NEW YORK LIFE MFA SERIES FUND INC, 485BPOS, 1998-04-30

NEW YORK LIFE MFA SERIES FUND INC
485BPOS, 1998-04-30

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998

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. 25 [X]

AND

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 26 [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
------------------
SARA L. BADLER, ESQ.
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:
JEFFREY S. PURETZ
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
SUITE 1100
WASHINGTON, D.C. 20006

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:

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

[X] On May 1, 1998 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 MARCH 26, 1998, 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>
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
</TABLE>

PART B

<TABLE>
<CAPTION>
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
<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 Fund;
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, 1998

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

<TABLE>
<S> <C>
MAINSTAY VP SERIES FUND, INC.
OFFERS 15 PORTFOLIOS
Growth
Capital Appreciation Portfolio...... page A-9
Eagle Asset Management Growth Equity
Portfolio......................... page A-10
Growth Equity Portfolio............. page A-11
Indexed Equity Portfolio............ page A-12
International Equity Portfolio...... page A-13
Lord Abbett Developing Growth
Portfolio......................... page A-14
Growth & Income
American Century Income & Growth
Portfolio......................... page A-15
Convertible Portfolio............... page A-16
Dreyfus Large Company Value
Portfolio......................... page A-17
Total Return Portfolio.............. page A-18
Value Portfolio..................... page A-19
Income
Bond Portfolio...................... page A-20
Government Portfolio................ page A-21
High Yield Corporate Bond
Portfolio......................... page A-22
Cash Management Portfolio........... page A-23
</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. (See "Investments and
Investment Practices" on p. 26.)

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-24
General Investment Considerations...................... A-24
Convertible Portfolio.................................. A-24
High Yield Corporate Bond Portfolio.................... A-24
Indexed Equity Portfolio............................... A-25
International Equity Portfolio......................... A-25
Investments and Investment Practices................... A-26
Other Information...................................... A-30
THE FUND AND ITS MANAGEMENT................................. A-30
Investment Advisers.................................... A-30
Administrator.......................................... A-31
Capital Stock.......................................... A-32
PURCHASE AND REDEMPTION OF SHARES........................... A-32
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................... A-33
Taxes.................................................. A-33
Dividends and Distributions............................ A-33
GENERAL INFORMATION......................................... A-34
Custodian.............................................. A-34
Performance and Yield Information...................... A-34
Reports to Shareholders................................ A-34
Other Information...................................... A-34
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 fifteen 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"), the MainStay VP Indexed Equity Portfolio ("Indexed Equity"), the
MainStay VP American Century Income & Growth Portfolio ("American Century Income
& Growth"), the MainStay VP Dreyfus Large Company Value Portfolio ("Dreyfus
Large Company Value"), the MainStay VP Eagle Asset Management Growth Equity
Portfolio ("Eagle Asset Management Growth Equity") and the MainStay VP Lord
Abbett Developing Growth Portfolio ("Lord Abbett Developing Growth"). 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 each
period) and selected ratios with respect to each portfolio of the Fund have 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, 1997, 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. Information on the American Century Income
& Growth Portfolio, Dreyfus Large Company Value Portfolio, Eagle Asset
Management Growth Equity Portfolio and Lord Abbett Developing Growth Portfolio
is not presented since these Portfolios had not commenced operations on December
31, 1997.

<TABLE>
<CAPTION>
CAPITAL APPRECIATION
PORTFOLIO
-----------------------------------------------------
FOR THE YEAR ENDED JAN. 29,
DECEMBER 31, 1993** TO
----------------------------------------- DEC. 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD........................... $ 18.39 $ 15.49 $ 11.45 $ 12.03 $ 10.00
-------- -------- -------- -------- -------
Net investment income.............. 0.00(b) 0.01 0.06 0.05 0.02
Net realized and unrealized gain
(loss) on investments............ 4.31 2.90 4.04 (0.58) 2.03
-------- -------- -------- -------- -------
Total from investment operations... 4.31 2.91 4.10 (0.53) 2.05
-------- -------- -------- -------- -------
Less dividends and distributions:
From net investment income....... (0.00)(b) (0.01) (0.06) (0.05) (0.02)
From net realized gain on
investments.................... (0.31) -- -- -- --
-------- -------- -------- -------- -------
Total dividends and
distributions.................... (0.31) (0.01) (0.06) (0.05) (0.02)
-------- -------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD... $ 22.39 $ 18.39 $ 15.49 $ 11.45 $ 12.03
======== ======== ======== ======== =======
Total investment return#........... 23.49% 18.75% 35.78% (4.38%) 20.54%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Net investment income............ 0.00%(c) 0.09% 0.57% 0.63% 0.46%*
Net expenses..................... 0.65% 0.73% 0.73% 0.73% 0.73%*
Expenses (before
reimbursement)................. 0.65% 0.75% 0.90% 0.91% 1.15%*
Portfolio turnover rate............ 34% 16% 35% 39% 28%
Average commission rate paid....... $ 0.0589 $ 0.0600 (a) (a) (a)
Net assets at end of period (in
000's)........................... $763,079 $503,622 $244,536 $113,999 $43,485

<CAPTION>
CASH MANAGEMENT CONVERTIBLE
PORTFOLIO PORTFOLIO
--------------------------------------------------- --------------------
FOR THE YEAR ENDED JAN. 29, FOR YEAR OCT. 1,
DECEMBER 31, 1993** TO ENDED 1996** TO
--------------------------------------- DEC. 31, DEC. 31, DEC. 31,
1997 1996 1995 1994 1993 1997 1996
-------- -------- ------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 10.27 $ 10.00
-------- -------- ------- ------- ------- ------- -------
Net investment income.............. 0.05 0.05 0.05 0.04 0.02 0.44 0.10
Net realized and unrealized gain
(loss) on investments............ -- -- -- -- -- 1.12 0.29
-------- -------- ------- ------- ------- ------- -------
Total from investment operations... 0.05 0.05 0.05 0.04 0.02 1.56 0.39
-------- -------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income....... (0.05) (0.05) (0.05) (0.04) (0.02) (0.44) (0.10)
From net realized gain on
investments.................... -- -- -- -- -- (0.63) (0.02)
-------- -------- ------- ------- ------- ------- -------
Total dividends and
distributions.................... (0.05) (0.05) (0.05) (0.04) (0.02) (1.07) (0.12)
-------- -------- ------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 10.76 $ 10.27
======== ======== ======= ======= ======= ======= =======
Total investment return#........... 5.25% 4.95% 5.59% 3.82% 2.40% 15.43% 3.89%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Net investment income............ 5.13% 4.92% 5.44% 3.97% 2.65%* 5.13% 5.14%*
Net expenses..................... 0.54% 0.62% 0.62% 0.62% 0.62%* 0.73% 0.73%*
Expenses (before
reimbursement)................. 0.54% 0.64% 0.94% 0.89% 1.10%* 0.78% 1.46%*
Portfolio turnover rate............ -- -- -- -- -- 217% 15%
Average commission rate paid....... -- -- -- -- -- $0.0567 $0.0537
Net assets at end of period (in
000's)........................... $140,782 $118,347 $87,839 $71,116 $26,733 $39,768 $15,464
</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.

(b) Less than one cent per share.

A-4
<PAGE> 7

FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
GOVERNMENT HIGH YIELD CORPORATE BOND
PORTFOLIO PORTFOLIO
--------------------------------------------------- -------------------------------
FOR THE YEAR ENDED JAN. 29, FOR THE YEAR ENDED MAY 1,
DECEMBER 31, 1993** TO DECEMBER 31, 1995** TO
--------------------------------------- DEC. 31, ------------------- DEC. 31,
1997 1996 1995 1994 1993 1997 1996 1995
------- -------- -------- ------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD........................... $ 9.59 $ 10.01 $ 9.21 $ 10.15 $ 10.00 $ 11.61 $ 10.55 $ 10.00
------- -------- -------- ------- ------- -------- -------- -------
Net investment income.............. 0.67 0.65 0.75 0.75 0.82 0.85 0.59 0.37
Net realized and unrealized gain
(loss) on investments............ 0.24 (0.42) 0.80 (0.94) (0.25) 0.65 1.22 0.61
Net realized and unrealized gain
(loss) on foreign currency
transactions..................... -- -- -- -- -- -- -- --
------- -------- -------- ------- ------- -------- -------- -------
Total from investment operations... 0.91 0.23 1.55 (0.19) 0.57 1.50 1.81 0.98
------- -------- -------- ------- ------- -------- -------- -------
Less dividends and distributions:
From net investment income....... (0.67) (0.65) (0.75) (0.75) (0.42) (0.84) (0.59) (0.37)
From net realized gain on
investments.................... -- -- -- -- -- (0.54) (0.16) (0.04)
From net realized gain on
investments and foreign
currency transactions.......... -- -- -- -- -- -- -- --
In excess of net realized gain on
investments.................... -- -- -- -- -- -- -- (0.02)
------- -------- -------- ------- ------- -------- -------- -------
Total dividends and
distributions.................... (0.67) (0.65) (0.75) (0.75) (0.42) (1.38) (0.75) (0.43)
------- -------- -------- ------- ------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD... $ 9.83 $ 9.59 $ 10.01 $ 9.21 $ 10.15 $ 11.73 $ 11.61 $ 10.55
======= ======== ======== ======= ======= ======== ======== =======
Total investment return#........... 9.48% 2.28% 16.72% (1.84%) 5.63% 13.03% 17.16% 10.06%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income............ 6.71% 6.66% 7.80% 8.16% 8.46%* 8.84% 8.59% 10.02%*
Net expenses..................... 0.63% 0.67% 0.67% 0.67% 0.67%* 0.59% 0.67% 0.67%*
Expenses (before
reimbursement)................. 0.63% 0.71% 0.82% 0.87% 1.02%* 0.59% 0.71% 1.25%*
Portfolio turnover rate............ 345% 304% 592% 483% 501% 153% 149% 95%
Average commission rate paid....... -- -- -- -- -- $ 0.0581 $ 0.0613 (a)
Net assets at end of period (in
000's)........................... $73,755 $ 73,123 $ 64,812 $61,641 $46,766 $424,567 $205,001 $43,314

<CAPTION>
INTERNATIONAL EQUITY
PORTFOLIO
-------------------------------
FOR THE YEAR ENDED MAY 1,
DECEMBER 31, 1995** TO
------------------- DEC. 31,
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD........................... $ 10.65 $ 10.20 $ 10.00
------- ------- -------
Net investment income.............. 1.06 0.44 0.64
Net realized and unrealized gain
(loss) on investments............ 0.27 0.06 0.01
Net realized and unrealized gain
(loss) on foreign currency
transactions..................... (0.78) 0.56 0.05
------- ------- -------
Total from investment operations... 0.55 1.06 0.70
------- ------- -------
Less dividends and distributions:
From net investment income....... (0.89) (0.60) (0.06)
From net realized gain on
investments.................... -- -- --
From net realized gain on
investments and foreign
currency transactions.......... -- (0.01) (0.44)
In excess of net realized gain on
investments.................... -- -- --
------- ------- -------
Total dividends and
distributions.................... (0.89) (0.61) (0.50)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD... $ 10.31 $ 10.65 $ 10.20
======= ======= =======
Total investment return#........... 5.17% 10.54% 6.96%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income............ 1.25% 1.01% 1.07%*
Net expenses..................... 0.97% 0.97% 0.97%*
Expenses (before
reimbursement)................. 1.25% 1.51% 2.51%*
Portfolio turnover rate............ 61% 16% 14%
Average commission rate paid....... $0.0351 $0.0364 (a)
Net assets at end of period (in
000's)........................... $30,272 $34,509 $14,631
</TABLE>

A-5
<PAGE> 8

FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
TOTAL RETURN VALUE
PORTFOLIO PORTFOLIO
----------------------------------------------------- -------------------------------
FOR THE YEAR ENDED JAN. 29, FOR THE YEAR ENDED MAY 1,
DECEMBER 31, 1993** TO DECEMBER 31, 1995** TO
----------------------------------------- DEC. 31, ------------------- DEC. 31,
1997 1996 1995 1994 1993 1997 1996 1995
-------- -------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD............................. $ 14.56 $ 13.26 $ 10.58 $ 11.32 $ 10.00 $ 13.90 $ 11.58 $ 10.00
-------- -------- -------- -------- ------- -------- -------- -------
Net investment income................ 0.37 0.30 0.31 0.27 0.16 0.21 0.17 0.10
Net realized and unrealized gain
(loss) on investments.............. 2.21 1.30 2.69 (0.72) 1.34 2.94 2.52 1.58
-------- -------- -------- -------- ------- -------- -------- -------
Total from investment operations..... 2.58 1.60 3.00 (0.45) 1.50 3.15 2.69 1.68
-------- -------- -------- -------- ------- -------- -------- -------
Less dividends and distributions:
From net investment income......... (0.36) (0.30) (0.32) (0.29) (0.16) (0.21) (0.17) (0.10)
From net realized gain on
investments...................... (0.31) -- -- -- -- (0.75) (0.20) --
In excess of net realized gain on
investments...................... -- -- -- -- (0.02) -- -- --
-------- -------- -------- -------- ------- -------- -------- -------
Total dividends and distributions.... (0.67) (0.30) (0.32) (0.29) (0.18) (0.96) (0.37) (0.10)
-------- -------- -------- -------- ------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD..... $ 16.47 $ 14.56 $ 13.26 $ 10.58 $ 11.32 $ 16.09 $ 13.90 $ 11.58
======== ======== ======== ======== ======= ======== ======== =======
Total investment return#............. 17.79% 12.08% 28.33% (3.99%) 15.04% 22.89% 23.22% 16.76%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Net investment income.............. 2.46% 2.52% 3.06% 3.50% 3.48%* 1.78% 2.10% 2.57%*
Net expenses....................... 0.60% 0.69% 0.69% 0.69% 0.69%* 0.65% 0.73% 0.73%*
Expenses (before reimbursement).... 0.60% 0.71% 0.81% 0.88% 1.07%* 0.65% 0.79% 1.45%*
Portfolio turnover rate.............. 125% 175% 253% 297% 197% 48% 41% 20%
Average commission rate paid......... $ 0.0585 $ 0.0599 (a) (a) (a) $ 0.0594 $ 0.0593 (a)
Net assets at end of period (in
000's)............................. $446,624 $332,897 $194,893 $122,333 $55,548 $264,179 $120,415 $24,429

<CAPTION>
INDEXED EQUITY
PORTFOLIO
----------------------------------------------------
FOR THE YEAR ENDED JAN. 29,
DECEMBER 31, 1993** TO
---------------------------------------- DEC. 31,
1997 1996 1995 1994 1993
-------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD............................. $ 16.10 $ 13.53 $ 10.38 $ 10.58 $ 10.00
-------- -------- -------- ------- -------
Net investment income................ 0.27 0.24 0.27 0.24 0.19
Net realized and unrealized gain
(loss) on investments.............. 4.99 2.79 3.55 (0.15) 0.67
-------- -------- -------- ------- -------
Total from investment operations..... 5.26 3.03 3.82 0.09 0.86
-------- -------- -------- ------- -------
Less dividends and distributions:
From net investment income......... (0.27) (0.24) (0.28) (0.24) (0.19)
From net realized gain on
investments...................... (0.51) (0.22) (0.39) (0.05) (0.08)
In excess of net realized gain on
investments...................... -- -- -- -- (0.01)
-------- -------- -------- ------- -------
Total dividends and distributions.... (0.78) (0.46) (0.67) (0.29) (0.28)
-------- -------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD..... $ 20.58 $ 16.10 $ 13.53 $ 10.38 $ 10.58
======== ======== ======== ======= =======
Total investment return#............. 32.84% 22.42% 36.89% 0.76% 8.53%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Net investment income.............. 1.75% 2.14% 2.52% 2.61% 2.54%*
Net expenses....................... 0.39% 0.47% 0.47% 0.47% 0.47%*
Expenses (before reimbursement).... 0.39% 0.50% 0.62% 0.68% 0.96%*
Portfolio turnover rate.............. 5% 3% 5% 8% 7%
Average commission rate paid......... $ 0.0499 $ 0.0498 (a) (a) (a)
Net assets at end of period (in
000's)............................. $496,772 $223,945 $105,171 $63,164 $43,081
</TABLE>

