 6/26/98............. $ 5,000,000 $ 5,422,650
------------
UNITED STATES TREASURY NOTE
(0.1%)
9.125%, due 5/15/99............. 100,000 106,859
------------
Total U.S. Government &
Federal Agency
(Cost $5,628,661)............... 5,529,509
------------
YANKEE BONDS (8.8%)
CABLE (1.5%)
Australis Holdings Property Ltd.
(zero coupon), due 11/1/02
15.00%, beginning 11/1/00
(c)(t2)......................... 2,000 1,150,000
TeleWest, PLC
(zero coupon), due 10/1/07
11.00%, beginning 10/1/00....... 2,600,000 1,813,500
------------
2,963,500
------------
CELLULAR TELEPHONE (1.2%)
Millicom International Cellular,
S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01........ 1,200,000 744,000
Occidente y Caribe Celular, S.A.
(zero coupon), due 3/15/04
14.00%, beginning 3/15/01 (c)... 3,000,000 1,785,000
------------
2,529,000
------------
COMPUTERS & OFFICE EQUIPMENT
(0.6%)
International Semi-Technology
Microelectronics, Inc.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00....... 2,000,000 1,310,000
------------
MEDIA (3.5%)
Grupo Televisa, S.A.
(zero coupon), due 5/15/08
13.25%, beginning 5/15/01....... 600,000 396,000
Kabelmedia Holding GmbH
(zero coupon), due 8/1/06
13.625%, beginning 8/1/01....... 3,300,000 1,856,250
Le Groupe Videotron Ltee
10.625%, due 2/15/05............ 3,900,000 4,290,000
Videotron Ltee
10.25%, due 10/15/02............ 500,000 531,250
------------
7,073,500
------------
</TABLE>

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

F-19
<PAGE> 101

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
YANKEE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS (0.8%)
FSW International Finance Co.
12.50%, due 11/1/06 (c)......... $ 1,500,000 $ 1,590,000
------------
REAL ESTATE (0.4%)
Trizec Finance Ltd.
10.875%, due 10/15/05........... 800,000 888,000
------------
TELECOMMUNICATION SERVICES (0.8%)
Clearnet Communications, Inc.
(zero coupon), due 12/15/05
14.75%, beginning 12/15/00...... 2,650,000 1,656,250
------------
Total Yankee Bonds
(Cost $17,146,443).............. 18,010,250
------------
Total Long-Term Bonds
(Cost $119,671,595)............. 123,972,982
------------

<CAPTION>
COMMON STOCKS (6.2%)
SHARES
<S> <C> <C>
-----------
BUILDINGS (0.3%)
NVR, Inc. (a).................... 40,000 520,000
------------
CABLE (0.7%)
United International Holdings,
Inc.
Class A (a)..................... 122,000 1,494,500
------------
CASINOS (0.9%)
Casino America, Inc. (a)......... 7,053 22,481
Colorado Gaming & Entertainment
Co. (a)......................... 12,488 62,440
Grand Casinos, Inc. (a).......... 59,200 799,200
Station Casinos, Inc. (a)........ 92,000 931,500
------------
1,815,621
------------
CHEMICALS (0.0%) (b)
Millennium Chemicals, Inc. (a)... 2,464 43,736
------------
CONGLOMERATES (0.1%)
Hanson, PLC ADR (d).............. 34,500 232,875
------------
FOOD, BEVERAGES & TOBACCO (0.4%)
Imperial Tobacco Group, PLC ADR
(a)(d).......................... 8,625 111,290
RJR Nabisco Holdings Corp. ...... 22,300 758,200
------------
869,490
------------
GAS UTILITIES (0.5%)
UGI Corp. ....................... 46,200 1,033,725
------------
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
MEDIA (1.2%)
Comcast Corp., Class A........... 69,500 $ 1,224,938
Le Groupe Videotron Ltee (v)..... 69,000 578,901
Matav-Cable Systems Media Ltd.
ADR (a)(d)...................... 24,500 382,813
Metromedia International Group
Inc. (a)........................ 32,400 319,950
------------
2,506,602
------------
RECREATION & ENTERTAINMENT (0.1%)
Steinway Musical Instruments,
Inc. (a)........................ 4,100 71,238
------------
RESTAURANTS & LODGING (0.4%)
Bob Evans Farms, Inc. ........... 10,000 135,000
Lone Star Steakhouse &
Saloon, Inc. (a)................ 22,000 588,500
------------
723,500
------------
RETAIL (0.1%)
Claire's Stores, Inc. ........... 20,000 262,500
------------
STEEL, ALUMINUM & OTHER METALS
(0.1%)
Ryerson Tull, Inc., Class A
(a)............................. 19,500 263,250
------------
TELECOMMUNICATION SERVICES (1.4%)
AirTouch Communications, Inc.
(a)............................. 83,000 2,095,750
Clearnet Communications, Inc.
Class A (a)..................... 20,000 220,000
Paging Network, Inc. (a)......... 23,100 352,275
Rogers Communications, Inc. Class
B (a)(v)........................ 30,000 218,866
------------
2,886,891
------------
TEXTILE & APPAREL (0.0%) (b)
Hosiery Corp. of America, Inc.
(a)............................. 500 3,000
------------
Total Common Stocks
(Cost $12,756,816).............. 12,726,928
------------
PREFERRED STOCKS (3.0%)
CABLE (0.3%)
TCI Pacific Communications, Inc.
5.00% (p)....................... 7,500 685,312
------------
CASINOS (0.2%)
Station Casinos, Inc.
7.00% (p)....................... 9,500 454,813
------------
</TABLE>

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

F-20
<PAGE> 102

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
PREFERRED STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
DRUGS (0.7%)
ICN Pharmaceuticals, Inc. Series
B (c)(g)(p)..................... 1,500 $ 1,500,000
------------
EQUIPMENT FINANCING (0.2%)
GPA Group, PLC (a)(q)............ 1,000,000 440,000
------------
FOOD, BEVERAGES & TOBACCO (0.1%)
National Tobacco Holding, LLC
14.50% (e)(h)(i)(q)............. 242,903 138,236
------------
MEDIA (1.0%)
Paxson Communications Corp.
12.50% (h)...................... 1,000 945,000
Spanish Broadcasting System, Inc.
Series A (c)(h)................. 994 984,060
------------
1,929,060
------------
TELECOMMUNICATION SERVICES (0.5%)
K-III Communications Corp.
10.00%, Series D................ 10,000 980,000
------------
Total Preferred Stocks
(Cost $5,944,126)............... 6,127,421
------------
WARRANTS (0.6%)
CELLULAR TELEPHONE (0.0%) (b)
Occidente y Caribe Celular, S.A.
expire 3/15/04 (a)(c)........... 12,000 120
------------
DOMESTIC OIL & GAS (0.1%)
TransAmerican Refining Corp.
expire 2/15/02 (a).............. 30,000 75,000
------------
FOOD, BEVERAGES & TOBACCO (0.3%)
Cookies USA, Inc.
expire 1/15/01 (a)(c)........... 81 810
National Tobacco Holding, LLC
Class A
expire 5/17/06 (a)(e)(j)(q)..... 617,283 617,283
expire 5/17/06 (a)(e)(k)(q)..... 79,410 0(u)
------------
618,093
------------

<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
MEDIA (0.2%)
General Media, Inc.
expire 12/21/00 (a)............. 900 $ 4,500
Park Communications, Inc. (a).... 10,000 205,000
Spanish Broadcasting System, Inc.
expire 6/29/99 (a)(c)........... 1,100 198,000
------------
407,500
------------
POLLUTION & RELATED (0.0%) (b)
ICF Kaiser International, Inc.
expire 12/31/98 (a)............. 960 360
------------
RETAIL (0.0%) (b)
Petro PSC Properties L.P.
expire 6/1/97 (a)............... 400 20,400
------------
TELECOMMUNICATION SERVICES (0.0%)
(b)
Microcell Telecommunications,
Inc.
expire 6/1/06 (a)(c)............ 6,800 47,600
expire 6/1/06 (a)(c)(n)......... 6,800 1,700
------------
49,300
------------
Total Warrants
(Cost $905,932)................. 1,170,773
------------
<CAPTION>
PURCHASED PUT OPTION (0.0%) (B)
NOTIONAL
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
FOOD, BEVERAGES & TOBACCO (0.0%)
(b)
Underlying security
RJR Nabisco, Inc.
8.75%, due 8/15/05
expire 10/6/97 (f).............. $ 2,000,000 12,000
------------
Total Purchased Put Option
(Cost $40,000).................. 12,000
------------
</TABLE>

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

F-21
<PAGE> 103

HIGH YIELD CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996

<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (28.8%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
SHORT-TERM BOND (0.9%)
RETAIL (0.9%)
Cosmar Corp.
11.50%, due 12/4/97
(c)(g)(m)(q).................... $ 1,800,000 $ 1,800,000
------------
U.S. GOVERNMENT (27.9%)
United States Treasury Note
8.50%, due 4/15/97.............. 56,775,000 57,271,781
------------
Total Short-Term Investments
(Cost $59,299,138).............. 59,071,781
------------
Total Investments
(Cost $198,617,607) (r)......... 99.1% 203,081,885(s)
Cash and Other Assets,
Less Liabilities................ 0.9 1,919,150
----------- ------------
Net Assets....................... 100.0% $205,001,035
============= ==============
</TABLE>

- ------------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) ADR--American Depository Receipt.
(e) Fair valued securities. Aggregate at 1.10% of net assets.
(f) Purchased put option is based on spread between the risk/duration of RJR
Nabisco, Inc., 8.75% Note due 8/15/05, multiplied by the yield on the RJR
Nabisco bond less the yield on the U.S. Treasury Bond 6.50%, due 8/15/05,
less 3.50%, multiplied by the notional principal.
(g) CIK ("Cash in Kind") interest or dividend payment is made with cash or
additional securities.
(h) PIK ("Payment in Kind") interest or dividend payment is made with
additional securities.
(i) The 8.89% preferred membership interest entitles the Fund to a Payment in
Kind dividend of 14.50% for the first five years beginning June 30, 1996
and 17.50% for the sixth and seventh year.
(j) The warrants entitle the Fund to 3.4545% of the voting rights and dividend
payments.
(k) The redeemable warrants can be redeemed by National Tobacco Corp. for
nominal consideration during the first five years, only on a pro-rata basis
with prepayment of the subordinated notes.
(l) Issue in default.
(m) Floating rate. Rate shown is the rate in effect at December 31, 1996.
(n) Conditional warrants.
(o) Yankee bond.
(p) Convertible preferred stock.
(q) Restricted securities.
(r) The cost for Federal income tax purposes is $198,840,632.
(s) At December 31, 1996 net unrealized appreciation was $4,241,253, 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 $6,168,119 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,926,866.
(t1) 450 Units--each unit reflects $1,000 principal amount of 13.00% Senior
Subordinated Notes, plus 7 warrants to acquire 1 share of common stock at
$2.30 per share at a future date.
(t2) 2,000 Units--each unit reflects $1,000 principal amount of 15.00% Senior
Discounted Notes, plus 1 warrant to acquire 186.527 shares of Australis
Media common stock at $0.20 per share at a future date.
(u) Security has no value.
(v) Canadian security.
(w) Issuer in bankruptcy.

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

F-22
<PAGE> 104

MAINSTAY VP SERIES FUND, INC.
HIGH YIELD CORPORATE BOND PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $198,617,607)....... $203,081,885
Receivables:
Dividends and interest............... 3,663,250
Fund shares sold..................... 1,200,477
Other assets........................... 213
Total assets..................... 207,945,825
LIABILITIES:
Payables:
Investment securities purchased...... 2,779,009
Adviser.............................. 49,200
NYLIAC............................... 29,530
Administrator........................ 16,400
Custodian............................ 14,638
Organization......................... 480
Directors............................ 65
Accrued expenses....................... 55,468
Total liabilities................ 2,944,790
Net assets applicable to outstanding
shares............................... $205,001,035
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 176,556
Additional paid-in capital............. 198,929,364
Accumulated undistributed net
investment income.................... 50,573
Accumulated undistributed net realized
gain on investments.................. 1,380,264
Net unrealized appreciation on
investments.......................... 4,464,278
Net assets applicable to outstanding
shares............................... $205,001,035
Shares of capital stock outstanding.... 17,655,632
Net asset value per share
outstanding.......................... $ 11.61
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 306,663
Interest............................. 10,189,398
------------
Total income..................... 10,496,061
------------
Expenses:
Advisory............................. 340,200
Administration....................... 226,800
Shareholder communication............ 100,440
Recordkeeping........................ 64,607
Professional......................... 53,699
Custodian............................ 9,153
Directors............................ 4,156
Portfolio pricing.................... 4,062
Amortization of organization
expense............................ 3,871
Miscellaneous........................ 1,982
------------
Total expenses before
reimbursement.................. 808,970
Expense reimbursement from
Administrator........................ (49,190)
------------
Net expenses..................... 759,780
------------
Net investment income.................. 9,736,281
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments....... 4,084,739
Net change in unrealized appreciation
on investments....................... 3,943,445
------------
Net realized and unrealized gain on
investments.......................... 8,028,184
------------
Net increase in net assets resulting
from operations...................... $ 17,764,465
===========
</TABLE>

- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $1,850.

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

F-23
<PAGE> 105

HIGH YIELD CORPORATE BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1996
and the period May 1, 1995 (Commencement of Operations)
through December 31, 1995

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

Operations:
Net investment income......................................................... $ 9,736,281 $ 1,500,585
Net realized gain on investments.............................................. 4,084,739 172,097
Net change in unrealized appreciation on investments.......................... 3,943,445 520,833
------------ ------------
Net increase in net assets resulting from operations.......................... 17,764,465 2,193,515
------------ ------------
Dividends and distributions to shareholders:
From net investment income.................................................... (9,685,708) (1,500,585)
From net realized gain on investments......................................... (2,622,325) (172,097)
In excess of net realized gain on investments................................. -- (89,526)
------------ ------------
Total dividends and distributions to shareholders........................... (12,308,033) (1,762,208)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.............................................. 146,492,029 31,553,312
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions............................................................ 12,308,033 1,762,208
------------ ------------
158,800,062 33,315,520
Cost of shares redeemed....................................................... (2,569,930) (432,356)
------------ ------------
Increase in net assets derived from capital share transactions.............. 156,230,132 32,883,164
------------ ------------
Net increase in net assets.................................................. 161,686,564 33,314,471
NET ASSETS:
Beginning of period............................................................. 43,314,471 10,000,000
------------ ------------
End of period................................................................... $205,001,035 $43,314,471
============= =============
Accumulated undistributed net investment income................................. $ 50,573 $ --
============= =============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
YEAR 1995 (a)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995
----------------------------
<S> <C> <C>
Net asset value at beginning of period............................................ $ 10.55 $ 10.00
------------ ------------
Net investment income............................................................. 0.59 0.37
Net realized and unrealized gain on investments................................... 1.22 0.61
------------ ------------
Total from investment operations.................................................. 1.81 0.98
------------ ------------
Less dividends and distributions:
From net investment income...................................................... (0.59) (0.37)
From net realized gain on investments........................................... (0.16) (0.04)
In excess of net realized gain on investments................................... -- (0.02)
------------ ------------
Total dividends and distributions................................................. (0.75) (0.43)
------------ ------------
Net asset value at end of period.................................................. $ 11.61 $ 10.55
============= =============
Total investment return (b)....................................................... 17.16% 10.06%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................................................... 8.59% 10.02% +
Net expenses.................................................................... 0.67% 0.67% +
Expenses (before reimbursement)................................................. 0.71% 1.25% +
Portfolio turnover rate........................................................... 149% 95%
Average commission rate paid...................................................... $ 0.0613 (c)
Net assets at end of period (in 000's)............................................ $ 205,001 $ 43,314
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.

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

F-24
<PAGE> 106
MAINSTAY VP SERIES FUND, INC.

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (90.2%)+
SHARES VALUE
---------------------
<S> <C> <C>
AUSTRALIA (4.6%)
Amcor, Ltd. (forest products &
paper)............................ 13,000 $ 83,532
Boral, Ltd. (building materials &
components)....................... 22,100 62,840
Brambles Industries, Ltd. (business
& public services)................ 4,300 83,846
Broken Hill Proprietary Co., Ltd.
(energy sources).................. 24,900 354,403
Coles Myer, Ltd. (merchandising)... 24,470 100,675
CRA, Ltd. (metals-nonferrous)...... 3,225 50,589
CSR, Ltd. (multi-industry)......... 19,200 67,099
Foster's Brewing Group, Ltd.
(beverages & tobacco)............. 28,920 58,573
Mount Isa Mines Holdings, Ltd.
(metals-nonferrous)............... 22,461 31,398
National Australia Bank, Ltd.
(banking)......................... 23,120 271,775
News Corp., Ltd. (broadcasting &
publishing)....................... 17,039 89,861
Pacific Dunlop, Ltd.
(multi-industry).................. 27,400 69,640
Santos, Ltd. (energy sources)...... 15,500 62,786
Westpac Banking Corp., Ltd.
(banking)......................... 19,400 110,325
WMC, Ltd. (metals-nonferrous)...... 14,600 91,957
-----------
1,589,299
-----------
AUSTRIA (3.2%)
Austrian Airlines Oesterreichische
Luftverkehrs AG (transportation-
airlines) (a)..................... 150 22,833
Bank Austria AG (banking).......... 2,950 217,722
Creditanstalt-Bankverein Stamm AG
(banking)......................... 2,050 138,627
EA-Generali AG (insurance)......... 350 103,326
Flughafen Wien AG (transportation-
airlines)......................... 1,200 61,110
Oesterreichische Brau-Beteiligungs
AG (beverages & tobacco).......... 750 50,856
OMV AG (energy sources)............ 1,650 185,861
Verbundgesellschaft-Oesterreichische
Elektrizitatswirtschafts AG Class
A (utilities-electrical & gas).... 1,350 100,943
Voest-Alpine Technologie AG
(machinery & engineering)......... 850 133,269
Wienerberger Baustoffindustrie AG
(building materials &
components)....................... 500 96,868
-----------
1,111,415
-----------
FRANCE (9.9%)
Alcatel Alsthom, SA (electrical &
electronics)...................... 1,348 108,073
AXA, SA (insurance)................ 2,493 158,248
Carrefour, SA (merchandising)...... 515 334,434
Compagnie de Saint Gobain, SA
(miscellaneous-materials &
commodities)...................... 1,521 214,747

- ------------
+ Percentages indicated are based on Fund net assets.

<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
FRANCE (Continued)
Compagnie de Suez, SA (banking).... 2,112 $ 89,619
Compagnie Financiere de Paribas, SA
Class A (banking)................. 1,451 97,938
Compagnie Generale des Eaux, SA
(business & public services)...... 1,337 165,365
Elf Aquitaine, SA (energy
sources).......................... 2,212 200,958
Eridania Beghin-Say, SA (food &
household products)............... 550 88,339
Groupe Danone, SA (food & household
products)......................... 1,086 151,032
Havas, SA (business & public
services)......................... 1,311 91,792
Lafarge, SA (building materials &
components)....................... 860 51,497
L'Air Liquide, SA (chemicals)...... 1,423 221,713
L'Oreal, SA (health & personal
care)............................. 737 277,009
LVMH (Moet Hennessy Louis Vuitton),
SA (beverages & tobacco).......... 1,070 298,231
Lyonnaise des Eaux, SA
(multi-industry).................. 1,187 110,258
Michelin (CGDE), SA Class B (tire &
rubber)........................... 1,253 67,510
Pernod-Ricard, SA (beverages &
tobacco).......................... 430 23,738
Pinault-Printemps-Redoute, SA
(building materials &
components)....................... 250 98,966
PSA Peugeot, SA (automobiles)...... 150 16,850
Rhone-Poulenc, SA Class A
(chemicals)....................... 1,468 49,952
Schneider, SA (machinery &
engineering)...................... 1,567 72,310
Societe Generale, SA (banking)..... 1,134 122,371
Thomson CSF, SA (aerospace &
military technology).............. 3,047 98,641
Total, SA Class B (energy
sources).......................... 2,584 209,752
-----------
3,419,343
-----------
GERMANY (8.9%)
Allianz AG Holding (insurance)..... 250 454,218
BASF AG (chemicals)................ 8,650 332,729
Bayer AG (chemicals)............... 9,150 372,861
Daimler-Benz AG (automobiles)
(a)............................... 2,000 137,563
Deutsche Bank AG (banking)......... 3,200 149,295
Deutsche Telekom AG
(telecommunications) (a).......... 19,550 411,650
Dresdner Bank AG (banking)......... 9,850 294,648
Karstadt AG (merchandising)........ 50 16,871
Linde AG (machinery &
engineering)...................... 50 30,498
Mannesmann AG (machinery &
engineering)...................... 50 21,640
Preussag AG (multi-industry)....... 50 11,307
RWE AG (utilities-electrical &
gas).............................. 500 21,154
Siemens AG (electrical &
electronics)...................... 11,700 550,415
Thyssen AG (metals-steel).......... 50 8,857
VEBA AG (utilities-electrical &
gas).............................. 3,200 184,802
Viag AG (multi-industry)........... 150 58,789
Volkswagen AG (automobiles)........ 50 20,764
-----------
3,078,061
-----------
</TABLE>

F-25
<PAGE> 107

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
HONG KONG (3.9%)
Cheung Kong (Holdings), Ltd. (real
estate)........................... 21,000 $ 186,652
China Light & Power Co., Ltd.
(utilities-electrical & gas)...... 38,500 171,222
Hang Seng Bank, Ltd. (banking)..... 12,400 150,692
Hong Kong Telecommunications, Ltd.
(telecommunications).............. 126,800 204,094
Hutchison Whampoa, Ltd. (multi-
industry)......................... 24,000 188,495
Sun Hung Kai Properties, Ltd. (real
estate)........................... 16,000 195,993
Swire Pacific, Ltd. Class A (multi-
industry)......................... 25,500 243,133
-----------
1,340,281
-----------
ITALY (6.2%)
Assicurazioni Generali S.p.A.
(insurance)....................... 11,880 224,740
Banca Commerciale Italiana S.p.A.
(banking)......................... 28,000 50,850
Benetton Group S.p.A. (textile &
apparel).......................... 4,000 50,508
Credito Italiano S.p.A.
(banking)......................... 12,000 13,155
Edison S.p.A. (energy sources)..... 4,000 25,267
Ente Nazionale Idrocarburi S.p.A.
(energy sources).................. 118,000 604,459
Fiat S.p.A. (automobiles).......... 38,000 114,768
Fiat S.p.A. di Risp
(automobiles)..................... 6,000 10,502
Istituto Bancario San Paolo di
Torino S.p.A. (banking)........... 23,000 140,746
Istituto Nazionale delle
Assicurazioni S.p.A.
(insurance)....................... 72,000 93,615
Italgas S.p.A.
(utilities-electrical & gas)...... 5,000 20,842
Mediobanca S.p.A. (financial
services)......................... 10,000 53,857
Montedison S.p.A. (multi-industry)
(a)............................... 22,940 15,608
Olivetti Group S.p.A. (data
processing & reproduction) (a).... 30,000 10,561
Parmalat Finanziaria S.p.A. (food &
household products)............... 35,000 53,430
Pirelli S.p.A. (industrial
components)....................... 26,000 48,159
Riunione Adriatica di Sicurta
S.p.A. (insurance)................ 5,200 48,416
Sirti S.p.A.
(telecommunications).............. 3,000 18,161
Telecom Italia S.p.A.
(telecommunications).............. 108,000 279,992
Telecom Italia S.p.A. di Risp
(telecommunications).............. 8,000 15,581
Telecom Italia Mobile S.p.A.
(telecommunications).............. 91,000 229,632
Telecom Italia Mobile S.p.A. di
Risp (telecommunications)......... 6,000 8,547
-----------
2,131,396
-----------
JAPAN (29.3%)
Ajinomoto Co., Inc. (food &
household products) (b)........... 3,000 30,497
Asahi Bank, Ltd. (banking) (b)..... 17,000 150,849
Asahi Chemical Industry Co., Ltd.
(chemicals) (b)................... 19,000 107,377

<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Asahi Glass Co., Ltd.
(miscellaneous-materials &
components) (b)................... 10,000 $ 93,903
Bank of Tokyo-Mitsubishi, Ltd.
(banking) (b)..................... 4,000 74,089
Bridgestone Corp. (industrial
components) (b)................... 3,000 56,859
Canon, Inc. (recreation & other
consumer goods) (b)............... 8,000 176,435
Chiba Bank, Ltd. (banking) (b)..... 6,000 40,835
Dai Nippon Printing Co., Ltd.
(business & public services)
(b)............................... 5,000 87,442
Daiei, Inc. (merchandising) (b).... 10,000 76,243
Daiwa House Industry Co., Ltd.
(construction & housing) (b)...... 13,000 166,872
Denso Corp. (industrial
components)....................... 8,000 192,287
Fanuc, Ltd. (electronic components
& instruments) (b)................ 2,000 63,923
Fuji Bank, Ltd. (banking) (b)...... 16,000 232,950
Fuji Photo Film, Ltd. (recreation &
other consumer goods)............. 2,000 65,819
Fujitsu, Ltd. (data processing &
reproduction)..................... 11,000 102,346
Furukawa Electric Co. (industrial
components)....................... 15,000 70,944
Hankyu Corp. (transportation-road &
rail)............................. 3,000 14,861
Hitachi Corp., Ltd. (electrical &
electronics)...................... 20,000 186,084
Honda Motor Co., Ltd.
(automobiles)..................... 6,000 171,094
Industrial Bank of Japan, Ltd.
(banking)......................... 19,000 329,007
Ito-Yokado Co., Ltd.
(merchandising)................... 3,000 130,259
Itochu Corp. (wholesale &
international trade).............. 30,000 160,756
Japan Airlines Co. (transportation-
airlines) (a)..................... 9,000 47,684
Japan Energy Corp. (energy
sources).......................... 28,000 75,984
Joyo Bank (banking)................ 3,000 18,040
Kajima Corp. (construction &
housing).......................... 2,000 14,266
Kansai Electric Power Co., Inc.
(utilities-electrical & gas)...... 3,000 62,028
Kao Corp. (food & household
products)......................... 20,000 232,605
Kawasaki Steel Corp.
(metals-steel).................... 6,000 17,213
Kinki Nippon Railway Co., Ltd.
(transportation-road & rail)...... 7,000 43,600
Kirin Brewery Co., Ltd. (beverages
& tobacco)........................ 11,000 108,032
Komatsu, Ltd. (machinery &
engineering)...................... 10,000 81,842
Kubota Corp. (machinery &
engineering)...................... 35,000 168,552
Marubeni Corp. (wholesale &
international trade).............. 17,000 72,935
Marui Co., Ltd. (merchandising).... 2,000 36,011
Matsushita Electric Industrial Co.,
Ltd. (appliances & household
durables)......................... 8,000 130,259
</TABLE>

