NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT I, 497, 1995-08-28

NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT I
497, 1995-08-28

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<PAGE>

SUPPLEMENT TO THE NYLIAC VARIABLE ANNUITY
SEPARATE ACCOUNT-I AND NYLIAC
VARIABLE ANNUITY SEPARATE ACCOUNT-II
PROSPECTUS FOR THE NYLIAC VARIABLE ANNUITY
Dated May 1, 1995

For policies issued for delivery in New York, all references in this Prospectus
to Premium Payments are modified by the addition of the following Premium
limitations:

For tax Sheltered Annuity (TSA) Policies, "457" Deferred Compensation Plan
Policies, Simplified Employee Pension (SEP) Plan Policies and any other
Qualified Policies, contributory Premium Payments may only be made through a
"pre-authorized billing arrangement". The maximum scheduled Premium may not
exceed the applicable annual Plan limit as specified in the Internal Revenue
Code section for that Plan.

For TSA Transfer Premiums made to an existing TSA policy, the maximum Transfer
Premiums in the first Policy Year may not exceed $1,999.99. For any additional
TSA Transfer Premiums made in the second or subsequent Policy Years, the maximum
total Transfer Premiums may not exceed $4,999.99.

For individual Retirement Annuity (IRA) Policies, the minimum Premium is $1,200
initial and $65 scheduled under a pre-authorized monthly deduction arrangement,
$165 scheduled under a pre-authorized monthly deduction arrangement, or $2,000.
The maximum Premium in the first Policy Year may not be greater than $2,000. For
any additional Premium Payments made in the second or subsequent Policy Years,
the maximum total premium may not exceed $4,999.99.

For Non-Qualified Policies, a minimum single Premium of $2,500 plus $50 per
month as either pre-authorized monthly deduction or as part of a pre-authorized
monthly billing arrangement. The Maximum total Premium in any Policy Year may
not exceed $4,999.99.

18539 (7-95)
<PAGE>

NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-I
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-II
PROSPECTUS
FOR THE
NYLIAC VARIABLE ANNUITY
FLEXIBLE PREMIUM MULTI-FUNDED VARIABLE RETIREMENT ANNUITY POLICIES
OFFERED BY
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE, NEW YORK, NEW YORK 10010

This prospectus describes the Flexible Premium Multi-Funded Variable Retire-
ment Annuity Policies ("Policies" or, individually, "Policy") offered by New
York Life Insurance and Annuity Corporation ("NYLIAC"). The Policies are pri-
marily designed to aid individuals in their retirement planning regardless of
whether the individual is covered under a plan which qualifies for special
federal income tax treatment.

For Policies issued under plans that do not qualify for special federal in-
come tax treatment for the participant, premium payments ("Premium Payments")
may be allocated in whole or in part to the NYLIAC Variable Annuity Separate
Account-I ("Separate Account I"). For Policies that do qualify for special
federal income tax treatment, Premium Payments may be allocated in whole or in
part to the NYLIAC Variable Annuity Separate Account-II ("Separate Account
II").

Prior to the Annuity Commencement Date, the Owner may direct that Premium
Payments accumulate on a completely variable basis, a completely fixed basis,
or a combination variable and fixed basis. Premium Payments allocated to Sepa-
rate Account I or Separate Account II (collectively, the "Separate Accounts")
will accumulate on a variable basis. Although the assets of each Separate Ac-
count belong to NYLIAC, these assets are held separately from the other assets
of NYLIAC, and are not chargeable with liabilities incurred in any other busi-
ness operations of NYLIAC (except to the extent that assets in the Separate
Accounts exceed the reserves and other liabilities of that Account). Premium
Payments accumulating on a fixed basis belong to the general assets of NYLIAC
and as such are subject to claims of NYLIAC's general creditors. The Owner
also has significant flexibility in determining the frequency and amount of
each Premium Payment and the Annuity Commencement Date on which Annuity pay-
ments ("Income Payments") are scheduled to commence. The Accumulation Value
can be withdrawn in whole or in part before the Annuity Commencement Date, al-
though in certain circumstances withdrawals are subject to a surrender charge
and/or tax penalty. The Separate Accounts invest their assets in shares of the
New York Life MFA Series Fund, Inc. (the "MFA Series Fund"), a mutual fund
registered under the Investment Company Act of 1940 and in Acacia Capital Cor-
poration (the "Acacia Fund," and collectively with MFA Series Fund, the
"Funds"). The MFA Series Fund has available to the Separate Accounts ten in-
vestment portfolios (the "Eligible Portfolios" or the "Portfolios"): the Capi-
tal Appreciation Portfolio, the Cash Management Portfolio, the Government
Portfolio, the High Yield Corporate Bond Portfolio, the International Equity
Portfolio, the Total Return Portfolio, the Value Portfolio, the Bond Portfo-
lio, the Growth Equity Portfolio and the Indexed Equity Portfolio. The Acacia
Fund has available to the Separate Accounts one investment series--the Respon-
sibly Invested Balanced Portfolio (the "Socially Responsible Portfolio"). The
Accumulation Value will vary in accordance with the investment performance of
the Portfolios selected by the Owner, and the Owner bears the entire invest-
ment risk for any amounts allocated to the Separate Accounts.