A-6
<PAGE> 9

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
BOND PORTFOLIO
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
YEAR............................. $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91
-------- -------- -------- -------- --------
Net investment income.............. 0.88 0.87 0.88 0.88 0.95
Net realized and unrealized gain
(loss) on investments............ 0.35 (0.59) 1.33 (1.34) 0.53
-------- -------- -------- -------- --------
Total from investment operations... 1.23 0.28 2.21 (0.46) 1.48
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income....... (0.88) (0.87) (0.88) (0.88) (0.96)
From net realized gain on
investments.................... (0.04) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and
distributions.................... (0.92) (0.87) (0.88) (0.88) (0.96)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF YEAR..... $ 13.14 $ 12.83 $ 13.42 $ 12.09 $ 13.43
======== ======== ======== ======== ========
Total investment return#........... 9.65% 2.05% 18.31% (3.39%) 11.40%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income............ 6.42% 6.31% 6.55% 6.53% 6.79%
Net expenses..................... 0.50% 0.58% 0.62% 0.62%++ 0.27%++
Expenses (before
reimbursement)................. 0.50% 0.58% 0.91% 0.67%++ 0.27%++
Portfolio turnover rate............ 187% 103% 81% 88% 41%
Net assets at end of year (in
000's)........................... $228,949 $226,375 $235,030 $206,686 $228,683

<CAPTION>
BOND PORTFOLIO
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
YEAR............................. $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99
-------- -------- -------- -------- --------
Net investment income.............. 0.92 1.02 1.12 1.11 1.20
Net realized and unrealized gain
(loss) on investments............ 0.13 0.91 (0.23) 0.30 (0.21)
-------- -------- -------- -------- --------
Total from investment operations... 1.05 1.93 0.89 1.41 0.99
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income....... (0.91) (1.02) (1.12) (1.12) (1.18)
From net realized gain on
investments.................... -- -- -- -- --
-------- -------- -------- -------- --------
Total dividends and
distributions.................... (0.91) (1.02) (1.12) (1.12) (1.18)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF YEAR..... $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80
======== ======== ======== ======== ========
Total investment return#........... 8.26% 16.27% 7.36% 11.95% 8.26%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income............ 7.54% 8.22% 8.88% 8.83% 8.66%
Net expenses..................... 0.25% 0.25% 0.25% 0.25% 0.26%
Expenses (before
reimbursement)................. 0.25% 0.25% 0.25% 0.25% 0.26%
Portfolio turnover rate............ 10% 57% 81% 20% 105%
Net assets at end of year (in
000's)........................... $203,947 $164,124 $138,826 $134,542 $122,725
</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-7
<PAGE> 10

FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
YEAR............................. $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
-------- -------- -------- -------- -------- --------
Net investment income.............. 0.16 0.18 0.22 0.22 0.24 0.22
Net realized and unrealized gain
(loss) on investments............ 4.74 4.06 4.06 (0.03) 1.88 1.72
-------- -------- -------- -------- -------- --------
Total from investment operations... 4.90 4.24 4.28 0.19 2.12 1.94
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income....... (0.16) (0.18) (0.22) (0.22) (0.25) (0.22)
From net realized gain on
investments.................... (3.06) (2.65) (1.53) (0.92) (1.76) (1.76)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions.................... (3.22) (2.83) (1.75) (1.14) (2.01) (1.98)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF YEAR..... $ 20.31 $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53
======== ======== ======== ======== ======== ========
Total investment return#........... 26.75% 24.50% 29.16% 1.20% 13.71% 12.42%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Net investment income............ 0.80% 0.98% 1.29% 1.41% 1.42% 1.50%
Net expenses..................... 0.50% 0.58% 0.62% 0.62%++ 0.27%++ 0.27%
Expenses (before
reimbursement)................. 0.50% 0.58% 0.91% 0.65%++ 0.27%++ 0.27%
Portfolio turnover rate............ 103% 104% 104% 108% 121% 82%
Average commission rate paid....... $ 0.0599 $ 0.0595 (a) (a) (a) (a)
Net assets at end of year (in
000's)........................... $759,054 $564,685 $427,507 $330,161 $319,196 $272,834

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

- ------------
++ 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.
# 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) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.

A-8
<PAGE> 11

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 FINANCIAL
CORPORATION ("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 24, "General
Investment Considerations" and pages 26-30, "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 Managing 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 and became a
Managing Director in 1997. He has twenty 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-9
<PAGE> 12

EAGLE ASSET MANAGEMENT GROWTH EQUITY PORTFOLIO

The Portfolio's objective is:

to seek growth through long-term capital appreciation.

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

The Portfolio invests in:

common stocks that the sub-adviser believes have sufficient long-term growth
potential to offer above average long-term capital appreciation. Companies in
which Eagle will invest will have at least one of the following characteristics
at the time of purchase:

- - expected earnings-per-share growth greater than the average of the S&P 500, or
- - return on equity greater than the average for the S&P 500.

Under normal market conditions...

...AT LEAST 65% OF THE PORTFOLIO'S TOTAL ASSETS will be invested in U.S. common
stocks. A majority of the Eagle Asset Management Growth Equity Portfolio's total
assets will be invested in common stock with market capitalization of greater
than $5 billion at the time of purchase.

With respect to the other 35% of its total assets, the Portfolio may invest in
common stocks of foreign issuers, American Depositary Receipts ("ADRs"), foreign
currency transactions with respect to underlying common stocks, preferred stock,
investment grade securities convertible into common stocks, futures contracts,
options on equity securities or equity security indices, rights or warrants to
subscribe for or purchase common stocks, obligations of the U.S. Government, its
agencies and instrumentalities (including repurchase agreements thereon) and in
securities that track the performance of a broad-based securities index, such as
Standard & Poor's Depositary Receipts ("SPDRs").

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See pages 26-30,
"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.

Eagle manages a portfolio of Heritage Series Trust (the "Trust") which served as
the model for the Portfolio of the Fund. The portfolio of the Trust has
substantially the same investment objectives and policies as the Portfolio of
the Fund. In addition, Eagle intends the Portfolio of the Fund and the
corresponding portfolio of the Trust to be managed by the same personnel and to
continue to have closely similar investment strategies, techniques, and
characteristics.

Past investment performance of the Trust portfolio, as shown in the table below,
may be relevant to your consideration of the Portfolio. The information
presented for the Trust portfolio shows average annual return that takes into
account the portfolio's operating expenses (which may have been subject to
certain expense limitations), but does not include any sales load. The
investment performance of the Trust portfolio is not necessarily indicative of
future performance of the Portfolio. Also, the operating expenses of the
Portfolio will be different from, and may be higher than, the operating expenses
of the corresponding Trust portfolio. The performance of the Trust portfolio
shown below does not represent performance of the Portfolio, which is a new
Portfolio and has no performance of its own. The investment performance of the
Trust portfolio is provided merely to indicate the experience of Eagle in
managing a similar portfolio.

<TABLE>
<CAPTION>
AS OF 12/31/97
----------------------------------
ONE YEAR AVERAGE AVERAGE ANNUAL
INCEPTION TOTAL RETURN TOTAL RETURN
FUND NAME DATE AS OF 12/31/97 SINCE INCEPTION
--------- --------- ---------------- ---------------
<S> <C> <C> <C>
Heritage Series Trust: 11/16/95 37.61% 29.36%
Growth Equity Fund
</TABLE>

WHO'S MANAGING YOUR MONEY?

EAGLE ASSET MANAGEMENT, INC. serves as sub-adviser to this portfolio, and has
been managing private accounts since 1976 for a diverse group of clients.

KENNETH W. CORBA, Executive Vice President and Chief Investment Officer of Eagle
since 1995. From 1984 to 1995 Mr. Corba held various portfolio management
positions with Stein Roe & Farnham, Inc. including the Director of the Capital
Management Group.

A-10
<PAGE> 13

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 larger capitalization, 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 24, "General
Investment Considerations" and pages 26-30, "Investments and Investment
Practices," for details.)

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-11
<PAGE> 14

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 25 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 24, "General
Investment Considerations" and pages 26-30, "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-12
<PAGE> 15

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 equity investments or want to add diversification to their
domestic investments.

SEE PAGE 25 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, among others, countries in
Latin America and Asia, 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
25, "Other Information About the Portfolios--International Equity Portfolio.")

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 24, "General
Investment Considerations" and pages 26-30, "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 27, "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-13
<PAGE> 16

LORD ABBETT DEVELOPING GROWTH PORTFOLIO

The Portfolio's objective is:

long-term growth of capital through a diversified and actively-managed portfolio
consisting of developing growth companies, many of which are traded over the
counter.

WHO SHOULD INVEST? Investors seeking growth and who are comfortable with the
higher risks involved in smaller company stocks.

The Portfolio invests in:

under normal market conditions, at least 65% of its net assets in the common
stock of developing growth companies. At any given time, there are many hundreds
of publicly-traded corporations in the developing growth phase with market
capitalization generally below $1 billion. In choosing among them, the
sub-adviser looks for special characteristics that will help their growth. These
can include a unique product or service for which the sub-adviser foresees a
rising demand; a special area of technological expertise; strong company
management; the ability to service a region that is growing faster than average;
a competitive advantage or new opportunities in foreign trade or arising from
shifts in government priorities and programs; or an ability to take advantage of
growth of consumers' discretionary income and demographic changes.

The sub-adviser also looks for certain financial characteristics such as: at
least five years of higher-than-average growth of revenues and earnings per
share; higher-than-average returns on equity; the ability to finance growth in
the form of a lower-than-average ratio of long-term debt to capital and
price/earnings ratios that are below expected growth rates.

The sub-adviser also looks for certain characteristics of management in addition
to those that are implied by the financial data. The sub-adviser looks for
management that is well-seasoned and diverse in its talent and that is
aggressive enough to seize the opportunities the sub-adviser perceives in each
company's future. Finally, the sub-adviser looks for management that has
demonstrated an ability to manage through a full economic cycle.

Securities the sub-adviser considers for the Portfolio are analyzed solely on
traditional investment fundamentals. In addition to the financial data already
mentioned, the sub-adviser evaluates the market for each company's products or
services, the strengths and weaknesses of competitors, the availability of raw
materials, diversity of product mix, etc. Finally, in assembling the portfolio,
the sub-adviser tries to diversify investments. Within the bounds of other
criteria, the sub-adviser tries to invest in many securities and industries in
order to minimize risk.

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See pages 26-30,
"Investments and Investment Practices," for details.)

RISKS? An investment in this Portfolio is not intended as a complete investment
program. Because stocks of developing growth companies entail more risk and have
more volatile prices than those of mature companies, the Portfolio's NAV per
share is likely to experience above-average fluctuations.

Lord, Abbett manages the Lord Abbett Developing Growth Fund ("LADGF") which
served as the model for the Portfolio of the Fund. The LADGF has substantially
the same investment objectives and policies as the Portfolio of the Fund. In
addition, Lord Abbett intends the Portfolio of the Fund and the LADGF to be
managed by the same personnel and to continue to have closely similar investment
strategies, techniques, and characteristics.

Past investment performance of LADGF, as shown in the table below, may be
relevant to your consideration of the Portfolio. The information presented for
the LADGF shows average annual return that takes into account the fund's
operating expenses (which may have been subject to certain expense limitations),
but does not include any sales load. The investment performance of LADGF is not
necessarily indicative of future performance of the Portfolio. Also, the
operating expenses of the Portfolio will be different from, and may be higher
than, the operating expenses of LADGF. The performance of the LADGF shown below
does not represent performance of the Lord Abbett Developing Growth Portfolio,
which is a new Portfolio and has no performance of its own. The investment
performance of LADGF is provided merely to indicate the experience of Lord
Abbett in managing a similar portfolio.

<TABLE>
<CAPTION>
AS OF 12/31/97
--------------------------------------------
ONE YEAR THREE YEAR FIVE YEAR TEN YEAR
AVERAGE AVERAGE AVERAGE AVERAGE
INCEPTION TOTAL TOTAL TOTAL TOTAL
FUND NAME DATE RETURN RETURN RETURN RETURN
--------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Lord Abbett 11/19/73 30.78% 32.57% 22.75% 16.65%
Developing Growth
Fund, Inc.
</TABLE>

WHO'S MANAGING YOUR MONEY?

LORD, ABBETT & CO. serves as sub-adviser to this Portfolio and has been managing
money since 1929 and has approximately $25 billion in assets under management.

STEPHEN J. MCGRUDER serves as portfolio manager and has been a portfolio manager
at Lord, Abbett since May 1995. He previously served as Vice President of Wafra
Investor Advisory Group from October 1988. Mr. McGruder has been in the
investment business since 1969.

A-14
<PAGE> 17

AMERICAN CENTURY INCOME & GROWTH PORTFOLIO

The Portfolio's objective is:

dividend growth, current income and capital appreciation. The Portfolio will
seek to achieve its objective by primarily investing in common stocks.

WHO SHOULD INVEST? Investors who seek a combination of income and growth
potential.

The Portfolio invests in:

...primarily equity securities of the 1,500 largest companies traded in the
United States (ranked by market capitalization).

The sub-adviser uses quantitative management strategies in pursuit of the
Portfolio's investment objective.

Quantitative management combines two investment approaches. The first is to rank
stocks based on their relative attractiveness. The attractiveness of a stock is
determined analytically by using a computer model to combine valuation and
growth measures. Examples of valuation measures include price to book and price
to cash flow ratios while examples of growth measures include the rate of growth
of a company's earnings and changes in analysts' earnings estimates.

The second step is to use a technique referred to as portfolio optimization.
Using a computer the manager constructs a portfolio (i.e., company names and
shares held in each) which seeks the optimal tradeoff between the risk of the
portfolio relative to a benchmark (i.e., the S&P 500) and the expected return of
the portfolio as measured by the stock ranking model. With respect to the
Portfolio, the portfolio optimization includes targeting a dividend yield that
exceeds that of the S&P 500.

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See pages 26-30,
"Investments and Investment Practices," for details.)

American Century manages a portfolio of American Century Quantitative Equity
Funds ("ACQEF") which served as the model for the Portfolio of the Fund. The
portfolio of ACQEF has substantially the same investment objectives and policies
as the Portfolio of the Fund. In addition, American Century intends the
Portfolio of the Fund and the corresponding portfolio of ACQEF to be managed by
the same personnel and to continue to have closely similar investment
strategies, techniques, and characteristics.

Past investment performance of the ACQEF portfolio, as shown in the table below,
may be relevant to your consideration of the Portfolio. The information
presented for the ACQEF portfolio shows average annual return that takes into
account the portfolio's operating expenses (which may have been subject to
certain expense limitations), but does not include any sales load. The
investment performance of the ACQEF portfolio is not necessarily indicative of
future performance of the Portfolio. Also, the operating expenses of the
Portfolio will be different from, and may be higher than, the operating expenses
of the corresponding ACQEF portfolio. The performance of the ACQEF portfolio
shown below does not represent performance of the American Century Income &
Growth Portfolio, which is a new Portfolio and has no performance of its own.
The investment performance of the ACQEF portfolio is provided merely to indicate
the experience of American Century in managing a similar portfolio.

<TABLE>
<CAPTION>
AS OF 12/31/97
---------------------------------------------------
ONE YEAR THREE YEAR FIVE YEAR
AVERAGE AVERAGE AVERAGE AVERAGE ANNUAL
INCEPTION TOTAL TOTAL TOTAL TOTAL RETURN
FUND NAME DATE RETURN RETURN RETURN SINCE INCEPTION
--------- --------- -------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
ACQEF: 12/17/90 34.46% 31.68% 20.38% 20.97%
Income & Growth
Portfolio
</TABLE>

WHO'S MANAGING YOUR MONEY?

AMERICAN CENTURY INVESTMENT MANAGEMENT INC. serves as sub-adviser to this
Portfolio and has been providing investment advisory services to the Twentieth
Century family of mutual funds and institutional investors since it was founded
in 1958.

JOHN SCHNIEDWIND, Senior Vice President and Group Head -- Quantitative Equity,
joined American Century in 1982.

KURT BORGWARDT, Director of Quantitative Research, joined American Century in
1990 and has served as the Director of Quantitative Research since then.