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

F-26
<PAGE> 108

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Mitsubishi Chemical Corp.
(chemicals)....................... 10,000 $ 32,306
Mitsubishi Corp.
(multi-industry).................. 5,000 51,690
Mitsubishi Electric Corp.
(electrical & electronics)........ 35,000 208,052
Mitsubishi Estate Co., Ltd.
(construction & housing).......... 3,000 30,756
Mitsubishi Heavy Industries, Ltd.
(machinery & engineering)......... 71,000 562,732
Mitsubishi Trust & Banking Co.
(financial services).............. 13,000 173,592
Mitsui Engineering & Shipbuilding
Co., Ltd. (machinery &
engineering) (a).................. 21,000 42,696
Mitsui Fudosan Co. (construction &
housing).......................... 6,000 59,960
Mitsui Marine & Fire Insurance Co.,
Ltd. (insurance).................. 15,000 80,507
Mitsui Trust & Banking Co.
(financial services).............. 3,000 23,390
Mitsukoshi, Ltd. (merchandising)... 3,000 21,245
NEC Corp. (electrical &
electronics)...................... 8,000 96,488
Nippon Express Co., Ltd.
(transportation-road & rail)...... 28,000 191,529
Nippon Oil Co., Ltd. (energy
sources).......................... 8,000 41,007
Nippon Paper Industries Co. (forest
products & paper)................. 6,000 27,913
Nippon Steel Corp.
(metals-steel).................... 70,000 206,243
Nippon Yusen Kabushiki Kaisha
(transportation-shipping)......... 5,000 22,571
Nissan Motor Co., Ltd.
(automobiles)..................... 27,000 156,311
NKK Corp. (metals-steel) (a)....... 58,000 130,414
Nomura Securities Co., Ltd.
(financial services).............. 17,000 254,832
Obayashi Corp. (construction &
housing).......................... 5,000 33,685
Oji Paper Co., Ltd. (forest
products & paper)................. 2,000 12,630
Osaka Gas Co. (utilities-electrical
& gas)............................ 6,000 16,386
Sakura Bank, Ltd. (banking)........ 18,000 128,398
Sankyo Co., Ltd. (health & personal
care)............................. 2,000 56,514
Sanyo Electric Co., Ltd.
(appliances & household
durables)......................... 6,000 24,811
Sekisui Chemical Co. (building
materials & components)........... 2,000 20,159
Sekisui House, Ltd. (construction &
housing).......................... 2,000 20,331
Sharp Corp. (appliances & household
durables)......................... 5,000 71,074
Shimizu Corp. (construction &
housing).......................... 4,000 29,808
Shiseido Co., Ltd. (health &
personal care).................... 8,000 92,353
Sony Corp. (appliances & household
durables)......................... 4,000 261,551
Sumitomo Bank, Ltd. (banking)...... 14,000 201,419
Sumitomo Chemical Co.
(chemicals)....................... 6,000 23,726

<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Sumitomo Corp. (wholesale &
international trade).............. 14,000 $ 110,117
Sumitomo Electric Industries
(industrial components)........... 12,000 167,476
Sumitomo Marine & Fire Insurance
Co. (insurance)................... 7,000 43,420
Sumitomo Metal Industries, Ltd.
(metals-steel).................... 8,000 19,642
Sumitomo Metal Mining Co. (metals-
nonferrous)....................... 4,000 26,913
Taisei Corp. (construction &
housing).......................... 19,000 98,211
Taisho Pharmaceutical Co. (health &
personal care).................... 1,000 23,519
Takeda Chemical Industries, Ltd.
(health & personal care).......... 6,000 125,607
Teijin, Ltd. (chemicals)........... 102,000 444,637
Tobu Railway Co., Ltd.
(transportation-road & rail)...... 14,000 68,386
Tohoku Electric Power (utilities-
electrical & gas)................. 1,000 19,814
Tokai Bank (banking)............... 11,000 114,666
Tokio Marine & Fire Insurance Co.
(insurance)....................... 9,000 84,513
Tokyo Dome Corp. (leisure &
tourism).......................... 2,000 34,805
Tokyo Electric Power Co., Inc.
(utilities-electrical & gas)...... 6,000 131,293
Tokyo Gas Co., Ltd. (utilities-
electrical & gas)................. 15,000 40,577
Tokyu Corp. (transportation-road &
rail)............................. 5,000 28,343
Toppan Printing Co., Ltd. (business
& public services)................ 8,000 99,934
Tostem Corp. (building materials &
components)....................... 1,000 27,568
Toto, Ltd. (building materials &
components)....................... 1,000 11,372
Toyoda Automatic Loom Works, Ltd.
(machinery & engineering)......... 1,000 18,694
Toyota Motor Corp. (automobiles)... 30,000 860,638
Yamaichi Securities Co., Ltd.
(financial services).............. 15,000 66,551
Yamanouchi Pharmaceutical Co., Ltd.
(health & personal care).......... 3,000 61,511
Yamazaki Baking Co., Ltd. (food &
household products)............... 1,000 15,938
Yasuda Trust & Banking (financial
services)......................... 15,000 63,449
-----------
10,105,455
-----------
MALAYSIA (2.3%)
AMMB Holdings Berhad (financial
services)......................... 4,000 33,577
DCB Holdings Berhad (financial
services)......................... 5,000 17,125
Edaran Otomobil Nasional Berhad
(automobiles)..................... 2,000 19,996
</TABLE>

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

F-27
<PAGE> 109

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
MALAYSIA (Continued)
Golden Hope Plantations Berhad
(miscellaneous-materials &
commodities)...................... 28,000 $ 47,674
Hume Industries Berhad (building
materials & components)........... 5,000 31,479
Malayan Banking Berhad (banking)... 9,000 99,782
Malaysia International Shipping
Berhad
Foreign Registered
(transportation-shipping)......... 9,000 26,727
Malaysian Resources Corp. Berhad
(real estate)..................... 7,000 27,579
Resorts World Berhad (leisure &
tourism).......................... 15,000 68,303
Rothmans of Pall Mall Berhad
(beverages & tobacco)............. 4,000 41,972
Sime Darby Berhad
(multi-industry).................. 26,000 102,435
Technology Resources Industries
Berhad (multi-industry) (a)....... 7,000 13,803
Telekom Malaysia Berhad
(telecommunications).............. 11,000 98,000
Tenaga Nasional Berhad (utilities-
electrical & gas)................. 16,000 76,658
United Engineers, Ltd. (machinery &
engineering)...................... 9,000 81,251
YTL Corp. Berhad
(multi-industry).................. 3,000 16,155
-----------
802,516
-----------
NETHERLANDS (2.0%)
Elsevier NV (broadcasting &
publishing)....................... 2,900 48,956
ING Groep NV (insurance)........... 2,570 92,415
Koninklijke PTT Nederland NV
(forest products & paper)......... 1,626 61,948
Philips Electronics NV (appliances
& household durables)............. 1,200 48,562
Royal Dutch Petroleum Co. (energy
sources).......................... 1,600 280,182
Unilever CVA NV (food & household
products)......................... 600 106,005
Wolters Kluwer CVA NV (broadcasting
& publishing)..................... 301 39,936
-----------
678,004
-----------
NORWAY (2.5%)
Bergesen d.y. ASA Class A
(transportation-shipping)......... 3,900 95,280
Bergesen d.y. ASA Class B
(transportation-shipping)......... 500 11,902
Dyno Industrier ASA (chemicals).... 500 12,685
Hafslund ASA Class A (energy
sources).......................... 1,000 7,361
Hafslund ASA Class B (energy
sources).......................... 600 4,106
Kvaerner ASA Class B (machinery &
engineering)...................... 400 17,352
Norsk Hydro ASA (energy sources)... 9,000 486,268
Norske Skogindustrier ASA Class A
(forest products & paper)......... 1,300 43,365
Nycomed ASA Class A (health &
personal care) (a)................ 1,000 15,269

<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
NORWAY (Continued)
Nycomed ASA Class B (health &
personal care) (a)................ 600 $ 9,209
Orkla ASA Class A
(multi-industry).................. 2,100 146,350
-----------
849,147
-----------
SINGAPORE (4.8%)
City Developments, Ltd. (real
estate)........................... 14,000 126,106
DBS Land, Ltd. (real estate)....... 21,000 77,315
Development Bank of Singapore, Ltd.
Foreign Registered (banking)...... 11,000 148,626
Fraser & Neave, Ltd. (beverages &
tobacco).......................... 8,000 82,355
Keppel Corp., Ltd. (machinery &
engineering)...................... 10,000 77,923
Oversea-Chinese Banking Corp., Ltd.
Foreign Registered (banking)...... 15,000 186,586
Singapore Airlines, Ltd. Foreign
Registered
(transportation-airlines)......... 19,000 172,503
Singapore Press Holdings, Ltd.
Foreign Registered (broadcasting &
publishing)....................... 5,400 106,547
Singapore Telecommunications, Ltd.
(telecommunications).............. 222,000 523,728
United Overseas Bank, Ltd. Foreign
Registered (banking).............. 14,000 156,132
-----------
1,657,821
-----------
SPAIN (5.3%)
Acerinox, SA (metals-steel)........ 110 15,865
Autopistas Concesionares Espanola,
SA (business & public services)... 7,126 98,064
Banco de Bilbao Vizcaya, SA
Registered (banking).............. 4,380 236,051
Banco de Central Hispanoamericano,
SA (banking)...................... 680 17,435
Banco de Santander, SA (banking)... 2,840 181,440
Corporacion Bancaria de Espana, SA
(banking)......................... 1,410 62,981
Corporacion Mapfre, SA
(insurance)....................... 220 13,379
Empresa Nacional de Electricidad,
SA (utilities-electrical & gas)... 4,570 324,640
Fomento de Construcciones y
Contratas, SA (construction &
housing).......................... 460 42,791
Gas Natural SDG, SA (utilities-
electrical & gas)................. 330 76,619
Iberdrola, SA (utilities-electrical
& gas)............................ 14,620 206,813
Repsol, SA (energy sources)........ 5,220 199,854
Telefonica de Espana, SA
(telecommunications).............. 15,040 348,617
-----------
1,824,549
-----------
UNITED KINGDOM (7.3%)
Abbey National PLC (banking)....... 7,790 101,982
Barclays PLC (banking)............. 6,765 115,827
Bass PLC (beverages & tobacco)..... 1,680 23,604
</TABLE>

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

F-28
<PAGE> 110

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
B.A.T. Industries PLC (beverages &
tobacco).......................... 6,671 $ 55,311
BOC Group PLC (chemicals).......... 1,223 18,282
Boots Co. PLC (merchandising)...... 1,760 18,147
British Airways PLC
(transportation-airlines)......... 1,498 15,522
British Gas PLC (energy sources)... 11,990 46,064
British Petroleum Co. PLC (energy
sources).......................... 18,274 219,062
British Telecommunications PLC
(telecommunications).............. 11,110 75,004
BTR PLC (multi-industry)........... 16,831 81,800
Cable & Wireless PLC
(telecommunications).............. 9,093 75,548
Commercial Union PLC (insurance)... 1,803 21,089
EMI Group PLC (recreation & other
consumer goods)................... 990 23,380
General Electric Co. PLC
(electrical & electronics)........ 8,700 56,873
GKN PLC (machinery &
engineering)...................... 657 11,254
Glaxo Wellcome PLC (health &
personal care).................... 11,369 184,441
Granada Group PLC (leisure &
tourism).......................... 5,010 73,862
Grand Metropolitan PLC (multi-
industry)......................... 9,955 78,195
Great Universal Stores PLC (The)
(merchandising)................... 12,200 127,773
Guinness PLC (beverages &
tobacco).......................... 15,670 122,684
Hanson PLC (multi-industry)........ 32,398 45,186
HSBC Holdings PLC (financial
services)......................... 2,450 54,756
Imperial Chemical Industries PLC
(chemicals)....................... 830 10,916
Imperial Tobacco Group PLC
(beverages & tobacco)............. 3,239 20,897
Kingfisher PLC (merchandising)..... 1,111 12,006
Lloyds TSB Group PLC (banking)..... 12,654 93,224
Marks & Spencer PLC
(merchandising)................... 10,352 86,983
MEPC PLC (real estate)............. 1,050 7,780
National Power PLC (utilities-
electrical & gas)................. 8,580 71,800
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(The) (transportation-shipping)... 4,355 43,971
Prudential Corp. PLC (insurance)... 9,120 76,709
Rank Group PLC (leisure &
tourism).......................... 5,210 38,829
Redland PLC (building materials &
components)....................... 1,616 10,135
Reed International PLC
(broadcasting & publishing)....... 5,410 101,978
Reuters Holdings PLC (broadcasting
& publishing)..................... 5,820 74,848
RMC Group PLC (building materials &
components)....................... 700 11,949

<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
RTZ Corp. PLC Registered (metals-
nonferrous)....................... 4,143 $ 66,397
Sainsbury (J.) PLC
(merchandising)................... 4,930 32,734
Scottish Power PLC (utilities-
electrical & gas)................. 7,100 42,769
Thorn PLC (appliances & household
durables) (a)..................... 990 4,261
Unilever PLC (food & household
products)......................... 2,820 68,358
Vodafone Group PLC
(multi-industry).................. 3,995 16,852
-----------
2,539,042
-----------
Total Common Stocks
(Cost $30,655,302)................ 31,126,329
-----------
PREFERRED STOCK (0.1%)
AUSTRIA (0.1%)
Creditanstalt-Bankverein Vorzug AG
(banking)......................... 600 27,676
-----------
Total Preferred Stock
(Cost $35,245).................... 27,676
-----------
<CAPTION>
SHORT-TERM
INVESTMENT (4.1%)
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER (4.1%)
UNITED STATES (4.1%)
Ameritech Corp.
6.25%, due 1/2/97................. $1,420,000 1,419,753
-----------
Total Short-Term Investment
(Cost $1,419,753)................. 1,419,753
-----------
Total Investments
(Cost $32,110,300)(c)............. 94.4% 32,573,758 (d)
Cash and Other Assets,
Less Liabilities.................. 5.6 1,935,462
-----------
Net Assets......................... 100.0% $34,509,220
===========
</TABLE>

- ------------
(a) Non-income producing securities.
(b) Segregated as collateral for forward foreign currency contracts.
(c) The cost for Federal income tax purposes is $32,155,934.
(d) At December 31, 1996 net unrealized appreciation for securities was
$417,824, based on cost for Federal income tax purposes. This consisted of
aggregate gross unrealized appreciation for all investments on which there
was an excess of market value over cost of $2,997,390 and aggregate gross
unrealized depreciation for all investments on which there was an excess of
cost over market value of $2,579,566.

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

F-29
<PAGE> 111

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996

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

COMMON STOCKS,
PREFERRED STOCK &
SHORT-TERM INVESTMENT

<TABLE>
<CAPTION>
VALUE PERCENT +
------------------------
<S> <C> <C>
Aerospace & Military
Technology.................. $ 98,641 0.3%
Appliances & Household
Durables.................... 540,518 1.6
Automobiles................... 1,508,487 4.4
Banking....................... 4,565,756 13.2
Beverages & Tobacco........... 886,252 2.6
Broadcasting & Publishing..... 462,126 1.3
Building Materials &
Components.................. 422,833 1.2
Business & Public Services.... 626,444 1.8
Chemicals..................... 1,627,185 4.7
Construction & Housing........ 496,681 1.4
Data Processing &
Reproduction................ 112,907 0.3
Electrical & Electronics...... 1,205,986 3.5
Electronic Components &
Instruments................. 63,923 0.2
Energy Sources................ 3,003,374 8.7
Financial Services............ 741,130 2.1
Food & Household Products..... 746,203 2.2
Forest Products & Paper....... 229,387 0.7
Health & Personal Care........ 845,431 2.5
Industrial Components......... 535,725 1.6
Insurance..................... 1,494,594 4.3
Leisure & Tourism............. 215,798 0.6
Machinery & Engineering....... 1,320,015 3.8
Merchandising................. 993,380 2.9
Metals-Nonferrous............. 267,255 0.8
Metals-Steel.................. 398,234 1.2
Miscellaneous-Materials &
Commodities................. 262,420 0.8
Miscellaneous-Materials &
Components.................. 93,904 0.3
Multi-Industry................ 1,316,794 3.8
Real Estate................... 621,426 1.8
Recreation & Other Consumer
Goods....................... 265,634 0.8
Telecommunications............ 3,708,308 10.7
Textile & Apparel............. 50,508 0.1
Tire & Rubber................. 67,510 0.2
Transportation-Airlines....... 319,652 0.9
Transportation-Road & Rail.... 346,719 1.0
Transportation-Shipping....... 200,452 0.6
Utilities-Electrical & Gas.... 1,568,359 4.5
Wholesale & International
Trade....................... 343,807 1.0
----------- ---------
32,573,758 94.4
Cash and Other Assets, Less
Liabilities................. 1,935,462 5.6
----------- ---------
Net Assets.................... $34,509,220 100.0%
========== =========
</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.

F-30
<PAGE> 112

MAINSTAY VP SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $32,110,300)........ $ 32,573,758
Cash denominated in foreign currencies
(identified cost $1,715,056)......... 1,871,264
Cash................................... 178,118
Receivables:
Investment securities sold........... 716,800
Fund shares sold..................... 84,761
Dividends and interest............... 57,738
NYLIAC............................... 6,209
Unrealized net appreciation on forward
foreign currency contracts........... 1,046,426
Other assets........................... 19,096
Total assets..................... 36,554,170
LIABILITIES:
Payables:
Investment securities purchased...... 1,987,559
Adviser.............................. 17,148
Custodian............................ 10,384
Administrator........................ 3,137
Organization......................... 480
Directors............................ 13
Accrued expenses....................... 26,229
Total liabilities................ 2,044,950
Net assets applicable to outstanding
shares............................... $ 34,509,220
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 32,397
Additional paid-in capital............. 33,536,947
Accumulated distribution in excess of
net investment income................ (518,472)
Accumulated distribution in excess of
net
realized gain on investments......... (200,701)
Net unrealized appreciation on
investments.......................... 463,458
Net unrealized appreciation on
translation of assets and liabilities
in foreign currencies and forward
foreign currency contracts........... 1,195,591
Net assets applicable to outstanding
shares............................... $ 34,509,220
Shares of capital stock outstanding.... 3,239,740
Net asset value per share
outstanding.......................... $ 10.65
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 379,158
Interest............................. 108,380
------------
Total income..................... 487,538
------------
Expenses:
Advisory............................. 147,432
Administration....................... 49,144
Custodian............................ 46,423
Shareholder communication............ 41,184
Recordkeeping........................ 38,874
Professional......................... 22,956
Portfolio pricing.................... 20,302
Amortization of organization
expense............................ 3,741
Directors............................ 841
Miscellaneous........................ 735
------------
Total expenses before
reimbursement.................. 371,632
Expense reimbursement from
Administrator........................ (133,284)
------------
Net expenses..................... 238,348
------------
Net investment income.................. 249,190
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Security transactions................ (100,619)
Foreign currency transactions........ 858,716
------------
Net realized gain on investments and
foreign currency transactions........ 758,097
------------
Net change in unrealized appreciation
on investments:
Security transactions................ 319,371
Translation of assets and liabilities
in foreign currencies and forward
foreign currency contracts......... 1,159,064
------------
Net unrealized gain on investments and
foreign currencies................... 1,478,435
------------
Net realized and unrealized gain on
investments and foreign currency
transactions......................... 2,236,532
------------
Net increase in net assets resulting
from operations...................... $ 2,485,722
===========
</TABLE>

- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of
$52,784.

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

F-31
<PAGE> 113

INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1996
and the period May 1, 1995 (Commencement of Operations)
through December 31, 1995

<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income......................................................... $ 249,190 $ 82,369
Net realized loss on investments.............................................. (100,619) (41,301)
Net realized gain on foreign currency transactions............................ 858,716 702,174
Net change in unrealized appreciation on investments.......................... 319,371 144,087
Net change in unrealized appreciation on translation of assets and liabilities
in foreign currencies and forward foreign currency contracts................. 1,159,064 36,527
------------ ------------
Net increase in net assets resulting from operations.......................... 2,485,722 923,856
------------ ------------
Dividends and distributions to shareholders:
From net investment income.................................................... (1,745,204) (82,369)
From net realized gain on investments and foreign currency transactions....... (44,794) (597,335)
------------ ------------
Total dividends and distributions to shareholders........................... (1,789,998) (679,704)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.............................................. 18,900,627 4,168,978
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions............................................................ 1,789,998 679,704
------------ ------------
20,690,625 4,848,682
Cost of shares redeemed....................................................... (1,507,839) (462,124)
------------ ------------
Increase in net assets derived from capital share transactions.............. 19,182,786 4,386,558
------------ ------------
Net increase in net assets.................................................. 19,878,510 4,630,710
NET ASSETS:
Beginning of period............................................................. 14,630,710 10,000,000
------------ ------------
End of period................................................................... $34,509,220 $14,630,710
============= =============
Accumulated distribution in excess of net investment income..................... $ (518,472) $ --
============= =============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
YEAR 1995 (a)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995
----------------------------
<S> <C> <C>
Net asset value at beginning of period............................................ $ 10.20 $ 10.00
------------ ------------
Net investment income............................................................. 0.44 0.64
Net realized and unrealized gain on investments................................... 0.06 0.01
Net realized and unrealized gain on foreign currency transactions................. 0.56 0.05
------------ ------------
Total from investment operations.................................................. 1.06 0.70
------------ ------------
Less dividends and distributions:
From net investment income...................................................... (0.60) (0.06)
From net realized gain on investments and foreign currency transactions......... (0.01) (0.44)
------------ ------------
Total dividends and distributions................................................. (0.61) (0.50)
------------ ------------
Net asset value at end of period.................................................. $ 10.65 $ 10.20
============= =============
Total investment return (b)....................................................... 10.54% 6.96%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................................................... 1.01% 1.07% +
Net expenses.................................................................... 0.97% 0.97% +
Expenses (before reimbursement)................................................. 1.51% 2.51% +
Portfolio turnover rate........................................................... 16% 14%
Average commission rate paid...................................................... $ 0.0364 (c)
Net assets at end of period (in 000's)............................................ $ 34,509 $ 14,631
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.

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

F-32
<PAGE> 114
MAINSTAY VP SERIES FUND, INC.

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
LONG-TERM BONDS (40.2%)+
ASSET-BACKED SECURITIES (10.8%)
<S> <C> <C>
PRINCIPAL
AMOUNT VALUE
-----------------------
AIRPLANE LEASES (0.7%)
Aircraft Lease Portfolio
Securitization Series 1996-1
Class C
6.975%, due 6/15/06
(call date 1/15/97) (c)(e)...... $ 1,196,703 $ 1,197,074
Airplane Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19
(call date 1/1/97).............. 925,000 957,375
------------
2,154,449
------------
COMMERCIAL MORTGAGE LOANS (5.0%)
Asset Securitization Corp.
Series 1996-MD6 Class A1B
6.88%, due 11/13/26............. 2,125,000 2,133,627
Series 1996-D2 Class A1
6.92%, due 2/14/29.............. 863,066 862,255
Series 1996-D3 Class A1C
7.40%, due 10/13/26............. 1,050,000 1,075,263
Blackrock Capital Finance L.P.
Series 1996-C2 Class A
7.641%, due 11/15/26 (c)........ 809,202 819,827
Donaldson, Lufkin & Jenrette
Mortgage Acceptance Corp. Series
1996-CF2 Class A1A
6.86%, due 11/12/21 (c)......... 1,395,545 1,402,090
Federal Depository Insurance
Corp. Series 1996-C1 Class 1A
6.75%, due 7/25/26.............. 2,425,000 2,417,725
General Motors Acceptance Corp.
Commercial Mortgage Securities
Inc.
Series 1996-C1 Class A2A
6.79%, due 9/15/03.............. 1,300,000 1,302,028
Merrill Lynch Mortgage Investors,
Inc.
Series 1996-C2 Class A1
6.69%, due 11/21/28............. 1,046,501 1,047,484
Series 1996-C1 Class A1
7.15%, due 4/25/28.............. 1,266,803 1,287,389
Mortgage Capital Funding, Inc.
Series 1996-MC1 Class A2A
7.35%, due 7/15/05.............. 877,835 897,174
Nomura Asset Securities Corp.
Series 1996-MD5 Class A1B
7.12%, due 4/13/36.............. 1,050,000 1,060,500
Structured Asset Securities Corp.
Series 1996-CFL Class A1B
5.751%, due 2/25/28............. 506,616 503,292
Series 1996-2 Class A1
7.00%, due 8/25/26.............. 975,000 980,938
<CAPTION>
- ------------
+ Percentages indicated are based on Fund net assets.

PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
COMMERCIAL MORTGAGE LOANS
(Continued)
Wells Fargo Capital Markets
Apartment Financing
Series APT Class 1
6.56%, due 12/29/05 (c)......... $ 925,000 $ 917,193
------------
16,706,785
------------
CREDIT CARD RECEIVABLES (0.2%)
Standard Credit Card Master Trust
Series 1995-4 Class A
5.60%, due 2/15/00 (e).......... 725,000 725,225
------------
EQUIPMENT LOANS (1.0%)
Case Equipment Loan Trust Series
1995-B Class A3
6.15%, due 9/15/02.............. 1,050,000 1,052,299
Newcourt Receivables Asset Trust
Series 1996-3 Class A
6.24%, due 12/20/04............. 974,722 997,500
Series 1996-2 Class A
6.87%, due 6/20/04.............. 1,075,597 1,083,836
------------
3,133,635
------------
HOME EQUITY LOANS (1.5%)
Green Tree Financial Corp. Series
1996-10 Class A6
7.30%, due 11/15/28............. 1,275,000 1,252,292
Series 1996-9 Class A6
7.69%, due 1/15/28.............. 1,250,000 1,260,938
Series 1996-6 Class A6
7.95%, due 9/15/27.............. 1,550,000 1,591,168
Series 1996-8 Class A7
8.05%, due 10/15/27............. 850,000 873,910
------------
4,978,308
------------
RESIDENTIAL
MORTGAGE LOANS (2.4%)
Bear Stearns Mortgage
Securities Inc.
Series 1996-5 Class A2
10.00%, due 9/25/27............. 1,067,069 1,110,253
Series 1996-4 Class AI2
10.50%, due 9/25/27............. 1,009,351 1,058,557
Capstead Securities Corp. IV
Series 1992-1 Class G
8.75%, due 1/25/20.............. 1,750,000 1,783,915
Independent National Mortgage
Corp. Series 1996-D Class A2
7.00%, due 5/25/26.............. 2,050,000 2,042,641
Residential Accredit Loans, Inc.
Series 1996-QS4 Class AI2
11.00%, due 8/25/26............. 1,030,345 1,078,967
</TABLE>

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

F-33
<PAGE> 115

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
ASSET-BACKED SECURITIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
RESIDENTIAL
MORTGAGE LOANS (Continued)
Residential Asset Securitization
Trust Series 1996-A2 Class A3
9.00%, due 6/25/26.............. $ 604,556 $ 618,914
Series 1996-A6 Class A10
9.00%, due 9/25/26.............. 429,093 437,138
------------
8,130,385
------------
Total Asset-Backed Securities
(Cost $35,735,238).............. 35,828,787
------------
BRADY BOND (0.4%)
EURO BOND (0.4%)
Poland-Global Registered Series
RSTA
3.25%, due 10/27/24
(call date 4/27/97) (e)......... 2,150,000 1,349,125
------------
Total Brady Bond
(Cost $1,211,382)............... 1,349,125
------------
CORPORATE BONDS (5.2%)
BANKS (2.6%)
BankBoston Capital Trust I
Guaranteed
8.25%, due 12/15/26
(call date 12/15/06) (c)........ 1,775,000 1,800,667
Bank Hawaii Honolulu Series A
8.25%, due 12/15/26
(call date 12/15/06) (c)........ 1,175,000 1,173,613
Capital One Bank
Medium-Term Senior Bank Notes
7.15%, due 9/15/06
(put date 9/15/99).............. 950,000 968,696
First USA Bank Wilmington,
Delaware Deposit Notes
6.25%, due 10/9/98.............. 775,000 773,628
Midland Bank PLC
Series 3M Seasoned
5.725%, due 6/29/49
(call date 6/17/97) (e)(h)...... 880,000 761,200
Regions Financial Corp.
7.75%, due 9/15/24
(put date 7/15/04).............. 1,125,000 1,204,313
Southtrust Bank
Birmingham, Alabama N A
Medium-Term Notes
7.69%, due 5/15/25
(put date 5/15/05).............. 1,000,000 1,066,370
Standard Chartered PLC
Series 4 Seasoned
6.088%, due 1/29/49
(call date 7/14/97) (e)(h)...... 970,000 808,737
------------
8,557,224
------------

<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
BROKERAGE (0.6%)
Lehman Brothers Holdings Inc.
7.375%, due 5/15/07
(put date 5/15/00).............. $ 600,000 $ 618,498
Merrill Lynch & Co., Inc.
Medium-Term Notes Series B
6.65%, due 1/15/99.............. 950,000 957,496
Salomon Inc.
6.70%, due 12/1/98.............. 525,000 527,940
------------
2,103,934
------------
FINANCE (1.7%)
Aetna Services Inc.
6.97%, due 8/15/36
(put date 6/15/04).............. 850,000 865,963
American Re Corp.
7.45%, due 12/15/26
(call date 1/1/97) (c).......... 825,000 823,969
Associates Corp. North America
7.75%, due 2/15/05
(put date 2/15/00).............. 1,450,000 1,539,320
Crestar Capital Trust I
Guaranteed
8.16%, due 12/15/26
(call date 12/15/06) (c)........ 1,225,000 1,219,475
Travelers/Aetna Property &
Casualty Corp.
6.75%, due 9/1/99............... 1,200,000 1,212,024
------------
5,660,751
------------
RETAIL (0.3%)
Sears Roebuck Acceptance Corp.
Medium-Term Notes Series 1
5.82%, due 12/7/98.............. 950,000 944,841
------------
Total Corporate Bonds
(Cost $17,234,081).............. 17,266,750
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (20.7%)
FEDERAL AGENCIES (1.0%)
Tennessee Valley Authority
5.98%, due 4/1/36
(put date 4/1/98)............... 1,800,000 1,824,336
6.235%, due 7/15/45
(put date 7/15/01).............. 1,335,000 1,337,310
------------
3,161,646
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION GOLD (MORTGAGE PASS-
THROUGH SECURITY) (0.3%)
7.00%, due 12/1/01.............. 925,000 934,537
------------
</TABLE>

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

F-34
<PAGE> 116

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (COLLATERALIZED
MORTGAGE OBLIGATION) (0.3%)
Series 1996-M7 Class A
6.521%, due 9/17/04............. $ 1,140,996 $ 1,137,790
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (7.1%)
6.00%, due 11/1/23.............. 1,527,726 1,426,514
6.00%, due 1/23/27 ARM TBA
(b)(g).......................... 2,600,000 2,587,000
6.47%, due 12/1/01.............. 1,070,000 1,063,366
6.52%, due 12/1/03.............. 950,000 939,683
6.525%, due 12/1/03............. 900,000 890,460
6.545%, due 1/14/27............. 800,000 781,400
6.595%, due 1/31/03 TBA (b)..... 975,000 968,341
6.625%, due 1/25/06 TBA (b)..... 725,000 712,080
6.87%, due 1/24/11 TBA (b)...... 1,085,000 1,083,752
7.00%, due 8/1/11-1/1/24........ 6,566,443 6,532,355
9.00%, due 1/5/05-8/1/26........ 6,247,780 6,592,655
------------
23,577,606
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITIES) (3.9%)
6.50%, due 8/15/23-12/15/23..... 1,211,946 1,161,953
7.50%, due 11/15/25-12/15/25.... 2,498,494 2,500,443
8.00%, due 12/15/23............. 6,602,376 6,774,632
9.50%, due 12/15/17-5/15/22..... 2,460,963 2,680,640
------------
13,117,668
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (MORTGAGE
PASS-THROUGH SECURITIES) (1.0%)
6.50%, due 1/20/23-2/20/23
ARM (g)......................... 2,026,074 2,066,053
7.00%, due 11/20/21-11/20/22
ARM (g)......................... 1,142,187 1,166,126
------------
3,232,179
------------
UNITED STATES TREASURY BONDS
(2.8%)
6.25%, due 8/15/23.............. 2,150,000 2,015,625
6.50%, due 11/15/26............. 4,855,000 4,764,746
8.875%, due 8/15/17............. 775,000 957,249
11.25%, due 2/15/15............. 720,000 1,063,238
11.625%, due 11/15/04........... 345,000 455,507
------------
9,256,365
------------
UNITED STATES TREASURY NOTES
(4.3%)
5.625%, due 11/30/00............ 535,000 525,300

<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES
(Continued)
6.375%, due 3/31/01............. $ 4,035,000 $ 4,062,115
6.50%, due 5/15/05.............. 200,000 201,344
7.75%, due 12/31/99............. 1,675,000 1,751,950
7.875%, due 11/15/04............ 1,575,000 1,718,719
8.125%, due 2/15/98 (d)......... 6,050,000 6,206,937
------------
14,466,365
------------
Total U.S. Government &
Federal Agencies
(Cost $68,763,074).............. 68,884,156
------------
YANKEE BONDS (3.1%)
City of Naples
7.52%, due 7/15/06.............. 1,000,000 1,034,300
Columbia Republic
7.25%, due 2/15/03.............. 625,000 605,219
8.66%, due 10/7/16 (c).......... 1,600,000 1,671,104
Enersis SA
7.40%, due 12/1/16.............. 850,000 845,512
Guangdong International Trust &
Investment Corp.
8.75%, due 10/24/16 (c)......... 1,700,000 1,751,595
Hero Asian BVI Ltd.
9.11%, due 10/15/01 (c)......... 600,000 627,984
Hydro-Quebec Series IO
8.05%, due 7/7/24
(put date 5/7/06)............... 800,000 879,192
Mexico-United Mexican States
7.563%, due 8/6/01
(call date 2/6/97) (c)(e)....... 900,000 902,250
Thai Farmers Bank PLC
8.25%, due 8/21/16 (c).......... 750,000 771,398
Wharf Capital International 1994
Ltd.
8.875%, due 11/1/04............. 1,225,000 1,313,420
------------
Total Yankee Bonds
(Cost $10,232,761).............. 10,401,974
------------
Total Long-Term Bonds
(Cost $133,176,536)............. 133,730,792
------------
<CAPTION>
COMMON STOCKS (58.0%)
SHARES
-----------
<S> <C> <C>
AUTO PARTS (0.5%)
Lear Seating Corp. (a)........... 52,400 1,788,150
------------
BANKS (1.4%)
NationsBank Corp. ............... 23,100 2,258,025
Wells Fargo & Co. ............... 9,100 2,454,725
------------
4,712,750
------------
</TABLE>

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

F-35
<PAGE> 117

TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
BROKERAGE (0.7%)
Schwab (Charles) Corp. .......... 67,700 $ 2,166,400
------------
BUILDINGS (0.5%)
Oakwood Homes Corp. ............. 68,400 1,564,650
------------
COMMERCIAL SERVICES (0.7%)
Service Corp. International...... 89,000 2,492,000
------------
COMPUTER SERVICES (0.4%)
SABRE Group Holdings Inc. Class
A .............................. 50,000 1,393,750
------------
COMPUTERS & OFFICE EQUIPMENT
(4.3%)
Alco Standard Corp. ............. 62,700 3,236,887
CompUSA, Inc. (a)................ 30,000 618,750
Danka Business Systems PLC ADR
(f) ............................ 44,800 1,584,800
Electronic Data Systems Corp. ... 35,000 1,513,750
Hewlett-Packard Co. ............. 52,400 2,633,100
Seagate Technology (a)........... 38,200 1,508,900
Sun Microsystems (a)............. 119,000 3,056,813
------------
14,153,000
------------
CONSUMER DURABLES (0.9%)
Black & Decker Corp. ............ 25,400 765,175
Harley-Davidson, Inc. ........... 47,700 2,241,900
------------
3,007,075
------------
CONSUMER FINANCIAL SERVICES
(0.8%)
First Data Corp. ................ 71,800 2,620,700
------------
CONSUMER SERVICES (0.5%)
CUC International, Inc. (a)...... 72,150 1,713,563
------------
DRUGS (4.0%)
Amgen, Inc. (a).................. 61,100 3,322,312
Elan Corp. PLC ADR (a)(f)........ 72,400 2,407,300
Genzyme Corp. (a)................ 50,000 1,087,500
Pharmacia & Upjohn, Inc. ........ 49,100 1,945,588
Schering-Plough Corp. ........... 45,800 2,965,550
Teva Pharmaceutical Industries
Ltd. ADR (f).................... 31,500 1,582,875
------------
13,311,125
------------
ELECTRONICS (0.7%)
Harman International Industries,
Inc. ........................... 21,000 1,168,125
Vishay Intertechnology, Inc.
(a)............................. 42,392 990,913
------------
2,159,038
------------
FINANCE (5.4%)
Equifax, Inc. ................... 42,100 1,289,313
Federal National Mortgage
Association..................... 59,800 2,227,550
Green Tree Financial Corp. ...... 122,000 4,712,250
Household International, Inc. ... 33,900 3,127,275
MGIC Investment Corp. ........... 38,700 2,941,200

<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
FINANCE (Continued)
Travelers Group, Inc. ........... 82,400 $ 3,738,900
------------
18,036,488
------------
FINANCIAL SERVICES (2.9%)
Associates First Capital
Corp. .......................... 30,600 1,350,225
First USA, Inc. ................. 101,000 3,497,125
SunAmerica Inc. ................. 108,500 4,814,688
------------
9,662,038
------------
FOOD (0.3%)
Richfood Holdings, Inc. ......... 42,150 1,022,137
------------
HEALTH CARE (3.7%)
Cardinal Health, Inc. ........... 36,000 2,097,000
Columbia/HCA Healthcare Corp. ... 71,803 2,925,972
HealthCare COMPARE Corp. (a)..... 40,000 1,695,000
Humana Inc. (a).................. 52,200 998,325
PacifiCare Health Systems, Inc.
Class B (a)..................... 15,600 1,329,900
Sunrise Assisted Living, Inc. ... 30,200 841,825
United Healthcare Corp. ......... 53,400 2,403,000
------------
12,291,022
------------
HOSPITAL MANAGEMENT & SERVICES
(1.6%)
HEALTHSOUTH Corp. (a)............ 78,000 3,012,750
OrNda HealthCorp (a)............. 68,500 2,003,625
Unison Healthcare Corp. (a)...... 26,000 341,250
------------
5,357,625
------------
INDUSTRIAL (1.3%)
Mattel, Inc. .................... 55,400 1,537,350
Tyco International Ltd. ......... 53,700 2,839,388
------------
4,376,738
------------
INSURANCE (1.1%)
American International Group,
Inc. ........................... 33,750 3,653,437
------------
LEISURE (0.6%)
Mirage Resorts, Inc. (a)......... 86,400 1,868,400
------------
MACHINERY (0.4%)
U.S. Robotics Corp. (a).......... 18,000 1,296,000
------------
MEDICAL EQUIPMENT (3.9%)
Guidant Corp. ................... 60,000 3,420,000
Heartport, Inc. ................. 27,000 617,625
Johnson & Johnson................ 66,552 3,310,962
Medtronic, Inc. ................. 58,700 3,991,600
Waters Corp. (a)................. 56,800 1,725,300
------------
13,065,487
------------
OIL & GAS EXPLORATION (1.1%)
Abacan Resource Corp. (a)........ 235,000 2,041,563
</TABLE>

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

F-36
<PAGE> 118

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
OIL & GAS EXPLORATION (Continued)
Triton Energy Ltd. (a)........... 32,300 $ 1,566,550
------------
3,608,113
------------
OIL SERVICES (0.7%)
Tidewater, Inc. ................. 49,300 2,230,825
------------
RESTAURANTS & LODGING (2.1%)
HFS, Inc. (a).................... 94,100 5,622,475
Lone Star Steakhouse &
Saloon, Inc. (a)................ 51,000 1,364,250
------------
6,986,725
------------
RETAIL (6.1%)
AutoZone, Inc. (a)............... 56,400 1,551,000
Bed, Bath & Beyond, Inc. (a)..... 42,000 1,018,500
Gymboree Corp. (The) (a)......... 20,000 457,500
Home Depot, Inc. (The)........... 42,000 2,105,250
Kohl's Corp. (a)................. 66,200 2,598,350
Kroger Co. (a)................... 46,800 2,176,200
Lowe's Cos., Inc. ............... 72,000 2,556,000
Nike, Inc. Class B............... 66,000 3,943,500
Safeway Inc. (a)................. 70,800 3,026,700
Staples, Inc. (a)................ 45,500 821,844
------------
20,254,844
------------
SOFTWARE (2.0%)
Computer Associates
International, Inc. ............ 90,350 4,494,912
Microsoft Corp. (a).............. 27,600 2,280,450
------------
6,775,362
------------
TECHNOLOGY (6.1%)
Cisco Systems, Inc. (a).......... 49,100 3,123,987
IDT Corp. ....................... 110,000 1,210,000
Intel Corp. ..................... 32,500 4,255,469
Lam Research Corp. (a)........... 31,850 895,781
Linear Technology Corp. ......... 36,000 1,579,500
Oracle Corp. (a)................. 82,025 3,424,544
3Com Corp. (a)................... 79,200 5,811,300
------------
20,300,581
------------
TELECOMMUNICATION SERVICES (1.5%)
Lucent Technologies Inc. ........ 40,000 1,850,000
WorldCom, Inc. (a)............... 120,432 3,138,759
------------
4,988,759
------------
TEXTILE & APPAREL (1.0%)
Nine West Group Inc. (a)......... 47,900 2,221,362
Wolverine World Wide, Inc. ...... 42,000 1,218,000
------------
3,439,362
------------

<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
TURNKEY & SOFTWARE SYSTEMS (0.8%)
Sterling Commerce, Inc. ......... 48,574 $ 1,712,234
Sterling Software, Inc. (a)...... 30,500 964,562
------------
2,676,796
------------
Total Common Stocks
(Cost $137,743,189)............. 192,972,940
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (2.7%)
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER (1.9%)
American Express Credit Corp.
6.55%, due 1/2/97............... $ 6,480,000 6,480,000
------------
Total Commercial Paper
(Cost $6,480,000)............... 6,480,000
------------
FEDERAL AGENCY (0.8%)
Federal Home Loan Bank
Discount Corp.
6.40%, due 1/14/97 (d).......... 2,550,000 2,543,854
------------
Total Federal Agency
(Cost $2,546,249)............... 2,543,854
------------
Total Short-Term Investments
(Cost $9,026,249)............... 9,023,854
------------
Total Investments
(Cost $279,945,974)(i).......... 100.9% 335,727,586(j)
Liabilities in Excess of
Cash and Other Assets........... (0.9) (2,830,198)
--------- ------------
Net Assets....................... 100.0% $332,897,388
========= ============
</TABLE>

- ------------
(a) Non-income producing securities.
(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) May be sold to institutional investors only.
(d) Segregated or partially segregated as collateral for TBA.
(e) Floating rate. Rate shown is the rate in effect at December 31, 1996.
(f) ADR--American Depository Receipt.
(g) ARM--Adjustable Rate Mortgage. Resets annually.
(h) Seasoned--a euro bond that trades in U.S. dollars and must be held for at
least 40 days before it can be sold.
(i) The cost for Federal income tax purposes is $280,040,805.
(j) At December 31, 1996 net unrealized appreciation was $55,686,781, 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 $60,095,740 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $4,408,959.

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

F-37
<PAGE> 119

TOTAL RETURN PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $279,945,974)....... $335,727,586
Cash................................... 17,041
Receivables:
Investment securities sold........... 1,941,934
Dividends and interest............... 1,440,971
Fund shares sold..................... 522,539
Other assets........................... 667
------------
Total assets..................... 339,650,738
------------
LIABILITIES:
Payables:
Investment securities purchased...... 6,499,750
Adviser.............................. 89,671
Administrator........................ 28,022
NYLIAC............................... 23,261
Custodian............................ 10,000
Directors............................ 133
Accrued expenses....................... 102,513
------------
Total liabilities................ 6,753,350
------------
Net assets applicable to outstanding
shares............................... $332,897,388
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares
authorized........................... $ 228,608
Additional paid-in capital............. 280,161,085
Accumulated net realized loss on
investments.......................... (3,273,917)
Net unrealized appreciation on
investments.......................... 55,781,612
------------
Net assets applicable to outstanding
shares............................... $332,897,388
============
Shares of capital stock outstanding.... 22,860,799
============
Net asset value per share
outstanding.......................... $ 14.56
============
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 764,619
Interest............................. 7,771,480
------------
Total income..................... 8,536,099
------------
Expenses:
Advisory............................. 851,397
Administration....................... 532,123
Shareholder communication............ 198,021
Recordkeeping........................ 156,706
Professional......................... 67,220
Custodian............................ 44,863
Directors............................ 12,369
Miscellaneous........................ 15,984
------------
Total expenses before
reimbursement.................. 1,878,683
Expense reimbursement from
Administrator........................ (42,859)
------------
Net expenses..................... 1,835,824
------------
Net investment income.................. 6,700,275
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments....... 925,325
Net change in unrealized appreciation
on investments....................... 23,203,457
------------
Net realized and unrealized gain on
investments.......................... 24,128,782
------------
Net increase in net assets resulting
from operations...................... $ 30,829,057
===========
</TABLE>

- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $3,367.

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

F-38
<PAGE> 120

MAINSTAY VP SERIES FUND, INC.

TOTAL RETURN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

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

Operations:
Net investment income......................................................... $ 6,700,275 $ 4,619,451
Net realized gain on investments.............................................. 925,325 1,771,355
Net change in unrealized appreciation on investments.......................... 23,203,457 29,979,674
------------ ------------
Net increase in net assets resulting from operations.......................... 30,829,057 36,370,480
------------ ------------
Dividends to shareholders:
From net investment income.................................................... (6,719,788) (4,571,400)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.............................................. 114,153,151 52,019,281
Net asset value of shares issued to shareholders in reinvestment of
dividends.................................................................... 6,719,788 4,571,400
------------ ------------
120,872,939 56,590,681
Cost of shares redeemed....................................................... (6,978,226) (15,828,916)
------------ ------------
Increase in net assets derived from capital share transactions.............. 113,894,713 40,761,765
------------ ------------
Net increase in net assets.................................................. 138,003,982 72,560,845
NET ASSETS:
Beginning of year............................................................... 194,893,406 122,332,561
------------ ------------
End of year..................................................................... $332,897,388 $194,893,406
============= =============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
JANUARY 29,
1993 (a)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 13.26 $ 10.58 $ 11.32 $ 10.00
------------ ------------ ------------ ------------
Net investment income................................... 0.30 0.31 0.27 0.16
Net realized and unrealized gain (loss) on
investments........................................... 1.30 2.69 (0.72) 1.34
------------ ------------ ------------ ------------
Total from investment operations........................ 1.60 3.00 (0.45) 1.50
------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income............................ (0.30) (0.32) (0.29) (0.16)
In excess of net realized gain on investments......... -- -- -- (0.02)
------------ ------------ ------------ ------------
Total dividends and distributions....................... (0.30) (0.32) (0.29) (0.18)
------------ ------------ ------------ ------------
Net asset value at end of period........................ $ 14.56 $ 13.26 $ 10.58 $ 11.32
=========== =========== =========== =============
Total investment return (b)............................. 12.08% 28.33% (3.99%) 15.04%
Ratios (to average net assets)/Supplemental Data:
Net investment income................................. 2.52% 3.06% 3.50% 3.48% +
Net expenses.......................................... 0.69% 0.69% 0.69% 0.69% +
Expenses (before reimbursement)....................... 0.71% 0.81% 0.88% 1.07% +
Portfolio turnover rate................................. 175% 253% 297% 197%
Average commission rate paid............................ $ 0.0599 (c) (c) (c)
Net assets at end of period (in 000's).................. $ 332,897 $ 194,893 $ 122,333 $ 55,548
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.

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

F-39
<PAGE> 121

VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
COMMON STOCKS (85.8%)+

<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
AEROSPACE/DEFENSE ELECTRONICS
(2.7%)
Coltec Industries Inc. (a)........ 38,000 $ 717,250
Litton Industries, Inc. (a)....... 23,700 1,128,713
Newport News Shipbuilding Inc.
(a).............................. 3,040 45,600
Northrop Grumman Corp. ........... 17,000 1,406,750
------------
3,298,313
------------
AUTO MANUFACTURING (2.9%)
Ford Motor Co. ................... 64,900 2,068,687
General Motors Corp. ............. 26,000 1,449,500
------------
3,518,187
------------
AUTO PARTS (2.4%)
Echlin Inc. ...................... 44,000 1,391,500
Mark IV Industries, Inc. ......... 65,300 1,477,413
------------
2,868,913
------------
BANKS (6.4%)
Bankers Trust New York Corp. ..... 13,500 1,164,375
Boatmen's Bancshares, Inc. ....... 27,000 1,741,500
Chase Manhattan Corp. ............ 16,000 1,428,000
National City Corp. .............. 7,700 345,537
PNC Bank Corp. ................... 38,000 1,429,750
Wells Fargo & Co. ................ 6,000 1,618,500
------------
7,727,662
------------
BUILDING MATERIALS (1.2%)
Armstrong World Industries,
Inc. ............................ 21,300 1,480,350
------------
CAPITAL GOODS (2.7%)
Case Corp. ....................... 10,100 550,450
Xerox Corp. ...................... 51,200 2,694,400
------------
3,244,850
------------
CHEMICALS (8.7%)
Agrium Inc. ...................... 81,300 1,117,875
Arcadian Corp. ................... 38,800 1,028,200
Dow Chemical Co. ................. 23,600 1,849,650
FMC Corp. (a)..................... 10,700 750,337
Geon Co. (The).................... 49,600 973,400
Georgia Gulf Corp. ............... 36,800 989,000
IMC Global Inc. .................. 64,600 2,527,475
Lyondell Petrochemical Co. ....... 28,300 622,600
PPG Industries, Inc. ............. 1,900 106,638
Terra Industries Inc. ............ 31,300 461,675
------------
10,426,850
------------
COMPUTERS & OFFICE
EQUIPMENT (0.6%)
Gateway 2000, Inc. (a)............ 13,300 712,381
------------
CONGLOMERATES (2.7%)
American Standard Cos. Inc. (a)... 26,500 1,013,625
Tenneco Inc. ..................... 50,600 2,283,325
------------
3,296,950
------------
<CAPTION>
- ------------
+ Percentages indicated are based on Fund net assets.

SHARES VALUE
----------------------
<S> <C> <C>
DOMESTIC OILS (4.0%)
Amerada Hess Corp. ............... 25,000 $ 1,446,875
Noble Affiliates, Inc. ........... 23,200 1,110,700
Parker & Parsley Petroleum Co. ... 13,400 492,450
Unocal Corp. ..................... 42,000 1,706,250
------------
4,756,275
------------
ELECTRICAL
EQUIPMENT (0.9%)
UCAR International Inc. (a)....... 30,000 1,128,750
------------
ENERGY (3.8%)
Coastal Corp. .................... 29,400 1,436,925
MAPCO Inc. ....................... 44,600 1,516,400
PanEnergy Corp. .................. 13,600 612,000
Seagull Energy Corp. (a).......... 42,800 941,600
------------
4,506,925
------------
FINANCE (1.1%)
Travelers Group Inc. ............. 28,066 1,273,495
------------
FOOD (1.7%)
Archer-Daniels-Midland Co. ....... 37,178 817,916
IBP, Inc. ........................ 50,800 1,231,900
------------
2,049,816
------------
FOOD, BEVERAGES & TOBACCO (6.0%)
American Brands, Inc. ............ 37,000 1,836,125
Philip Morris Cos., Inc. ......... 25,800 2,905,725
RJR Nabisco Holdings Corp. ....... 72,200 2,454,800
------------
7,196,650
------------
HEALTH CARE (5.2%)
Aetna Inc. ....................... 34,000 2,720,000
FHP International Corp. (a)....... 5,500 204,187
Humana Inc. (a)................... 102,300 1,956,488
WellPoint Health Networks Inc.
(a).............................. 40,700 1,399,062
------------
6,279,737
------------
HOME BUILDERS (0.9%)
Kaufman and Broad Home Corp. ..... 80,000 1,030,000
------------
HOUSEHOLD PRODUCTS (0.9%)
Premark International, Inc. ...... 50,200 1,116,950
------------
INSURANCE (5.1%)
Allstate Corp. (The).............. 34,000 1,967,750
American International Group,
Inc. ............................ 14,100 1,526,325
Chubb Corp. ...................... 49,200 2,644,500
------------
6,138,575
------------
INTERNATIONAL OIL (2.6%)
Elf Aquitaine ADR (b)............. 36,000 1,629,000
Occidental Petroleum Corp. ....... 65,600 1,533,400
------------
3,162,400
------------
</TABLE>

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

F-40
<PAGE> 122

MAINSTAY VP SERIES FUND, INC.

COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
OIL SERVICES (0.4%)
Union Pacific Resources Group,
Inc. ............................ 16,176 $ 473,148
------------
PAPER & FOREST PRODUCTS (2.6%)
Bowater Inc. ..................... 30,900 1,162,613
Chesapeake Corp. ................. 20,200 633,775
Rayonier Inc. .................... 13,800 529,575
Stone Container Corp. ............ 39,000 580,125
Temple-Inland Inc. ............... 5,000 270,625
------------
3,176,713
------------
RAILROADS (3.4%)
Conrail Inc. ..................... 15,310 1,525,259
Illinios Central Corp. ........... 45,150 1,444,800
Union Pacific Corp. .............. 19,100 1,148,387
------------
4,118,446
------------
RETAIL (3.4%)
Dillard Department Stores, Inc.
Class A ......................... 20,000 617,500
Federated Department Stores, Inc.
(a).............................. 29,200 996,450
Kroger Co. (a).................... 19,900 925,350
Penney (J.C.) Co. Inc. ........... 32,000 1,560,000
------------
4,099,300
------------
TECHNOLOGY (2.1%)
International Business Machines
Corp. ........................... 16,600 2,506,600
------------
TEXTILE & APPAREL (4.0%)
Burlington Industries, Inc. (a)... 51,000 561,000
Fruit of the Loom, Inc. Class A
(a).............................. 42,500 1,609,688
Reebok International Ltd. ........ 39,700 1,667,400
Spring Industries, Inc. Class
A ............................... 21,900 941,700
------------
4,779,788
------------
TIRE & RUBBER (1.6%)
Goodyear Tire & Rubber Co.
(The)............................ 36,200 1,859,775
------------
TRANSPORTATION (1.1%)
CSX Corp. ........................ 32,200 1,360,450
------------

<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
UTILITIES--ELECTRIC (4.7%)
Entergy Corp. .................... 31,400 $ 871,350
Long Island Lighting Co. ......... 74,700 1,652,737
Niagara Mohawk Power Corp. (a).... 80,100 790,988
Pinnacle West Capital Corp. ...... 32,300 1,025,525
Unicom Corp. ..................... 49,000 1,329,125
------------
5,669,725
------------
Total Common Stocks
(Cost $90,162,294)............... 103,257,974
------------
SHORT-TERM
INVESTMENTS (13.6%)
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER (13.6%)
American Express Credit Corp.
6.30%, due 1/3/97................ $4,435,000 4,435,000
American General Finance Corp.
5.95%, due 1/2/97................ 6,687,000 6,687,000
Prudential Funding Corp.
5.60%, due 1/6/97................ 5,265,000 5,265,000
------------
Total Short-Term Investments
(Cost $16,387,000)............... 16,387,000
------------
Total Investments
(Cost $106,549,294) (c).......... 99.4% 119,644,974(d)
Cash and Other Assets,
Less Liabilities................. 0.6 769,914
------------
Net Assets........................ 100.0% $120,414,888
============
</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, 1996 net unrealized appreciation was $13,095,680, 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 $14,084,447 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $988,767.

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

F-41
<PAGE> 123

VALUE PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $106,549,294)....... $119,644,974
Cash................................... 136
Receivables:
Fund shares sold..................... 613,832
Dividends and interest............... 265,439
Other assets........................... 124
------------
Total assets..................... 120,524,505
------------
LIABILITIES:
Payables:
Adviser.............................. 35,066
NYLIAC............................... 24,968
Administrator........................ 9,741
Custodian............................ 3,500
Organization......................... 240
Directors............................ 39
Accrued expenses....................... 36,063
------------
Total liabilities................ 109,617
------------
Net assets applicable to outstanding
shares............................... $120,414,888
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 86,620
Additional paid-in capital............. 106,330,669
Accumulated undistributed net
investment income.................... 2,636
Accumulated undistributed net realized
gain on investments.................. 899,283
Net unrealized appreciation on
investments.......................... 13,095,680
------------
Net assets applicable to outstanding
shares............................... $120,414,888
============
Shares of capital stock outstanding.... 8,662,000
============
Net asset value per share
outstanding.......................... $ 13.90
============
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 1,410,854
Interest............................. 499,148
------------
Total income..................... 1,910,002
------------
Expenses:
Advisory............................. 242,719
Administration....................... 134,844
Shareholder communication............ 64,825
Recordkeeping........................ 37,425
Professional......................... 31,112
Custodian............................ 18,155
Directors............................ 2,386
Miscellaneous........................ 2,278
------------
Total expenses before
reimbursement.................. 533,744
Expense reimbursement from
Administrator........................ (41,564)
------------
Net expenses..................... 492,180
------------
Net investment income.................. 1,417,822
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments....... 2,468,445
Net change in unrealized appreciation
on investments....................... 11,576,673
------------
Net realized and unrealized gain on
investments.......................... 14,045,118
------------
Net increase in net assets resulting
from operations...................... $ 15,462,940
===========
</TABLE>

- ------------
(a) Dividends recorded net of foreign withholding taxes in the amount of $7,472.

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

F-42
<PAGE> 124

MAINSTAY VP SERIES FUND, INC.

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

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

Operations:
Net investment income......................................................... $ 1,417,822 $ 196,798
Net realized gain on investments.............................................. 2,468,445 46,962
Net change in unrealized appreciation on investments.......................... 11,576,673 1,519,007
------------ ------------
Net increase in net assets resulting from operations.......................... 15,462,940 1,762,767
------------ ------------
Dividends and distributions to shareholders:
From net investment income.................................................... (1,415,317) (196,667)
From net realized gain on investments......................................... (1,616,124) --
------------ ------------
Total dividends and distributions to shareholders......................... (3,031,441) (196,667)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.............................................. 81,567,373 17,977,153
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions............................................................ 3,031,441 196,667
------------ ------------
84,598,814 18,173,820
Cost of shares redeemed....................................................... (1,044,875) (310,470)
------------ ------------
Increase in net assets derived from capital share transactions.............. 83,553,939 17,863,350
------------ ------------
Net increase in net assets.................................................. 95,985,438 19,429,450
NET ASSETS:
Beginning of period............................................................. 24,429,450 5,000,000
------------ ------------
End of period................................................................... $120,414,888 $24,429,450
============= =============
Accumulated undistributed net investment income................................. $ 2,636 $ 131
============= =============
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
MAY 1,
YEAR 1995 (a)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995
----------------------------
<S> <C> <C>
Net asset value at beginning of period............................................ $ 11.58 $ 10.00
------------ ------------
Net investment income............................................................. 0.17 0.10
Net realized and unrealized gain on investments................................... 2.52 1.58
------------ ------------
Total from investment operations.................................................. 2.69 1.68
------------ ------------
Less dividends and distributions:
From net investment income...................................................... (0.17) (0.10)
From net realized gain on investments........................................... (0.20) --
------------ ------------
Total dividends and distributions................................................. (0.37) (0.10)
------------ ------------
Net asset value at end of period.................................................. $ 13.90 $ 11.58
============= =============
Total investment return (b)....................................................... 23.22% 16.76%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................................................... 2.10% 2.57% +
Net expenses.................................................................... 0.73% 0.73% +
Expenses (before reimbursement)................................................. 0.79% 1.45% +
Portfolio turnover rate........................................................... 41% 20%
Average commission rate paid...................................................... $ 0.0593 (c)
Net assets at end of period (in 000's)............................................ $ 120,415 $ 24,429
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.

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

F-43
<PAGE> 125

BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996

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

PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
General Motors Acceptance Corp.
5.625%, due 2/15/01............. 6,000,000 5,797,500
9.625%, due 12/15/01............ 1,000,000 1,122,500
Mellon Financial Co.
7.625%, due 11/15/99............ 3,000,000 3,108,750
------------
27,038,530
------------
FOOD (0.5%)
ConAgra, Inc.
9.875%, due 11/15/05............ $ 1,000,000 $ 1,183,750
------------
LEISURE/AMUSEMENT (2.6%)
Walt Disney Co. (The)
6.75%, due 3/30/06.............. 6,000,000 5,955,000
------------
PAPER/PRODUCTS (2.2%)
Champion International Corp.
9.875%, due 6/1/00.............. 4,500,000 4,944,375
------------
RETAIL STORES (5.4%)
Price/Costco, Inc.
7.125%, due 6/15/05............. 5,000,000 5,000,000
Sears Roebuck & Co.
8.45%, due 11/1/98.............. 7,000,000 7,262,500
------------
12,262,500
------------
TELECOMMUNICATION
SERVICES (1.9%)
British Telecommunications PLC
9.375%, due 2/15/99 (c)......... 4,200,000 4,457,250
------------
Total Corporate Bonds
(Cost $98,630,193).............. 101,519,280
------------
U.S. GOVERNMENT & FEDERAL
AGENCIES (50.1%)
FEDERAL HOME LOAN
MORTGAGE CORPORATION (4.4%)
6.655%, due 5/20/99............. 10,000,000 10,007,000
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (6.7%)
4.95%, due 9/30/98.............. 10,000,000 9,827,600
8.70%, due 6/10/99.............. 5,000,000 5,291,300
------------
15,118,900
------------
UNITED STATES TREASURY BONDS
(17.0%)
6.75%, due 8/15/26.............. 32,000,000 32,264,000
10.75%, due 5/15/03............. 5,000,000 6,154,650
------------
38,418,650
------------
</TABLE>

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

F-44
<PAGE> 126

MAINSTAY VP SERIES FUND, INC.

<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES
(22.0%)
6.25%, due 2/15/03.............. $20,000,000 $ 19,985,800
6.50%, due 10/15/06............. 5,000,000 5,025,000
7.125%, due 2/29/00............. 5,000,000 5,146,050
8.50%, due 11/15/00............. 18,200,000 19,657,274
------------
49,814,124
------------
Total U.S. Government &
Federal Agencies
(Cost $112,723,469)............. 113,358,674
------------
Total Long-Term Bonds
(Cost $211,353,662)............. 214,877,954
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (3.6%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
COMMERCIAL PAPER (3.6%)
Associates Corp. of North America
5.23%, due on demand (b)........ 145,000 145,000
Duracell, Inc.
6.75%, due 1/2/97............... 5,115,000 5,114,041
General Electric Capital Corp.
5.90%, due 1/3/97............... 2,920,000 2,919,043
------------
Total Short-Term Investments
(Cost $8,178,084)............... 8,178,084
------------
Total Investments
(Cost $219,531,746) (d)......... $ 98.5% $223,056,038(e)
Cash and Other Assets,
Less Liabilities................ 1.5 3,318,848
----------- ------------
Net Assets....................... 100.0% $226,374,886
=========== ============
</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, 1996.
(c) Yankee bonds.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At December 31, 1996 net unrealized appreciation was $3,524,292, 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 $4,789,524 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,265,232.

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

F-45
<PAGE> 127

BOND PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $219,531,746)....... $223,056,038
Cash................................... 4,111
Receivables:
Interest............................. 3,702,071
Fund shares sold..................... 99,148
Other assets........................... 670
------------
Total assets..................... 226,862,038
============
LIABILITIES:
Payables:
Fund shares redeemed................. 201,787
Adviser.............................. 143,053
Administrator........................ 38,459
Directors............................ 98
Accrued expenses....................... 103,755
------------
Total liabilities................ 487,152
------------
Net assets applicable to outstanding
shares............................... $226,374,886
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 176,481
Additional paid-in capital............. 224,460,425
Accumulated net realized loss on
investments.......................... (1,786,312)
Net unrealized appreciation on
investments.......................... 3,524,292
------------
Net assets applicable to outstanding
shares............................... $226,374,886
============
Shares of capital stock outstanding.... 17,648,142
============
Net asset value per share
outstanding.......................... $ 12.83
============
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 15,704,812
------------
Expenses:
Advisory............................. 569,711
Administration....................... 455,769
Recordkeeping........................ 127,739
Shareholder communication............ 93,055
Professional......................... 52,075
Directors............................ 11,273
Portfolio pricing.................... 6,069
Miscellaneous........................ 6,161
------------
Total expenses................... 1,321,852
------------
Net investment income.................. 14,382,960
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments....... 961,896
Net change in unrealized appreciation
on investments....................... (10,866,414)
------------
Net realized and unrealized loss on
investments.......................... (9,904,518)
------------
Net increase in net assets resulting
from operations...................... $ 4,478,442
===========
</TABLE>

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

F-46
<PAGE> 128

MAINSTAY VP SERIES FUND, INC.

BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

Operations:
Net investment income............................................................. $ 14,382,960 $ 14,495,255
Net realized gain on investments.................................................. 961,896 4,716,932
Net change in unrealized appreciation (depreciation) on investments............... (10,866,414) 17,768,492
------------ ------------
Net increase in net assets resulting from operations.............................. 4,478,442 36,980,679
------------ ------------
Dividends to shareholders:
From net investment income........................................................ (14,405,743) (14,491,993)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 25,643,335 22,956,887
Net asset value of shares issued to shareholders in reinvestment of dividends..... 14,405,743 14,491,993
------------ ------------
40,049,078 37,448,880
Cost of shares redeemed........................................................... (38,777,335) (31,593,131)
------------ ------------
Increase in net assets derived from capital share transactions.................. 1,271,743 5,855,749
------------ ------------
Net increase (decrease) in net assets........................................... (8,655,558) 28,344,435
NET ASSETS:
Beginning of year................................................................... 235,030,444 206,686,009
------------ ------------
End of year......................................................................... $226,374,886 $235,030,444
=========== ===========
Accumulated undistributed net investment income..................................... $ -- $ 3,457
=========== ===========
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.87 0.88 0.88 0.95 0.92
Net realized and unrealized gain (loss) on
investments............................... (0.59) 1.33 (1.34) 0.53 0.13
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 0.28 2.21 (0.46) 1.48 1.05
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment income................ (0.87) (0.88) (0.88) (0.96) (0.91)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91
=========== =========== =========== =========== ===========
Total investment return..................... 2.05% 18.31% (3.39%) 11.40% 8.26%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 6.31% 6.55% 6.53% 6.79% 7.54%
Net expenses.............................. 0.58% 0.62% 0.62%# 0.27%# 0.25%
Expenses (before reimbursement)........... 0.58% 0.91% 0.67%# 0.27%# 0.25%
Portfolio turnover rate..................... 103% 81% 88% 41% 10%
Net assets at end of year (in 000's)........ $ 226,375 $ 235,030 $ 206,686 $ 228,683 $ 203,947
</TABLE>

- ------------
# At the MainStay VP Series Fund, Inc.'s shareholders meeting on December 14,
1993, the shareholders voted to have the Bond Portfolio assume certain
administrative and operating expenses of the Fund previously borne by New
York Life.

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

F-47
<PAGE> 129

GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996

<TABLE>
<CAPTION>
COMMON STOCKS (94.5%)+
SHARES VALUE
----------------------
<S> <C> <C>
AEROSPACE/DEFENSE (6.0%)
Boeing Co. ....................... 60,000 $ 6,382,500
Coltec Industries Inc. (a)........ 370,000 6,983,750
Lockheed Martin Corp. ............ 61,200 5,599,800
Loral Space &
Communications Ltd. (a).......... 258,500 4,749,937
Northrop Grumman Corp. ........... 80,000 6,620,000
UNC Inc. (a)...................... 300,000 3,600,000
------------
33,935,987
------------
APPAREL MANUFACTURERS (1.0%)
Fruit of the Loom, Inc. Class A
(a).............................. 150,000 5,681,250
------------
BANKS (5.7%)
AmSouth Bancorp. ................. 62,400 3,018,600
Bank of New York Co., Inc.
(The)............................ 150,000 5,062,500
Bankers Trust New York Corp. ..... 75,000 6,468,750
Chase Manhattan Corp. ............ 93,600 8,353,800
Commerce Bancshares, Inc. ........ 78,277 3,620,311
Morgan (J. P.) & Co. Inc. ........ 60,000 5,857,500
------------
32,381,461
------------
BEVERAGES (1.0%)
Anheuser-Busch Cos., Inc. ........ 137,000 5,480,000
------------
BUILDING & MAINTENANCE (0.5%)
ADT Ltd. (a)...................... 125,000 2,859,375
------------
BUILDING PRODUCTS (1.0%)
Sherwin-Williams Co. (The)........ 100,000 5,600,000
------------
BUSINESS SERVICES (0.6%)
AccuStaff, Inc. (a)............... 150,000 3,168,750
------------
CHEMICALS (2.2%)
Praxair, Inc. .................... 100,000 4,612,500
Sealed Air Corp. (a).............. 182,500 7,596,562
------------
12,209,062
------------
COMMERCIAL SERVICES (0.9%)
Service Corp. International....... 190,000 5,320,000
------------
COMMUNICATIONS (1.9%)
Andrew Corp. (a).................. 45,000 2,387,812
Northern Telecom Ltd. ............ 77,500 4,795,313
Teleport Communications
Group Inc. Class A (a)........... 123,500 3,766,750
------------
10,949,875
------------
COMPUTERS & BUSINESS
EQUIPMENT (7.7%)
Computer Associates International,
Inc. ............................ 125,000 6,218,750
Electronic Data Systems Corp. .... 100,000 4,325,000
First Data Corp. ................. 150,060 5,477,190
- ------------
<CAPTION>
+ Percentages indicated are based on Fund net assets.
SHARES VALUE
----------------------
<S> <C> <C>
COMPUTERS & BUSINESS
EQUIPMENT (Continued)
FIserv, Inc. (a).................. 111,000 $ 4,079,250
Informix Corp. (a)................ 100,000 2,037,500
Intel Corp. ...................... 50,000 6,546,875
Microsoft Corp. (a)............... 40,000 3,305,000
Oracle Corp. (a).................. 110,000 4,592,500
Sungard Data Systems Inc. (a)..... 125,000 4,937,500
Zebra Technologies Corp. Class A
(a).............................. 75,000 1,753,125
------------
43,272,690
------------
DRUGS (4.6%)
American Home Products Corp. ..... 70,000 4,103,750
Amgen Inc. (a).................... 50,000 2,718,750
Genzyme Corp. (a)................. 120,000 2,610,000
Johnson & Johnson................. 60,000 2,985,000
Lilly (Eli) & Co. ................ 50,000 3,650,000
Pfizer Inc. ...................... 50,000 4,143,750
Warner-Lambert Co. ............... 80,000 6,000,000
------------
26,211,250
------------
ELECTRICAL (3.8%)
Emerson Electric Co. ............. 70,000 6,772,500
General Electric Co. ............. 100,000 9,887,500
Mark IV Industries, Inc. ......... 223,758 5,062,525
------------
21,722,525
------------
ELECTRONICS (2.7%)
Computer Products Inc. (a)........ 150,000 2,925,000
LSI Logic Corp. (a)............... 100,000 2,675,000
Teradyne, Inc. (a)................ 129,800 3,163,875
Texas Instruments, Inc. .......... 100,000 6,375,000
------------
15,138,875
------------
FINANCE (4.2%)
Federal Home Loan Mortgage
Corp. ........................... 40,000 4,405,000
Federal National Mortgage
Association...................... 160,000 5,960,000
Great Western Financial Corp. .... 175,000 5,075,000
Republic New York Corp. .......... 100,000 8,162,500
------------
23,602,500
------------
FOODS (3.2%)
Chiquita Brands International,
Inc. ............................ 168,000 2,142,000
Dole Food Co., Inc. .............. 145,000 4,911,875
Sara Lee Corp. ................... 144,000 5,364,000
Sysco Corp. ...................... 180,000 5,872,500
------------
18,290,375
------------
HEAVY INDUSTRIAL (0.4%)
U.S. Filter Corp. (a)............. 75,000 2,381,250
------------
HOSPITAL & MEDICAL SERVICES (5.4%)
Guidant Corp. .................... 110,000 6,270,000
HEALTHSOUTH Corp. (a)............. 70,100 2,707,613
Medtronic, Inc. .................. 70,000 4,760,000
</TABLE>

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

F-48
<PAGE> 130

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------
<S> <C> <C>
HOSPITAL & MEDICAL SERVICES
(Continued)
NABI Inc. (a)..................... 245,000 $ 2,143,750
Orthodontic Centers
of America Inc. (a).............. 150,000 2,400,000
Quorum Health Group, Inc. (a)..... 100,000 2,975,000
Sybron International Corp. (a).... 165,000 5,445,000
U.S. Surgical Corp. .............. 99,600 3,921,750
------------
30,623,113
------------
HOUSEHOLD PRODUCTS (2.1%)
Colgate-Palmolive Co. ............ 65,000 5,996,250
Procter & Gamble Co. ............. 54,700 5,880,250
------------
11,876,500
------------
INSURANCE-PROPERTY & CASUALTY
(4.3%)
Allstate Corp. ................... 120,000 6,945,000
American International Group,
Inc. ............................ 70,000 7,577,500
Chubb Corp. ...................... 60,400 3,246,500
General Re Corp. ................. 40,000 6,310,000
------------
24,079,000
------------
LEISURE/AMUSEMENT (1.2%)
Harrah's Entertainment, Inc.
(a).............................. 82,000 1,629,750
International Game Technology..... 286,000 5,219,500
------------
6,849,250
------------
LODGING & RESTAURANTS (1.4%)
Landry's Seafood Restaurants, Inc.
(a).............................. 50,000 1,068,750
Marriott International, Inc. ..... 125,000 6,906,250
------------
7,975,000
------------
MACHINERY/CAPITAL GOODS (0.9%)
AGCO Corp. ....................... 169,800 4,860,525
------------
MANUFACTURING (1.3%)
AlliedSignal Inc. ................ 111,000 7,437,000
------------
MEDIA & INFORMATION
SERVICES (2.7%)
Cognizant Corp. .................. 175,000 5,775,000
Heritage Media Corp. (a).......... 260,000 2,925,000
Time Warner Inc. ................. 175,000 6,562,500
------------
15,262,500
------------
METALS (0.5%)
Titanium Metals Corp. (a)......... 80,000 2,630,000
------------
OIL & ENERGY SERVICES (10.9%)
Apache Corp. ..................... 160,000 5,660,000
Aquila Gas Pipeline Corp. ........ 107,800 1,711,325
Burlington Resources, Inc. ....... 100,000 5,037,500
Consolidated Natural Gas Co. ..... 85,000 4,696,250
Global Marine, Inc. (a)........... 200,000 4,125,000
Halliburton Co. .................. 85,000 5,121,250

<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
OIL & ENERGY SERVICES (Continued)
Mobil Corp. ...................... 40,000 $ 4,890,000
Quaker State Corp. ............... 333,000 4,703,625
Schlumberger Ltd. ................ 60,000 5,992,500
Smith International, Inc. (a)..... 150,000 6,731,250
Tidewater Inc. ................... 125,000 5,656,250
Triton Energy Ltd. Class A (a).... 100,000 4,850,000
Union Pacific Resources Group,
Inc. ............................ 63,520 1,857,960
XCL Ltd. (a)...................... 1,316,800 246,900
------------
61,279,810
------------
PACKAGING (1.1%)
Crown Cork & Seal Co., Inc. ...... 110,000 5,981,250
------------
PAPER & FOREST PRODUCTS (1.9%)
Georgia-Pacific Corp. ............ 25,000 1,800,000
International Paper Co. .......... 62,600 2,527,475
Kimberly-Clark Corp. ............. 70,000 6,667,500
------------
10,994,975
------------
POLLUTION CONTROL (0.5%)
Philip Environmental, Inc. (a).... 200,000 2,900,000
------------
REAL ESTATE (2.3%)
Chelsea GCA Realty, Inc. ......... 96,300 3,334,388
First Industrial Realty Trust,
Inc. ............................ 175,000 5,315,625
Liberty Property Trust............ 166,500 4,287,375
------------
12,937,388
------------
RETAIL TRADE & MERCHANDISING
(6.7%)
American Stores Co. .............. 124,800 5,101,200
Consolidated Stores Corp. (a)..... 156,250 5,019,531
CVS Corp. ........................ 150,000 6,206,250
Kroger Co. (a).................... 148,000 6,882,000
Price/Costco, Inc. (a)............ 250,000 6,281,250
Smart & Final Inc. ............... 163,000 3,524,875
Wal-Mart Stores, Inc. ............ 200,000 4,575,000
------------
37,590,106
------------
TELECOMMUNICATIONS (0.3%)
ADC Telecommunications Inc. (a)... 50,000 1,556,250
------------
TRANSPORTATION (2.0%)
AMR Corp. (a)..................... 60,000 5,287,500
Union Pacific Corp. .............. 100,000 6,012,500
------------
11,300,000
------------
UTILITIES-ELECTRIC (0.8%)
CMS Energy Corp. ................. 135,000 4,539,375
------------
WASTE DISPOSAL (0.8%)
Republic Industries Inc. (a)...... 150,000 4,678,125
------------
Total Common Stocks
(Cost $426,782,343).............. 533,555,392
------------
</TABLE>

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

F-49
<PAGE> 131

GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996

<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (5.6%)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
COMMERCIAL PAPER (5.6%)
AlliedSignal Inc.
6.10%, due 1/3/97................ $7,000,000 $ 6,997,628
Aluminum Co. of America
5.45%, due 1/8/97................ 4,190,000 4,185,560
American Greetings Corp.
5.75%, due 1/2/97................ 3,985,000 3,984,363
Associates Corp. of North America
5.23%, due on demand (b)......... 160,000 160,000
Donnelley (R.R.) & Sons Co.
6.95%, due 1/2/97................ 6,000,000 5,998,842
General Electric Capital Corp.
5.90%, due 1/3/97................ 2,295,000 2,294,248
Potomac Electric Power Co.
6.00%, due 1/8/97................ 8,000,000 7,990,666
------------
Total Short-Term Investments
(Cost $31,611,307)............... 31,611,307
------------
Total Investments
(Cost $458,393,650) (c).......... 100.1% 565,166,699(d)
Liabilities In Excess of
Cash and Other Assets............ (0.1) (481,288)
---------- ------------
Net Assets........................ 100.0% $564,685,411
========== ============
</TABLE>

- ------------
(a) Non-income producing securities.
(b) Adjustable Rate. Rate shown is the rate in effect at December 31, 1996.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At December 31, 1996 net unrealized appreciation was $106,773,049, 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 $116,308,390 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $9,535,341.