This Prospectus sets forth the information that a prospective investor
should know before investing. A Statement of Additional Information about the
Policies and Separate Accounts dated May 1, 1995 is available free by writing
NYLIAC at the address above or by calling (212) 576-6569. The Statement of Ad-
ditional Information, which has the same date as this Prospectus, has been
filed with the Securities and Exchange Commission and is incorporated herein
by reference. The table of contents of the Statement of Additional Information
is included at the end of this Prospectus.

THIS PROSPECTUS MUST BE ATTACHED TO A CURRENT PROSPECTUS

FOR THE NEW YORK LIFE MFA SERIES FUND, INC. AND ACACIA CAPITAL CORPORATION

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.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNEC-
TION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON.

PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS.......................................................... 4

OWNER AND FUND EXPENSES.............................................. 7

QUESTIONS AND ANSWERS ABOUT THE
NYLIAC VARIABLE ANNUITY............................................. 9

CONDENSED FINANCIAL INFORMATION...................................... 14

NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION AND THE
SEPARATE ACCOUNTS................................................... 16
New York Life Insurance and Annuity
Corporation........................................................ 16
The Separate Accounts............................................... 16

NEW YORK LIFE MFA SERIES FUND, INC. ................................. 16

ACACIA CAPITAL CORPORATION........................................... 17

THE PORTFOLIOS....................................................... 17
The Capital Appreciation Portfolio.................................. 17
The Cash Management Portfolio....................................... 17
The Government Portfolio............................................ 17
The High Yield Corporate Bond Portfolio............................. 18
The International Equity Portfolio.................................. 18
The Total Return Portfolio.......................................... 18
The Value Portfolio................................................. 18
The Bond Portfolio.................................................. 18
The Growth Equity Portfolio......................................... 18
The Indexed Equity Portfolio........................................ 18
The Socially Responsible Portfolio.................................. 19
Additions, Deletions or Substitutions of
Investments........................................................ 19
Reinvestment........................................................ 19

THE POLICIES......................................................... 20
Purpose of Policies................................................. 20
Types of Policies................................................... 20
Policy Application and Premium Payments............................. 20
Issue Ages.......................................................... 21
Transfers........................................................... 21
Procedures for Telephone Transfers.................................. 22
Dollar Cost Averaging............................................... 22
Automatic Asset Reallocation........................................ 23

<CAPTION>
PAGE
----
<S> <C>
Accumulation Period................................................. 23
(a) Crediting of Premium Payments.................................. 23
(b) Valuation of Accumulation Units................................ 23
Owner Inquiries..................................................... 23

CHARGES AND DEDUCTIONS............................................... 24
Surrender Charges................................................... 24
Amount of Surrender Charge.......................................... 24
Exceptions to Surrender Charges..................................... 24
Other Charges....................................................... 25
Group Arrangements.................................................. 25
Taxes............................................................... 26