A-15
<PAGE> 18

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 24 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 24, "General
Investment Considerations" and pages 26-30, "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 29, "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, Senior Managing Director and Chief Investment Officer
of MacKay-Shields. He joined the firm in 1982, became a Director in 1988,
Managing Director in 1991, a member of the Board of Directors in 1993, President
in 1994, Senior Managing Director and Chief Investment Officer in 1996. 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-16
<PAGE> 19

DREYFUS LARGE COMPANY VALUE PORTFOLIO

The Portfolio's objective is:

capital appreciation. It seeks to achieve this objective by investing
principally in a portfolio of publicly-traded equity securities of domestic and
foreign issuers which are characterized as value companies by the sub-adviser.

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:

Under normal market conditions...

...AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS will be invested in equity
securities of domestic and foreign issuers which are characterized as "value"
companies. Value companies are those the sub-adviser believes have relatively
low price to book ratios, low price to earnings ratios or higher than average
dividend payments in relation to price. The Portfolio invests, under normal
market conditions, substantially all of its assets in equity securities of
issuers with market capitalizations of between $900 million and $90 billion.
Equity securities consist of common stocks, convertible securities and preferred
stocks.

In an effort to increase returns, the Portfolio may engage in various investment
techniques, such as leveraging, lending portfolio securities, foreign currency
transactions, options and futures transactions and short-selling.

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See pages 26-30,
"Investments and Investment Practices," for details.)

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

Dreyfus manages a portfolio of Dreyfus Growth and Value Funds, Inc. ("DGVF")
which served as the model for the Portfolio of the Fund. The portfolio of DGVF
has substantially the same investment objectives and policies as the Portfolio
of the Fund. In addition, Dreyfus intends the Portfolio of the Fund and the
corresponding portfolio of DGVF to be managed by the same personnel and to
continue to have closely similar investment strategies, techniques, and
characteristics.

Past investment performance of the DGVF portfolio, as shown in the table below,
may be relevant to your consideration of the Portfolio. The information
presented for the portfolio of DGVF shows average annual return that takes into
account the portfolio's operating expenses (which may have been subject to
certain expense limitations), but does not include any sales load. The
investment performance of the DGVF portfolio is not necessarily indicative of
future performance of the Portfolio. Also, the operating expenses of the
Portfolio will be different from, and may be higher than, the operating expenses
of the corresponding DGVF portfolio. The performance of the portfolio of DGVF
shown below does not represent performance of the Portfolio of the Fund, which
is a new Portfolio and has no performance of its own. The investment performance
of the DGVF portfolio is provided merely to indicate the experience of Dreyfus
in managing a similar portfolio.

<TABLE>
<CAPTION>
AS OF 12/31/97
-----------------------------------------------
ONE YEAR THREE YEAR AVERAGE ANNUAL
INCEPTION AVERAGE TOTAL AVERAGE TOTAL TOTAL RETURN
FUND NAME DATE RETURN RETURN SINCE INCEPTION
--------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
DGVF: 12/29/93 15.99% 29.67% 21.21%
Dreyfus Large
Company Value Fund
</TABLE>

WHO'S MANAGING YOUR MONEY?

THE DREYFUS CORPORATION, formed in 1947, serves as sub-adviser to this
Portfolio, and manages over $90 billion in assets.

TIMOTHY M. GHRISKEY is the Portfolio Manager and has been with Dreyfus since
July 1995. From 1988 to June 1995 Mr. Ghirskey was Vice President and Associate
Managing Partner of Loomis, Sayles & Company.

A-17
<PAGE> 20

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 24, "General
Investment Considerations" and pages 26-30, "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 29, "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, became Chairman and Chief Executive Officer in 1992 and Senior Managing
Director in 1996. In 1998 he became Executive Vice President of New York Life
and Chief Executive Officer of New York Life Asset Management. 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 9.

A-18
<PAGE> 21

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 24, "General
Investment Considerations" and pages 26-30, "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, Senior 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 16. Mr. Simon is a Managing 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-19
<PAGE> 22

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 24, "General
Investment Considerations" and pages 26-30, "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 29.)

WHO'S MANAGING YOUR MONEY?

ALBERT R. CORAPI, JR., CELIA M. HOLTZBERG AND JOSEPH DEPESQUALE 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. 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. Mr. DePesquale is a Director in the Investment
Department of New York Life. He joined New York Life in 1992 as a fixed income
trader.

A-20
<PAGE> 23

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 24, "General
Investment Considerations" and pages 26-30, "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 18. 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-21
<PAGE> 24

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 24 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 24, "General
Investment Considerations" and pages 26-30, "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 29, "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, Senior 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 16. Mr. Tananbaum is a
Managing 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.

A-22
<PAGE> 25

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.

This Portfolio generally cannot 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.)

A-23
<PAGE> 26

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.

Funds with high turnover rates (over 100%) often have higher transaction
costs (which are paid by the fund) and may generate short-term capital gains (on
which you'll pay taxes, even if you don't sell any shares by year-end).

You can find the turnover rate for any Portfolio, except for Cash
Management Portfolio, in any prospectus, as a line item in the "Financial
Highlights" table for that Portfolio.

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 27).

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, 1997, 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):

6.63% in securities rated A
8.95% in securities rated BBB
10.74% in securities rated BB
15.18% in securities rated B
4.62% in securities rated CCC
22.45% in cash and cash equivalents
31.43% in equity securities

These figures are intended solely to provide disclosure about the
Portfolio's asset composition during its fiscal year ended December 31, 1997.
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 27 and
"Risks of Investing in High Yield Securities" on page 29.)

During the fiscal year ended December 31, 1997, based upon the
dollar-weighted average ratings of the Portfolio's holdings at the end of each
month in the

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<PAGE> 27

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):

1.59% in securities rated AAA
1.26% in securities rated A
4.76% in securities rated BBB
19.93% in securities rated BB
43.47% in securities rated B
4.57% in securities rated CCC
0.06% in securities rated D
1.06% in unrated securities
11.24% in cash and cash equivalents
12.06% 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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<PAGE> 28

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 American Century Income & Growth and Indexed
Equity Portfolios, 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
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<PAGE> 29

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.

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

Each Portfolio, other than the Capital Appreciation, Value, Growth Equity,
American Century Income & Growth, 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.

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. The leverage associated with inverse floaters may result in
greater volatility in their market values. Certain inverse floaters may be
determined to be illiquid securities.

FOREIGN SECURITIES

Each Portfolio, except the Government Portfolio, may purchase foreign
securities. The Bond, Growth Equity and Lord Abbett Developing Growth 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.

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<PAGE> 30

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 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.

LEVERAGING

The Dreyfus Large Company Value Portfolio may engage in leveraging in an
effort to increase returns. Leveraging by means of borrowing will exaggerate the
effect of any increase or decrease in the value of portfolio securities on the
Portfolio's net asset value; money borrowed will be subject to interest and
other costs (which may include commitment fees or the cost of maintaining
minimum average balances, or both), which may or may not exceed income received
from the securities purchased with the borrowed funds. The use of borrowing
tends to result in a faster than average movement, up or down, in the net asset
value of the Portfolio's shares. The Portfolio also may be required to maintain
minimum average balances in connection with such borrowing or to pay commitment
or other fees to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.

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, Eagle Growth Equity, 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.

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<PAGE> 31

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.

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

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<PAGE> 32

defer recognition of a gain or loss for Federal income tax purposes on the
security owned by the Portfolio. Short sales "against the box" will be limited
to no more than 5% of the Portfolio's net assets (25% with respect to the
Convertible Portfolio).

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

WHEN-ISSUED SECURITIES

Each Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities is fixed at the time a commitment to purchase is made, but delivery
and payment for the when-issued securities take place at a later date. During
the period between purchase and settlement, no payment is made by the Portfolio
and no interest accrues to the Portfolio. The market value of the when-issued
securities may be more or less than the purchase price payable at settlement
date. Each Portfolio will establish a segregated account in which it will
maintain 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, 1997, MacKay-Shields managed
over $28.8 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 American Century Income & Growth, Bond, Dreyfus
Large Company Value, Eagle Asset Management Growth Equity, Growth Equity and
Lord Abbett Developing Growth Portfolios. New York Life manages other assets,
including assets held in its own general account and various separate accounts
amounting to over $75 billion as of December 31, 1997.

The investment adviser to the Indexed Equity Portfolio is Monitor Capital
Advisers, Inc., 504 Carnegie Center, Princeton, NJ 08540. As of December 31,
1997, Monitor managed over $2.9 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. New York Life, with the approval of the Board
of Directors, selects and employs

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<PAGE> 33

Sub-Advisers for some of the Portfolios, monitors the Sub-Adviser's investment
programs and results, and coordinates the investment activities of the
Sub-Advisers to help ensure compliance with regulatory restrictions. The
Sub-Advisers, subject to the supervision of New York Life, are responsible for
deciding which portfolio securities to purchase and sell for their respective
Portfolios and for placing those Portfolios' portfolio transactions. New York
Life pays the fees of each Portfolio's Sub-Adviser. The Sub-Adviser Agreements
can be terminated by New York Life or by the Directors in which case they would
no longer manage the Portfolio.

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%
Indexed Equity Portfolio........... .10%
International Equity Portfolio..... .60%
Total Return Portfolio............. .32%
Value Portfolio.................... .36%
American Century Income & Growth
Portfolio........................ .50%
Bond Portfolio..................... .25%
Dreyfus Large Company Value
Portfolio........................ .60%
Eagle Asset Management Growth
Equity Portfolio................. .50%
Growth Equity Portfolio............ .25%
Lord Abbett Developing Growth
Portfolio........................ .60%
</TABLE>

SUB-ADVISERS. Each Sub-Adviser is employed by New York Life, subject to
approval by the Board of Directors, and the shareholders of the applicable
Portfolio. New York Life recommends Sub-Advisers to the Fund's Board of
Directors based upon its continuing quantitative and qualitative evaluation of
the Sub-Adviser's skill in managing assets using specific investment styles and
strategies.

Each Sub-Adviser has discretion to purchase and sell securities for the
assets of its respective Portfolio in accordance with that Portfolio's
Investment objectives, policies and restrictions. Although the Sub-Advisers are
subject to general supervision by the Fund's Board of Directors and New York
Life, these parties do not evaluate the investment merits of specific securities
transactions.

American Century Investment Management, Inc., whose principal place of
business is American Century Tower, 4500 Main Street, Kansas City, Missouri
64111, serves as Sub-Adviser to the American Century Income & Growth Portfolio,
and is paid a monthly fee by New York Life at an annual percentage of net assets
of that Portfolio of .40% on assets up to $100 million, .35% on assets from $100
million to $200 million and .30% on assets over $200 million.

The Dreyfus Corporation, whose principal place of business is 200 Park
Avenue, New York, New York 10166, serves as Sub-Adviser to the Dreyfus Large
Company Value Portfolio, and is paid a monthly fee by New York Life at an annual
percentage of net assets of that Portfolio of .50% on assets up to $100 million,
.45% on assets from $100 million to $250 million and .40% on assets over $250
million. The Dreyfus Corporation is an indirect wholly owned subsidiary of
Mellon Bank Corporation, which provides a comprehensive range of financial
products and services.

The Eagle Asset Management, Inc., whose principal place of business is St.
Petersburg, Florida, serves as Sub-Adviser to the Eagle Asset Management Growth
Equity Portfolio, and is paid a monthly fee by New York Life at an annual
percentage of net assets of that Portfolio of .45% on assets up to $50 million,
.40% on assets from $50 million to $300 million and .30% on assets over $300
million. Eagle Asset Management is a wholly owned subsidiary of Raymond James
Financial, Inc., which together with its subsidiaries, provides a wide range of
financial services to retail and institutional clients.

Lord, Abbett & Co., whose principal place of business is 767 Fifth Avenue,
New York, New York 10153, serves as Sub-Adviser to the Lord Abbett Developing
Growth Portfolio, and is paid a monthly fee by New York Life at an annual
percentage of net assets of that Portfolio of .50%.

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 MainStay Management,
Inc., 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 connec-

A-31
<PAGE> 34

tion 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.

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

A-32
<PAGE> 35

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-33
<PAGE> 36

GENERAL INFORMATION

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

CUSTODIAN

For the Capital Appreciation, Cash Management, Convertible, Government,
High Yield Corporate Bond, International Equity, Total Return, Value, American
Century Income & Growth, Dreyfus Large Company Value, Eagle Growth Equity, Lord
Abbett Developing Growth, and Indexed Equity Portfolios, The Bank of New York,
90 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

The services provided to the Portfolio by the Adviser, the Sub-Advisers and
the Portfolio's other service providers are dependent on those service
providers' computer systems. Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900 because of the
way dates are encoded and calculated (the "Year 2000 Issue"). The failure to
make this distinction could have a negative implication on handling securities
trades, pricing and account services. The Adviser, the Sub-Adviser and the
Portfolios' other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. The Portfolios have no reason to believe these steps will
not be sufficient to avoid any material adverse impact on the Portfolios,
although there can be no assurances. The costs or consequences of incomplete or
untimely resolution of the Year 2000 Issue are unknown to the Adviser, the
Sub-Advisers and the Portfolios' other service providers at this time but could
have a material adverse impact on the operations of the Portfolios and the
Adviser, the Sub-Advisers and the Portfolios' other service providers.

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-34

<PAGE> 37

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
B issues together 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.

AA-1
<PAGE> 38

<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 to
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> 39

MainStay VP Series Fund, Inc. Prospectus May 1, 1998

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

<TABLE>
<S> <C>
MAINSTAY VP SERIES FUND, INC.
OFFERS 11 PORTFOLIOS
Growth
Capital Appreciation Portfolio...... page A-9
Growth Equity Portfolio............. page A-10
Indexed Equity Portfolio............ page A-11
International Equity Portfolio...... page A-12
Growth & Income
Convertible Portfolio............... page A-13
Total Return Portfolio.............. page A-14
Value Portfolio..................... page A-15
Income
Bond Portfolio...................... page A-16
Government Portfolio................ page A-17
High Yield Corporate Bond
Portfolio......................... page A-18
Cash Management Portfolio........... page A-19

</TABLE>

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.

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

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 (see "Investments and
Investment Practices" on p. 22).

A-1
<PAGE> 40

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-20
General Investment Considerations...................... A-20
Convertible Portfolio.................................. A-20
High Yield Corporate Bond Portfolio.................... A-20
Indexed Equity Portfolio............................... A-21
International Equity Portfolio......................... A-21
Investments and Investment Practices................... A-22
Other Information...................................... A-26
THE FUND AND ITS MANAGEMENT................................. A-26
Investment Advisers.................................... A-26
Administrator.......................................... A-27
Capital Stock.......................................... A-27
PURCHASE AND REDEMPTION OF SHARES........................... A-28
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................... A-28
Taxes.................................................. A-28
Dividends and Distributions............................ A-28
GENERAL INFORMATION......................................... A-29
Custodian.............................................. A-29
Performance and Yield Information...................... A-29
Reports to Shareholders................................ A-29
Other Information...................................... A-29
APPENDIX A.................................................. AA-1
</TABLE>

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

A-2
<PAGE> 41

THE FUND AND THE SEPARATE ACCOUNTS

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

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.

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> 42

FINANCIAL HIGHLIGHTS

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

(b) Less than one cent per share.

A-4
<PAGE> 43

FINANCIAL HIGHLIGHTS

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

A-5
<PAGE> 44

FINANCIAL HIGHLIGHTS

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

A-6
<PAGE> 45

FINANCIAL HIGHLIGHTS

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

A-7
<PAGE> 46

FINANCIAL HIGHLIGHTS

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

A-8
<PAGE> 47

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:

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 20, "General
Investment Considerations" and pages 22-26, "Investments and Investment
Practices," for details.)

WHO'S MANAGING YOUR MONEY?

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

A-9
<PAGE> 48

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 larger capitalization, 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 20, "General
Investment Considerations" and pages 22-26, "Investments and Investment
Practices," for details.)

WHO'S MANAGING YOUR MONEY?

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

A-10
<PAGE> 49

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 21 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

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

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 20, "General
Investment Considerations" and pages 22-26, "Investments and Investment
Practices," for details.)

WHO'S MANAGING YOUR MONEY?

JAMES MEHLING OF MONITOR CAPITAL ADVISORS, INC.

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-11
<PAGE> 50

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 equity investments or want to add diversification to their
domestic investments.

SEE PAGE 21 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

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
21, "Other Information About the Portfolios--International Equity Portfolio.")