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

F-50
<PAGE> 132

MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 6,340,368
Interest............................. 1,309,742
------------
Total income..................... 7,650,110
------------
Expenses:
Advisory............................. 1,233,329
Administration....................... 986,663
Recordkeeping........................ 283,024
Shareholder communication............ 211,872
Professional......................... 88,421
Directors............................ 23,546
Miscellaneous........................ 12,482
------------
Total expenses................... 2,839,337
------------
Net investment income.................. 4,810,773
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments....... 69,850,131
Net change in unrealized appreciation
on investments....................... 32,938,177
------------
Net realized and unrealized gain on
investments.......................... 102,788,308
------------
Net increase in net assets resulting
from operations...................... $107,599,081
===========
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $4,231.
</TABLE>

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

F-51
<PAGE> 133

GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

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

Operations:
Net investment income............................................................. $ 4,810,773 $ 4,885,469
Net realized gain on investments.................................................. 69,850,131 34,444,510
Net change in unrealized appreciation on investments.............................. 32,938,177 56,914,338
------------ ------------
Net increase in net assets resulting from operations.............................. 107,599,081 96,244,317
------------ ------------
Dividends and distributions to shareholders:
From net investment income........................................................ (4,810,773) (4,897,272)
From net realized gain on investments............................................. (69,699,164) (34,471,675)
------------ ------------
Total dividends and distributions to shareholders............................. (74,509,937) (39,368,947)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 74,877,524 35,852,696
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions.................................................................... 74,509,937 39,368,947
------------ ------------
149,387,461 75,221,643
Cost of shares redeemed........................................................... (45,298,015) (34,751,127)
------------ ------------
Increase in net assets derived from capital share transactions.................. 104,089,446 40,470,516
------------ ------------
Net increase in net assets...................................................... 137,178,590 97,345,886
NET ASSETS:
Beginning of year................................................................... 427,506,821 330,160,935
------------ ------------
End of year......................................................................... $564,685,411 $427,506,821
=========== ===========
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected Per Share Data and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.18 0.22 0.22 0.24 0.22
Net realized and unrealized gain (loss) on
investments............................... 4.06 4.06 (0.03) 1.88 1.72
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 4.24 4.28 0.19 2.12 1.94
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income................ (0.18) (0.22) (0.22) (0.25) (0.22)
From net realized gain on investments..... (2.65) (1.53) (0.92) (1.76) (1.76)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions........... (2.83) (1.75) (1.14) (2.01) (1.98)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53
=========== =========== =========== =========== ===========
Total investment return..................... 24.50% 29.16% 1.20% 13.71% 12.42%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 0.98% 1.29% 1.41% 1.42% 1.50%
Net expenses.............................. 0.58% 0.62% 0.62%# 0.27%# 0.27%
Expenses (before reimbursement)........... 0.58% 0.91% 0.65%# 0.27%# 0.27%
Portfolio turnover rate..................... 104% 104% 108% 121% 82%
Average commission rate paid................ $ 0.0595 (a) (a) (a) (a)
Net assets at end of year (in 000's)........ $ 564,685 $ 427,507 $ 330,161 $ 319,196 $ 272,834
</TABLE>

- ------------
(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
# At the MainStay VP Series Fund, Inc.'s shareholders meeting on December 14,
1993, the shareholders voted to have the Growth Equity Portfolio assume
certain administrative and operating expenses of the Fund previously borne
by New York Life.

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

F-52
<PAGE> 134
MAINSTAY VP SERIES FUND, INC.

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996

<TABLE>
<CAPTION>
COMMON STOCKS (96.2%)+
SHARES VALUE
------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (2.0%)
Boeing Co. ..................... 13,719 $ 1,459,359
General Dynamics Corp. ......... 2,418 170,469
Lockheed Martin Corp. .......... 7,308 668,682
McDonnell Douglas Corp. ........ 8,196 524,544
Northrop Grumman Corp. ......... 2,190 181,222
Raytheon Co. ................... 9,079 436,927
Rockwell International Corp. ... 8,291 504,715
United Technologies Corp. ...... 9,345 616,770
------------
4,562,688
------------
AIRLINES (0.3%)
AMR Corp. (a)................... 3,457 304,648
Delta Air Lines, Inc. .......... 2,945 208,727
Southwest Airlines Co. ......... 5,506 121,820
USAir Group, Inc. (a)........... 2,312 54,043
------------
689,238
------------
ALUMINUM (0.4%)
Alcan Aluminum Ltd. ............ 8,632 290,251
Aluminum Co. of America......... 6,718 428,272
Reynolds Metals Co. ............ 2,418 136,315
------------
854,838
------------
AUTOMOBILES (1.8%)
Chrysler Corp. ................. 27,924 921,492
Ford Motor Co. ................. 45,305 1,444,097
General Motors Corp. ........... 28,882 1,610,171
------------
3,975,760
------------
AUTOPARTS--AFTER MARKET (0.3%)
Cooper Tire & Rubber Co. ....... 3,180 62,805
Echlin Inc. .................... 2,383 75,362
Genuine Parts Co. .............. 4,670 207,815
Goodyear Tire & Rubber Co. ..... 5,941 305,219
------------
651,201
------------
BEVERAGES--ALCOHOLIC (0.7%)
Anheuser-Busch Cos., Inc. ...... 19,023 760,920
Brown-Forman Corp. Class B...... 2,658 121,604
Coors (Adolph) Co. Class B...... 1,468 27,892
Seagram Co. Ltd. ............... 14,254 552,342
------------
1,462,758
------------
BEVERAGES--SOFT DRINKS (3.0%)
Coca-Cola Co. .................. 94,994 4,999,059
PepsiCo, Inc. .................. 59,271 1,733,677
------------
6,732,736
------------
BROADCAST/MEDIA (0.4%)
Comcast Corp. Class A........... 12,452 221,801
Tele-Communications TCI Group
Series A (a)................... 25,365 331,331
U.S. West Media Group (a)....... 23,762 439,597
------------
992,729
------------
</TABLE>
- ------------
+ Percentages indicated are based on Fund net assets.

<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
BUILDING MATERIALS (0.2%)
Masco Corp. .................... 6,131 220,716
Owens-Corning Corp. ............ 1,998 85,165
Sherwin-Williams Co. ........... 3,230 180,880
------------
486,761
------------
</TABLE>
- ------------
+ Percentages indicated are based on Fund net assets.

<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
CHEMICALS (2.3%)
Air Products & Chemicals,
Inc. .......................... 4,294 $ 296,823
Dow Chemical Co. ............... 9,421 738,371
Du Pont (E.I.) De Nemours &
Co. ........................... 21,540 2,032,838
Eastman Chemical Co. ........... 3,115 172,104
Goodrich (B.F.) Co. ............ 2,046 82,863
Hercules, Inc. ................. 4,084 176,633
Monsanto Co. ................... 22,473 873,638
Praxair, Inc. .................. 5,890 271,676
Rohm & Haas Co. ................ 2,471 201,695
Union Carbide Corp. ............ 5,093 208,176
------------
5,054,817
------------
CHEMICALS--DIVERSIFIED (0.3%)
Avery Dennison Corp. ........... 4,110 145,391
Engelhard Corp. ................ 5,496 105,111
FMC Corp. (a)................... 1,450 101,681
PPG Industries Inc. ............ 7,135 400,452
------------
752,635
------------
CHEMICALS--SPECIALTY (0.3%)
Grace (W.R.) & Co. ............. 3,364 174,087
Great Lakes Chemical Corp. ..... 2,481 115,987
Morton International, Inc. ..... 5,405 220,254
Nalco Chemical Co. ............. 2,521 91,071
Sigma-Aldrich Corp. ............ 1,897 118,444
------------
719,843
------------
COMMUNICATION--EQUIPMENT
MANUFACTURERS (2.1%)
Andrew Corp. (a)................ 2,347 124,537
Bay Networks, Inc. (a).......... 7,217 150,655
Cabletron Systems, Inc. (a)..... 5,936 197,372
Cisco Systems, Inc. (a)......... 24,827 1,579,618
DSC Communications Corp. (a).... 4,408 78,793
General Instrument Corp. (a).... 5,206 112,580
Lucent Technologies Inc. ....... 24,416 1,129,240
Northern Telecom Ltd. .......... 9,874 610,954
Scientific-Atlanta, Inc. ....... 2,956 44,340
Tellabs, Inc. (a)............... 6,922 260,440
3Com Corp. (a).................. 6,437 472,315
------------
4,760,844
------------
COMPUTERS--SOFTWARE & SERVICES
(3.2%)
Autodesk, Inc. ................. 1,732 48,496
Automatic Data Processing,
Inc. .......................... 11,058 474,112
Ceridian Corp. (a).............. 2,629 106,475
Computer Associates
International, Inc. ........... 13,936 693,316
Computer Sciences Corp. (a)..... 2,838 233,071
First Data Corp. ............... 17,057 622,580
Microsoft Corp. (a)............. 45,599 3,767,617
Novell Inc. (a)................. 13,157 124,581
Oracle Corp. (a)................ 25,064 1,046,422
Shared Medical Systems Corp. ... 920 45,310
------------
7,161,980
------------
</TABLE>

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

F-53
<PAGE> 135

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
COMPUTER SYSTEMS (3.5%)
Amdahl Corp. (a)................ 4,529 $ 54,914
Apple Computer, Inc. (a)........ 4,693 97,967
Compaq Computer Corp. (a)....... 10,236 760,023
Data General Corp. (a).......... 1,474 21,373
Dell Computer Corp. (a)......... 6,870 364,969
Digital Equipment Corp. (a)..... 5,883 213,994
EMC Corp. (a)................... 8,777 290,738
Hewlett-Packard Co. ............ 38,966 1,958,042
Intergraph Corp. (a)............ 1,748 17,917
International Business Machines
Corp. ......................... 19,748 2,981,948
Seagate Technology (a).......... 9,584 378,568
Silicon Graphics Inc. (a)....... 6,691 170,620
Sun Microsystems (a)............ 14,103 362,271
Tandem Computers Inc. (a)....... 4,379 60,211
Unisys Corp. (a)................ 6,571 44,354
------------
7,777,909
------------
CONGLOMERATES (0.3%)
Tenneco, Inc. .................. 6,567 296,336
Textron Inc. ................... 3,100 292,175
------------
588,511
------------
CONTAINERS--METAL & GLASS (0.1%)
Ball Corp. ..................... 1,134 29,484
Crown Cork & Seal Co., Inc. .... 4,919 267,471
------------
296,955
------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ................ 2,034 75,004
Stone Container Corp. .......... 3,708 55,157
Temple-Inland Inc. ............. 2,090 113,121
------------
243,282
------------
COSMETICS (0.8%)
Alberto-Culver Co. Class B...... 1,097 52,656
Avon Products, Inc. ............ 5,142 293,737
Gillette Co. ................... 17,035 1,324,471
International Flavors &
Fragrances Inc. ............... 4,270 192,150
------------
1,863,014
------------
DRUGS (4.0%)
Lilly (Eli) & Co. .............. 20,959 1,530,007
Merck & Co., Inc. .............. 46,061 3,650,334
Pfizer Inc. .................... 24,606 2,039,222
Pharmacia & Upjohn, Inc. ....... 19,435 770,112
Schering-Plough Corp. .......... 14,049 909,673
------------
8,899,348
------------
ELECTRIC POWER COMPANIES (2.8%)
American Electric Power Co.,
Inc. .......................... 7,133 293,345
Baltimore Gas & Electric Co. ... 5,626 150,495
Carolina Power & Light Co. ..... 5,845 213,342
Central & South West Corp. ..... 7,963 204,052
Cinergy Corp. .................. 6,063 202,353
Consolidated Edison Co. of New
York, Inc. .................... 8,986 262,840
Dominion Resources, Inc. ....... 6,748 259,798

<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
ELECTRIC POWER
COMPANIES (Continued)
DTE Energy Co. ................. 5,499 $ 178,030
Duke Power Co. ................. 7,829 362,091
Edison International............ 16,567 329,269
Entergy Corp. .................. 8,689 241,120
FPL Group, Inc. ................ 6,975 320,850
General Public Utilities
Corp. ......................... 4,603 154,776
Houston Industries Inc. ........ 8,988 203,354
Niagara Mohawk Power Corp.
(a)............................ 5,574 55,043
Northern States Power Co. ...... 2,616 120,009
Ohio Edison Co. ................ 5,819 132,382
Pacific Gas & Electric Co. ..... 15,861 333,081
PacifiCorp...................... 11,184 229,272
PECO Energy Co. ................ 8,471 213,893
PP&L Resources, Inc. ........... 6,106 140,438
Public Service Enterprise Group
Inc. .......................... 9,317 253,888
Southern Co. (The).............. 25,672 580,829
Texas Utilities Co. ............ 8,616 351,102
Unicom Corp. ................... 8,237 223,429
Union Electric Co. ............. 3,929 151,267
------------
6,160,348
------------
ELECTRICAL EQUIPMENT (3.8%)
AMP Inc. ....................... 8,368 321,122
Emerson Electric Co. ........... 8,605 832,534
General Electric Co. ........... 62,843 6,213,602
General Signal Corp. ........... 1,880 80,370
Grainger (W.W.), Inc. .......... 1,928 154,722
Honeywell, Inc. ................ 4,888 321,386
Raychem Corp. .................. 1,685 135,010
Thomas & Betts Corp. ........... 2,016 89,460
Westinghouse Electric Corp. .... 15,903 316,072
------------
8,464,278
------------
ELECTRONIC--DEFENSE (0.0%) (b)
EG&G, Inc. ..................... 1,878 37,795
------------
ELECTRONIC-- INSTRUMENTATION
(0.1%)
Perkin-Elmer Corp. ............. 1,682 99,028
Tektronix, Inc. ................ 1,273 65,241
------------
164,269
------------
ELECTRONIC-- SEMICONDUCTORS
(3.1%)
Advanced Micro Devices, Inc.
(a)............................ 5,044 129,883
Applied Materials, Inc. (a)..... 6,838 245,741
Intel Corp. .................... 31,499 4,124,400
LSI Logic Corp. (a)............. 4,964 132,787
Micron Technology, Inc. ........ 7,956 231,718
Motorola, Inc. ................. 22,642 1,389,653
National Semiconductor Corp.
(a)............................ 5,160 125,775
Texas Instruments, Inc. ........ 7,241 461,614
------------
6,841,571
------------
ENGINEERING & CONSTRUCTION
(0.1%)
Fluor Corp. .................... 3,185 199,859
Foster Wheeler Corp. ........... 1,595 59,214
------------
259,073
------------
</TABLE>

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

F-54
<PAGE> 136

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
ENTERTAINMENT (1.4%)
King World Productions, Inc.
(a)............................ 1,458 $ 53,764
Time Warner Inc. ............... 21,879 820,463
Viacom, Inc. Class B (a)........ 13,608 474,579
Walt Disney Co. (The)........... 25,914 1,804,262
------------
3,153,068
------------
FINANCIAL-- MISCELLANEOUS (2.2%)
American Express Co. ........... 18,176 1,026,944
American General Corp. ......... 7,899 322,872
Dean Witter, Discover & Co. .... 6,361 421,416
Federal Home Loan Mortgage
Corp. ......................... 6,891 758,871
Federal National Mortgage
Association.................... 41,727 1,554,331
Green Tree Financial Corp. ..... 5,281 203,979
MBIA Corp. ..................... 1,604 162,405
MBNA Corp. ..................... 8,517 353,455
Transamerica Corp. ............. 2,535 200,265
------------
5,004,538
------------
FOOD DISTRIBUTORS (0.2%)
Fleming Cos., Inc. ............. 1,461 25,202
Supervalu Inc. ................. 2,629 74,598
Sysco Corp. .................... 6,940 226,418
------------
326,218
------------
FOODS (2.8%)
Archer-Daniels-Midland Co. ..... 20,841 458,502
Campbell Soup Co. .............. 8,949 718,157
ConAgra, Inc. .................. 9,255 460,436
CPC International Inc. ......... 5,499 426,173
General Mills, Inc. ............ 6,033 382,341
Heinz (H.J.) Co. ............... 14,104 504,218
Hershey Foods Corp. ............ 5,830 255,063
Kellogg Co. .................... 8,066 529,331
Quaker Oats Co. ................ 5,143 196,077
Ralston-Ralston Purina Group.... 4,080 299,370
Sara Lee Corp. ................. 18,529 690,205
Unilever, N.V. ................. 6,159 1,079,365
Wrigley (Wm.) Jr. Co. .......... 4,468 251,325
------------
6,250,563
------------
GOLD (0.5%)
Barrick Gold Corp. ............. 13,667 392,926
Battle Mountain Gold Co. ....... 8,541 58,719
Echo Bay Mines Ltd. ............ 5,316 35,219
Homestake Mining Co. ........... 5,576 79,458
Newmont Mining Corp. ........... 3,803 170,184
Placer Dome Inc. ............... 9,155 199,121
Santa Fe Pacific Gold Corp. .... 4,983 76,614
------------
1,012,241
------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. ........... 3,345 100,768
Snap-On, Inc. .................. 2,319 82,615
Stanley Works (The)............. 3,406 91,962
------------
275,345
------------
HEALTH CARE-- DIVERSIFIED (3.8%)
Abbott Laboratories............. 29,621 1,503,266
Allergan, Inc. ................. 2,449 87,246
American Home Products Corp. ... 24,262 1,422,360

<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
HEALTH CARE--
DIVERSIFIED (Continued)
Bristol-Myers Squibb Co. ....... 19,200 $ 2,088,000
Johnson & Johnson............... 50,923 2,533,419
Mallinckrodt Group Inc. ........ 2,939 129,683
Warner-Lambert Co. ............. 10,332 774,900
------------
8,538,874
------------
HEALTH CARE--HMOs (0.2%)
Humana Inc. (a)................. 6,228 119,111
United Healthcare Corp. ........ 6,994 314,730
------------
433,841
------------
HEALTH CARE-- MISCELLANEOUS
(0.3%)
ALZA Corp. (a).................. 3,186 82,438
Amgen Inc. (a).................. 10,148 551,797
Beverly Enterprises, Inc. (a)... 3,696 47,124
Manor Care, Inc. ............... 2,403 64,881
------------
746,240
------------
HEAVY TRUCKS & PARTS (0.3%)
Cummins Engine Co., Inc. ....... 1,520 69,920
Dana Corp. ..................... 3,903 127,336
Eaton Corp. .................... 2,959 206,390
ITT Industries, Inc. ........... 4,495 110,128
Navistar International Corp.
(a)............................ 2,947 26,891
PACCAR Inc. .................... 1,441 97,988
------------
638,653
------------
HOMEBUILDING (0.0%) (b)
Centex Corp. ................... 1,115 41,952
Kaufman & Broad Home Corp. ..... 1,465 18,862
Pulte Corp. .................... 957 29,428
------------
90,242
------------
HOSPITAL MANAGEMENT (0.6%)
Columbia/HCA Healthcare
Corp. ......................... 25,582 1,042,466
Tenet Healthcare Corp. (a)...... 8,273 180,972
------------
1,223,438
------------
HOTEL--MOTEL (0.4%)
Harrah's Entertainment, Inc.
(a)............................ 3,961 78,725
Hilton Hotels Corp. ............ 9,391 245,340
ITT Corp. (a)................... 4,478 194,233
Marriott International Inc. .... 4,930 272,382
------------
790,680
------------
HOUSEHOLD--FURNISHINGS &
APPLIANCES (0.1%)
Armstrong World Industries,
Inc. .......................... 1,482 102,999
Maytag Corp. ................... 3,950 78,012
Whirlpool Corp. ................ 2,814 131,203
------------
312,214
------------
HOUSEHOLD PRODUCTS (2.0%)
Clorox Co. (The)................ 1,933 194,025
Colgate-Palmolive Co. .......... 5,652 521,397
Kimberly-Clark Corp. ........... 10,792 1,027,938
Procter & Gamble Co. (The)...... 26,203 2,816,822
------------
4,560,182
------------
</TABLE>

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

F-55
<PAGE> 137

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
HOUSEWARES (0.2%)
Newell Co. ..................... 6,034 $ 190,071
Rubbermaid Inc. ................ 5,735 130,471
Tupperware Corp. ............... 2,402 128,808
------------
449,350
------------
INSURANCE BROKERS (0.3%)
Alexander & Alexander
Services Inc. ................. 1,687 29,312
Aon Corp. ...................... 4,185 259,993
Marsh & McLennan Cos., Inc. .... 2,803 291,512
------------
580,817
------------
INVESTMENT BANK/ BROKERAGE
(0.5%)
Merrill Lynch & Co., Inc. ...... 6,435 524,452
Morgan Stanley Group Inc. ...... 5,893 336,638
Salomon Inc. ................... 4,011 189,018
------------
1,050,108
------------
LEISURE TIME (0.0%) (b)
Brunswick Corp. ................ 3,741 89,784
------------
LIFE INSURANCE (0.6%)
Aetna Inc. ..................... 5,760 460,800
Jefferson-Pilot Corp. .......... 2,742 155,266
Lincoln National Corp. ......... 4,031 211,628
Providian Corp. ................ 3,588 184,334
Torchmark Corp. ................ 2,685 135,592
UNUM Corp. ..................... 2,769 200,060
USLIFE Corp. ................... 1,321 43,923
------------
1,391,603
------------
MACHINE TOOLS (0.0%) (b)
Cincinnati Milacron Inc. ....... 1,478 32,331
Giddings & Lewis, Inc. ......... 1,300 16,738
------------
49,069
------------
MACHINERY--DIVERSIFIED (0.8%)
Briggs & Stratton Corp. ........ 1,131 49,764
Case Corp. ..................... 2,801 152,655
Caterpillar Inc. ............... 7,389 556,022
Cooper Industries Inc. ......... 4,147 174,692
Deere & Co. .................... 9,987 405,722
Harnischfeger Industries,
Inc. .......................... 1,780 85,663
Ingersoll-Rand Co. ............. 4,136 184,052
NACCO Industries, Inc. Class
A.............................. 349 18,671
Thermo Electron Corp. (a)....... 2,500 103,125
Timken Co. (The)................ 1,153 52,894
------------
1,783,260
------------
MAJOR REGIONAL BANKS (4.6%)
Banc One Corp. ................. 16,358 703,394
Bank of Boston Corp. ........... 5,795 372,329
Bank of New York Co., Inc.
(The).......................... 14,935 504,056
Barnett Banks, Inc. ............ 7,253 298,280
Boatmen's Bancshares, Inc. ..... 5,984 385,968
Comerica Inc. .................. 4,136 216,623
CoreStates Financial Corp. ..... 8,492 440,523
Fifth Third Bancorp............. 3,927 246,665
First Bank System, Inc. ........ 5,088 347,256
First Union Corp. .............. 10,584 783,216
Fleet Financial Group, Inc. .... 10,038 500,645
KeyCorp......................... 8,768 442,784
Mellon Bank Corp. .............. 5,015 356,065
National City Corp. ............ 8,410 377,399
NationsBank Corp. .............. 11,120 1,086,980
Norwest Corp. .................. 14,213 618,265
PNC Bank Corp. ................. 13,034 490,404
Republic New York Corp. ........ 2,086 170,270
SunTrust Banks, Inc. ........... 8,680 427,490
U.S. Bancorp.................... 5,858 263,244
Wachovia Corp. ................. 6,474 365,781
Wells Fargo & Co. .............. 3,546 956,533
------------
10,354,170
------------
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises Inc. ..... 1,588 43,670
------------
MANUFACTURING-- DIVERSIFIED
(1.0%)
AlliedSignal Inc. .............. 10,850 726,950
Crane Co. ...................... 1,708 49,547
Dover Corp. .................... 4,318 216,980
Illinois Tool Works Inc. ....... 4,728 377,649
Johnson Controls, Inc. ......... 1,631 135,169
Millipore Corp. ................ 1,731 71,620
Pall Corp. ..................... 4,347 110,849
Parker-Hannifin Corp. .......... 2,926 113,382
TRINOVA Corp. .................. 1,104 40,158
Tyco International Ltd. ........ 5,845 309,054
------------
2,151,358
------------
MEDICAL PRODUCTS (1.0%)
Bard (C.R.), Inc. .............. 2,200 61,600
Bausch & Lomb Inc. ............. 2,209 77,315
Baxter International Inc. ...... 10,397 426,277
Becton, Dickinson & Co. ........ 4,758 206,378
Biomet, Inc. ................... 4,355 65,869
Boston Scientific Corp. (a)..... 6,815 408,900
Guidant Corp. .................. 2,781 158,517
Medtronic, Inc. ................ 9,201 625,668
St. Jude Medical, Inc. (a)...... 3,055 130,219
United States Surgical Corp. ... 2,385 93,910
------------
2,254,653
------------
METALS--MISCELLANEOUS (0.3%)
ASARCO Inc. .................... 1,654 41,143
Cyprus Amax Minerals Co. ....... 3,513 82,116
Freeport-McMoRan Copper & Gold
Inc. Class B................... 7,460 222,868
Inco Ltd. ...................... 6,443 205,371
Phelps Dodge Corp. ............. 2,502 168,885
------------
720,383
------------
MISCELLANEOUS (1.4%)
AirTouch Communications, Inc.
(a)............................ 19,025 480,381
American Greetings Corp. Class
A.............................. 2,824 80,131
Corning Inc. ................... 8,830 408,388
Harcourt General, Inc. ......... 2,698 124,445
Harris Corp. ................... 1,499 102,869
Jostens, Inc. .................. 1,626 34,349
Minnesota Mining & Manufacturing
Co. ........................... 16,014 1,327,160
</TABLE>