DISTRIBUTIONS UNDER THE POLICY....................................... 26
Surrenders and Partial Withdrawals.................................. 26
(a) Surrenders..................................................... 27
(b) Partial Withdrawals............................................ 27
(c) Periodic Partial Withdrawals................................... 27
(d) Hardship Withdrawals........................................... 27
Required Minimum Distribution Option................................ 27
Cancellations....................................................... 28
Annuity Commencement Date........................................... 28
Death Before Annuity Commencement................................... 28
Income Payments..................................................... 29
(a) Election of Income Payment Options............................. 29
(b) Other Methods of Payment....................................... 29
(c) Legal Developments Regarding
Income Payments............................................... 29
(d) Proof of Survivorship.......................................... 29
Delay of Payments................................................... 29
Designation of Beneficiary.......................................... 30
Retirement Program.................................................. 30
Restrictions Under Internal Revenue Code
Section 403(b)(11)................................................. 30
Loans............................................................... 30
Riders.............................................................. 31
(a) Living Needs Benefit Rider..................................... 31
(b) Unemployment Benefit Rider..................................... 31

THE FIXED ACCOUNT.................................................... 32
(a) Interest Crediting............................................. 32
(b) Bail-Out....................................................... 32
(c) Transfers to Investment Divisions.............................. 32
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEDERAL TAX MATTERS........................................................ 33
Introduction.............................................................. 33
Taxation of Annuities in General.......................................... 33
Qualified Plans........................................................... 34
(a)Section 403(b) Plans.................................................. 35
(b)Individual Retirement Annuities....................................... 35
(c)Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans ......... 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(d)Deferred Compensation Plans........................................... 35
DISTRIBUTOR OF THE POLICIES................................................ 35
VOTING RIGHTS.............................................................. 35
STATEMENT OF ADDITIONAL INFORMATION........................................ 36
</TABLE>

3
<PAGE>

DEFINITIONS

ACCUMULATION PERIOD--The Period before the Annuity Commencement Date and dur-
ing the lifetime of the Annuitant.

ACCUMULATION UNIT--An accounting unit used to calculate the Accumulation Value
prior to the Annuity Commencement Date. Each Investment Division of each Sepa-
rate Account has a distinct Accumulation Unit value.

ACCUMULATION VALUE--The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of an account for any Valuation Period.

AGE--Age on the nearest birthday.

ALLOCATION ALTERNATIVES--The Investment Divisions of the applicable Separate
Account and the Fixed Account constitute the Allocation Alternatives.

ANNUITANT--The person named in the Application and whose life determines the
annuity payments.

ANNUITY COMMENCEMENT DATE--The date on which the first annuity payment under
the Policy is to be made.

BENEFICIARY--The person or entity having the right to receive the death bene-
fit set forth in the Policy and who is the "designated beneficiary" for pur-
poses of Section 72(s) of the Internal Revenue Code in the event of the
Annuitant's or the Owner's death.

BUSINESS DAY--Any day on which the New York Stock Exchange is open for trad-
ing, except for (1) days on which changes in the value of the Eligible Portfo-
lios' portfolio securities will not materially affect the Accumulation Unit
values and (2) the Friday after Thanksgiving and Christmas Eve.

CORPORATION--("NYLIAC, We, Us, Our")--New York Life Insurance and Annuity Cor-
poration, which is a wholly-owned Delaware subsidiary of New York Life Insur-
ance Company.

ELIGIBLE PORTFOLIOS ("PORTFOLIOS")--The available mutual fund portfolios of
the MFA Series Fund and the Acacia Fund. The MFA Series Fund currently has ten
portfolios available for investment by the Investment Divisions of the Sepa-
rate Accounts: the Capital Appreciation Portfolio, the Cash Management Portfo-
lio, the Government Portfolio, the High Yield Corporate Bond Portfolio, the
International Equity Portfolio, the Total Return Portfolio, the Value Portfo-
lio, the Bond Portfolio, the Growth Equity Portfolio, and the Indexed Equity
Portfolio. The Acacia Fund currently has one portfolio available for invest-
ment by the Investment Divisions of the Separate Accounts: the Socially Re-
sponsible Portfolio.

FIXED ACCOUNT--Assets in the Fixed Account are not part of the Separate Ac-
counts of NYLIAC. The Accumulation Value of the Fixed Account is supported by
assets in the General Account of the Corporation, which are subject to the
claims of its general creditors.