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 20, "General
Investment Considerations" and pages 22-26, "Investments and Investment
Practices," for details.)

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 23, "Investments and Investment
Practices--Foreign Securities.")

WHO'S MANAGING YOUR MONEY?

SHIGEMI TAKAGI OF MACKAY-SHIELDS FINANCIAL CORPORATION.

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

A-12
<PAGE> 51

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 20 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

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

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 20, "General
Investment Considerations" and pages 22-26, "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 25, "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, Senior Managing Director and Chief Investment Officer
of MacKay-Shields. He joined the firm in 1982, became a Director in 1988,
Managing Director in 1991, a member of the Board of Directors in 1993, President
in 1994 and Senior Managing Director and Chief Investment Officer in 1996. 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-13
<PAGE> 52

Total Return Portfolio

The Portfolio's objective is:

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

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...

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 20, "General
Investment Considerations" and pages 22-26, "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 25, "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.

A-14
<PAGE> 53

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;

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 20, "General
Investment Considerations" and pages 22-26, "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.

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, Senior 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 13. Mr. Simon is a Managing 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-15
<PAGE> 54

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...

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

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 20, "General
Investment Considerations" and pages 22-26, "Investments and Investment
Practices," for details.)

WHO'S MANAGING YOUR MONEY?

ALBERT R. CORAPI, JR., CELIA M. HOLTZBERG AND JOSEPH DEPASQUALE 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. 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. Mr. DePasquale is a Director in the Investment
Department of New York Life. He joined New York Life in 1992 as a fixed income
trader.

A-16
<PAGE> 55

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:

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 20, "General
Investment Considerations" and pages 22-26, "Investments and Investment
Practices," for details.)

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 14. 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 15 years of experience in
investment management and research.

A-17
<PAGE> 56

High Yield Corporate Bond Portfolio

The Portfolio's objective is:

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

SEE PAGE 20 for more details about the Portfolio.

The Portfolio invests in:

Under normal market conditions...

...OTHER INVESTMENTS SUITABLE FOR MOST OR ALL PORTFOLIOS. (See page 20, "General
Investment Considerations" and pages 22-26, "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 25, "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.)

WHO'S MANAGING YOUR MONEY?

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

Mr. Laplaige, President, Senior 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 13. Mr. Tananbaum is a
Managing 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.

A-18
<PAGE> 57

Cash Management Portfolio

The Portfolio's objective is:

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;

...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

This Portfolio generally can not 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.)

A-19
<PAGE> 58

OTHER INFORMATION ABOUT THE PORTFOLIOS

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

GENERAL INVESTMENT CONSIDERATIONS

You can find the turnover rate for any Portfolio, except for Cash
Management Portfolio, in any prospectus, as a line item in the "Financial
Highlights" table for that Portfolio.

CONVERTIBLE PORTFOLIO

HIGH YIELD CORPORATE BOND PORTFOLIO

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 23 and
"Risks of Investing in High Yield Securities" on page 25.)

A-20
<PAGE> 59

During the fiscal year ended December 31, 1997, based upon the
dollar-weighted average ratings of the Portfolio's 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):

INDEXED EQUITY PORTFOLIO

INTERNATIONAL EQUITY PORTFOLIO

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 con-

A-21
<PAGE> 60

ditions abroad or when it is believed that economic or market conditions
warrant, the Portfolio may, for temporary defensive purposes, invest part or all
of its portfolio in equity securities of U.S. issuers; notes and bonds which at
the time of their purchase are rated BBB or higher by S&P or Baa or higher by
Moody's (see Appendix A to this Prospectus "Ratings of Debt Securities and
Commercial Paper").

INVESTMENTS AND INVESTMENT PRACTICES

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
A-22
<PAGE> 61

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.

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

CASH EQUIVALENTS

DEBT SECURITIES

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.

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

A-23
<PAGE> 62

institutions as a means of earning additional income. This practice could result
in a loss or a delay in recovering the 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

REPURCHASE AGREEMENTS

A-24
<PAGE> 63

security and costs associated with delay and enforcement of the repurchase
agreement.

REVERSE REPURCHASE AGREEMENTS

RISK MANAGEMENT TECHNIQUES

RISKS OF INVESTING IN HIGH YIELD 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, in certain
circumstances, 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).

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

A-25
<PAGE> 64

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 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

THE FUND AND ITS MANAGEMENT

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

INVESTMENT ADVISERS

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 over $75 billion as of December 31,
1997).

A-26
<PAGE> 65

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 MainStay Management,
Inc.", an indirect wholly-owned subsidiary of New York Life, to perform certain
of the services to be provided by NYLIAC pursuant to the terms of the
Administration Agreement.

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

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

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

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

A-27
<PAGE> 66

PURCHASE AND REDEMPTION OF 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

DIVIDENDS AND DISTRIBUTIONS

A-28
<PAGE> 67

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, 90 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., 3 Chase Metro Tech
Center, Brooklyn, New York 11245 is the custodian of the Portfolios' assets.

PERFORMANCE AND YIELD INFORMATION

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

The services provided to the Portfolio by the Adviser, the Sub-Advisers and
the Portfolios' other service providers are dependent on those service
providers' computer systems. Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900 because of the
way dates are encoded and calculated (the "Year 2000 Issue"). The failure to
make this distinction could have a negative implication on handling securities
trades, pricing and account services. The Adviser, the Sub-Advisers and the
Portfolios' other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. The Portfolios have no reason to believe these steps will
not be sufficient to avoid any material adverse impact on the Portfolios,
although there can be no assurances. The costs or consequences of incomplete or
untimely resolution of the Year 2000 Issue are unknown to the Adviser, the
Sub-Advisers and the Portfolios' other service providers at this time but could
have a material adverse impact on the operations of the Portfolios and the
Adviser, the Sub-Advisers and the Portfolios' other service providers.

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-29
<PAGE> 68

(This page intentionally left blank)

A-30
<PAGE> 69

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:

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> 70

--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.

AA-2
<PAGE> 71

PROSPECTUS
FOR

MAINSTAY VP SERIES FUND, INC.
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
TELEPHONE (800) 598-2019

MainStay VP 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, 1998, 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, 1998

<PAGE> 72

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> 73

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> 74

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, 1997,
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,
1997 1996 1995 1994 1993
-------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of
period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ------- -------
Net investment income................. 0.05 0.05 0.05 0.04 0.02
-------- -------- ------- ------- -------
Less dividends:
From net investment income.......... (0.05) (0.05) (0.05) (0.04) (0.02)
-------- -------- ------- ------- -------
Net asset value at end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= =======
Total investment return (b)........... 5.25% 4.95% 5.59% 3.82% 2.40%
Ratios (to average net
assets)/Supplemental Data:
Net investment income............... 5.13% 4.92% 5.44% 3.97% 2.65%+
Net expenses........................ 0.54% 0.62% 0.62% 0.62% 0.62%+
Expenses (before reimbursement)..... 0.54% 0.64% 0.94% 0.89% 1.10%+
Net assets at end of period (in
000's).............................. $140,782 $118,347 $87,839 $71,116 $26,733
</TABLE>

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

4
<PAGE> 75

<TABLE>
<CAPTION>
BOND PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year $12.83... $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86
-------- -------- -------- -------- -------- -------- --------
Net investment income 0.88.... 0.87 0.88 0.88 0.95 0.92 1.02
Net realized and unrealized gain (loss) on
investments 0.35.... (0.59) 1.33 (1.34) 0.53 0.13 0.91
-------- -------- -------- -------- -------- -------- --------
Total from investment operations 1.23.... 0.28 2.21 (0.46) 1.48 1.05 1.93
-------- -------- -------- -------- -------- -------- --------
Less dividends:
From net investment income (0.88) (0.87) (0.88) (0.88) (0.96) (0.91) (1.02)
-------- -------- -------- -------- -------- -------- --------
Net asset value at end of year $13.14... $ 12.83 $ 13.42 $ 12.09 $ 13.43 $ 12.91 $ 12.77
======== ======== ======== ======== ======== ======== ========
Total investment return* 9.65% 2.05% 18.31% (3.39%) 11.40% 8.26% 16.27%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 6.42% 6.31% 6.55% 6.53% 6.79% 7.54% 8.22%
Net expenses 0.50% 0.58% 0.62% 0.62%# 0.27%# 0.25% 0.25%
Expenses (before reimbursement) 0.50% 0.58% 0.91% 0.67%# 0.27%# 0.25% 0.25%
Portfolio turnover rate 187% 103% 81% 88% 41% 10% 57%
Net assets at end of year (in 000's) $228,949.. $226,375 $235,030 $206,686 $228,683 $203,947 $164,124

<CAPTION>
BOND PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1990 1989 1988 1987
--------- --------- --------- ---------
<S> <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> 76

<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year $18.63... $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00
-------- -------- -------- -------- -------- -------- --------
Net investment income 0.16.... 0.18 0.22 0.22 0.24 0.22 0.27
Net realized and unrealized gain (loss) on
investments 4.74.... 4.06 4.06 (0.03) 1.88 1.72 4.10
-------- -------- -------- -------- -------- -------- --------
Total from investment operations 4.90.... 4.24 4.28 0.19 2.12 1.94 4.37
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.16) (0.18) (0.22) (0.22) (0.25) (0.22) (0.29)
From net realized gain on investments (3.06) (2.65) (1.53) (0.92) (1.76) (1.76) (1.51)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (3.22) (2.83) (1.75) (1.14) (2.01) (1.98) (1.80)
-------- -------- -------- -------- -------- -------- --------
Net asset value at end of year $20.31... $ 18.63 $ 17.22 $ 14.69 $ 15.64 $ 15.53 $ 15.57
======== ======== ======== ======== ======== ======== ========
Total investment return* 26.75% 24.50% 29.16% 1.20% 13.71% 12.42% 33.62%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 0.80% 0.98% 1.29% 1.41% 1.42% 1.50% 1.78%
Net expenses 0.50% 0.58% 0.62% 0.62%# 0.27%# 0.27% 0.29%
Expenses (before reimbursement) 0.50% 0.58% 0.91% 0.65%# 0.27%# 0.27% 0.29%
Portfolio turnover rate 103% 104% 104% 108% 121% 82% 100%
Average commission rate paid $0.0599.. $ 0.0595 (a) (a) (a) (a) (a)
Net assets at end of year (in 000's) $759,054.. $564,685 $427,507 $330,161 $319,196 $272,834 $204,147

<CAPTION>
GROWTH EQUITY PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
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.
* The total investment return quotations reflected above do not reflect
expenses incurred by the Separate Accounts or in connection with the
Policies. Including such expenses in these quotations would have reduced
such returns for all periods shown.

6
<PAGE> 77

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> 78

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> 79

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> 80

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> 81

(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> 82

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> 83

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> 84

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

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.

14
<PAGE> 85

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.

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

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

15
<PAGE> 86

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 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> 87

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.

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, 1997, MacKay-Shields managed over $28.8 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 $95.8 billion as of December 31, 1997) and in the general
account and various separate accounts of NYLIAC (amounting to $20.0 billion as
of December 31, 1997).

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> 88

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

<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C>
Cash Management Portfolio................................ .25%
Bond Portfolio........................................... .25%
Growth Equity Portfolio.................................. .25%
</TABLE>

PORTFOLIO MANAGERS

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

Albert R. Corapi, Jr. (Bond Portfolio)

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

Cecilia M. Holtzberg (Bond Portfolio)

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 MainStay
Management Inc., 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> 89

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> 90

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> 91

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> 92

STATEMENT OF ADDITIONAL INFORMATION

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

22
<PAGE> 93

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> 94
<TABLE>
<S> <C>
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
B issues together with issues rated CCC and CC. Debt in these
categories is regarded on balance as predominantly
speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such debt
will likely have some quality and protective characteristics
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
</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.
A-2
<PAGE> 95

-- 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> 96
MAINSTAY VP SERIES FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

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

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, 1998 which may be obtained by calling the Fund at (800)
598-2019, or writing the Fund at 51 Madison Avenue, New York, NY 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........................... 4
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP
CAPITAL APPRECIATION, CASH MANAGEMENT, CONVERTIBLE,
GOVERNMENT, TOTAL RETURN, VALUE AND INDEXED EQUITY
PORTFOLIOS...................................................... 4
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY
VP HIGH YIELD CORPORATE BOND PORTFOLIO.......................... 6
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY
VP INTERNATIONAL EQUITY PORTFOLIO............................... 7
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY
VP BOND ("BOND") AND MAINSTAY VP GROWTH EQUITY
("GROWTH EQUITY") PORTFOLIOS.................................... 8
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP DREYFUS
LARGE COMPANY VALUE PORTFOLIO ("DREYFUS LARGE COMPANY VALUE")... 10
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP AMERICAN
CENTURY INCOME & GROWTH PORTFOLIO ("AMERICAN CENTURY INCOME &
GROWTH")........................................................ 11
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP LORD
ABBETT DEVELOPING GROWTH PORTFOLIO ("LORD ABBETT DEVELOPING
GROWTH")........................................................ 12
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE MAINSTAY VP EAGLE
</TABLE>

<S> <C>
ASSET MANAGEMENT GROWTH EQUITY PORTFOLIO ("EAGLE ASSET
MANAGEMENT GROWTH EQUITY")...................................... 13
ADDITIONAL NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
APPLICABLE TO CERTAIN PORTFOLIOS................................ 14
OTHER INVESTMENT POLICIES OF THE HIGH YIELD CORPORATE BOND
PORTFOLIO....................................................... 19
OTHER INVESTMENT POLICIES OF THE BOND AND GROWTH EQUITY PORTFOLIO..... 20
OTHER INVESTMENT POLICIES OF THE GOVERNMENT PORTFOLIO................. 21
OTHER INVESTMENT POLICIES OF THE CASH MANAGEMENT
PORTFOLIO....................................................... 22
OTHER INVESTMENT POLICIES OF THE DREYFUS LARGE COMPANY
VALUE PORTFOLIO................................................. 25
OTHER INVESTMENT POLICIES OF THE EAGLE ASSET MANAGEMENT
GROWTH EQUITY PORTFOLIO......................................... 27
CERTAIN INVESTMENT PRACTICES COMMON TO TWO OR MORE
PORTFOLIOS...................................................... 29
ARBITRAGE............................................................. 29
FLOATERS AND INVERSE FLOATERS......................................... 29
HIGH YIELD SECURITIES................................................. 29
ZERO COUPON BONDS..................................................... 31
SHORT SALES AGAINST THE BOX........................................... 31
REPURCHASE AGREEMENTS................................................. 32
REVERSE REPURCHASE AGREEMENTS......................................... 33
LENDING OF PORTFOLIO SECURITIES....................................... 33
BORROWING............................................................. 34
FOREIGN SECURITIES.................................................... 34
FOREIGN CURRENCY TRANSACTIONS......................................... 35
BRADY BONDS........................................................... 37
WHEN-ISSUED SECURITIES................................................ 39
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES.................... 39
OPTIONS ON SECURITIES................................................. 45
FUTURES TRANSACTIONS.................................................. 52
SECURITIES INDEX OPTIONS.............................................. 61
ADDITIONAL INVESTMENT POLICIES APPLICABLE TO THE
INTERNATIONAL EQUITY PORTFOLIO.................................. 61
SWAP AGREEMENTS....................................................... 62
STATE INSURANCE LAW REQUIREMENTS...................................... 63
PORTFOLIO TURNOVER.................................................... 64

MANAGEMENT OF THE FUND...................................................... 64

COMPENSATION TABLE.......................................................... 67
INVESTMENT ADVISERS................................................... 67
ADMINISTRATION AGREEMENTS............................................. 69
</TABLE>

<PAGE> 98

<TABLE>

<S> <C>
PORTFOLIO BROKERAGE................................................... 69
DETERMINATION OF NET ASSET VALUE............................................ 69
HOW PORTFOLIO SECURITIES WILL BE VALUED............................... 69

INVESTMENT PERFORMANCE CALCULATIONS......................................... 70
CASH MANAGEMENT PORTFOLIO YIELD....................................... 70
CONVERTIBLE, GOVERNMENT, HIGH YIELD CORPORATE BOND
AND BOND PORTFOLIOS YIELD....................................... 71
TOTAL RETURN CALCULATIONS............................................. 72

PURCHASE AND REDEMPTION OF SHARES........................................... 73

TAXES ...................................................................... 74

GENERAL INFORMATION......................................................... 74

LEGAL COUNSEL............................................................... 77

FINANCIAL STATEMENTS........................................................ 77
</TABLE>

<PAGE> 99
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 purchases of securities, in accordance with a Portfolio's investment
objectives and policies

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<PAGE> 100
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;

(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.