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

F-56
<PAGE> 138

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
MISCELLANEOUS (Continued)
Pioneer Hi-Bred International,
Inc. .......................... 3,126 $ 218,820
TRW, Inc. ...................... 4,905 242,798
Whitman Corp. .................. 3,976 90,951
------------
3,110,292
------------
MONEY CENTER BANKS (2.8%)
BankAmerica Corp. .............. 13,749 1,371,463
Bankers Trust New York Corp. ... 3,041 262,286
Chase Manhattan Corp. .......... 16,702 1,490,653
Citicorp........................ 17,921 1,845,863
First Chicago Corp. ............ 12,100 650,375
Morgan (J.P.) & Co., Inc. ...... 7,158 698,800
------------
6,319,440
------------
MULTI--LINE INSURANCE (1.7%)
American International Group,
Inc. .......................... 17,988 1,947,201
CIGNA Corp. .................... 2,948 402,771
ITT Hartford Group, Inc. ....... 4,486 302,805
Travelers Group Inc. ........... 24,579 1,115,272
------------
3,768,049
------------
NATURAL GAS DISTRIBUTORS
& PIPELINES (0.9%)
Coastal Corp. .................. 3,980 194,522
Columbia Gas System, Inc. ...... 2,068 131,576
Consolidated Natural Gas Co. ... 3,576 197,574
Eastern Enterprises............. 773 27,345
Enron Corp. .................... 9,577 413,008
ENSERCH Corp. .................. 2,624 60,352
NICOR Inc. ..................... 1,909 68,247
NorAm Energy Corp. ............. 5,170 79,489
ONEOK Inc. ..................... 1,084 32,520
Pacific Enterprises............. 3,187 96,805
PanEnergy Corp. ................ 5,778 260,010
Peoples Energy Corp. ........... 1,316 44,580
Sonat, Inc. .................... 3,249 167,324
Williams Cos., Inc. (The)....... 5,952 223,200
------------
1,996,552
------------
OFFICE EQUIPMENT & SUPPLIES
(0.6%)
Alco Standard Corp. ............ 4,899 252,911
Moore Corp. Ltd. ............... 3,875 78,953
Pitney Bowes Inc. .............. 5,800 316,100
Xerox Corp. .................... 12,406 652,866
------------
1,300,830
------------
OIL & GAS DRILLING (0.1%)
Helmerich & Payne, Inc. ........ 946 49,310
Rowan Cos., Inc. (a)............ 3,213 72,694
------------
122,004
------------
OIL--EXPLORATION & PRODUCTION
(0.3%)
Burlington Resources Inc. ...... 4,809 242,253
Oryx Energy Co. (a)............. 4,034 99,842
Santa Fe Energy
Resources, Inc. (a)............ 3,406 47,258
Union Pacific Resources
Group, Inc. ................... 9,593 280,595
------------
669,948
------------
OIL--INTEGRATED DOMESTIC (1.3%)
Amerada Hess Corp. ............. 3,562 206,151
Ashland Inc. ................... 2,422 106,265
Atlantic Richfield Co. ......... 6,168 817,260
Kerr-McGee Corp. ............... 1,887 135,864
Louisiana Land &
Exploration Co. (The).......... 1,292 69,284
Occidental Petroleum Corp. ..... 12,521 292,678
Pennzoil Co. ................... 1,813 102,435
Phillips Petroleum Co. ......... 9,975 441,394
Sun Co., Inc. .................. 2,836 69,127
Unocal Corp. ................... 9,512 386,425
USX-Marathon Group.............. 10,932 261,001
------------
2,887,884
------------
OIL--INTEGRATED INTERNATIONAL
(6.3%)
Amoco Corp. .................... 19,068 1,534,974
Chevron Corp. .................. 24,947 1,621,555
Exxon Corp. .................... 47,561 4,660,978
Mobil Corp. .................... 15,044 1,839,129
Royal Dutch Petroleum Co. ...... 20,570 3,512,328
Texaco Inc. .................... 10,091 990,179
------------
14,159,143
------------
OIL--WELL EQUIPMENT & SERVICES
(0.8%)
Baker Hughes Inc. .............. 5,442 187,749
Dresser Industries, Inc. ....... 6,919 214,489
Halliburton Co. ................ 4,814 290,043
McDermott International,
Inc. .......................... 2,069 34,397
Schlumberger Ltd. .............. 9,360 934,830
Western Atlas Inc. (a).......... 2,026 143,593
------------
1,805,101
------------
PAPER & FOREST PRODUCTS (0.9%)
Boise Cascade Corp. ............ 1,821 57,817
Champion International Corp. ... 3,695 159,809
Georgia-Pacific Corp. .......... 3,527 253,944
International Paper Co. ........ 11,421 461,123
James River Corp. of Virginia... 3,210 106,331
Louisiana-Pacific Corp. ........ 4,139 87,436
Mead Corp. ..................... 2,058 119,621
Potlatch Corp. ................. 1,114 47,902
Union Camp Corp. ............... 2,637 125,917
Westvaco Corp. ................. 3,860 110,975
Weyerhaeuser Co. ............... 7,571 358,676
Willamette Industries, Inc. .... 2,082 144,959
------------
2,034,510
------------
PERSONAL LOANS (0.2%)
Beneficial Corp. ............... 2,052 130,045
Household International,
Inc. .......................... 3,727 343,816
------------
473,861
------------
PHOTOGRAPHY/IMAGING (0.5%)
Eastman Kodak Co. .............. 12,826 1,029,287
Polaroid Corp. ................. 1,725 75,037
------------
1,104,324
------------
POLLUTION CONTROL (0.4%)
Browning-Ferris Industries
Inc. .......................... 8,079 212,074
</TABLE>

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

F-57
<PAGE> 139

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
POLLUTION CONTROL (Continued)
Laidlaw Inc. Class B............ 12,016 $ 138,184
WMX Technologies, Inc. ......... 18,523 604,313
------------
954,571
------------
PROPERTY--CASUALTY INSURANCE
(1.3%)
Allstate Corp. ................. 17,039 986,132
Chubb Corp. .................... 6,709 360,609
General Re Corp. ............... 3,165 499,279
Loews Corp. .................... 4,446 419,035
MGIC Investment Corp. .......... 2,244 170,544
SAFECO Corp. ................... 4,830 190,483
St. Paul Cos., Inc. (The)....... 3,176 186,193
USF&G Corp. .................... 4,571 95,420
------------
2,907,695
------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The).... 3,888 179,334
Meredith Corp. ................. 1,004 52,961
------------
232,295
------------
PUBLISHING--NEWSPAPER (0.5%)
Dow Jones & Co., Inc. .......... 3,750 127,031
Gannett Co., Inc. .............. 5,426 406,272
Knight-Ridder Inc. ............. 3,762 143,897
New York Times Co. (The) Class
A.............................. 3,720 141,360
Times Mirror Co. (The) Class
A.............................. 3,919 194,970
Tribune Co. .................... 2,320 182,990
------------
1,196,520
------------
RAILROADS (1.0%)
Burlington Northern
Santa Fe Corp. ................ 5,903 509,872
Conrail Inc. ................... 3,019 300,768
CSX Corp. ...................... 8,108 342,563
Norfolk Southern Corp. ......... 4,799 419,912
Union Pacific Corp. ............ 9,339 561,507
------------
2,134,622
------------
RESTAURANTS (0.6%)
Darden Restaurants, Inc. ....... 6,139 53,716
McDonald's Corp. ............... 26,732 1,209,623
Wendy's International, Inc. .... 4,877 99,979
------------
1,363,318
------------
RETAIL STORES--APPAREL (0.3%)
Charming Shoppes, Inc. (a)...... 3,956 20,027
Gap, Inc. (The)................. 11,021 332,008
Limited, Inc. (The)............. 10,307 189,391
TJX Cos., Inc. (The)............ 2,843 134,687
------------
676,113
------------
RETAIL STORES-- DEPARTMENT
(0.7%)
Dillard Department Stores, Inc.
Class A........................ 4,319 133,349
Federated Department Stores,
Inc. (a)....................... 7,947 271,191
May Department Stores Co. ...... 9,560 446,930
Mercantile Stores Co., Inc. .... 1,448 71,495
Nordstrom, Inc. ................ 3,051 108,120
Penney (J.C.) Co. Inc. ......... 8,588 418,665
------------
1,449,750
------------

RETAIL STORES--DRUG (0.3%)
Longs Drug Stores Corp. ........ 763 37,483
Rite-Aid Corp. ................. 4,475 177,881
Walgreen Co. ................... 9,390 375,600
------------
590,964
------------
RETAIL STORES--FOOD CHAIN (0.5%)
Albertson's, Inc. .............. 9,618 342,641
American Stores Co. ............ 5,733 234,336
Giant Food, Inc. Class A........ 2,260 77,970
Great Atlantic & Pacific
Tea Co., Inc. (The)............ 1,471 46,888
Kroger Co. (a).................. 4,762 221,433
Winn-Dixie Stores, Inc. ........ 5,809 183,710
------------
1,106,978
------------
RETAIL STORES--GENERAL
MERCHANDISE (1.4%)
Dayton-Hudson Corp. ............ 8,381 328,954
Kmart Corp. (a)................. 18,414 191,045
Sears, Roebuck & Co. ........... 14,933 688,785
Wal-Mart Stores, Inc. .......... 87,663 2,005,291
------------
3,214,075
------------
RETAIL STORES--SPECIALTY (1.0%)
Autozone, Inc. (a).............. 2,600 71,500
Circuit City Stores, Inc. ...... 3,736 112,547
CVS Corp. ...................... 3,984 164,838
Home Depot, Inc. (The).......... 18,264 915,483
Lowe's Cos., Inc. .............. 6,589 233,909
Pep Boys-Manny, Moe & Jack...... 2,400 73,800
Price/Costco, Inc. (a).......... 7,518 188,890
Tandy Corp. .................... 2,281 100,364
Toys "R" Us, Inc. (a)........... 10,448 313,440
Woolworth Corp. (a)............. 5,075 111,016
------------
2,285,787
------------
SAVINGS & LOANS (0.2%)
Ahmanson (H.F.) & Co. .......... 4,003 130,097
Golden West Financial Corp. .... 2,246 141,779
Great Western Financial
Corp. ......................... 5,233 151,757
------------
423,633
------------
SHOES (0.3%)
Nike Inc. Class B............... 11,005 657,549
Reebok International Ltd. ...... 2,128 89,376
Stride Rite Corp. .............. 1,893 18,930
------------
765,855
------------
SPECIALIZED SERVICES (0.8%)
Block (H&R), Inc. .............. 3,964 114,956
Cognizant Corp. ................ 6,458 213,114
CUC International Inc. (a)...... 14,978 355,727
Dun & Bradstreet Corp. (The).... 6,452 153,235
Ecolab Inc. .................... 2,435 91,617
HFS Inc. (a).................... 4,783 285,784
Interpublic Group of Cos.,
Inc. .......................... 3,016 143,260
</TABLE>

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

F-58
<PAGE> 140

MAINSTAY VP SERIES FUND, INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
SPECIALIZED SERVICES (Continued)
National Service Industries,
Inc. .......................... 1,867 $ 69,779
Safety-Kleen Corp. ............. 2,231 36,533
Service Corp. International..... 8,939 250,292
------------
1,714,297
------------
SPECIALTY PRINTING (0.1%)
Deluxe Corp. ................... 3,172 103,883
Donnelley (R.R.) & Sons Co. .... 5,837 183,136
Harland (John H.) Co. .......... 1,150 37,950
------------
324,969
------------
STEEL (0.3%)
Allegheny Teledyne Inc. ........ 6,678 153,594
Armco Inc. (a).................. 4,097 16,900
Bethlehem Steel Corp. (a)....... 4,235 38,115
Inland Steel Industries Inc. ... 1,835 36,700
Nucor Corp. .................... 3,373 172,023
USX-U.S. Steel Group............ 3,245 101,812
Worthington Industries, Inc. ... 3,472 62,930
------------
582,074
------------
TELECOMMUNICATIONS--
LONG DISTANCE (2.1%)
AT&T Corp. ..................... 61,795 2,688,083
MCI Communications Corp. ....... 26,391 862,656
Sprint Corp. ................... 16,455 656,143
WorldCom, Inc. (a).............. 22,471 585,650
------------
4,792,532
------------
TELEPHONE (4.0%)
ALLTEL Corp. ................... 7,287 228,630
Ameritech Corp. ................ 21,136 1,281,370
Bell Atlantic Corp. ............ 16,698 1,081,196
BellSouth Corp. ................ 37,929 1,531,383
Frontier Corp. ................. 3,300 74,662
GTE Corp. ...................... 36,708 1,670,214
NYNEX Corp. .................... 16,726 804,939
Pacific Telesis Group........... 16,386 602,185
SBC Communications Inc. ........ 23,217 1,201,480
US West, Inc. .................. 18,139 584,983
------------
9,061,042
------------
TEXTILES--APPAREL MANUFACTURERS
(0.2%)
Fruit of the Loom, Inc.
Class A (a).................... 2,887 109,345
Liz Claiborne, Inc. ............ 2,827 109,193
Russell Corp. .................. 1,494 44,447
Springs Industries, Inc. Class
A.............................. 759 32,637
VF Corp. ....................... 2,429 163,957
------------
459,579
------------

TOBACCO (1.8%)
American Brands, Inc. .......... 6,503 $ 322,711
Philip Morris Cos., Inc. ....... 31,308 3,526,064
UST Inc. ....................... 7,209 233,391
------------
4,082,166
------------
TOYS (0.2%)
Hasbro Inc. .................... 3,344 129,998
Mattel, Inc. ................... 10,374 287,879
------------
417,877
------------
TRANSPORTATION-- MISCELLANEOUS
(0.1%)
Federal Express Corp. (a)....... 4,412 196,334
Ryder System, Inc. ............. 3,026 85,106
------------
281,440
------------
TRUCKERS (0.0%) (b)
Caliber System, Inc. ........... 1,501 28,894
------------
Total Common Stocks
(Cost $170,996,078)............ 215,528,727 (c)
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (3.2%)
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
U.S. GOVERNMENT (3.2%)
United States Treasury Bills
4.85%, due 2/6/97 (d).......... $4,000,000 3,980,680
4.91%, due 1/30/97 (d)......... 2,100,000 2,091,890
4.95%, due 3/27/97 (d)......... 700,000 691,756
4.96%, due 4/3/97 (d).......... 400,000 394,782
------------
Total Short-Term Investments
(Cost $7,159,482).............. 7,159,108
------------
Total Investments
(Cost $178,155,560) (f)........ 99.4% 222,687,835 (g)
Cash and Other Assets,
Less Liabilities............... 0.6 1,256,712
--------- ------------
Net Assets...................... 100.0% $223,944,547
========= ============
</TABLE>

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

F-59
<PAGE> 141

INDEXED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996

<TABLE>
<CAPTION>
FUTURES CONTRACTS (0.1%)
<S> <C> <C>
CONTRACTS UNREALIZED
LONG DEPRECIATION
------------------------
Standard & Poor's 500
March 1997..................... 20 $ (128,945)
------------
Total Futures Contracts
(Settlement Value
$7,573,945).................. $ (128,945) (e)
============
</TABLE>

- ------------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts represents 99.6% of net assets.
(d) Segregated 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, 1996.
(f) The cost for Federal income tax purposes is $178,343,936.
(g) At December 31, 1996 net unrealized appreciation was $44,343,899, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $46,450,970 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,107,071.

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

F-60
<PAGE> 142

MAINSTAY VP SERIES FUND, INC.
INDEXED EQUITY PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $178,155,560)....... $222,687,835
Cash................................... 20,758
Receivables:
Investment securities sold........... 761,910
Fund shares sold..................... 753,407
Dividends and interest............... 333,536
Other assets........................... 313
Total assets..................... 224,557,759
LIABILITIES:
Payables:
Investment securities purchased...... 344,033
Administrator........................ 18,420
Adviser.............................. 18,420
NYLIAC............................... 15,757
Custodian............................ 11,048
Directors............................ 77
Accrued expenses....................... 61,437
Variation margin payable on futures
contracts............................ 144,020
Total liabilities................ 613,212
Net assets applicable to outstanding
shares............................... $223,944,547
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 50 million shares
authorized........................... $ 139,132
Additional paid-in capital............. 178,003,114
Accumulated undistributed net
investment income.................... 390
Accumulated undistributed net realized
gain on investments.................. 1,398,581
Net unrealized appreciation on
investments.......................... 44,403,330
Net assets applicable to outstanding
shares............................... $223,944,547
Shares of capital stock outstanding.... 13,913,175
Net asset value per share
outstanding.......................... $ 16.10
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 2,901,801
Interest............................. 981,934
------------
Total income..................... 3,883,735
------------
Expenses:
Administration....................... 297,742
Advisory............................. 148,871
Shareholder communication............ 107,071
Recordkeeping........................ 82,739
Custodian............................ 52,218
Professional......................... 46,681
Directors............................ 6,428
Portfolio pricing.................... 3,800
Miscellaneous........................ 2,697
------------
Total expenses before
reimbursement.................. 748,247
Expense reimbursement from
Administrator........................ (48,553)
------------
Net expenses..................... 699,694
------------
Net investment income.................. 3,184,041
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain from:
Securities transactions.............. 1,148,053
Futures transactions................. 2,818,989
------------
Net realized gain on investments....... 3,967,042
------------
Net change in unrealized appreciation
(depreciation) on investments:
Securities transactions.............. 25,077,972
Futures transactions................. (457,795)
------------
Net unrealized gain on investments..... 24,620,177
------------
Net realized and unrealized gain on
investments.......................... 28,587,219
------------
Net increase in net assets resulting
from operations...................... $ 31,771,260
===========
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $28,866.

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

F-61
<PAGE> 143

INDEXED EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

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

Operations:
Net investment income............................................................. $ 3,184,041 $ 2,018,769
Net realized gain on investments.................................................. 3,967,042 3,180,447
Net change in unrealized appreciation on investments.............................. 24,620,177 19,351,538
------------ ------------
Net increase in net assets resulting from operations.............................. 31,771,260 24,550,754
------------ ------------
Dividends and distributions to shareholders:
From net investment income........................................................ (3,183,651) (2,044,642)
From net realized gain on investments............................................. (2,701,672) (2,898,925)
------------ ------------
Total dividends and distributions to shareholders............................. (5,885,323) (4,943,567)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares.................................................. 110,486,675 32,292,361
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions.................................................................... 5,885,323 4,943,567
------------ ------------
116,371,998 37,235,928
Cost of shares redeemed........................................................... (23,483,920) (14,837,036)
------------ ------------
Increase in net assets derived from capital share transactions.................. 92,888,078 22,398,892
------------ ------------
Net increase in net assets...................................................... 118,774,015 42,006,079
NET ASSETS:
Beginning of year................................................................... 105,170,532 63,164,453
------------ ------------
End of year......................................................................... $223,944,547 $105,170,532
=========== ===========
Accumulated undistributed net investment income..................................... $ 390 $ --
=========== ===========
</TABLE>

<CAPTION>
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 13.53 $ 10.38 $ 10.58 $ 10.00
------------ ------------ ------------ ------------
Net investment income................................... 0.24 0.27 0.24 0.19
Net realized and unrealized gain (loss) on
investments........................................... 2.79 3.55 (0.15) 0.67
------------ ------------ ------------ ------------
Total from investment operations........................ 3.03 3.82 0.09 0.86
------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income............................ (0.24) (0.28) (0.24) (0.19)
From net realized gain on investments................. (0.22) (0.39) (0.05) (0.08)
In excess of net realized gain on investments......... -- -- -- (0.01)
------------ ------------ ------------ ------------
Total dividends and distributions....................... (0.46) (0.67) (0.29) (0.28)
------------ ------------ ------------ ------------
Net asset value at end of period........................ $ 16.10 $ 13.53 $ 10.38 $ 10.58
=========== =========== =========== =============
Total investment return (b)............................. 22.42% 36.89% 0.76% 8.53%
Ratios (to average net assets)/Supplemental Data:
Net investment income................................. 2.14% 2.52% 2.61% 2.54% +
Net expenses.......................................... 0.47% 0.47% 0.47% 0.47% +
Expenses (before reimbursement)....................... 0.50% 0.62% 0.68% 0.96% +
Portfolio turnover rate................................. 3% 5% 8% 7 %
Average commission rate paid............................ $ 0.0498 (c) (c) (c)
Net assets at end of period (in 000's).................. $ 223,945 $ 105,171 $ 63,164 $ 43,081
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
+ Annualized.

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

F-62
<PAGE> 144

MAINSTAY VP SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1-- Organization and Business:
- --------------------------------------------------------------------------------

MainStay VP Series Fund, Inc. (formerly 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. Convertible Portfolio, which commenced operations on October 1, 1996,
High Yield Corporate Bond, International Equity and Value Portfolios, which
commenced operations on May 1, 1995, Capital Appreciation, Cash Management,
Government, Total Return and Indexed Equity Portfolios, which commenced
operations on January 29, 1993 and Bond and Growth Equity Portfolios, which
commenced operations on January 23, 1984, (the "Funds") are separate portfolios
of the Company. Shares of the Funds are currently offered only to New York Life
Insurance and Annuity Corporation ("NYLIAC"), a wholly owned subsidiary of New
York Life Insurance Company ("New York Life"). NYLIAC allocates shares of the
Funds to, among others, New York Life Insurance and Annuity Corporation's
Variable Annuity Separate Account I and Variable Annuity Separate Account II
("Separate Accounts", collectively). The Separate Accounts are used to fund
multi-funded retirement annuity policies.

The investment objectives for each of the Portfolios of the Company are as
follows:

Capital Appreciation: to seek long-term growth of capital.

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

Convertible: to seek capital appreciation together with current income.

Government: to seek a high level of current income, consistent with safety
of principal.

High Yield Corporate Bond: to maximize current income through investment
in a diversified portfolio of high yield, high risk debt securities which
are ordinarily in the lower rating categories of recognized rating
agencies.

International Equity: to seek long-term growth of capital by investing in
a portfolio consisting primarily of non-U.S. equity securities.

Total Return: to realize current income consistent with reasonable
opportunity for future growth of capital and income.

Value: to realize maximum long-term total return from a combination of
capital growth and income.

Bond: to seek the highest income over the long term consistent with
preservation of principal.

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

Indexed Equity: to seek to provide investment results that correspond to
the total return performance (reflecting reinvestment of dividends) of
common stocks in the aggregate, as represented by the S&P 500.

- --------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- --------------------------------------------------------------------------------

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

(A)

VALUATION OF FUND SHARES. The net asset value per share of each 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.

F-63
<PAGE> 145

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(B)

SECURITIES VALUATION. Portfolio securities of Cash Management Portfolio are
valued at amortized cost, which approximates market value. This method involves
initially valuing an instrument at its cost and thereafter amortizing the
premium or accreting the discount to income over the life of the security.

Securities of each of the other Funds are stated at value determined (a) by
appraising common and preferred stocks which are traded on the New York Stock
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities not quoted on
the NASDAQ system and securities listed or traded on certain foreign exchanges
whose operations are similar to the U.S. over-the-counter market, at prices
supplied by the pricing agent or brokers selected by the Adviser if these prices
are deemed to be representative of market values at the regular close of
business of the New York Stock Exchange, (e) by appraising debt securities at
prices supplied by a pricing agent selected by the Adviser, whose prices reflect
broker/dealer supplied valuations and electronic data processing techniques if
those prices are deemed by the Adviser to be representative of market values at
the regular close of business of the New York Stock Exchange, (f) by appraising
options and futures contracts at the last sale price on the market where such
options or futures contracts are principally traded, and (g) by appraising all
other securities and other assets, including debt securities for which prices
are supplied by a pricing agent but are not deemed by the Adviser to be
representative of market values, but excluding money market instruments with a
remaining maturity of sixty days or less and including restricted securities and
securities for which no market quotations are available, at fair value in
accordance with procedures approved by the Directors. Short-term securities
which mature in more than 60 days are valued at current market quotations.
Short-term securities which mature in 60 days or less are valued at amortized
cost if their term to maturity at purchase was 60 days or less, or by amortizing
the difference between market value on the 61st day prior to maturity and value
on maturity date if their original term to maturity at purchase exceeded 60
days.

Events affecting the values of certain portfolio securities that occur
between the close of trading on the principal market for such securities
(foreign exchanges and over-the-counter markets) and the regular close of the
New York Stock Exchange will not be reflected in the Funds' calculations of net
asset values unless the Adviser believes that the particular event would
materially affect net asset value, in which case an adjustment would be made.

(C)

FORWARD CURRENCY CONTRACTS. A forward currency contract is an agreement to buy
or sell currencies of different countries on a specified future date at a
specified rate. During the period the forward contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by "marking
to market" such contract on a daily basis to reflect the market value of the
contract at the end of each day's trading. When the forward contract is closed,
the Portfolio records a realized gain or loss equal to the difference between
the proceeds from (or cost of) the closing transaction and the Portfolio's basis
in the contract. The International Equity Portfolio enters into forward foreign
currency exchange contracts in order to hedge its foreign currency denominated
investments and receivables and payables against adverse movements in future
foreign exchange rates.

The use of forward contracts involves, to varying degrees, elements of
market risk in excess of the amount recognized in the statement of assets and
liabilities. The contract amount reflects the extent of the Portfolio's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation 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.

F-64
<PAGE> 146

MAINSTAY VP SERIES FUND, INC.

INTERNATIONAL EQUITY PORTFOLIO

Forward foreign currency contracts open at December 31, 1996:

<TABLE>
<CAPTION>
VALUE ON UNREALIZED
CONTRACT TRADE CURRENT APPRECIATION/
AMOUNT DATE VALUE (DEPRECIATION)
<S> <C> <C> <C> <C>
-------------- ---------- ---------- ------------
FOREIGN CURRENCY SALE CONTRACTS
- ----------------------------------------------------
Australian Dollar, expiring 3/3/97.................. A$ 245,000 $ 198,205 $ 194,463 $ 3,742
Austrian Schilling, expiring 1/15/97................ AS 6,640,000 617,677 613,131 4,546
Deutsche Mark, expiring 1/6/97 - 6/20/97............ DM 13,705,150 9,098,719 8,947,439 151,280
French Franc, expiring 1/29/97 - 2/4/97............. FF 3,105,000 606,470 598,466 8,004
Italian Lira, expiring 1/23/97...................... IL2,186,000,000 1,408,791 1,436,202 (27,411)
Japanese Yen, expiring 1/6/97 - 7/7/97.............. Y 1,322,300,000 12,344,340 11,498,841 845,499
Spanish Peseta, expiring 1/22/97.................... SP 101,150,000 781,946 777,135 4,811
-----------
990,471
-----------
FOREIGN CURRENCY BUY CONTRACTS
- ----------------------------------------------------
Australian Dollar, expiring 1/7/97.................. A$ 195,000 154,245 154,873 628
Deutsche Mark, expiring 1/22/97 - 2/5/97............ DM 5,305,761 3,478,379 3,449,101 (29,278)
Japanese Yen, expiring 1/6/97 - 2/5/97.............. Y 617,296,410 5,364,916 5,336,163 (28,753)
Pound Sterling, expiring 1/7/97 - 1/15/97........... L 742,605 1,157,152 1,270,510 113,358
-----------
55,955
-----------
Net Appreciation.................................... $ 1,046,426
===========
</TABLE>

(D)

FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date, 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

F-65
<PAGE> 147

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:

(i) market value of investment securities, other assets and
liabilities--at the valuation date,

(ii) purchases and sales of investment securities, income and
expenses--at the date of such transactions.

The assets and liabilities of 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.

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, other than investments, 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.

INTERNATIONAL EQUITY PORTFOLIO

Foreign cash held at December 31, 1996:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
------------------------------------------- -------- --------
<S> <C> <C> <C> <C>
Australian Dollar A$ 410,260 $ 323,185 $ 325,870
Austrian Schilling AS 926 87 85
Belgian Franc BF 7,499 239 236
Danish Krone DK 1,647 279 279
Deutsche Mark DM 3,457 2,288 2,243
French Franc FF 5,742 1,104 1,105
Hong Kong Dollar HK 87,122 11,263 11,263
Italian Lira IL 3,822,527 2,521 2,515
Japanese Yen Y 3,020,783 26,664 26,024
Malaysian Ringgit MK 12,271 4,895 4,859
Netherland Guilder NG 1,140 654 659
Norwegian Krone NK 43,967 6,867 6,886
Pound Sterling L 863,340 1,323,286 1,477,436
Singapore Dollar S$ 14,010 9,929 10,016
Spanish Peseta SP 232,552 1,795 1,788
---------- ----------
$1,715,056 $1,871,264
========== ==========
</TABLE>

(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. The Funds
maintain a segregated account with the custodian containing securities from the
respective portfolios having a value not less than the repurchase price,
including

F-66
<PAGE> 148

MAINSTAY VP SERIES FUND, INC.

accrued interest. MDR transactions involve certain risks, including the risk
that the MBS returned to the Funds at the end of the roll, while substantially
similar, could be inferior to what was initially sold to the counterparty.

(I)

RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt sale
at an acceptable price may be difficult.

HIGH YIELD CORPORATE BOND PORTFOLIO

The issuers of the securities will bear the costs involved in registration
under the Securities Act of 1933 and in connection with the disposition of such
securities. The Fund does not have the right to demand that such securities be
registered. The Fund may not invest more than 10% of its net assets in illiquid
securities.