FIXED ACCUMULATION VALUE--The sum of premiums and transfers allocated to the
Fixed Account, plus interest credited, less amounts withdrawn.

FIXED INCOME PAYMENTS--Income Payments having a guaranteed amount.

4
<PAGE>

GUARANTEED INTEREST RATE--The rate of interest credited by the Corporation
during any Guarantee Period. This rate is set quarterly.

INCOME PAYMENTS--Periodic payments made by NYLIAC to the Payee.

INVESTMENT DIVISION ("DIVISION")--A division of each of the Separate Accounts.
Each Investment Division invests exclusively in shares of a specified Eligible
Portfolio.

ISSUE DATE--The date the policy is executed.

NON-QUALIFIED POLICIES--Policies that do not qualify for special federal in-
come tax treatment.

OWNER ("YOU, YOUR")--The person or entity designated as the owner in the Pol-
icy (or surviving spouse of the Owner who is named as Beneficiary, and who be-
comes the new Owner), or as subsequently changed, and upon whose death prior
to the Annuity Commencement Date benefits under the Policy may be paid. Gener-
ally, NYLIAC will not issue a Policy to joint owners. However, if NYLIAC makes
an exception and issues a jointly owned policy, ownership rights and privi-
leges under the Policy must be exercised jointly and benefits under the Policy
will be paid upon the death of any joint owner.

PARTIAL WITHDRAWAL--Any part of the Accumulation Value paid to you, at your
request, in accordance with the terms of the policy.

PAYEE--A recipient of payments under the policy.

POLICY ANNIVERSARY--An anniversary of the Policy Date displayed on the Policy
Data Page.

POLICY DATA PAGE--Page 2 of the policy, containing the policy specifications.

POLICY DATE--Is shown on the Policy Data Page. Policy Years and Anniversaries
are measured from this date.

POLICY YEAR--A year commencing on the Policy Date. Subsequent Policy Years be-
gin on each Policy Anniversary, unless otherwise indicated.

PREMIUM PAYMENT--An amount paid to the Corporation as consideration for the
benefits provided by the Policy.

PURCHASE DATE--The Business Day on which a Premium Payment is received by us
and credited under the Policy.

QUALIFIED POLICIES--Policies issued under plans that qualify for special fed-
eral income tax treatment.

RECEIPT--Receipt issued by the Corporation at its Executive or Service Office.

REQUIRED MINIMUM DISTRIBUTION--An amount which may be paid annually by NYLIAC
to Owners who hold Policies pursuant to IRA, TSA or SEP plans. Pursuant to the
Required Minimum Distribution option, NYLIAC will calculate and process the
annual Required Minimum Distribution for such Policies beginning at age 70
1/2.

SEPARATE ACCOUNT--A separate account established by the Corporation into which
assets are placed for the purchasers of a class of Policies.

5
<PAGE>

SEPARATE ACCOUNT I--NYLIAC Variable Annuity Separate Account-I, a segregated
asset account established by NYLIAC to receive and invest Premium Payments
paid under Non-Qualified Policies.

SEPARATE ACCOUNT II--NYLIAC Variable Annuity Separate Account-II, a segregated
asset account established by NYLIAC to receive and invest Premium Payments
paid under Qualified Policies.

SERVICE OFFICE--An office authorized by NYLIAC to receive applications and/or
Premium Payments for the Policies.

SURRENDER CHARGE--An amount charged by the Corporation each time a partial
withdrawal of the Accumulation Value is made, or when the Policy is surren-
dered for its Accumulation Value, during the first nine (9) years of the Poli-
cy.

VALUATION PERIOD--The period from the close of the immediately preceding Busi-
ness Day to the close of the current Business Day.

VARIABLE ACCUMULATION VALUE--The sum of the products of the current Accumula-
tion Unit value(s) for each of the Investment Divisions multiplied by the num-
ber of Accumulation Units held in the respective Investment Divisions.