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<PAGE> 101
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 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);

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<PAGE> 102
(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, it agencies or instrumentalities;

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

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

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

(6) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that the Portfolio may (i) borrow from banks or
enter into reverse repurchase agreements, but only if immediately after each
borrowing there is asset coverage of 300%, and

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<PAGE> 103
(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;

(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
- 8 -
<PAGE> 104
"loans" for purposes of this restriction, and a Portfolio may enter into such
purchases in accordance with its investment objectives and policies and any
applicable restrictions. A Portfolio may also make loans of its securities of up
to 20% of the value of the Portfolio's total assets;

(3) underwrite the securities of other issuers, except where, in selling
portfolio securities, the Fund may be deemed to be an underwriter for purposes
of the Securities Act of 1933 (the "1933 Act") 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.

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<PAGE> 105
FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE DREYFUS LARGE COMPANY
VALUE PORTFOLIO

The investment restrictions set forth below apply to the Dreyfus Large
Company Value Portfolio and are fundamental policies of this Portfolio, i.e.,
they may not be changed without a majority vote of the outstanding shares of the
Portfolio.

The Dreyfus Large Company Value Portfolio will 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 net 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 net 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) invest in commodities, except that the Portfolio may purchase and sell
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices;

(5) purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Fund may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate or real estate investment trusts;

(6) borrow money, except to the extent permitted under the 1940 Act (which
currently limits borrowing to no more than 33-1/3% of the value of the
Portfolio's total assets), except that the entry into options, forward
contracts, futures contracts, including those relating to indices, and options
on futures contracts or indices shall not constitute borrowing, and except this
restriction does not prohibit borrowing for purposes of leveraging up to the
limits permitted under the 1940 Act;

(7) make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Portfolio may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the
Company's Board;

- 10 -
<PAGE> 106

(8) act as an underwriter of securities of other issuers, except to the
extent the Portfolio may be deemed an underwriter under the 1933 Act, by virtue
of disposing of portfolio securities;

(9) issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent (i) that purchases and sales of options,
forward contracts, futures contracts, puts and calls may be deemed to give rise
to a senior security; (ii) except as appropriate to evidence indebtedness that
the Portfolio is permitted to incur and (iii) except for shares of existing or
additional series of the Fund; or

(10) purchase securities on margin, but the Portfolio may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE AMERICAN CENTURY INCOME
& GROWTH PORTFOLIO

The investment restrictions set forth below apply to the American Century
Income & Growth Portfolio, and are fundamental policies of this Portfolio; i.e.,
they may not be changed with respect to the Portfolio without a majority of the
outstanding shares of the Portfolio.

The American Century Income & Growth Portfolio will not:

(1) lend any security or make any other loan if, as a result, more than
33-1/3% of the fund's total assets would be lent to other parties, except (a)
through the purchase of debt securities in accordance with its investment
objective, policies and limitations, or (b) by engaging in repurchase agreements
with respect to portfolio securities;

(2) invest for purposes of exercising control over management;

(3) issue senior securities, except as permitted under the Investment
Company Act of 1940 (the "1940 Act");

(4) act as an underwriter of securities by others, except to the extent
that the fund may be considered an underwriter within the meaning of the 1933
Act in the disposition of portfolio securities;

(5) borrow any money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of the portfolio's total assets (including the amount
borrowed) less liabilities (other than borrowings);

(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; provided that this policy shall
not prohibit the fund from

- 11 -
<PAGE> 107

purchasing or selling options, futures contracts, options on futures, or forward
contracts or from investing in securities or other instruments backed by
physical commodities;

(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments provided that this policy shall not prevent
the Portfolio from investment in securities or other instruments backed by real
estate or securities of companies that deal in real estate or are engaged in the
real estate business; or

(8) concentrate its investments in securities of issues in a particular
industry (other than securities issued or guaranteed by the U.S. government or
any of its agencies or instrumentalities).

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE LORD ABBETT DEVELOPING
GROWTH PORTFOLIO

The investment restrictions set forth below apply to the Lord Abbett
Developing Growth Portfolio, and are fundamental policies of this Portfolio;
i.e., they may not be changed with respect to the Portfolio without a majority
of the outstanding shares of the Portfolio.

The Lord Abbett Developing Growth Portfolio will not:

(1) borrow money, except that (i) the Portfolio may borrow from banks (as
defined in the 1940 Act in amounts up to 33-1/3% of its total assets (including
the amount borrowed), (ii) the Portfolio may borrow up to an additional 5% of
its total assets for temporary purposes, (iii) the Portfolio may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and, (iv) the Portfolio may purchase securities on
margin to the extent permitted by applicable law;

(2) pledge its assets (other than to secure such borrowings, or to the
extent permitted by the Fund's investment policies, as permitted by applicable
law);

(3) engage in the underwriting of securities, except pursuant to a merger
or acquisition or to the extent that, in connection with the disposition of its
portfolio securities, it may be deemed to be an underwriter under federal
securities laws;

(4) make loans to other persons, except that the acquisition of bonds,
debentures or other debt securities and investment in government obligations,
commercial papers, pass-through instruments, certificates of deposit, bankers
acceptances, repurchase agreements or any similar instruments shall not be
subject to this limitation and except further that the Portfolio may lend its
portfolio securities, provided that the lending of portfolio securities may be
made only in accordance with applicable law;

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<PAGE> 108

(5) buy or sell real estate (except that the Portfolio may invest in
securities directly or indirectly secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein) commodities
or commodity contracts (except to the extent the Portfolio may do so in
accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act as, for example, with futures
contracts);

(6) 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;

(7) 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;

(8) invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding securities of the
U.S. Government, its agencies and instrumentalities); or

(9) issue senior securities to the extent such issuance would violate
applicable law.

FUNDAMENTAL INVESTMENT POLICIES APPLICABLE TO THE EAGLE ASSET MANAGEMENT
GROWTH EQUITY PORTFOLIO

The investment restrictions set forth below apply to the Eagle Asset
Management Growth Equity Portfolio; i.e., they may not be changed with respect
to the Portfolio without a majority of the outstanding shares of the Portfolio.

The Eagle Asset Management Growth Equity Portfolio will not:

(1) invest with respect to 75% of each Fund's total assets, more than 5%
of that Fund's assets in securities of any one issuer other than the U.S.
Government or its agencies and instrumentalities, or purchase more than 10% of
the voting securities of any one issuer;

(2) purchase securities if, as a result of such purchase, more than 25% of
the value of each Fund's total assets would be invested in the securities of any
one industry (except securities issued by the U.S. Government, its agencies and
instrumentalities);

(3) borrow money except as a temporary measure for extraordinary or
emergency purposes, and except that the Portfolio may enter into reverse
repurchase agreements in an amount up to 33 1/3% of the value of its total
assets in order to meet redemption requests without immediately selling
portfolio securities.

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<PAGE> 109
(4) issue senior securities, except as permitted by the investment
objective and policies and investment limitations of the Portfolio;

(5) underwrite the securities of other issuers, except that the Portfolio
may underwrite to the extent that in connection with the disposition of
portfolio securities, the Portfolio may be deemed to be an underwriter under
federal securities laws; or

(6) invest in commodities, commodity contracts or real estate (including
real estate limited partnerships), except that the Portfolio may purchase
securities issued by companies that invest in or sponsor such interests, and may
purchase and sell options, forward contracts, futures contracts, including those
related to indices, and options on futures contracts or indices.

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 1933 Act) if, as a result
thereof, more than 15% of the net 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

(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 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.

- 14 -
<PAGE> 110

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, Sub-Advisers,
its principal underwriter or the officers, or directors of its investment
advisers, Sub-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> 111
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 Fund, 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 1933 Act, other than Rule 144A securities determined to be
liquid pursuant to guidelines adopted by the Fund'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

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<PAGE> 112
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 aggregate, except in connection with a merger, consolidation,
acquisition, or reorganization.

The following non-fundamental investment restrictions apply to the Dreyfus
Large Company Value Portfolio. The Dreyfus Large Company Value Portfolio may
not:

(1) purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such purchase
would cause the value of the Portfolio's investments in all such companies to
exceed 5% of the value of its total assets;

(2) invest in the securities of a company for the purpose of exercising
management or control, but the Portfolio will vote the securities it owns in its
portfolio as a shareholder in accordance with its views;

(3) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices;

(4) purchase, sell or write puts, calls or combinations thereof, except as
described in the Portfolio's Prospectus and this Statement of Additional
Information;

(5) enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid if, in the
aggregate, more than 15% of the value of the Portfolio's net assets would be so
invested; or

(6) purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.

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<PAGE> 113
The following non-fundamental investment restrictions apply with respect
to the Lord Abbett Developing Growth Portfolio. The Lord Abbett Developing
Growth Portfolio may not:

(1) borrow in excess of 5% of its gross assets taken at cost or market
value, whichever is lower at the time of borrowing, and then only as a temporary
measure for extraordinary or emergency purposes;

(2) make short sales of securities or maintain a short position except to
the extent permitted by applicable law;

(3) invest knowingly more than 15% of its net assets (at the time of
investment) in illiquid securities, except for securities qualifying for resale
under Rule 144A of the 1933 Act, deemed to be liquid by the Board of Directors;

(4) invest in securities of other investment companies as defined in the
1940 Act, except as permitted by applicable law;

(5) invest in securities of issuers which, with their predecessors, have a
record of less than three years of continuous operation, if more than 5% of the
Portfolio's total assets would be invested in such securities (this restriction
shall not apply to mortgaged-backed securities, asset-backed securities or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities);

(6) hold securities of any issuer when more than 1/2 of 1% of the
securities of such issuer are owned beneficially by one or more of the
Portfolio's officers or directors or by one or more partners of the Portfolio's
underwriter, Investment Adviser or Sub-Adviser if these owners in the aggregate
own beneficially more than 5% of such securities of such issuer;

(7) invest in warrants if, at the time of acquisition, its investment in
warrants, valued at the lower of cost or market, would exceed 5% of the
Portfolio's total assets (included within such limitation, but not to exceed 2%
of the Portfolio's total assets, are warrants which are not listed on the New
York or American Stock Exchange or a major foreign exchange);

(8) invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs, except
that the Portfolio may invest in securities issued by companies that engage in
oil, gas or other mineral exploration or development activities; or

(9) write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Portfolio's
Prospectus and this Statement of Additional Information, as they may be amended
from time to time.

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<PAGE> 114
The Eagle Growth Equity Portfolio has adopted the following
non-fundamental investment restrictions. The Portfolio may not:

(1) invest more than 10% of the value of its net assets in securities that
are subject to restrictions on resale or are not readily marketable without
registration under the 1933 Act and in repurchase agreements maturing in more
than seven days;

(2) sell any securities short or purchase any securities on margin but
may obtain such short-term credits as may be necessary for clearance of
purchases and sales of securities, and may make short sales "against the box"
and make margin deposits in connection with its use of options, futures
contracts, forward currency contracts and other financial instruments; or

(3) invest in the securities of other investment companies, except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from the purchase other than the customary broker's commission, or
except when the purchase is part of a plan or merger, consolidation,
reorganization or acquisition.

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

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<PAGE> 115
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; or

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

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

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<PAGE> 116
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 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

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<PAGE> 117
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.

OTHER INVESTMENT POLICIES OF THE 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 generally be invested in
obligations which mature in 397 days or less and substantially all these
investments will be held to maturity; however, securities collateralizing
repurchase agreements may have maturities in excess of 397 days. 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

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<PAGE> 118

(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, if issued by an
issuer that received a short-term rating from an NRSRO with respect to a class
of debt obligations that is comparable in 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; (3) an unrated security that is of comparable quality to
a security in the highest rating category as determined by MacKay-Shields; (4)
(i) with respect to a security that is subject to any features that entitles the
holder, under certain circumstances, to receive the approximate amortized cost
of the underlying security or securities plus accrued interest "Demand Feature"
or obligations of a person other than the issuer of the security, under certain
circumstances, to undertake to pay the principal amount of the underlying
security plus interest "Guarantee", the Guarantee has received a rating from an
NRSRO or the Guarantee is issued by a guarantor that has received a rating from
an NRSRO with respect to a class of debt obligations that is comparable in
priority and security to the Guarantee, with certain exceptions, and (ii) the
issuer of the Demand Feature or Guarantee, or another institution, has
undertaken promptly to notify the holder of the security in the event that the
Demand Feature or Guarantee is substituted with another Demand Feature or
Guarantee; (5) if it is a security issued by a money market fund registered with
the SEC under the 1940 Act; or (6) if it is a Government Security. 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).

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 with respect to
25% of its total assets for up to three business days after the purchase of
securities of any one issuer, and except that this limitation shall not apply to
U.S. government securities or securities subject to certain Guarantees.
Immediately after the acquisition of any Demand Feature or Guarantee, the
Portfolio, with respect to 75% of its total assets, shall not have invested more
than 10% of its assets in securities issued by or subject to Demand Features or
Guarantees from the institution that issued the Demand Feature or Guarantee,
with certain exceptions. In addition, immediately after the acquisition of any
Demand Feature or Guarantee (or a security after giving effect to the Demand
Feature or Guarantee) that is not within the highest rating category by NRSROs,
the Portfolio shall not have invested more than five percent of its total assets
in securities issued by or subject to Demand Features or Guarantees from the
institution that issued the Demand Feature or Guarantee. The Portfolio may not
invest more than the greater of 1% of its total assets or one million dollars,
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 or securities subject to certain Guarantees. 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 shall
promptly reassess whether

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<PAGE> 119

such security presents minimal credit risk shall recommend to the Valuation
Committee of the Board of Directors ("the Valuation Committee") that the
Portfolio take such action as it determines is in the best interest of the
Portfolio and its shareholders. The Valuation Committee, after consideration of
the recommendation of the Mackay-Shields and such other information as it deems
appropriate, shall cause the Portfolio to take such action as it deems
appropriate, and shall report promptly to the Board of Directors the action it
has taken and the reasons for such action.

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.

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<PAGE> 120
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.

OTHER INVESTMENT POLICIES OF THE DREYFUS LARGE COMPANY VALUE PORTFOLIO

The Portfolio may invest in convertible securities. Convertible securities
may be converted at either a stated price or stated rate into underlying shares
of common stock. Convertible securities have characteristics similar to both
fixed-income and equity securities. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same issuer,
although convertible bonds, as corporate debt obligations, enjoy seniority right
of payment to all equity securities, and convertible preferred stock is senior
to common stock of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.

The Portfolio may invest in the securities of foreign issuers in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs")
and other forms of depositary receipts. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), are receipts issued in Europe typically by non-United States
bank and trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in the
United States securities markets and EDRs and CDRs in bearer form are designed
for use in Europe.

A warrant is an instrument issued by a corporation which gives the holder
the right to subscribe to a specified amount of the corporation's capital stock
at a set price for a specified period of time. The Portfolio may invest up to 5%
of its net assets in warrants, except that this limitation does not apply to
warrants purchased by the Portfolio that are soled in units with, or attached
to, other securities. Included in such amount, but not limited to exceed 2% of
the value of the Portfolio's net assets, may be warrants which are not listed on
the New York or American Stock Exchange.

The Portfolio may invest in securities issued by closed-end investment
companies. The Portfolio's investment in such securities, subject to certain
exceptions, currently is limited to: (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Portfolio's total assets with respect to any
one investment company, and (iii) 10% of the Portfolio's total assets in the
aggregate. Investments in the securities of other investment companies may
involve duplication of advisory fees and certain other expenses.

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<PAGE> 121
The Portfolio may invest in obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Sub-Adviser to be of comparable
quality to the other obligations in which the Portfolio may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.

The Portfolio may purchase certificates of deposit, time deposits, bankers
acceptances and other short-term obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. With respect to such securities issued by foreign
subsidiaries or foreign branches of domestic banks, and domestic and foreign
branches of foreign banks, the Portfolio may be subject to additional investment
risks that are different in some respect from those incurred by a fund which
invests only in debt obligations of U.S. domestic issuers.

Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.

Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven days)
at a stated interest rate.

Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.

The Portfolio may invest in commercial paper. Commercial paper consists of
short-term, unsecured promissory notes issued to finance short-term credit
needs. The commercial paper purchased by the Portfolio will consist only of
direct obligations which, at the time of their purchase, are (a) rated not lower
than Prime-1 by Moody's Investors Service, Inc. ("Moodys"), A- 1 by Standard &
Poor's Ratings Group ("S&P"), F-1 by Fitch Investors Service, L.P. ("Fitch") or
Duff-1 by Duff & Phelps Credit Rating Co. ("Duff"), (b) issued by companies
having an outstanding unsecured debt issue currently rated at least Aa3 by
Moody's or AA by S&P, Fitch or Duff, or (c) if unrated, determined by the
Sub-adviser to be a of comparable quality to those rated obligations which may
be purchased by the Portfolio.

The Portfolio may invest up to 15% of the value of its net assets in
securities as to which a liquid trading market does not exist, provided such
investments are consistent with the

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<PAGE> 122
Portfolio's investment objective. Such securities may include securities that
are not readily marketable, such as certain securities that are subject to legal
or contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Portfolio is subject to a risk that should
the Portfolio desire to sell them when a ready buyer is not available at a price
the Portfolio deems representative of their value, the value of the Portfolio's
net assets could be adversely affected.

OTHER INVESTMENT POLICIES OF THE EAGLE ASSET MANAGEMENT GROWTH EQUITY
PORTFOLIO

The Portfolio may invest in sponsored and unsponsored American Depository
Receipts ("ADRs"). ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities of foreign issuers.
Generally, ADRs, in registered form, are denominated in U.S. dollars and are
designed for use in the U.S. securities markets. Thus, these securities are not
denominated in the same currency as the securities into which they may be
converted. ADRs are subject to many of the risks inherent in investing in
foreign securities, including confiscatory taxation or nationalization, and less
comprehensive disclosure requirements for the underlying security. In addition,
the issuers of the securities underlying unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, there
may be less information available regarding such issuers and there may not be a
correlation between such information and the market value of the ADRs. ADRs are
considered to be foreign securities by the Portfolio for purposes of certain
investment limitation calculations.

The Portfolio also may invest in sponsored or unsponsored European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs"), International
Depository Receipts ("IDRs") or other similar securities representing interests
in or convertible into securities of foreign issuers ("Depository Receipts").
EDRs and IDRs are receipts typically issued by a European bank or trust company
evidencing ownership of the underlying foreign securities. GDRs are issued
globally for trading in non-U.S. securities markets and evidence a similar
ownership arrangement. Depository Receipts may not necessarily be denominated in
the same currency as the underlying securities into which they may be converted.
As with ADRs, the issuers of the securities underlying unsponsored Depository
Receipts are not obligated to disclose material information in the United States
and, therefore, there may be less information available regarding such issuers
and there may not be a correlation between such information and the market value
of the Depository Receipts. Depository Receipts also involve the risks of other
investments in foreign securities, as discussed below.

The Portfolio may invest in bankers' acceptances, which are short-term
credit instruments used to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by

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<PAGE> 123
the accepting bank as an asset, or it may be sold in the secondary market at the
going rate of interest for a specified maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.

The Portfolio may invest in bank certificates of deposit ("CDs"). The
Federal Deposit Insurance Corporation is an agency of the U.S. Government that
insures the deposits of certain banks and savings and loan associations up to
$100,000 per deposit. The interest on such deposits may not be insured if this
limit is exceeded. Current federal regulations also permit such institutions to
issue insured negotiable CDs in amounts of $100,000 or more, without regard to
the interest rate ceilings on other deposits. To remain fully insured, these
investments currently must be limited to $100,000 per insured bank or savings
and loan association. Investments in CDs are made only with domestic
institutions with assets in excess of $1 billion.

The Portfolio may invest in commercial paper that is limited to
obligations rated Prime-1 or Prime-2 by Moody's Investors Services, Inc.
("Moody's") or A-1 or A-2 by Standard & Poor's Ratings Services (S&P).
Commercial paper includes notes, drafts or similar instruments payable on demand
or having a maturity at the time of issuance not exceeding nine months,
exclusive of days of grace or any renewal thereof.

The Portfolio may not purchase or otherwise acquire any illiquid security
if, as a result, more than 10% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Over-the-counter ("OTC") options and their underlying collateral are currently
considered to be illiquid investments. The Portfolio may sell OTC options and,
in connection therewith, segregate assets or cover its obligations with respect
to OTC options that it writes. The assets used as cover for OTC options written
by the Portfolio will be considered illiquid unless OTC options are sold to
qualified dealers who agree that the Portfolio may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.

The Portfolio may invest in preferred stock. A preferred stock is a blend
of the characteristics of a bond and common stock. It can offer the higher yield
of a bond and has priority over common stock in equity ownership, but does not
have the seniority of a bond and its participation in the issuer's growth may be
limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.

The Portfolio may invest in Standard and Poor's Depository Receipts
("SPDRs") and other similar index securities ("Index Securities"). Index
Securities represent interests in a fixed

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portfolio of common stocks designed to track the price and dividend yield
performance of a broad-based securities index, such as the Standard & Poor's 500
Composite Stock Price Index.

The Portfolio may purchase rights and warrants, which are instruments that
permit the Portfolio to acquire, by subscription, the capital stock of a
corporation at a set price, regardless of the market price for such stock.
Warrants may be either perpetual or of limited duration. There is a greater risk
that warrants might drop in value at a faster rate than the underlying stock.
The Portfolio currently does not intend to invest more than 5% of its net assets
in warrants.

CERTAIN 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

FLOATERS AND INVERSE FLOATERS

Each Portfolio, other than the Capital Appreciation, Value, Growth Equity,
American Century Income and Growth, 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, American Century Income and Growth, 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

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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.

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.

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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

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, Developing Growth, Eagle Growth
Equity, Government, High-Yield Corporate Bond, International Equity, Dreyfus
Large Company Value, 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 and
the Dreyfus Large Company Value Portfolios).

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

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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.

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. As a matter
of operating policy, the Lord Abbett Developing Growth Portfolio will not invest
more than 10% of the value of its assets in repurchase agreements maturing in
more than seven days. 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.

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.

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<PAGE> 128

This latter practice is not for investment leverage but solely to
facilitate management of the investment portfolio by enabling the Portfolio to
meet redemption requests when the liquidation of portfolio instruments would be
inconvenient or disadvantageous. However, a Portfolio may not purchase
additional portfolio investments once borrowed funds exceed 5% of total assets.
When effecting reverse repurchase agreements, Portfolio assets in an amount
sufficient to make payment for the obligations to be purchased will be
segregated by the Custodian and on the Portfolio's records upon execution of the
trade and maintained until the transaction has been settled. During the period
any reverse repurchase agreements are outstanding, to the extent necessary to
assure completion of the reverse repurchase agreements, a Portfolio will
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements.
Interest paid on borrowed funds will not be available for investment. The
Portfolio will liquidate any such borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding (except
as described above).

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 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.

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<PAGE> 129
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, (with respect to a maximum of 25% of the net assets of the Eagle Growth
Equity Portfolio) 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 or Sub-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

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foreign branch of a domestic bank. Further, to the extent investments in foreign
securities are denominated in currencies of foreign countries, a Portfolio may
be affected favorably or unfavorably by changes in currency exchange rates and
in exchange control regulations and may incur costs in connection with
conversion between currencies.

FOREIGN CURRENCY TRANSACTIONS

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

Normally, consideration of the prospect for currency parities will be
incorporated in a longer term investment decision made with regard to overall
diversification strategies. However, each of the current Advisers and
Sub-Advisers 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, the Advisers and Sub-Advisers 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 or Sub-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

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foreign currency. Such a hedge (sometimes referred to as a "position hedge")
will tend to offset both positive and negative currency fluctuations, but will
not offset changes in security values caused by other factors. A Portfolio also
may hedge the same position by using another currency (or a basket of
currencies) expected to perform similarly to the hedged currency, when exchange
rates between the two currencies are sufficiently correlated ("proxy hedge").
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. With respect to positions that
constitute "transaction" or "position hedges" (including "proxy hedges"), a
Portfolio will not enter into forward contracts to sell currency or maintain a
net exposure to such contracts if the consummation of such contracts would
obligate a Portfolio to deliver an amount of foreign currency in excess of the
value of a Portfolio's portfolio securities or other assets denominated in that
currency (or the related currency, in the case of a proxy hedge).

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

At the consummation of the forward contract, a Portfolio may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract obligating it
to purchase at the same maturity date the same amount of such foreign currency.
If a Portfolio chooses to make delivery of the foreign currency, it may be
required to obtain such currency for delivery through the sale of portfolio
securities denominated in such currency or through conversion of other assets of
a Portfolio into such currency. If a Portfolio engages in an offsetting
transaction, a Portfolio will realize a 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

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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 and Sub-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 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.

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<PAGE> 133
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, is
initially 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.

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WHEN-ISSUED SECURITIES

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

At the time the Fund makes the commitment on behalf of a Portfolio to
purchase a security on a when-issued basis, it will record the transaction and
reflect the amount due and the value of the security in determining the
Portfolio's net asset value. The market value of the when-issued securities may
be more or less than the purchase price payable at the settlement date. The
Directors do not believe that a Portfolio's net asset value or income will 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 40), 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

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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 (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

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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
non-governmental 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 or Sub-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.

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

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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") 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.

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

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

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 1933 Act, as amended. CMO residuals, whether or not
registered under such

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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 multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.

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

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 and Sub-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

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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 or Sub-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, American Century Income &
Growth, Dreyfus Large Company Value, 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. The American
Century Income & Growth and Dreyfus Large Company Value Portfolios may each
purchase protective puts with a value of up to 20% of its net assets. The Eagle
Growth Equity Portfolio may also purchase protective puts. 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 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

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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. The American Century
Income & Growth and the Dreyfus Large Company Value Portfolios may write covered
call options with respect to no more than 20% 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 the Adviser or Sub-Adviser 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

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

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

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

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

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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. The American Century Income & Growth and
Dreyfus Large Company Value Portfolios may not write covered put options if, as
a result, more than 20% of their total assets (taken at current value) would be
subject to put options written by such Portfolio. 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 that a Portfolio receives from writing a put option will
reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to such market price, the
historical price volatility of the underlying security, the option period,
supply and demand and interest rates.

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

If a Portfolio is able to enter into a closing purchase transaction, a
Portfolio will realize a profit or loss from such transaction if the cost of
such transaction is less or more than the premium received from the writing of
the option. After writing a put option, a Portfolio may incur a loss equal to
the difference between the exercise price of the option and the sum of the
market value of the underlying security plus the premium received from the sale
of the option.

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

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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 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

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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

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

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

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FUTURES TRANSACTIONS

The Convertible, Lord Abbett Developing Growth, Eagle Growth Equity,
Government, High Yield Corporate Bond, International Equity, Dreyfus Large
Company Value 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, Lord Abbett Developing Growth, Eagle Growth Equity, High Yield
Corporate Bond, American Century Income & Growth, International Equity, Dreyfus
Large Company Value, Total Return, Value, and Indexed Equity Portfolios may
purchase and sell futures contracts on stock index futures to hedge the equity
portion of those Portfolios' securities portfolios with regard to market
(systematic) risk (involving the market's assessment of overall economic
prospects), as distinguished from stock-specific risk (involving the market's
evaluation of the merits of the issuer of a particular security). These
Portfolios may also purchase and sell other futures when deemed appropriate, in
order to hedge the equity or non-equity portions of their portfolios. In
addition, each Portfolio except the Cash Management, Government, Bond and Growth
Equity Portfolios may, to the extent it invests in foreign securities, enter
into contracts for the future delivery of foreign currencies to hedge against
changes in currency exchange rates. Each of the Portfolios, except the Cash
Management, Bond and Growth Equity Portfolios, may also purchase and write put
and call options on futures contracts of the type into which such Portfolio is
authorized to enter and may engage in related closing transactions. In the
United States, all such futures on debt securities, debt index futures, stock
index futures, foreign currency futures and related options will be traded on
exchanges that are regulated by the Commodity Futures Trading Commission
("CFTC"). Subject to applicable CFTC rules, the Portfolios also may enter into
futures contracts traded on the following foreign futures exchanges: Frankfurt,
Tokyo, London and Paris, as long as trading on the aforesaid foreign futures
exchanges does not subject a Portfolio to risks that are materially greater than
the risks associated with trading on U.S. exchanges.

A futures contract is an agreement to buy or sell a security or currency
(or to deliver a final cash settlement price in the case of a contract relating
to an index or otherwise not calling for physical delivery at the end of trading
in the contract), for a set price in a future month. In the United States,
futures contracts are traded on boards of trade which have been designated
"contract markets" by the CFTC. Futures contracts trade on these markets through
an "open outcry" auction on the exchange floor. Currently, there are futures
contracts based on long-term U.S. Treasury bonds, Treasury notes, GNMA
certificates, three-month U.S. Treasury bills, three-month domestic bank
certificates of deposit, major foreign currencies, a municipal bond index and
various stock indexes. When 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

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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

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purchase obligations will be performed with regard to all positions that remain
open at the termination of the contract.

FUTURES ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. By purchasing
futures on debt securities--assuming a "long" position--a Portfolio will legally
obligate itself to accept the future delivery of the underlying security and pay
the agreed-upon price. By selling futures on debt securities--assuming a "short"
position--it will legally obligate itself to make the future delivery of the
security against payment of the agreed-upon price. Open futures positions on
debt securities will be valued at the most recent settlement price, unless such
price does not appear to the Directors to reflect the fair value of the
contract, in which case the positions will be valued by or under the direction
of the Directors.

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

On other occasions, a Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when a Portfolio
intends to purchase particular securities and it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant 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

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day to the respective accounts of the parties to the contract. On the contract's
expiration date, a final cash settlement occurs and the futures positions are
simply closed out. Changes in the market value of a particular stock index
futures contract reflect changes in the specified index of equity securities on
which the contract is based. A stock index is designed to reflect overall price
trends in the market for equity securities.

Stock index futures may be used to hedge the equity portion of a
Portfolio's securities portfolio with regard to market (systematic) risk, as
distinguished from stock-specific risk. The Portfolios may enter into stock
index futures to the extent that they have equity securities in their
portfolios. Similarly, the Portfolios may enter into futures on debt securities
indexes to the extent they have debt securities in their portfolios. By
establishing an appropriate "short" position in securities index futures, a
Portfolio may seek to protect the value of its portfolio against an overall
decline in the market for securities. Alternatively, in anticipation of a
generally rising market, a Portfolio can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in securities
index futures and later liquidating that position as particular securities are
in fact acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements, unrelated to the merits of specific portfolio securities, than would
otherwise be the case. A Portfolio may also purchase futures on debt securities
or indexes as a substitute for the purchase of longer-term debt securities to
lengthen the average duration of a Portfolio's debt portfolio.

CURRENCY FUTURES. A sale of a currency futures contract creates an
obligation by a Portfolio, as seller, to deliver the amount of currency called
for in the contract at a specified future time for a specified price. A purchase
of a currency futures contract creates an obligation by a Portfolio, as
purchaser, to take delivery of an amount of currency at a specified future time
at a specified price. A Portfolio may sell a currency futures contract, if the
Adviser anticipates that exchange rates for a particular currency will fall, as
a hedge against a decline in the value of a Portfolio's securities denominated
in such currency. If the Adviser anticipates that exchange rates will rise, a
Portfolio may purchase a currency futures contract to protect against an
increase in the price of securities denominated in a particular currency a
Portfolio intends to purchase. Although the terms of currency futures contracts
specify actual delivery or receipt, in most instances the contracts are closed
out before the 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.

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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 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.

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

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

If a Portfolio writes options on futures contracts, a Portfolio will
receive a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, a Portfolio will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by or to be acquired for a Portfolio. If the option is
exercised, a Portfolio will incur a loss in the option transaction, which will
be reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities or the
currencies in which such securities are denominated.

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

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

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

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

When purchasing a futures contract, a Portfolio will maintain with its
custodian (and mark-to-market on a daily basis) 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.

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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 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

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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 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.