Restricted securities held at December 31, 1996:

<TABLE>
<CAPTION>
PRINCIPAL PERCENT
ACQUISITION AMOUNT/ 12/31/96 OF
SECURITY DATE SHARES COST VALUE NET ASSETS
--------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Cosmar Corp.
11.50%, due 12/4/97............................. 12/4/96 $1,800,000 $1,800,000 $1,800,000 0.9%
GPA Group, PLC
Preferred Stock................................. 3/6/96 1,000,000 328,750 440,000 0.2
National Tobacco Holding, LLC
13.50%, due 5/17/03
16.50%, beginning 6/1/01........................ 5/17/96 1,821,748 1,392,755 1,514,784 0.7
Preferred Interest.............................. 5/17/96 242,903 239,241 138,236 0.1
Redeemable Warrants expire 5/17/06.............. 5/17/96 79,410 0(a) 0(a) 0.0
Warrants expire 5/17/06......................... 5/17/96 617,283 428,993 617,283 0.3
--
---------- ----------
$4,189,739 $4,510,303 2.2%
=========== =========== ======
</TABLE>

- ------------
(a) Security has no value.

(J)

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.

(K)

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.

(L)

ORGANIZATION COSTS. Costs incurred in connection with the initial organization
and registration of a Portfolio of the Company are amortized over a maximum
period of 60 months beginning with the commencement of operations of the
respective Portfolio. Organization costs for Convertible Portfolio, paid by, and
reimbursable to, NYLIAC, totalled approximately $46,000. Such costs are being
amortized beginning with the commencement of operations on October 1, 1996.

F-67
<PAGE> 149

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Organization costs for High Yield Corporate Bond, International Equity and Value
Portfolios, paid by, and reimbursable to, NYLIAC, aggregated approximately
$33,500. Such costs have been fully amortized as of December 31, 1996.
Organization costs for Indexed Equity Portfolio, paid by, and reimbursable to,
NYLIAC, totalled approximately $50,700. Such costs have been fully amortized as
of December 31, 1996. In the event that any of the initial shares purchased by
NYLIAC are redeemed, proceeds of such redemption will be reduced by the
proportionate amount of the unamortized deferred organizational expenses which
the number of shares redeemed bears to the total number of initial shares
purchased.

All of the initial shares purchased by NYLIAC in Capital Appreciation, Cash
Management, Government and Total Return Portfolios were redeemed on February 21,
1995. All of the initial shares purchased by NYLIAC in Indexed Equity Portfolio
were redeemed between February 14, 1995 and February 21, 1996. (Also see Note 6
for further discussion of these redemptions).

(M)

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.

(N)

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)

I
NVESTMENT ADVISORY AND ADMINISTRATION FEES. MacKay-Shields Financial
Corporation ("MacKay-Shields") acts as investment adviser to Capital
Appreciation, Cash Management, Convertible, Government, High Yield Corporate
Bond, International Equity, Total Return and Value Portfolios under an
Investment Advisory Agreement. MacKay-Shields is a registered investment
adviser, a wholly-owned subsidiary of NYLIFE Inc. and an indirect wholly-owned
subsidiary of New York Life 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%
Convertible Portfolio................................................................. .36% .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>

F-68
<PAGE> 150

MAINSTAY VP SERIES FUND, INC.

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.

<TABLE>
<CAPTION>
<S> <C>
Capital Appreciation Portfolio.......................................................................... .73%
Cash Management Portfolio............................................................................... .62%
Convertible Portfolio................................................................................... .73%
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 such expense limitation, the Administrator assumed
certain of the expenses of the Funds for the year ended December 31, 1996 as
shown on the Statement of Operations.

The Administrator has voluntarily agreed to assume the operating expenses of
Convertible, High Yield Corporate Bond, International Equity and Value
Portfolios through December 31, 1997.

(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. Prior to
May 1, 1995, NYLIFE Securities Inc. ("NYLIFE Securities"), a wholly-owned
subsidiary of NYLIFE Inc. and an indirect wholly-owned subsidiary of New York
Life served as the Company's distributor and principal underwriter.

(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.

F-69
<PAGE> 151

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(D)

CAPITAL. At December 31, 1996 NYLIAC held shares of the following Portfolios
with net asset values as follows:

<TABLE>
<S> <C>
Convertible Portfolio.............................................................................. $10,266,001
High Yield Corporate Bond Portfolio................................................................ 11,611,661
International Equity Portfolio..................................................................... 10,654,896
Value Portfolio.................................................................................... 6,950,755
</TABLE>

These values represent 66.4%, 5.7%, 30.9% and 5.8%, respectively, of the net
assets of each respective Portfolio at year end.

(E)

RECORDKEEPING FEES. NYLIAC provides recordkeeping services for Cash Management,
Bond and Growth Equity Portfolios. For the four months ended April 30, 1996, the
Portfolios paid recordkeeping fees as follows:

<TABLE>
<S> <C>
Cash Management Portfolio............................................................................. $ 26,485
Bond Portfolio........................................................................................ 150,388
Growth Equity Portfolio............................................................................... 333,437
</TABLE>

Effective May 1, 1996, NYLIAC assumed responsibility for the payment of such
fees.

(F)

OTHER. Fees for the cost of legal services provided to the Company by the Office
of General Counsel of New York Life are charged to the Funds. For the year ended
December 31, 1996 these fees were as follows:

<TABLE>
<S> <C>
Capital Appreciation Portfolio......................................................................... $ 9,184
Cash Management Portfolio.............................................................................. 2,674
Convertible Portfolio.................................................................................. --
Government Portfolio................................................................................... 1,933
High Yield Corporate Bond Portfolio.................................................................... 2,367
International Equity Portfolio......................................................................... 582
Total Return Portfolio................................................................................. 6,785
Value Portfolio........................................................................................ 1,387
Bond Portfolio......................................................................................... 6,582
Growth Equity Portfolio................................................................................ 13,339
Indexed Equity Portfolio............................................................................... 3,618
</TABLE>

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

A
t December 31, 1996, 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

F-70
<PAGE> 152

MAINSTAY VP SERIES FUND, INC.

to elect, to the extent provided by regulations, to treat certain qualifying
capital losses that arose during the year ended December 31, 1996 as if they
arose on January 1, 1997.

<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S) DEFERRED (000'S)
---------------- ------------- --------------
<S> <C> <C> <C>
Capital Appreciation Portfolio.................................. 2002 $2,010
2003 3,133
------
$5,143 $2,008
======
Cash Management Portfolio....................................... 2003 $ 1
2004 1
------
$ 2 $ 0
======
Government Portfolio............................................ 2002 $3,261
2004 1,523
------
$4,784 $ 53
======
International Equity Portfolio.................................. $ 0 $ 186
======
Total Return Portfolio.......................................... 2002 $3,048 $ 131
======
Bond Portfolio.................................................. 2002 $1,786 $ 0
======
</TABLE>

Capital Appreciation Portfolio, International Equity Portfolio, Total Return
Portfolio and Bond Portfolio utilized $1,155,109, $23,549, $1,120,468 and
$961,896, respectively, of capital loss carryforwards during the current year.

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

H
igh 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--Redemption by NYLIAC of Initial Investment:
- --------------------------------------------------------------------------------

O
n February 21, 1995, NYLIAC redeemed all of its initial investment in
Capital Appreciation, Cash Management, Government and Total Return
Portfolios. In connection with the redemption of the initial shares, NYLIAC
reimbursed each of the above listed Funds $28,042, which represented the
unamortized deferred organization expense of the respective Funds on the date of
the redemption. Additionally, between February 14, 1995 and February 21, 1996,
NYLIAC redeemed all of its initial investment in Indexed Equity Portfolio.
NYLIAC reimbursed Indexed Equity Portfolio $20,892 which represented the
proportionate amount of the unamortized deferred organization expense which the
number of shares redeemed bears to the total number of initial shares purchased
between the dates above.

F-71
<PAGE> 153

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------

During the year ended December 31, 1996, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were as follows:

<TABLE>
<CAPTION>
CAPITAL APPRECIATION CONVERTIBLE GOVERNMENT
PORTFOLIO PORTFOLIO(a) PORTFOLIO
PURCHASES SALES PURCHASES SALES PURCHASES SALES
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities........................... $ -- $ -- $ 4,132 $ 1,582 $236,640 $ 212,920
All others........................................... 249,234 54,698 12,042 -- -- --
-------------------------------------------------------------------------
Total................................................ $249,234 $ 54,698 $ 16,174 $ 1,582 $236,640 $ 212,920
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY INDEXED EQUITY
PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES
-------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities........................... $ -- $ -- $ -- $ --
All others........................................... 509,811 490,842 102,680 4,134
-----------------------------------------------
Total................................................ $509,811 $ 490,842 $102,680 $ 4,134
===============================================
</TABLE>

- ------------
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.

- --------------------------------------------------------------------------------
NOTE 8--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------

Transactions in capital shares throughout each year ended December 31, 1996
and December 31, 1995 were as follows:

<TABLE>
<CAPTION>
CAPITAL APPRECIATION CASH MANAGEMENT CONVERTIBLE
PORTFOLIO PORTFOLIO PORTFOLIO
1996 1995 1996 1995 1996(b)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold........................................... 12,007 6,644 237,105 128,846 494
Shares issued in reinvestment of dividends and
distributions....................................... 18 62 4,586 3,588 17
------------------------------------------------------------------
12,025 6,706 241,691 132,434 511
Shares redeemed....................................... 416 874 211,181 115,710 5
------------------------------------------------------------------
Net increase (decrease)............................... 11,609 5,832 30,510 16,724 506
==================================================================
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY INDEXED EQUITY
1996 PORTFOLIO 1995 1996 PORTFOLIO 1995
---------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold........................................... 3,863 2,118 7,431 2,580
Shares issued in reinvestment of dividends and
distributions....................................... 3,968 2,286 363 367
---------------------------------------------------
7,831 4,404 7,794 2,947
Shares redeemed....................................... 2,346 2,060 1,657 1,259
--------------------------------------------------
Net increase (decrease)............................... 5,485 2,344 6,137 1,688
==================================================
</TABLE>

- ------------
(a) For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
(b) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.

F-72
<PAGE> 154
MAINSTAY VP SERIES FUND, INC.

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

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
CORPORATE BOND EQUITY TOTAL RETURN VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,703 $ 1,073 $ -- $ -- $359,252 $ 352,045 $ -- $ -- $155,916
212,917 109,938 21,127 3,507 203,966 92,741 93,892 23,958 64,716
- -----------------------------------------------------------------------------------------------------------------------------
$219,620 $ 111,011 $ 21,127 $ 3,507 $563,218 $ 444,786 $ 93,892 $ 23,958 $220,632
=============================================================================================================================
<CAPTION>
SALES
---------
$ 145,208
70,944
---------
$ 216,152
=========
</TABLE>

<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
GOVERNMENT CORPORATE BOND EQUITY TOTAL RETURN VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1996 1995 1996 1995 (A) 1996 1995 (A) 1996 1995 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,887 1,197 12,714 2,979 1,777 414 8,197 4,196 6,418
479 448 1,061 167 168 67 459 345 217
- -------------------------------------------------------------------------------------------------------------------------
2,366 1,645 13,775 3,146 1,945 481 8,656 4,541 6,635
1,219 1,859 225 41 140 46 494 1,404 83
- -------------------------------------------------------------------------------------------------------------------------
1,147 (214) 13,550 3,105 1,805 435 8,162 3,137 6,552
=========================================================================================================================
<CAPTION>
BOND
PORTFOLIO
1995 (a) 1996 1995
- -------------------------------------------
<S> <C> <C>
1,621 1,940 1,732
17 1,117 1,080
----- ----- -----
1,638 3,057 2,812
28 2,923 2,397
----- ----- -----
1,610 134 415
===== ===== =====
</TABLE>

F-73
<PAGE> 155

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

To the Board of Directors and Shareholders of
MainStay VP Series Fund, Inc.

In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Capital Appreciation Portfolio,
Cash Management Portfolio, Convertible Portfolio, Government Portfolio, High
Yield Corporate Bond Portfolio, International Equity Portfolio, Total Return
Portfolio, Value Portfolio, Bond Portfolio, Growth Equity Portfolio, and Indexed
Equity Portfolio (separate portfolios constituting MainStay VP Series Fund,
Inc., formerly New York Life MFA Series Fund, Inc., hereafter referred to as the
"Fund") at December 31, 1996, and the results of each of their operations for
the period then ended, and the changes in each of their net assets and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997

F-74
<PAGE> 156

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:

<TABLE>
<S> <C>
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.
</TABLE>

STANDARD & POOR'S CORPORATION DESCRIBES THE GRADES OF CORPORATE DEBT
SECURITY AS FOLLOWS:

A-1
<PAGE> 157

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

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.

<TABLE>
<S> <C>
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.
</TABLE>

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

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

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

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

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics

A-2
<PAGE> 158

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> 159

PROSPECTUS
FOR

MAINSTAY VP SERIES FUND, INC.

51 MADISON AVENUE, NEW YORK, NEW YORK 10010

TELEPHONE (800) 598-2019

MainStay VP Series Fund, Inc. (formerly, the New York Life MFA Series Fund,
Inc.) (the "Fund") is a diversified, open-end management investment company
(commonly known as a "mutual fund") that is designed to meet a wide range of
investment objectives. The Fund has eleven separate portfolios, three of which
are available for investment by, among others, MFA Separate Account I and MFA
Separate Account II and VLI Separate Account (the "Variable Accounts"). The
portfolios which are available to the Variable Accounts are: Cash Management
Portfolio, Bond Portfolio and Growth Equity Portfolio (hereinafter, collectively
the "Portfolios" or individually a "Portfolio").

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 7 of this Prospectus.

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, 1997, 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
(800) 598-2019 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, 1997

<PAGE> 160

MAINSTAY VP 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....................................................... 18
Administrator............................................................ 18
Capital Stock............................................................ 19
PURCHASE AND REDEMPTION OF SHARES............................................. 20
TAXES, DIVIDENDS AND DISTRIBUTIONS............................................ 20
Taxes.................................................................... 20
Dividends and Distributions.............................................. 21
GENERAL INFORMATION........................................................... 21
Custodian................................................................ 21
Reports to Shareholders.................................................. 21
Other Information........................................................ 21
APPENDIX A.................................................................... A-1
</TABLE>

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

2
<PAGE> 161

THE FUND AND THE VARIABLE ACCOUNTS

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

The Fund issues for investment by the Variable Accounts three separate
classes of capital stock, each of which represents a separate portfolio of
investments--Cash Management Portfolio, Bond Portfolio and 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> 162

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, 1996,
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>
JANUARY 29,
1993 (A)
YEAR ENDED DECEMBER 31 THROUGH
--------------------------------- DECEMBER 31,
1996 1995 1994 1993
--------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- -------- -------- ------------
Net investment income............................ 0.05 0.05 0.04 0.02
--------- -------- -------- ------------
Less dividends:
From net investment income..................... (0.05) (0.05) (0.04) (0.02)
--------- -------- -------- ------------
Net asset value at end of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ===========
Total investment return (b)...................... 4.95% 5.59% 3.82% 2.40%
Ratios (to average net
assets)/Supplemental Data:
Net investment income.......................... 4.92% 5.44% 3.97% 2.65%+
Net expenses................................... 0.62% 0.62% 0.62% 0.62%+
Expenses (before reimbursement)................ 0.64% 0.94% 0.89% 1.10%+
Net assets at end of period (in 000's)........... $ 118,347 $ 87,839 $ 71,116 $ 26,733
</TABLE>

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

(a) Commencement of Operations.

(b) Total return is not annualized.

+ Annualized.

4
<PAGE> 163

<TABLE>
<CAPTION>
BOND PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year....... $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86
--------- --------- --------- --------- --------- ---------
Net investment income...................... 0.87 0.88 0.88 0.95 0.92 1.02
Net realized and unrealized gain (loss) on
investments.............................. (0.59) 1.33 (1.34) 0.53 0.13 0.91
--------- --------- --------- --------- --------- ---------
Total from investment operations........... 0.28 2.21 (0.46) 1.48 1.05 1.93
--------- --------- --------- --------- --------- ---------
Less dividends:
From net investment income............... (0.87) (0.88) (0.88) (0.96) (0.91) (1.02)
--------- --------- --------- --------- --------- ---------
Net asset value at end of year............. $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
========= ========= ========= ========= ========= =========
Total investment return*................... 2.05% 18.31% (3.39%) 11.40% 8.26% 16.27%
Ratios (to average net
assets)/Supplemental Data:
Net investment income.................... 6.31% 6.55% 6.53% 6.79% 7.54% 8.22%
Net expenses............................. 0.58% 0.62% 0.62%# 0.27%# 0.25% 0.25%
Expenses (before reimbursement).......... 0.58% 0.91% 0.67%# 0.27%# 0.25% 0.25%
Portfolio turnover rate.................... 103% 81% 88% 41% 10% 57%
Net assets at end of year (in 000's)....... $ 226,375 $ 235,030 $ 206,686 $ 228,683 $ 203,947 $ 164,124

1990 1989 1988 1987
--------- --------- --------- ---------
<S> <C><C> <C> <C> <C>
Net asset value at beginning of year....... $ 12.09 $ 11.80 $ 11.99 $ 13.55
--------- --------- --------- ---------
Net investment income...................... 1.12 1.11 1.20 1.06
Net realized and unrealized gain (loss) on
investments.............................. (0.23) 0.30 (0.21) (0.91)
--------- --------- --------- ---------
Total from investment operations........... 0.89 1.41 0.99 0.15
--------- --------- --------- ---------
Less dividends:
From net investment income............... (1.12) (1.12) (1.18) (1.71)
--------- --------- --------- ---------
Net asset value at end of year............. $ 11.86 $ 12.09 $ 11.80 $ 11.99
========= ========= ========= =========
Total investment return*................... 7.36% 11.95% 8.26% 1.07%
Ratios (to average net
assets)/Supplemental Data:
Net investment income.................... 8.88% 8.83% 8.66% 8.15%
Net expenses............................. 0.25% 0.25% 0.26% 0.25%
Expenses (before reimbursement).......... 0.25% 0.25% 0.26% 0.25%
Portfolio turnover rate.................... 81% 20% 105% 53%
Net assets at end of year (in 000's)....... $ 138,826 $ 134,542 $ 122,725 $ 130,901
</TABLE>

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

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

* 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.

5
<PAGE> 164

<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year................... $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00
--------- --------- --------- --------- --------- ---------
Net investment income.................................. 0.18 0.22 0.22 0.24 0.22 0.27
Net realized and unrealized gain (loss) on
investments.......................................... 4.06 4.06 (0.03) 1.88 1.72 4.10
--------- --------- --------- --------- --------- ---------
Total from investment operations....................... 4.24 4.28 0.19 2.12 1.94 4.37
--------- --------- --------- --------- --------- ---------
Less dividends and distributions:
From net investment income........................... (0.18) (0.22) (0.22) (0.25) (0.22) (0.29)
From net realized gain on investments................ (2.65) (1.53) (0.92) (1.76) (1.76) (1.51)
--------- --------- --------- --------- --------- ---------
Total dividends and distributions...................... (2.83) (1.75) (1.14) (2.01) (1.98) (1.80)
--------- --------- --------- --------- --------- ---------
Net asset value at end of year......................... $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
========= ========= ========= ========= ========= =========
Total investment return*............................... 24.50% 29.16% 1.20% 13.71% 12.42% 33.62%
Ratios (to average net
assets)/Supplemental Data:
Net investment income................................ 0.98% 1.29% 1.41% 1.42% 1.50% 1.78%
Net expenses......................................... 0.58% 0.62% 0.62%# 0.27%# 0.27% 0.29%
Expenses (before reimbursement)...................... 0.58% 0.91% 0.65%# 0.27%# 0.27% 0.29%
Portfolio turnover rate................................ 104% 104% 108% 121% 82% 100%
Average commission rate paid........................... $ 0.0595 (a) (a) (a) (a) (a)
Net assets at end of year (in 000's)................... $ 564,685 $ 427,507 $ 330,161 $ 319,196 $ 272,834 $ 204,147

1990 1989 1988 1987
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value at beginning of year................... $ 14.22 $ 12.70 $ 11.22 $ 11.87
--------- --------- --------- ---------
Net investment income.................................. 0.32 0.42 0.46 0.36
Net realized and unrealized gain (loss) on
investments.......................................... (1.20) 2.82 1.43 (0.49)
--------- --------- --------- ---------
Total from investment operations....................... (0.88) 3.24 1.89 (0.13)
--------- --------- --------- ---------
Less dividends and distributions:
From net investment income........................... (0.33) (0.44) (0.41) (0.52)
From net realized gain on investments................ (0.01) (1.28) -- --
--------- --------- --------- ---------
Total dividends and distributions...................... (0.34) (1.72) (0.41) (0.52)
--------- --------- --------- ---------
Net asset value at end of year......................... $ 13.00 $ 14.22 $ 12.70 $ 11.22
========= ========= ========= =========
Total investment return*............................... (6.19%) 25.51% 16.85% (1.13%)
Ratios (to average net
assets)/Supplemental Data:
Net investment income................................ 2.33% 2.80% 3.32% 2.71%
Net expenses......................................... 0.29% 0.28% 0.30% 0.26%
Expenses (before reimbursement)...................... 0.29% 0.28% 0.30% 0.26%
Portfolio turnover rate................................ 114% 108% 111% 71%
Average commission rate paid........................... (a) (a) (a) (a)
Net assets at end of year (in 000's)................... $ 152,824 $ 171,116 $ 150,538 $ 156,198
</TABLE>

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

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

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

6
<PAGE> 165

PERFORMANCE AND YIELD INFORMATION

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 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

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.

7
<PAGE> 166

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

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 397 days 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 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

8
<PAGE> 167

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 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 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 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

9
<PAGE> 168

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 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 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 (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.

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 16 and "Foreign
Securities" at page 12.)

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

10
<PAGE> 169

(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.

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.

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 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

11
<PAGE> 170

an exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Fund believes that the Staff of the SEC has
left the question of determining the liquidity of all restricted securities to
the Directors, who will consider established factors in making such a
determination.

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

12
<PAGE> 171

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 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

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 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,

13
<PAGE> 172

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 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

14
<PAGE> 173

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.

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 B by Moody's or 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> 174

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 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

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 20% of the value of the total assets of 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.

16
<PAGE> 175

ARBITRAGE

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

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, 1996, MacKay-Shields managed over $23.7 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 manages other
assets, including assets held in its own general account and various separate
accounts (amounting to $78.8 billion as of December 31, 1996) and in the general
account and various separate accounts of NYLIAC (amounting to $17.0 billion as
of December 31, 1996).

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.

17
<PAGE> 176

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)

Cecilia 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)

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.

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 has retained NYLIFE
Distributors Inc. ("NYLIFE Distributors"), 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

18
<PAGE> 177

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.

CAPITAL STOCK

19
<PAGE> 178

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 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.

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

20
<PAGE> 179

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

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 Bond and Growth Equity Portfolios
will 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 of the following year) 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 and Growth Equity Portfolios, The Chase Manhattan Bank, N.A. (formerly
Chemical Bank), 3 Chase Metro Tech Center, Brooklyn, New York 11245 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 (800) 598-2019 or 51 Madison Avenue, New York, New
York 10010.

21
<PAGE> 180

STATEMENT OF ADDITIONAL INFORMATION

A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus.

22
<PAGE> 181

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:

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.
</TABLE>

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

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

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

A-1
<PAGE> 182

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 together
B 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.
</TABLE>

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-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.
</TABLE>

-- 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.

A-2
<PAGE> 183

-- 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> 184

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

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1997

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

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, 1997, which may be obtained by calling the Fund at
(800) 598-2019, 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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MAINSTAY VP 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......................................... 18
Portfolio Turnover....................................................... 18
MANAGEMENT OF THE FUND........................................................ 19
Investment Advisers...................................................... 21
Administration Agreements................................................ 21
Portfolio Brokerage...................................................... 22
DETERMINATION OF NET ASSET VALUE.............................................. 23
How Portfolio Securities Will Be Valued.................................. 23
INVESTMENT PERFORMANCE CALCULATIONS........................................... 24
Cash Management Portfolio Yield.......................................... 24
Bond Portfolio Yield..................................................... 25
Total Return Calculations................................................ 25
PURCHASE AND REDEMPTION OF SHARES............................................. 26
TAXES......................................................................... 27
GENERAL INFORMATION........................................................... 27
LEGAL COUNSEL................................................................. 29
FINANCIAL STATEMENTS.......................................................... 29
</TABLE>

<PAGE> 185

MAINSTAY VP 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;

(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 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

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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.

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(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:

(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.

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(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.

(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.

OTHER INVESTMENT POLICIES OF THE BOND AND GROWTH EQUITY PORTFOLIOS

Neither Portfolio 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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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.

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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.

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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

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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.

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

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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.

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.

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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, 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).

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.

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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 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

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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 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"). 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.

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

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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. 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.

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 10% of the value of the Portfolio's net
assets will be illiquid.

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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.

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<PAGE> 199

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.

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 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.

16
<PAGE> 200

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.

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.

17
<PAGE> 201

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.

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 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, 1996, December 31, 1995, and December 31,
1994, the portfolio turnover rates were as follows: for the Bond Portfolio,
103.02%, 80.86%, and 88.32%, respectively; and for the Growth Equity Portfolio,
104.13%, 104.07%, and 108.21%, respectively.

For the years ended December 31, 1996, December 31, 1995 and December 31,
1994, the portfolio turnover for the Cash Management Portfolio, as calculated in
accordance with applicable SEC regulations, was 0%.

18
<PAGE> 202

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......... 63 Director Executive Vice President and
Director of O'Brien Asset Man-
agement, 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: New York Life
Settlement Corporation; MONY
Series Fund; J.P. Food Ser-
vices, Inc. and United States
Leather.

Jill Feinberg............ 42 Director Consultant, Jill Feinberg &
Company from 1989 to date. Ms.
Feinberg is also a Director
of New York Life Settlement
Corporation.

Daniel Herrick........... 76 Director Treasurer and Senior Executive,
National Gallery of Art,
Washington, D.C., from
December 1985 to June 1995.

Richard M. Kernan, Jr*... 56 Chairman of the Board, Executive Vice President and
Chief Executive Officer Chief Investment Officer of
and Director New York Life Insurance Com-
pany from March 1995 to date;
Executive Vice President
prior thereto.

Anne F. Pollack*......... 41 President, Chief Senior Vice President of New
Administrative Officer York Life Insurance Company
and Director from March 1992 to date.

Robert D. Rock*.......... 42 Vice President and Senior Vice President in charge
Director of the Individual Annuity De-
partment of New York Life In-
surance Company from March
1991 to date.
</TABLE>

19
<PAGE> 203

Roman L. Weil............ 56 Director Professor of Accounting and
Sigmund E. Edelstone Profes-
sor 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 August 1996.

OFFICERS (OTHER THAN DIRECTORS)

Anthony W. Polis......... 53 Treasurer Vice President of New York Life
Insurance Company from 1988
to date.