6
<PAGE>

OWNER AND FUND EXPENSES
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNTS

<TABLE>
<CAPTION>
HIGH YIELD
CAPITAL CASH CORPORATE INTERNATIONAL TOTAL GROWTH INDEXED
APPRECIATION MANAGEMENT GOVERNMENT BOND EQUITY RETURN VALUE BOND EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ---------- ---------- ------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNER TRANSACTION
EXPENSES
Maximum
Contingent
Deferred Sales
Load* (as a %
of amount
withdrawn)..... 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%
Transfer Fee.... NYLIAC reserves the right to charge up to $30 for each transfer in excess of 12 transfers per Policy Year.
Annual Policy
Fee............ Lesser of $30 Per Policy or 2% of the Accumulation Value, for Policies with less than $10,000 of
Accumulation Value.
SEPARATE ACCOUNT
ANNUAL EXPENSES
(as a % of
average account
value)
Mortality and
Expense Risk
Fees........... 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%
Administration
Fees........... .10% .10% .10% .10% .10% .10% .10% .10% .10% .10%
Total Separate
Account Annual
Expenses....... 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
FUND ANNUAL
EXPENSES AFTER
REIMBURSEMENT
(as a % of
average account
value)
Management Fees. .36% .25% .30% .30% .60% .32% .36% .25% .25% .10%
Administration
Fees........... .20% .20% .20% .20% .20% .20% .20% .20% .20% .20%
Other Expenses.. .17% .17% .17% .17% .17% .17% .17% .17% .17% .17%
Total Portfolio
Annual
Expenses**..... .73% .62% .67% .67% .97% .69% .73% .62% .62% .47%

SOCIALLY
RESPONSIBLE
PORTFOLIO
-----------
<S> <C>
OWNER TRANSACTION
EXPENSES
Maximum
Contingent
Deferred Sales
Load* (as a %
of amount
withdrawn)..... 7%
Transfer Fee....
Annual Policy
Fee............

SEPARATE ACCOUNT
ANNUAL EXPENSES
(as a % of
average account
value)
Mortality and
Expense Risk
Fees........... 1.20%
Administration
Fees........... .10%
Total Separate
Account Annual
Expenses....... 1.30%
FUND ANNUAL
EXPENSES AFTER
REIMBURSEMENT
(as a % of
average account
value)
Management Fees. .70%***
Administration
Fees........... --
Other Expenses.. .10%
Total Portfolio
Annual
Expenses**..... .80%
</TABLE>
-------
* The contingent deferred sales load percentage declines from 7% in the
first three policy years to 1% in the ninth policy year with no charge
thereafter. See "Surrender Charges" on page 24.
** This number reflects an expense reimbursement agreement effective through
December 31, 1996, limiting "Other Expenses" to .17% annually for the MFA
Series Fund. In the absence of the expense reimbursement agreement, the
total annual expenses for the year ended December 31, 1994 would have been
.91%, .89%, .87%, .68%, .88%, .67% and .65% for the Capital Appreciation,
Cash Management, Government, Total Return, Bond, Growth Equity and Indexed
Equity Portfolios, respectively. In the absence of the expense reimburse-
ment agreement, it is anticipated that the total annual expenses for the
period beginning May 1, 1995, and ending December 31, 1995, would be
1.07%, 1.35% and 1.29% for the High Yield Corporate Bond, International
Equity and Value Portfolios, respectively.
*** Calvert Asset Management Company, Inc. ("Calvert Asset Management") is en-
titled to receive from the Socially Responsible Portfolio a monthly fee,
computed on a daily basis at an annual rate of 0.70% of the first $500
million of the average daily net assets of the Portfolio, 0.65% of the
next $500 million of average daily net assets of the Portfolio, and 0.60%
of the average daily net assets of the Portfolio in excess of $1 billion.
For fiscal year 1993, Calvert Asset Management was entitled to and did re-
ceive 0.70% of the average daily net assets. Calvert Asset Management
pays, at its own expense, NCM Capital Management Group, Inc. an annual fee
equal to 0.25% of the average daily net assets of the Portfolio, subject
to a minimum annual fee of $12,000.