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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:

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<PAGE> 157

SWAP AGREEMENTS

The International Equity Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return or for
other portfolio management purposes. Swap agreements are two party contracts
entered into primarily by institutional investors for periods ranging from a few
weeks to more than one year. In a standard "swap" transaction, two parties agree
to exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index.
Commonly used swap agreements include (i) interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap", (ii) interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates 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.

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<PAGE> 158
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 1940 Act, commodity pool, corporation, partnership, proprietorship,
organization, trust or other entity, employee benefit plan, governmental entity,
broker-dealer, futures commission merchant, natural person, or regulated foreign
person. To be eligible, natural persons and most other entities must have total
assets exceeding $10 million; commodity pools and employee benefit plans must
have assets exceeding $5 million. In addition, an eligible swap transaction must
meet three conditions. First, the swap agreement may not be part of a fungible
class of agreements that are standardized as to their material economic terms.
Second, the creditworthiness of parties with actual or potential obligations
under the swap agreement must be a material consideration in entering into or
determining the terms of the swap agreement, including 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.

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<PAGE> 159
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, 1997, December 31, 1996 and December 31,
1995, the portfolio turnover rate for each of the following Portfolios was as
follows: Capital Appreciation Portfolio, 34.38 %, 15.64%, and 34.83%,
respectively; Government Portfolio, 344.99%, 303.83%, and 591.59%, respectively;
Total Return Portfolio, 124.72%, 174.77%, and 253.00%, respectively; Bond
Portfolio, 187.20 %, 103.02%, and 80.86%, respectively; Growth Equity Portfolio,
102.86 %, 104.13%, and 104.07%, respectively; and Indexed Equity, 5.21%, 3.11%,
and 4.99%, respectively. With respect to the Cash Management Portfolio, the
portfolio turnover rate for the years ended December 31, 1997, December 31,
1996, and December 31, 1995 as calculated in accordance with applicable SEC
regulations, was 0%. For the years ended December 31, 1997, and December
31,1996, the turnover rate for each of the following Portfolios was as follows:
High Yield Corporate Bond, 15.88% and 148.74%, respectively; International
Equity, 60.94% and 15.88%, respectively; and Value, 40.79% and 48.19%,
respectively. For the period May 1, 1995 (commencement of operations) through
December 31, 1995 the unannualized portfolio turnover rate for the Portfolios
was as follows: High Yield Corporate Bond, 94.98%; International Equity, 13.65%;
and Value Portfolio, 19.75%. For the year ending December 31, 1997 the portfolio
turnover rate for Convertible Portfolio was 217.35%. 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%.

As the Lord Abbett Developing Growth, Eagle Growth Equity, American
Century Income & Growth, and Dreyfus Large Company Value Portfolios were
established after the effective date of this Statement of Additional
Information, portfolio turnover rates are not available for these Portfolios.
The turnover rates for these Portfolios are expected to exceed 100%. A turnover
rate in excess of 100% is likely to result in a Portfolio's bearing higher
brokerage costs.

MANAGEMENT OF THE FUND

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

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<PAGE> 160
<TABLE>
<CAPTION>
Name and Address** Age Position(s) Held Principal Occupation(s) During Past Five Years
With Registrant
<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 Director of the following Corporations:
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, National Gallery of Art,
Washington, D.C. from December 1985 to June 1995.

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

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

Robert D. Rock* 42 Vice President and Senior Vice President in charge of the Individual Annuity
Director Department of New York Life Insurance Company 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>

OFFICERS (OTHER THAN DIRECTORS)

<TABLE>
<CAPTION>
Name and Address** Age Position(s) Held Principal Occupation(s) During Past Five Years
With Registrant
<S> <C> <C> <C>
Anthony W. Polis 52 Treasurer Vice President of New York Life Insurance Company from
1988 to date.

Marc J. Chalfin 50 Controller Senior Vice President and Controller of New York Life
Insurance Company from March 1995 to date; Vice
President and Controller from February 1994 to date; Vice
President and Deputy Controller from March 1991 to
February 1994.
</TABLE>

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<PAGE> 161
<TABLE>

John Weisser 56 Director President and Managing Director of Solomon Brothers,
Inc., from May 1971 through June 1995.
</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, 1997, the directors received an aggregate of $82,000 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 $35,000 per year plus $1,500 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,
1997, for each of the following persons:

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<PAGE> 162
COMPENSATION TABLE

COMPENSATION TABLE

<TABLE>

<CAPTION>
Name of Person, Position Aggregate Pension or Estimated Annual Total Compensation
Compensation Retirement Benefits Upon From Registrant and
From Registrant Benefits Accrued Retirement Fund Complex Paid to
as Part of Fund Directors
Expenses
<S> <C> <C> <C> <C>
Michael J. Drabb, Director $20,500 $ 0 $ 0 $20,500
Jill Feinberg , Director 20,500 0 0 20,500
Daniel Herrick, Director 20,500 0 0 20,500
Richard M. Kernan, Jr., 0 0 0 0
Director
Anne F. Pollack, Director 0 0 0 0
Robert D. Rock, Director 0 0 0 0
Roman L. Weil, Director 20,500 0 0 20,500
John Weisser, Director 0 0 0 0
-------
TOTAL $82,000
</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.

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

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<PAGE> 163
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.

New York Life will serve as Investment Adviser to the Dreyfus Large
Company Value, American Century Income & Growth, Lord Abbett Developing Growth
and Eagle Growth Equity Portfolios pursuant to an Investment Advisory Agreement,
subject to the supervision of the Directors of the Fund and in conformity with
the stated policies of the Portfolios, and will administer the Portfolios'
business affairs and has investment advisory responsibilities. As described more
fully below, the Investment Adviser has delegated day to day Portfolio
management responsibilities to certain Sub-Advisers.

The 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 each of the
Portfolios (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 "interested persons" of
the Fund or the Investment Adviser (as the term is defined in the 1940 Act).

New York Life 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.

The Investment Advisory Agreement provides that New York Life shall not
be liable to a Portfolio for any error in judgment by New York Life or for any
loss sustained by a Portfolio, except in the case of New York Life's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Investment Advisory 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.

Pursuant to Sub-Advisory Agreements between New York Life and each of
American Century Investment Management, on behalf of the American Century Income
& Growth

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<PAGE> 164
Portfolio; the Dreyfus Corporation, on behalf of the Dreyfus Large Company Value
Portfolio; Eagle Asset Management, on behalf of the Eagle Growth Equity
Portfolio; and Lord Abbett, on behalf of the Lord Abbett Developing Growth
Portfolio (each a "Sub-Adviser" and collectively, the "Sub-Advisers"). The
Sub-Advisers have been delegated day-to-day responsibility for the investment
decisions of the Portfolios. The Sub-Advisers, subject to the supervision of the
Directors of the Fund and New York Life and in conformity with the stated
policies of each of the Portfolios and the Fund, manage their respective
Portfolios, including the purchase, retention, disposition and loan of
securities.

The Sub-Advisory Agreements will remain in effect for two years following
their effective date, and will continue in effect thereafter only if such
continuance is specifically approved at least annually by the Director or by a
vote of the majority of the outstanding voting securities of each of the
Portfolios (as defined in the 1940 Act in a rule under the Act) and, in either
case, by a majority of the Directors who are not "interested persons" of the
Fund, the Investment Adviser or any Sub-Adviser (as the term is defined in the
1940 Act).

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 and Administration Agreement Supplements each
May 1, 1998 for each of the American Century Income & Growth Portfolio, the
Dreyfus Large Company Value Portfolio, the Eagle Asset Management Growth Equity
Portfolio, and the Lord Abbett Developing Growth Portfolio. 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 American
Century Income & Growth, Dreyfus Large Company Value, Eagle Asset Management
Growth Equity and the Lord Abbett Developing Growth Portfolios to 0.15% of
average daily net assets on an annualized basis through December 31, 1998.
NYLIAC has also agreed to limit the "Other Expenses" of each of the Convertible
and International Equity Portfolios to 0.17% of average daily net assets on an
annualized basis through December 31, 1998.

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

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<PAGE> 165
the use of such name and marks by the Fund at any time, and to grant the use of
such name and marks to other users.

PORTFOLIO BROKERAGE

The Advisers or, with respect to their Dreyfus Large Company Value
Portfolio, American Century Income & Growth Portfolio, Lord Abbett Developing
Growth Portfolio, and Eagle Growth Equity Portfolio, Sub-Advisers, determine
which securities to buy and sell for the Fund, select brokers and dealers to
effect the transactions, and negotiate commissions. Transactions in equity
securities will usually be executed through brokers that will receive a
commission paid by the Portfolio for which the transaction is executed. Fixed
income securities are generally traded with dealers acting as principals for
their own account without a stated commission. The dealer's margin is reflected
in the price of the security. Money market instruments may be traded directly
with the issuer. Underwritten offerings of stock and intermediate and long term
debt securities may be purchased at a fixed price including an amount of
compensation to the underwriter. From time to time, NYLIFE Securities, Inc. may
execute transactions in equity securities on behalf of the Portfolios. Such
commissions may be charged against all Portfolios, with the exception of the
Cash Management Portfolio.

In placing orders for securities transactions, each Adviser's or
Sub-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 or Sub-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 or Sub-Adviser. The
Advisers or Sub-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 or Sub-Advisers in providing investment advisory services to the
Fund.

For the years ending December 31, 1997, December 31, 1996 and December
31, 1995, the Fund paid total brokerage commissions of $2,902,769, $2,121,056
and $1,506,976, respectively.

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<PAGE> 166
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.

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

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<PAGE> 167
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.

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<PAGE> 168
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, 1997, the Cash Management
Portfolio yield was 5.13%, and the effective yield was 5.27%.

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:

2[(a - b +1) to the sixth power - 1]
YIELD = -----
cd

Where:

a = dividends and interest 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.

- 73 -
<PAGE> 169
The yield calculations do not reflect the effect of any charges that may
be applicable to a particular Policy or separate account. 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 any
Portfolio 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, Lord Abbett Developing Growth,
Government, High Yield Corporate Bond, American Century Income & Growth,
International Equity, Dreyfus Large Company Value, 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
equate a hypothetical initial amount invested to the ending redeemable value,
according to the following formula:

P(1 + T)(n) = ERV

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

All recurring fees that are charged by the Fund 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, 1997, the
average annual total returns for the Bond Portfolio were 9.65%, 7.33% and 7.86%,
respectively.

For the one, five and ten year periods ending December 31, 1996, the
average annual total returns for the Growth Equity Portfolio were 26.75%, 18.59%
and 16.87%, respectively. For the one-year period ending December 31, 1997, the
average annual total returns for the Capital Appreciation, Cash Management,
Government, Total Return and Indexed Equity Portfolios were 23.49%, 5.25%,
9.48%, 17.79% and 32.84%, respectively. For the period beginning January 29,

- 74 -
<PAGE> 170

1993 (inception date) through December 31, 1997, the average annual total
returns for the Capital Appreciation, Cash Management, Government, Total Return
and Indexed Equity Portfolios were 18.38%, 4.48%, 6.53%, 13.59% and 19.70%,
respectively. For the one year period ending December 31, 1997, the annual total
returns for the High Yield Corporate Bond, International Equity and Value
Portfolios were 13.01%, 11.26% and 18.81%, respectively. For the period
beginning May 1, 1995 (inception date) through December 31, 1997, the average
annual total returns for the High Yield Corporate Bond, International Equity and
Value Portfolios were 15.06%, 9.92% and 22.35%, respectively.

The yield and total return calculations of the Portfolios 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 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

- 75 -
<PAGE> 171
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 consists of 5,000,000,000 shares of common stock, par value $0.01 per
share. The shares of common stock are divided into fifteen classes as set forth
below:

- 76 -
<PAGE> 172
<TABLE>
<CAPTION>
NAME SHARES
---- ------
<S> <C>
Capital Appreciation Portfolio 50,000,000
- -------------------------------------------------------------------------
Cash Management Portfolio 600,000,000
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
Dreyfus Large
Company Value
Portfolio 100,000,000
- -------------------------------------------------------------------------
Lord Abbett Developing Growth
Portfolio 100,000,000
- -------------------------------------------------------------------------
American Century Income & Growth
Portfolio 100,000,000
- -------------------------------------------------------------------------
Eagle Asset Management Growth Equity Portfolio 100,000,000
- -------------------------------------------------------------------------
</TABLE>

The shares of the Portfolios are eligible for investment by the Separate
Accounts. There exist 3,200,000,000 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.

- 77 -
<PAGE> 173
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 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

- 78 -
<PAGE> 174
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 Dechert, Price & Rhoads, Washington, D.C.

FINANCIAL STATEMENTS

The financial statements of the Fund for the year ended December 31, 1997,
including the financial highlights for each of the periods presented appearing
in the 1997 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.

- 79 -
<PAGE> 175
PART C. OTHER INFORMATION

ITEM 24.......................................FINANCIAL STATEMENTS AND EXHIBITS

a. Financial Statements:

All required financial statements are included in Part B of this
Registration Statement or are incorporated by reference.

b. Exhibits:

<TABLE>
<S> <C> <C>
1(a) -- Articles of Incorporation of Registrant -- Previously filed as Exhibit No. 1 to
Post-Effective Amendment No. 9.
1(b) -- Articles Supplementary
1(c) -- Articles of Amendment -- Previously filed as Exhibit No. 1(c) to Post-Effective
Amendment No. 21.
2 -- By-laws of Registrant -- Previously filed as Exhibit No. 2 to Post-Effective
Amendment No. 9.
3 -- None.
4 -- Form of Specimen certificate for shares of common stock of newly created
Portfolios -- Previously filed as Exhibit No. 4 to Post-Effective Amendment No. 9
5(a) -- Form of Investment Advisory Agreement with MacKay-Shields Financial Corporation -- Previously filed as Exhibit 5 to
Post-Effective Amendment No. 16 of The Mainstay Funds (File No. 33-2610).
5(b) -- Form of Investment Advisory Agreement with Monitor Capital Advisors, Inc. -- Previously filed as Exhibit 5 to
Post-Effective Amendment No. 4 of New York Life Institutional Funds Inc. (File No. 33-36962).
5(c) -- Form of Investment Advisory Agreement with New York Life Insurance Company -- Previously filed as Exhibit 5(c) to
Post-Effective Amendment No. 15.
5(d) -- Form of Sub-Advisory Agreement between New York Life and American Century Investment Management, Inc.
5(e) -- Form of Sub-Advisory Agreement between New York and the Dreyfus Corporation
5(f) -- Form of Sub-Advisory Agreement between New York Life and Eagle Asset Management
5(g) -- Form of Sub-Advisory Agreement between New York Life and Lord, Abbett & Co.
6 -- None.
7 -- None.
8 -- Form of Custodian Agreement -- Previously filed as Exhibit 8 to Pre-Effective Amendment No. 1.
9(a) -- Form of Stock Sale Agreement -- Previously filed as Exhibit 9(a) to Pre-Effective Amendment No. 1.
9(b) -- Form of Stock License Agreement relating to the use of the New York Life name and service marks -- Previously filed
as Exhibit
9(b) to Post-Effective Amendment No. 1.
10(a) -- Opinion and Consent of Counsel
11 -- Consent of Price Waterhouse LLP, Independent Public Accountants
12 -- None.
13(a) -- Form of Initial Stock Subscription Letter -- Previously filed as Exhibit 13(a) to Pre-Effective Amendment No. 1.
13(b) -- Form of Investment Undertaking -- Previously filed as Exhibit 13(b) to Pre-Effective Amendment No. 1.
14 -- None.
15 -- None.
16 -- None.
17 -- Financial Data Schedules.
18 -- None.
</TABLE>
<PAGE> 176
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

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

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

The following chart indicates the persons controlled by New York Life:

<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
<S> <C> <C>
Eagle Strategies Corporation Arizona 100%
Greystone Realty Corporation which owns 100%
of the shares of: Delaware 100%
Greystone Realty Management, Inc. Delaware

NYLIFE Administration Corp.
(doing business as NYLACOR) Texas 100%

MacKay-Shields Financial Corporation Delaware 100%
MSC Holding, Inc. (formerly Magnus Software
Corporation, Inc.) Georgia 85.43%

MainStay Institutional Funds Inc. Maryland ***

Monitor Capital Advisors, Inc. Delaware 100%

NYLIFE SFD Holding, Inc.
which owns 83.33% of NYLIFE Delaware 100%
Structured Asset Management Company Ltd. Texas

New York Life Capital Corporation Delaware 100%

New York Life Fund, Inc. New York *

New York Life Insurance and Annuity
Corporation Delaware 100%

New York Life International Investment Inc. Delaware 100%
which owns 100% of the shares of:
Monetary Research Ltd. Bermuda
and 100% of the shares of:
NYL Management Limited which owns United Kingdom
33.345% of the shares of:
Japan Gamma Asset Management Limited Japan

The MainStay Funds Massachusetts *

New York Life Worldwide Holding, Inc., which Delaware 100%
owns 100% of the shares of:
New York Life Worldwide Capital, Inc. Delaware
New York Life Worldwide Development, Inc. Delaware
New York Life Worldwide (Bermuda) Ltd.
New York Life Insurance Worldwide Ltd. Bermuda
and owns 99.97% of the shares of Bermuda
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
<S> <C> <C>
United Kingdom
New York Life (U.K.) Ltd., which owns
100% of the shares of: England
Windsor Construction Company Limited
and owns 51% of the shares of: South Korea
KOHAP New York Life Insurance Ltd.
and owns 50.2% of the shares of: Indonesia
P.T. Asuransi Jiwa Sewu-New York Life and
owns 49% of the shares of: Mexico
GEO New York Life, S.A. and owns
31.25% of the shares of: United Kingdom
Life Assurance Holding Corporation Limited,
which owns 100% of the shares of: England
Windsor Life Assurance Company Limited England
Gresham Life Assurance Society Limited

NYLCO, Inc. New York 100%

NYLIFE Depositary Corporation which owns 16.67% Delaware 100%
of NYLIFE Structured Asset Management Company Ltd. Texas

New York Life Benefit Services, Inc. which owns Massachusetts 100%
100% of ADQ Insurance Agency Inc. Massachusetts

New York Life Trust Company New York 100%

NYLICO, Inc. New York 100%
(formerly New York Life Capital Corp.)