Marc J. Chalfin.......... 51 Controller Senior Vice President and Con-
troller 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>

** 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,
1996, the directors received an aggregate of $85,000 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, 1996, for each of the following persons:

20
<PAGE> 204

COMPENSATION TABLE

INVESTMENT ADVISERS

Pursuant to the Investment Advisory Agreement for the Cash Management
Portfolio, dated December 15, 1996, 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, 1996.

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.

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, 1996. The Administrator has
authorized any of its directors, officers and employees who have been elected or
appointed as Directors or

21
<PAGE> 205

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

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 Cash Management Portfolio.

For the years ending December 31, 1996, December 31, 1995 and December 31,
1994, the Fund paid total brokerage commissions of $2,121,056, $1,506,976, and
$1,266,182, respectively.

22
<PAGE> 206

DETERMINATION OF NET ASSET VALUE

The Fund determines the net asset value per share of each Portfolio on each
day the New York Stock Exchange is open for trading. 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.

HOW PORTFOLIO SECURITIES WILL BE VALUED

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, and (f) 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.

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

23
<PAGE> 207

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

24
<PAGE> 208

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, 1996, the Cash Management
Portfolio yield was 4.96%, and the effective yield was 5.08%.

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:

<TABLE>
<S> <C> <C>
a - b
YIELD = 2[( ---- +1)(6)-1]
cd
</TABLE>

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
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:

<TABLE>
<S> <C> <C> <C>
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten-year period at the end of
the one, five, or ten-year period (or fractional portion
thereof).
</TABLE>

25
<PAGE> 209

For the one year period ending December 31, 1996, the average annual total
return for the Cash Management Portfolio was 4.95%. For the period beginning
January 29, 1993 (inception date) through December 31, 1996, the average annual
total return for the Cash Management Portfolio was 4.22%.

For the one, five and ten year periods ending December 31, 1996, the
average annual total returns for the Bond Portfolio were 2.05%, 7.03% and 8.23%,
respectively.

For the one, five and ten year periods ended December 31, 1996, the average
annual total returns for the Growth Equity Portfolio were 24.50%, 15.81% and
14.48%, 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 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.

26
<PAGE> 210

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

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:

27
<PAGE> 211

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.

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.

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

28
<PAGE> 212

units of any separate account until such time as this can be done without any
significant impact upon the separate account.

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.

29
<PAGE> 213

(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 214
MAINSTAY VP SERIES FUND, INC.

CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.2%)+
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
BANK NOTES (6.3%)
American Express Centurion Bank
5.57%, due 9/12/97 (b)(c)........ $1,000,000 $ 999,927
Bank of America-Illinois
5.82%, due 3/24/97 (c)........... 1,500,000 1,500,000
Boatmens Credit Card Bank
5.54%, due 8/8/97 (b)(c)......... 3,000,000 2,999,656
First National Bank of Maryland
5.13%, due 2/26/97 (c)........... 1,000,000 1,000,037
PNC Bank N.A.-Pittsburgh,
Pennsylvania
5.25%, due 2/6/97 (b)(c)......... 1,000,000 999,938
------------
7,499,558
------------
CERTIFICATES OF DEPOSIT (10.2%)
Deutsche Bank
5.85%, due 11/19/97
(call date 2/19/97) (c).......... 5,000,000 5,000,000
Industrial Bank of Japan
5.61%, due 1/7/97 (c)............ 2,000,000 2,000,003
Sanwa Bank Ltd.
5.56%, due 2/11/97 (c)........... 1,000,000 1,000,011
5.85%, due 1/17/97 (c)........... 4,000,000 4,000,089
------------
12,000,103
------------
COMMERCIAL PAPER (74.2%)
Alfa Corp.
5.75%, due 1/29/97............... 4,400,000 4,380,322
Astro Capital Corp.
5.48%, due 1/6/97 (a)............ 1,500,000 1,498,858
Banca CRT Financial Corp.
5.35%, due 1/14/97............... 2,000,000 1,996,136
5.35%, due 1/15/97............... 1,500,000 1,496,879
5.35%, due 1/21/97............... 1,000,000 997,028
5.40%, due 2/18/97............... 500,000 496,400
5.50%, due 1/14/97............... 170,000 169,662
Bex America Finance Inc.
5.32%, due 2/3/97................ 1,700,000 1,691,710
Caisse Centrale des Banques
Populaires
5.33%, due 1/10/97 (a)........... 4,100,000 4,094,537
Cariplo Finance Inc.
5.45%, due 1/24/97............... 400,000 398,607
China International Marine
Containers (Group) Ltd.
5.57%, due 1/9/97................ 2,500,000 2,496,906
Compagnie Bancaire USA Finance
Corp.
5.33%, due 1/10/97............... 4,700,000 4,693,737
Credito Italiano (DE) Inc.
5.39%, due 4/15/97............... 2,000,000 1,968,858
Galicia Funding Corp.
5.59%, due 3/5/97 (a)............ 2,500,000 2,475,544
Goldman, Sachs & Co.
5.45%, due 1/8/97................ 1,450,000 1,448,463
6.50%, due 1/2/97................ 3,725,000 3,724,327
- ------------
+ 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.

F-1
<PAGE> 215

CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996

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

<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS

AMORTIZED
COST PERCENT +
------------------------
<S> <C> <C>
Banks #..................... $ 80,501,362 68.0%
Brokerage................... 5,172,791 4.4
Computers & Office
Equipment................. 3,399,362 2.9
Conglomerates............... 4,496,250 3.8
Consumer Financial
Services.................. 4,991,670 4.2
Education................... 997,908 0.9
Federal Agency.............. 2,500,000 2.1
Finance..................... 15,399,820 13.0
Foreign Government.......... 1,099,104 0.9
------------ ---------
118,558,267 100.2
Liabilities in Excess of
Cash and Other Assets..... (211,345) (0.2)
------------ ---------
Net Assets.................. $118,346,922 100.0%
=========== =========
</TABLE>

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

F-2
<PAGE> 216

MAINSTAY VP SERIES FUND, INC.
CASH MANAGEMENT PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

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

F-3
<PAGE> 217

CASH MANAGEMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

<CAPTION>
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------
Net investment income................................... 0.05 0.05 0.04 0.02
------------ ------------ ------------ ------------
Less dividends:
From net investment income............................ (0.05) (0.05) (0.04) (0.02)
------------ ------------ ------------ ------------
Net asset value at end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =============
Total investment return (b)............................. 4.95% 5.59% 3.82% 2.40%
Ratios (to average net assets)/Supplemental Data:
Net investment income................................. 4.92% 5.44% 3.97% 2.65% +
Net expenses.......................................... 0.62% 0.62% 0.62% 0.62% +
Expenses (before reimbursement)....................... 0.64% 0.94% 0.89% 1.10% +
Net assets at end of period (in 000's).................. $ 118,347 $ 87,839 $ 71,116 $ 26,733
</TABLE>

- ------------
(a) Commencement of Operations.
(b) Total return is not annualized.
+ Annualized.

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

F-4
<PAGE> 218

BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996

<TABLE>
<CAPTION>
LONG-TERM BONDS (94.9%)+
CORPORATE BONDS (44.8%)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AUTO PARTS/EQUIPMENT (2.2%)
Borg-Warner Automotive, Inc.
7.00%, due 11/1/06.............. $ 5,000,000 $ 4,981,250
------------
BANKS (8.1%)
BankAmerica Corp.
7.75%, due 7/15/02.............. 4,000,000 4,185,000
First Union Corp.
9.45%, due 6/15/99.............. 5,000,000 5,350,000
Golden West Financial Corp.
10.25%, due 12/1/00............. 1,000,000 1,123,750
National Westminster Bancorp,
Inc.
9.375%, due 11/15/03 (c)........ 2,000,000 2,292,500
Republic New York Corp.
7.75%, due 5/15/09.............. 5,000,000 5,281,250
------------
18,232,500
------------
CONGLOMERATES--
DIVERSIFIED (1.0%)
Harcourt General, Inc.
9.50%, due 3/15/00.............. 2,000,000 2,162,500
------------
CONTAINERS (1.7%)
Federal Paper Board Co., Inc.
10.00%, due 4/15/11............. 3,100,000 3,847,875
------------
DATA PROCESSING (1.3%)
International Business
Machines Corp.
6.375%, due 6/15/00............. 3,000,000 2,992,500
------------
DIVERSIFIED UTILITIES (6.0%)
Consumers Power Co.
7.375%, due 9/15/23............. 7,000,000 6,623,750
Long Island Lighting Co.
8.75%, due 2/15/97 (a).......... 2,000,000 2,005,000
Niagara Mohawk Power Corp.
7.375%, due 8/1/03.............. 2,000,000 1,877,500
Public Service Co. of Colorado
6.00%, due 1/1/01............... 3,000,000 2,955,000
------------
13,461,250
------------
FINANCE (11.9%)
American General Finance Corp.
7.00%, due 10/1/97 (a).......... 7,000,000 7,059,780
Chrysler Financial Corp.
5.875%, due 2/7/01.............. 5,000,000 4,868,750
Ford Motor Credit Co.
7.00%, due 9/25/01.............. 5,000,000 5,081,250
General Motors Acceptance Corp.
5.625%, due 2/15/01............. 6,000,000 5,797,500
9.625%, due 12/15/01............ 1,000,000 1,122,500
Mellon Financial Co.
7.625%, due 11/15/99............ 3,000,000 3,108,750
------------
27,038,530
------------
- ------------
+ Percentages indicated are based on Fund net assets.
PRINCIPAL
AMOUNT VALUE
-----------------------
FOOD (0.5%)
ConAgra, Inc.
9.875%, due 11/15/05............ $ 1,000,000 $ 1,183,750
------------
LEISURE/AMUSEMENT (2.6%)
Walt Disney Co. (The)
6.75%, due 3/30/06.............. 6,000,000 5,955,000
------------
PAPER/PRODUCTS (2.2%)
Champion International Corp.
9.875%, due 6/1/00.............. 4,500,000 4,944,375
------------
RETAIL STORES (5.4%)
Price/Costco, Inc.
7.125%, due 6/15/05............. 5,000,000 5,000,000
Sears Roebuck & Co.
8.45%, due 11/1/98.............. 7,000,000 7,262,500
------------
12,262,500
------------
TELECOMMUNICATION
SERVICES (1.9%)
British Telecommunications PLC
9.375%, due 2/15/99 (c)......... 4,200,000 4,457,250
------------
Total Corporate Bonds
(Cost $98,630,193).............. 101,519,280
------------
U.S. GOVERNMENT & FEDERAL
AGENCIES (50.1%)
FEDERAL HOME LOAN
MORTGAGE CORPORATION (4.4%)
6.655%, due 5/20/99............. 10,000,000 10,007,000
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (6.7%)
4.95%, due 9/30/98.............. 10,000,000 9,827,600
8.70%, due 6/10/99.............. 5,000,000 5,291,300
------------
15,118,900
------------
UNITED STATES TREASURY BONDS
(17.0%)
6.75%, due 8/15/26.............. 32,000,000 32,264,000
10.75%, due 5/15/03............. 5,000,000 6,154,650
------------
38,418,650
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.

F-5
<PAGE> 219

MAINSTAY VP SERIES FUND, INC.

<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES
(22.0%)
6.25%, due 2/15/03.............. $20,000,000 $ 19,985,800
6.50%, due 10/15/06............. 5,000,000 5,025,000
7.125%, due 2/29/00............. 5,000,000 5,146,050
8.50%, due 11/15/00............. 18,200,000 19,657,274
------------
49,814,124
------------
Total U.S. Government &
Federal Agencies
(Cost $112,723,469)............. 113,358,674
------------
Total Long-Term Bonds
(Cost $211,353,662)............. 214,877,954
------------
SHORT-TERM
INVESTMENTS (3.6%)
PRINCIPAL
AMOUNT VALUE
-----------------------
COMMERCIAL PAPER (3.6%)
Associates Corp. of North America
5.23%, due on demand (b)........ 145,000 145,000
Duracell, Inc.
6.75%, due 1/2/97............... 5,115,000 5,114,041
General Electric Capital Corp.
5.90%, due 1/3/97............... 2,920,000 2,919,043
------------
Total Short-Term Investments
(Cost $8,178,084)............... 8,178,084
------------
Total Investments
(Cost $219,531,746) (d)......... $ 98.5% $223,056,038(e)
Cash and Other Assets,
Less Liabilities................ 1.5 3,318,848
----------- ------------
Net Assets....................... 100.0% $226,374,886
=========== ============
</TABLE>

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

F-6
<PAGE> 220

BOND PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $219,531,746)....... $223,056,038
Cash................................... 4,111
Receivables:
Interest............................. 3,702,071
Fund shares sold..................... 99,148
Other assets........................... 670
------------
Total assets..................... 226,862,038
------------
LIABILITIES:
Payables:
Fund shares redeemed................. 201,787
Adviser.............................. 143,053
Administrator........................ 38,459
Directors............................ 98
Accrued expenses....................... 103,755
------------
Total liabilities................ 487,152
------------
Net assets applicable to outstanding
shares............................... $226,374,886
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 176,481
Additional paid-in capital............. 224,460,425
Accumulated net realized loss on
investments.......................... (1,786,312)
Net unrealized appreciation on
investments.......................... 3,524,292
------------
Net assets applicable to outstanding
shares............................... $226,374,886
============
Shares of capital stock outstanding.... 17,648,142
============
Net asset value per share
outstanding.......................... $ 12.83
============
</TABLE>

STATEMENT OF OPERATIONS
For the year ended December 31, 1996

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

F-7
<PAGE> 221

MAINSTAY VP SERIES FUND, INC.

BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.87 0.88 0.88 0.95 0.92
Net realized and unrealized gain (loss) on
investments............................... (0.59) 1.33 (1.34) 0.53 0.13
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 0.28 2.21 (0.46) 1.48 1.05
------------ ------------ ------------ ------------ ------------
Less dividends:
From net investment income................ (0.87) (0.88) (0.88) (0.96) (0.91)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91
=========== =========== =========== =========== ===========
Total investment return..................... 2.05% 18.31% (3.39%) 11.40% 8.26%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 6.31% 6.55% 6.53% 6.79% 7.54%
Net expenses.............................. 0.58% 0.62% 0.62%# 0.27%# 0.25%
Expenses (before reimbursement)........... 0.58% 0.91% 0.67%# 0.27%# 0.25%
Portfolio turnover rate..................... 103% 81% 88% 41% 10%
Net assets at end of year (in 000's)........ $ 226,375 $ 235,030 $ 206,686 $ 228,683 $ 203,947
</TABLE>

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

F-8
<PAGE> 222

GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996

<TABLE>
<CAPTION>
COMMON STOCKS (94.5%)+
SHARES VALUE
----------------------
<S> <C> <C>
AEROSPACE/DEFENSE (6.0%)
Boeing Co. ....................... 60,000 $ 6,382,500
Coltec Industries Inc. (a)........ 370,000 6,983,750
Lockheed Martin Corp. ............ 61,200 5,599,800
Loral Space &
Communications Ltd. (a).......... 258,500 4,749,937
Northrop Grumman Corp. ........... 80,000 6,620,000
UNC Inc. (a)...................... 300,000 3,600,000
------------
33,935,987
------------
APPAREL MANUFACTURERS (1.0%)
Fruit of the Loom, Inc. Class A
(a).............................. 150,000 5,681,250
------------
BANKS (5.7%)
AmSouth Bancorp. ................. 62,400 3,018,600
Bank of New York Co., Inc.
(The)............................ 150,000 5,062,500
Bankers Trust New York Corp. ..... 75,000 6,468,750
Chase Manhattan Corp. ............ 93,600 8,353,800
Commerce Bancshares, Inc. ........ 78,277 3,620,311
Morgan (J. P.) & Co. Inc. ........ 60,000 5,857,500
------------
32,381,461
------------
BEVERAGES (1.0%)
Anheuser-Busch Cos., Inc. ........ 137,000 5,480,000
------------
BUILDING & MAINTENANCE (0.5%)
ADT Ltd. (a)...................... 125,000 2,859,375
------------
BUILDING PRODUCTS (1.0%)
Sherwin-Williams Co. (The)........ 100,000 5,600,000
------------
BUSINESS SERVICES (0.6%)
AccuStaff, Inc. (a)............... 150,000 3,168,750
------------
CHEMICALS (2.2%)
Praxair, Inc. .................... 100,000 4,612,500
Sealed Air Corp. (a).............. 182,500 7,596,562
------------
12,209,062
------------
COMMERCIAL SERVICES (0.9%)
Service Corp. International....... 190,000 5,320,000
------------
COMMUNICATIONS (1.9%)
Andrew Corp. (a).................. 45,000 2,387,812
Northern Telecom Ltd. ............ 77,500 4,795,313
Teleport Communications
Group Inc. Class A (a)........... 123,500 3,766,750
------------
10,949,875
------------
COMPUTERS & BUSINESS
EQUIPMENT (7.7%)
Computer Associates International,
Inc. ............................ 125,000 6,218,750
Electronic Data Systems Corp. .... 100,000 4,325,000
First Data Corp. ................. 150,060 5,477,190
- ------------
+ Percentages indicated are based on Fund net assets.
SHARES VALUE
----------------------
COMPUTERS & BUSINESS
EQUIPMENT (Continued)
FIserv, Inc. (a).................. 111,000 $ 4,079,250
Informix Corp. (a)................ 100,000 2,037,500
Intel Corp. ...................... 50,000 6,546,875
Microsoft Corp. (a)............... 40,000 3,305,000
Oracle Corp. (a).................. 110,000 4,592,500
Sungard Data Systems Inc. (a)..... 125,000 4,937,500
Zebra Technologies Corp. Class A
(a).............................. 75,000 1,753,125
------------
43,272,690
------------
DRUGS (4.6%)
American Home Products Corp. ..... 70,000 4,103,750
Amgen Inc. (a).................... 50,000 2,718,750
Genzyme Corp. (a)................. 120,000 2,610,000
Johnson & Johnson................. 60,000 2,985,000
Lilly (Eli) & Co. ................ 50,000 3,650,000
Pfizer Inc. ...................... 50,000 4,143,750
Warner-Lambert Co. ............... 80,000 6,000,000
------------
26,211,250
------------
ELECTRICAL (3.8%)
Emerson Electric Co. ............. 70,000 6,772,500
General Electric Co. ............. 100,000 9,887,500
Mark IV Industries, Inc. ......... 223,758 5,062,525
------------
21,722,525
------------
ELECTRONICS (2.7%)
Computer Products Inc. (a)........ 150,000 2,925,000
LSI Logic Corp. (a)............... 100,000 2,675,000
Teradyne, Inc. (a)................ 129,800 3,163,875
Texas Instruments, Inc. .......... 100,000 6,375,000
------------
15,138,875
------------
FINANCE (4.2%)
Federal Home Loan Mortgage
Corp. ........................... 40,000 4,405,000
Federal National Mortgage
Association...................... 160,000 5,960,000
Great Western Financial Corp. .... 175,000 5,075,000
Republic New York Corp. .......... 100,000 8,162,500
------------
23,602,500
------------
FOODS (3.2%)
Chiquita Brands International,
Inc. ............................ 168,000 2,142,000
Dole Food Co., Inc. .............. 145,000 4,911,875
Sara Lee Corp. ................... 144,000 5,364,000
Sysco Corp. ...................... 180,000 5,872,500
------------
18,290,375
------------
HEAVY INDUSTRIAL (0.4%)
U.S. Filter Corp. (a)............. 75,000 2,381,250
------------
HOSPITAL & MEDICAL SERVICES (5.4%)
Guidant Corp. .................... 110,000 6,270,000
HEALTHSOUTH Corp. (a)............. 70,100 2,707,613
Medtronic, Inc. .................. 70,000 4,760,000
</TABLE>

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

F-9
<PAGE> 223

GROWTH EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------
<S> <C> <C>
HOSPITAL & MEDICAL SERVICES
(Continued)
NABI Inc. (a)..................... 245,000 $ 2,143,750
Orthodontic Centers
of America Inc. (a).............. 150,000 2,400,000
Quorum Health Group, Inc. (a)..... 100,000 2,975,000
Sybron International Corp. (a).... 165,000 5,445,000
U.S. Surgical Corp. .............. 99,600 3,921,750
------------
30,623,113
------------
HOUSEHOLD PRODUCTS (2.1%)
Colgate-Palmolive Co. ............ 65,000 5,996,250
Procter & Gamble Co. ............. 54,700 5,880,250
------------
11,876,500
------------
INSURANCE-PROPERTY & CASUALTY
(4.3%)
Allstate Corp. ................... 120,000 6,945,000
American International Group,
Inc. ............................ 70,000 7,577,500
Chubb Corp. ...................... 60,400 3,246,500
General Re Corp. ................. 40,000 6,310,000
------------
24,079,000
------------
LEISURE/AMUSEMENT (1.2%)
Harrah's Entertainment, Inc.
(a).............................. 82,000 1,629,750
International Game Technology..... 286,000 5,219,500
------------
6,849,250
------------
LODGING & RESTAURANTS (1.4%)
Landry's Seafood Restaurants, Inc.
(a).............................. 50,000 1,068,750
Marriott International, Inc. ..... 125,000 6,906,250
------------
7,975,000
------------
MACHINERY/CAPITAL GOODS (0.9%)
AGCO Corp. ....................... 169,800 4,860,525
------------
MANUFACTURING (1.3%)
AlliedSignal Inc. ................ 111,000 7,437,000
------------
MEDIA & INFORMATION
SERVICES (2.7%)
Cognizant Corp. .................. 175,000 5,775,000
Heritage Media Corp. (a).......... 260,000 2,925,000
Time Warner Inc. ................. 175,000 6,562,500
------------
15,262,500
------------
METALS (0.5%)
Titanium Metals Corp. (a)......... 80,000 2,630,000
------------
OIL & ENERGY SERVICES (10.9%)
Apache Corp. ..................... 160,000 5,660,000
Aquila Gas Pipeline Corp. ........ 107,800 1,711,325
Burlington Resources, Inc. ....... 100,000 5,037,500
Consolidated Natural Gas Co. ..... 85,000 4,696,250
Global Marine, Inc. (a)........... 200,000 4,125,000
Halliburton Co. .................. 85,000 5,121,250

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

F-10
<PAGE> 224

MAINSTAY VP SERIES FUND, INC.

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

F-11
<PAGE> 225

MAINSTAY VP SERIES FUND, INC.
GROWTH EQUITY PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
STATEMENT OF OPERATIONS
For the year ended December 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $458,393,650)....... $565,166,699
Receivables:
Dividends and interest............... 723,274
Fund shares sold..................... 718,170
Investment securities sold........... 702,352
Other assets........................... 1,355
------------
Total assets..................... 567,311,850
------------
LIABILITIES:
Payables:
Investment securities purchased...... 1,854,625
Adviser.............................. 346,063
Fund shares redeemed................. 175,927
Administrator........................ 47,571
NYLIAC............................... 47,571
Custodian............................ 3,622
Directors............................ 228
Accrued expenses....................... 150,832
------------
Total liabilities................ 2,626,439
------------
Net assets applicable to outstanding
shares............................... $564,685,411
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per
share) 100 million shares
authorized........................... $ 303,080
Additional paid-in capital............. 457,458,315
Accumulated undistributed net realized
gain on investments.................. 150,967
Net unrealized appreciation on
investments.......................... 106,773,049
------------
Net assets applicable to outstanding
shares............................... $564,685,411
===========
Shares of capital stock outstanding.... 30,308,004
===========
Net asset value per share
outstanding.......................... $ 18.63
===========
INVESTMENT INCOME:
Income:
Dividends (a)........................ $ 6,340,368
Interest............................. 1,309,742
------------
Total income..................... 7,650,110
------------
Expenses:
Advisory............................. 1,233,329
Administration....................... 986,663
Recordkeeping........................ 283,024
Shareholder communication............ 211,872
Professional......................... 88,421
Directors............................ 23,546
Miscellaneous........................ 12,482
------------
Total expenses................... 2,839,337
------------
Net investment income.................. 4,810,773
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments....... 69,850,131
Net change in unrealized appreciation
on investments....................... 32,938,177
------------
Net realized and unrealized gain on
investments.......................... 102,788,308
------------
Net increase in net assets resulting
from operations...................... $107,599,081
===========
- ------------
(a) Dividends recorded net of foreign withholding taxes
in the amount of $4,231.
</TABLE>

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

F-12
<PAGE> 226

GROWTH EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995

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

<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........ $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
------------ ------------ ------------ ------------ ------------
Net investment income....................... 0.18 0.22 0.22 0.24 0.22
Net realized and unrealized gain (loss) on
investments............................... 4.06 4.06 (0.03) 1.88 1.72
------------ ------------ ------------ ------------ ------------
Total from investment operations............ 4.24 4.28 0.19 2.12 1.94
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
From net investment income................ (0.18) (0.22) (0.22) (0.25) (0.22)
From net realized gain on investments..... (2.65) (1.53) (0.92) (1.76) (1.76)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions........... (2.83) (1.75) (1.14) (2.01) (1.98)
------------ ------------ ------------ ------------ ------------
Net asset value at end of year.............. $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53
=========== =========== =========== =========== ===========
Total investment return..................... 24.50% 29.16% 1.20% 13.71% 12.42%
Ratios (to average net assets)/Supplemental
Data:
Net investment income..................... 0.98% 1.29% 1.41% 1.42% 1.50%
Net expenses.............................. 0.58% 0.62% 0.62%# 0.27%# 0.27%
Expenses (before reimbursement)........... 0.58% 0.91% 0.65%# 0.27%# 0.27%
Portfolio turnover rate..................... 104% 104% 108% 121% 82%
Average commission rate paid................ $ 0.0595 (a) (a) (a) (a)
Net assets at end of year (in 000's)........ $ 564,685 $ 427,507 $ 330,161 $ 319,196 $ 272,834
</TABLE>

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

F-13
<PAGE> 227

MAINSTAY VP SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1-- Organization and Business:
- --------------------------------------------------------------------------------

MainStay VP Series Fund, Inc. (formerly 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.
Convertible Portfolio, which commenced operations on October 1, 1996, High Yield
Corporate Bond, International Equity and Value Portfolios, which commenced
operations on May 1, 1995, Capital Appreciation, Cash Management, Government,
Total Return and Indexed Equity Portfolios, which commenced operations on
January 29, 1993 and Bond and Growth Equity Portfolios, which commenced
operations on January 23, 1984, (the "Funds") are separate portfolios of the
Company. Shares of the Funds are currently offered only to New York Life
Insurance and Annuity Corporation ("NYLIAC"), a wholly owned subsidiary of New
York Life Insurance Company ("New York Life"). NYLIAC allocates shares of the
Funds to, among others, New York Life Insurance and Annuity Corporation's
Variable Annuity Separate Account I and Variable Annuity Separate Account II
("Separate Accounts", collectively). The Separate Accounts are used to fund
multi-funded retirement annuity policies.