7
<PAGE>

The purpose of this Table is to assist the Owner in understanding the vari-
ous costs and expenses that an Owner will bear directly and indirectly. The
Table reflects charges and expenses of the Separate Accounts as well as the
Funds; charges and expenses may be higher or lower in future years. For more
information on the charges described in this Table see Charges and Deductions
on page 24 and the Fund Prospectuses which accompany this Prospectus. NYLIAC
may, where premium taxes are imposed by state law, deduct premium taxes on
surrender of the Policy or on the Annuity Commencement Date.

EXAMPLES

An Owner would pay the following expense on a $1,000 investment, assuming a
5% annual return on assets:

1. If you surrender your Policy at the end of the applicable time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio.......... $104.94 $189.89 $257.53 $430.33
Cash Management Portfolio............... 103.90 186.89 252.61 420.94
Government Portfolio.................... 104.37 188.26 254.86 425.22
High Yield Corporate Bond Portfolio..... 104.37 188.26 254.86 425.22
International Equity Portfolio.......... 107.19 196.40 268.16 450.46
Total Return Portfolio.................. 104.56 188.80 255.74 426.92
Value Portfolio......................... 104.94 189.89 257.53 430.33
Bond Portfolio.......................... 103.90 186.89 252.61 420.94
Growth Equity Portfolio................. 103.90 186.89 252.61 420.94
Indexed Equity Portfolio................ 102.48 182.79 245.88 407.98
Socially Responsible Portfolio.......... 105.60 191.80 260.64 436.25

2. If you annuitize your Policy at the end of the applicable time peri-
od:

Capital Appreciation Portfolio.......... $104.94 $125.25 $210.56 $430.33
Cash Management Portfolio............... 103.90 122.03 205.38 420.94
Government Portfolio.................... 104.37 123.50 207.75 425.22
High Yield Corporate Bond Portfolio..... 104.37 123.50 207.75 425.22
International Equity Portfolio.......... 107.19 132.23 221.74 450.46
Total Return Portfolio.................. 104.56 124.08 208.67 426.92
Value Portfolio......................... 104.94 125.25 210.56 430.33
Bond Portfolio.......................... 103.90 122.03 205.38 420.94
Growth Equity Portfolio................. 103.90 122.03 205.38 420.94
Indexed Equity Portfolio................ 102.48 117.65 198.30 407.98
Socially Responsible Portfolio.......... 105.60 127.30 213.84 436.25

3. If you do not surrender your Policy:

Capital Appreciation Portfolio.......... $ 41.39 $125.25 $210.56 $430.33
Cash Management Portfolio............... 40.29 122.03 205.38 420.94
Government Portfolio.................... 40.79 123.50 207.75 425.22
High Yield Corporate Bond Portfolio..... 40.79 123.50 207.75 425.22
International Equity Portfolio.......... 43.80 132.23 221.74 450.46
Total Return Portfolio.................. 40.99 124.08 208.67 426.92
Value Portfolio......................... 41.39 125.25 210.56 430.33
Bond Portfolio.......................... 40.29 122.03 205.38 420.94
Growth Equity Portfolio................. 40.29 122.03 205.38 420.94
Indexed Equity Portfolio................ 38.78 117.65 198.30 407.98
Socially Responsible Portfolio.......... 42.10 127.30 213.84 436.25
</TABLE>

THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
PERFORMANCE OR EXPENSES AND THE ACTUAL EXPENSES PAID OR PERFORMANCE ACHIEVED
MAY BE GREATER OR LESS THAN THOSE SHOWN.

8
<PAGE>

QUESTIONS AND ANSWERS ABOUT THE NYLIAC VARIABLE ANNUITY

NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT THE
NYLIAC VARIABLE ANNUITY. REFERENCE SHOULD BE MADE TO THE BODY OF THIS PROSPEC-
TUS FOR MORE DETAILED INFORMATION. ALSO, "YOU" OR "YOUR" REFERS TO THE OWNER;
"NYLIAC," "WE," "US" OR "OUR" REFERS TO NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION.

1. WHAT IS THE NYLIAC VARIABLE ANNUITY?

NYLIAC Variable Annuity is the name of the Flexible Premium Multi-Funded
Variable Retirement Annuity Policies offered by NYLIAC. Premium Payments may
be allocated to one or more of the Investment Divisions of each of the Sepa-
rate Accounts or to the Fixed Account. The Separate Accounts in turn invest in
shares of the Eligible Portfolios of the Funds. The Accumulation Value will
vary in amount according to the investment results of the Investment Divisions
selected and the interest credited on the Fixed Accumulation Value.