NYLIFE Distributors Inc. Delaware 100%

NYLIFE Equity Inc. Delaware 100%

NYLIFE Funding Inc. Delaware 100%

NYLIFE Healthcare Management Inc., which owns Delaware
46.3% of total combined stock and 89.6% of the
voting rights of:
Express Scripts, Inc., which owns 100% of the Delaware
shares of:
Great Plains Reinsurance Company Canada
Practice Patterns Science, Inc.
ESI Canada Holdings, Inc., which owns 100% Canada
of the shares of:
ESI Canada, Inc. Canada
IVTx of Houston, Inc. Texas
IVTx of Dallas, Inc. Texas
PhyNet, Inc. Delaware
Express Scripts Vision Corporation Delaware
NYLCare Health Plans, Inc. Delaware
(formerly Sanus Corp. Health Systems), which owns
100% of the shares of:
New York Life and Health Insurance Company Delaware
Avanti Corporate Health Systems Inc. Delaware
Avanti Health Systems, Inc., which owns 100% Texas
of the shares of:
Avanti of the District, Inc. Maryland
Avanti of Illinois, Inc. Illinois
Avanti of New York, Inc. New York
Avanti of New Jersey, Inc. New Jersey
and owns 80% of the shares of:
NYLCare Health Plans of the Mid-Atlantic, Maryland
Inc., which owns 100% of the shares of:
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
<S> <C> <C>
Physicians Health Services Foundation, Inc. Maryland
Lonestar Holding Co., which owns 90% of the shares Delaware
of:
Lone Star Health Plan, Inc., which owns 100% New York
of the shares of:
NYLCare Health Plans of the Gulf Coast, Texas
Inc.
Prime Provider Corp., which owns 100% of the New York
shares of:
Prime Provider Corp. of Texas Texas
NYLCare of Connecticut, Inc. Connecticut
Sanus Dental Plan of New Jersey, Inc. New Jersey
NYLCare Dental Plans of the Southwest, Inc. Texas
NYLCare Health Plans of New York, Inc. New York
NYLCare Health Plans of Connecticut, Inc. Connecticut
NYLCare Health Plans of the Midwest, Inc. Illinois
NYLCare Health Plans of New Jersey, Inc. New Jersey
NYLCare of Texas, Inc., which owns 100% of Texas
the shares of:
NYLCare Passport PPO of the Southwest, Inc. Texas
Sanus Preferred Providers West, Inc. California
Sanus Preferred Services, Inc. Maryland
Sanus Preferred Services of Illinois, Inc. Illinois
NYLCare Health Plans of the Southwest, Inc. Texas
WellPath of Arizona Reinsurance Company Arizona
NYLCare Health Plans of Louisiana, Inc. Louisiana
NYLCare of New England, Inc. Delaware
Sanus - Northeast, Inc. Delaware
NYLCare Health Plans of Maine, Inc. Maine
NYLCare NC Holdings, Inc. Delaware
WellPath Community Health Plan Holdings, L.L.C. North Carolina
which owns 100% of WPCHP Holdings, Inc. and
99% of: Delaware
WellPath Preferred Services, L.L.C. North Carolina
and
WellPath Select Holdings, L.L.C. North Carolina
WellPath of Carolina, Inc. North Carolina
WellPath Select, Inc. North Carolina
Sanus of New York and New Jersey, Inc. New York
NYLCare Health Plans of Pennsylvania, Inc. Pennsylvania
Docservo, Inc. New York
The ETHIX Corporation, which owns 100% of Delaware
The shares of:
ETHIX Great Lakes, Inc. Michigan
ETHIX Mid-Atlantic, Inc., which owns 100% Pennsylvania
of the shares of:
PriMed, Inc. New Jersey
ETHIX Midlands, Inc. Delaware
ETHIX Mid-Rivers, Inc. Missouri
ETHIX Northwest Public Services, Inc. Washington
ETHIX Northwest, Inc., Washington
which owns 100% of:
NYLCare Health Plans Northwest, Inc. Washington
ETHIX Pacific, Inc. Oregon
ETHIX Risk Management, Inc. Oregon
ETHIX Southeast, Inc. North Carolina
ETHIX Southwest, Inc. Texas
Benefit Panel Services which owns 100% of the California
shares of VivaHealth, Incorporated California

One Liberty Plaza Holdings, Inc. Delaware

NYLIFE Inc. New York 100%
</TABLE>
<PAGE> 179
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
<S> <C> <C>

NYLIFE Insurance Company of Arizona Arizona 100%

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

NYLIFE Refinery, Inc. Delaware 100%

NYLIFE Resources Inc. Delaware 100%

NYLIFE Securities Inc. New York 100%

NYLINK Insurance Agency Incorporated Delaware 100%
which owns 100% of the shares of:
NYLINK Insurance Agency of Alabama Alabama
NYLINK Insurance Agency of New Mexico New Mexico

NYLTEMPS Inc. Delaware 100%
</TABLE>

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

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

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

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

*** MacKay-Shields Financial Corporation and Monitor Capital Advisors, Inc.
serve as investment advisers to this entity.
<PAGE> 180
ITEM 26. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS APRIL 1, 1998

<S> <C>
Growth Equity Portfolio, par value $0.01 per share...................................... 8
Bond Portfolio, par value $0.01 per share............................................... 8
Cash Management Portfolio, par value $0.01 per share.................................... 8
Government Portfolio, par value $0.01 per share......................................... 5
Capital Appreciation Portfolio, par value $0.01 per share............................... 5
Indexed Equity Portfolio, par value $0.01 per share..................................... 5
Total Return Portfolio, par value $0.01 per share....................................... 5
High Yield Corporate Bond Portfolio, par value $0.01 per share.......................... 5
Value Portfolio, par value $0.01 per share.............................................. 5
International Equity Portfolio, par value $0.01 per share............................... 5
Convertible Portfolio, par value $0.01 per share........................................ 5
</TABLE>

ITEM 27. INDEMNIFICATION

(a) Maryland Law and By-Laws.

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

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

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

(b) Insurance.

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

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

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in said Act and will be governed by the final adjudication
of such issue.
<PAGE> 181
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

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

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

ITEM 29. PRINCIPAL UNDERWRITERS

Not applicable.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

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

ITEM 31. MANAGEMENT SERVICES

None.

ITEM 32. UNDERTAKINGS

The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
<PAGE> 182
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this post-effective amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to be signed on its behalf by the
undersigned, thereto duly authorized in the City of New York, and State of New
York, on the 30th day of April, 1998.

MainStay VP Series Fund, Inc.
(Registrant)

By * /s/ ANNE F. POLLACK
--------------------------------------
ANNE F. POLLACK, PRESIDENT

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
MICHAEL J. DRABB* Director April 30, 1998
- -------------------------------
MICHAEL J. DRABB

JILL FEINBERG* Director April 30, 1998
- -------------------------------
Jill Feinberg

DANIEL HERRICK* Director April 30, 1998
- -------------------------------
DANIEL HERRICK

RICHARD M. KERNAN, JR.* Chairman of the Board April 30, 1998
- -------------------------------- (Chief Executive Officer)
RICHARD M. KERNAN, JR.

ANNE F. POLLACK* President and Director April 30, 1998
- -------------------------------- (Chief Administrative Officer)
ANNE F. POLLACK

ROBERT D. ROCK* Director April 30, 1998
- -------------------------------
ROBERT D. ROCK

ROMAN L. WEIL* Director April 30, 1998
- -------------------------------
ROMAN L. WEIL

JOHN A. WEISSER* Director April 30, 1998
- -------------------------------
JOHN A. WEISSER

ANTHONY W. POLIS* Treasurer April 30, 1998
- ------------------------------- (Principal Financial Officer)
ANTHONY W. POLIS

*By /s/ ANNE F. POLLACK
- -------------------------------
ANNE F. POLLACK, PRESIDENT
</TABLE>

* Executed pursuant to one or more powers of attorney filed previously with the
Securities and Exchange Commission.
<PAGE> 183
EXHIBITS

1(b) -- Articles Supplementary
10(a) -- Opinion and Consent of Counsel
11 -- Consent of Price Waterhouse LLP, Independent Public Accountants
17 -- Financial Data Schedules

<PAGE> 1
MAINSTAY VP SERIES FUND, INC.
ARTICLES SUPPLEMENTARY

MainStay VP Series Fund, Inc., a Maryland corporation registered as
an open-end investment company under the Investment Company Act of 1940 and
having its principal office in Baltimore City, Maryland (formerly New York Life
MFA Series Fund, Inc. and hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of the State of
Maryland that:

FIRST: The total number of shares of capital stock which the
Corporation shall have the authority to issue is increased to five billion
(5,000,000,000) shares of par value of one cent ($0.01) per share and of
aggregate par value of fifty million dollars ($50,000,000).

SECOND: Pursuant to the authority granted to the Board of Directors
in Sections (1) and (2) of Article Fifth of the Corporation's Article of
Incorporation, as amended, there are hereby established and designated four
additional classes (or "series") of common stock as follows: one hundred million
(100,000,000) shares are hereby classified as MainStay VP American Century
Income & Growth Portfolio; one hundred million (100,000,000) shares are hereby
classified as MainStay VP Dreyfus Large Company Value Portfolio; one hundred
million (100,000,000) shares are hereby classified as MainStay VP Eagle Asset
Management Growth Equity Portfolio; and one hundred million (100,000,000) shares
are hereby classified as MainStay VP Lord Abbett Developing Growth Portfolio.

THIRD: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemptions of the shares of common stock of each of the MainStay VP American
Century Income & Growth Portfolio, MainStay VP Dreyfus Large Company Value
Portfolio, MainStay VP Eagle Asset Management Growth Equity Portfolio and
MainStay VP Lord Abbett Developing Growth Portfolio as set forth in Articles
Fifth and Sixth of the Corporations's Articles of Incorporation, as amended, and
shall be subject to all provisions of the Articles of Incorporation, as amended,
relating to the shares of the Corporation generally.

FOURTH: Immediately prior to the effectiveness of these Articles
Supplementary, the number of authorized shares indicated in Article Fifth of the
Corporation's Articles of Incorporation, as amended, was two billion
(2,000,000,000). Immediately prior to the effectiveness of these Articles
Supplementary the MainStay VP Cash Management Portfolio was allocated
600,000,000 shares of common stock; MainStay VP Bond Portfolio; MainStay VP
Convertible Portfolio; MainStay VP Growth Equity Portfolio; MainStay VP High
Yield Corporate Bond Portfolio; MainStay VP International Equity Portfolio; and
MainStay VP Value Portfolio were each allocated 100,000,000 shares of common
stock; and MainStay VP Capital Appreciation Portfolio; MainStay VP Government
Portfolio; MainStay VP Indexed Equity Portfolio; and MainStay VP Total Return
Portfolio were each allocated 50,000,000 shares of common stock. The Board of
Directors' power to classify and reclassify any unissued shares is not changed
by these Articles Supplementary.
<PAGE> 2
FIFTH: The foregoing amendment to the Corporation's Articles of
Incorporation was approved pursuant to Article V, Section 2, by the entire Board
of Directors of the Corporation at a meeting on February 10, 1998.

IN WITNESS WHEREOF, MainStay VP Series Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on April __, 1998.

ATTEST: MAINSTAY VP SERIES FUND, INC

BY:___________________________ BY:___________________________
Sara L. Badler Richard M. Kernan, Jr.
Secretary Chairman
<PAGE> 3
THE UNDERSIGNED, Chairman of MainStay VP Series Fund, Inc., who
executed on behalf of the Corporation the foregoing Articles Supplementary of
which this certificate is made a part, hereby acknowledges that these Articles
Supplementary are the act of the Corporation, that to the best of his knowledge,
information and belief the matters and facts set forth herein relating to the
authorization and approval of the Articles Supplementary are true in all
material respects and that this statement is made under the penalties of
perjury.
BY:___________________________
Richard M. Kernan, Jr.
Chairman

<PAGE> 1
Exhibit 99.10(a)

DECHERT PRICE & RHOADS
1775 EYE STREET
WASHINGTON, D.C. 20006

April 30, 1998

MainStay VP Series Fund, Inc.
51 Madison Avenue
New York, NY 10010

Re: MainStay VP Series Fund, Inc.
Registration Statement on Form N-1A
(Registration No. 2-86082)

Dear Sirs:

We have acted as counsel for the MainStay VP Series Fund, Inc. (the
"Fund"), a corporation organized and validly existing under the laws of the
State of Maryland, in connection with the above-referenced Registration
Statement relating to the issuance and sale by the Fund of an indefinite number
of its shares of common stock under the Securities Act of 1933, as amended.

We have examined such governmental and corporate certificates and records
as we deemed necessary to render this opinion and we are familiar with the
Fund's Articles of Incorporation, Articles of Amendment and Articles
Supplementary thereto, and its Bylaws.

Based upon the foregoing, we are of the opinion that the shares proposed
to be sold pursuant to the Fund's Registration Statement, when paid for as
contemplated in the Fund's registration statement will be legally and validly
issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to
Post-Effective Amendment No. 25 to the Fund's Registration Statement on Form
N-1A, to be filed with the Securities and Exchange Commission, and to the use of
our name in the Fund's Statement of Additional Information of the Fund's
Registration Statement to be dated as of May 1, 1998, and in any revised or
amended versions thereof under the caption "Legal Counsel." In giving such
consent, however, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933, as
amended, and the rules and regulations thereunder.

Very truly yours,

/x/ Dechert Price & Rhoads

<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 25 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 23, 1998, relating to the financial
statements and financial highlights appearing in the December 31, 1997 Annual
Report to Shareholders of MainStay VP Series Fund, Inc., which financial
statements are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the heading "Financial Highlights"
in the Prospectus and under the heading "Financial Statements" in the
Statement of Additional Information.

PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 27, 1998

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<NAME> MAINSTAY VP SERIES FUND, INC.
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<NAME> MAINSTAY VP SERIES FUND, INC.
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<NAME> MAINSTAY VP SERIES FUND, INC.
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</TABLE>

<ARTICLE> 6
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<NAME> MAINSTAY VP SERIES FUND, INC.
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<S> <C>
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</TABLE>

<ARTICLE> 6
<CIK> 0000887340
<NAME> MAINSTAY VP SERIES FUND, INC.
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<NAME> MAINSTAY VP CONVERTIBLE PORTFOLIO
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</TABLE>