2. WHAT ARE THE AVAILABLE ALLOCATION ALTERNATIVES?

As selected by the Owner, Premium Payments are allocated to one or more of
the following Allocation Alternatives:

(a) SEPARATE ACCOUNTS

Separate Account I is used for Non-Qualified Policies, and Separate
Account II for Qualified Policies. Each of the Separate Accounts con-
sists of eleven Investment Divisions.

The Investment Divisions of the Separate Accounts invest exclusively
in shares of the Funds, each a diversified, open-end management invest-
ment company. MFA Series Fund has ten Eligible Portfolios available for
investment through the Investment Divisions of the Separate Accounts:
the Capital Appreciation Portfolio, the Cash Management Portfolio, the
Government Portfolio, the High Yield Corporate Bond Portfolio, the In-
ternational Equity Portfolio, the Total Return Portfolio, the Value
Portfolio, the Bond Portfolio, the Growth Equity Portfolio, and the In-
dexed Equity Portfolio. The Acacia Fund has one Eligible Portfolio
available through the Investment Divisions of the Separate Account: the
Socially Responsible Portfolio. Each Investment Division of the Separate
Accounts will invest exclusively in the corresponding Eligible Portfo-
lio.

The eleven Investment Divisions corresponding to the Capital Apprecia-
tion Portfolio, the Cash Management Portfolio, the Government Portfolio,
the High Yield Corporate Bond Portfolio, the International Equity Port-
folio, the Total Return Portfolio, the Value Portfolio, the Bond Portfo-
lio, the Growth Equity Portfolio, the Indexed Equity Portfolio, the So-
cially Responsible Portfolio, together with the Fixed Account, consti-
tute the Allocation Alternatives that generally are available under the
Policies.

(b) FIXED ACCOUNT

Premium Payments or portions of Premium Payments allocated to the
Fixed Account will reflect a fixed interest rate. (See "The Fixed Ac-
count" at page 32.)

3. CAN AMOUNTS BE TRANSFERRED AMONG THE ALLOCATION ALTERNATIVES?

Prior to 30 days before the Annuity Commencement Date, transfers of the
value of Accumulation Units in one Investment Division to another Investment
Division within the applicable Separate Account, or to the Fixed Account, are
permitted.

The minimum amount which may be transferred generally is $500, unless we
agree otherwise. Unlimited transfers are permitted each Policy Year, although
NYLIAC reserves the right to charge up to $30 per transfer for each transfer
after the first twelve in a given Policy Year. (See "Transfers" at page 21.)

For transfers made from the Fixed Account to the Investment Divisions, see
"The Fixed Account" at page 32. In addition, Owners can effect transfers pur-
suant to

9
<PAGE>

the Automatic Asset Reallocation and Dollar Cost Averaging Options described
at pages 23 and 22, respectively, of this Prospectus.

4. WHAT ARE THE CHARGES OR DEDUCTIONS?

During the Accumulation Period for the Policies, a charge for Policy admin-
istration expenses will be made once each year on the Policy Anniversary or
upon Policy surrender if on that date the Accumulation Value does not equal or
exceed $10,000. This charge will be the lesser of $30 or 2% of the Accumula-
tion Value at the end of the Policy Year or on the date of surrender. All Pol-
icies are subject to a daily charge for policy administration expenses equal,
on an annual basis, to .10% of the average daily net asset value of the appli-
cable Separate Account. (See "Other Charges" at page 25.)

All Policies are subject to a daily charge for certain mortality and expense
risks assumed by NYLIAC. This charge is equal, on an annual basis, to 1.20% of
the average daily net asset value of the applicable Separate Account. (See
"Other Charges" at page 25.)

Although there is no deduction from Premium Payments for sales charges, a
contingent deferred sales charge ("surrender charge") may be imposed on cer-
tain partial withdrawals or surrenders of the Policies. This charge is im-
posed, as a percentage of the amount withdrawn, during the first nine years
after the Policy is issued; the applicable percentage declines from 7% in the
first three Policy Years to 1% in the ninth Policy Year, with no charge there-
after. For all Policies, the surrender charge will only be applied to any
amounts withdrawn in any Policy Year which, when aggregated with any other
withdrawals during such Policy Year, exceed 10% of the Accumulation Value at
the time of surrender. For Policies with accumulated Premium Payments of
$100,000 or more, the greater of 10% of the Policy's Accumulation Value or the
Accumulation Value of the Policy less the accumulated Premium Payments can be
withdrawn in any Policy Year without charge. (See "Surrender Charges" at page
24 and "Exceptions to Surrender Charges" at page 24.)

Finally, the value of the MFA Series Fund shares reflects management fees
and other expenses deducted from the assets of the MFA Series Fund. (See "The
Fund and Its Management", at page 26 of the New York Life MFA Series Fund,
Inc. Prospectus.) Similarly, the value of the Acacia Fund shares reflects man-
agement fees and other expenses deducted from the assets of the Acacia Fund.
MacKay-Shields Financial Corporation ("MacKay-Shields"), Monitor Capital Advi-
sors, Inc. ("Monitor") and New York Life Insurance Company ("New York Life")
advise the portfolios of MFA Series Fund. Calvert Asset Management advises the
Socially Responsible Portfolio of the Acacia Fund.

5. WHAT ARE THE MINIMUM INITIAL AND MAXIMUM ADDITIONAL PREMIUM PAYMENTS?

Unless we permit otherwise, the minimum initial Premium Payment for Quali-
fied Policies is as follows: (a) $50 per month or a $2,000 single premium for
tax-sheltered annuities; (b) $1,200 initial Premium Payment plus pre-autho-
rized monthly deductions of $100 per month, or pre-authorized monthly deduc-
tions of $165 per month or a $2,000 single premium for IRAs; (c) $50 per month
for Deferred Compensation plans; and (d) $600 initial Premium Payment, or $50
per month if part of a pre-authorized billing arrangement, for Simplified Em-
ployee Pension plans. For Non-Qualified Policies, the minimum initial Premium
Payment is a $5,000 single premium or a $2,500 deposit plus $50 per month as
either a pre-authorized monthly deduction or as part of a pre-authorized
monthly billing arrangement. Premium Payments on any policy (of at least $50
each or such lower amount as we may permit) can be made at any interval or by
any method we make available. The available methods of payment are direct pay-
ments to NYLIAC, and pre-authorized monthly deductions from bank, credit union
or similar accounts and public or private employee payroll deductions. The
maximum aggregate amount of Premium Payments is $1,000,000, without our prior
approval.

Premium Payments under Qualified Policies may not be more than the amount
permitted by law for the plan indicated in the application for the Policy.

We reserve the right to limit the dollar amount of any Premium Payment.

10
<PAGE>

6. HOW ARE PREMIUM PAYMENTS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?

Initial Premium Payments allocated to the Investment Divisions of the Sepa-
rate Accounts and to the Fixed Account are held in the Cash Management Invest-
ment Division for 15 days after the Policy Issue Date. You may currently main-
tain Accumulation Value in up to ten Allocation Alternatives. Moreover, you
may raise or lower the percentages of the Premium Payment (which must be in
whole number percentages) allocated to each Allocation Alternative at the time
you make a Premium Payment. The minimum amount which may be allocated to any
one Allocation Alternative is $25, or such lower amount as we may permit. We
reserve the right to limit the amount of a Premium Payment that may be allo-
cated to any one Allocation Alternative.

7. WHAT HAPPENS IF PREMIUM PAYMENTS ARE NOT MADE?

In the event that no Premium Payment is received for two or more years in a
row and both (a) the total Premium Payments for the Policy, less any partial
withdrawals and any Surrender Charges, and (b) the Accumulation Value, are
less than $2,000, we reserve the right, subject to any applicable state insur-
ance law or regulation, to terminate the Policy by paying you the Accumulation
Value in one sum. We will notify you of our intention to exercise this right
and give you 90 days to make a Premium Payment. Unless the Policy is terminat-
ed, it can be continued until the Annuity Commencement Date.

8. CAN MONEY BE WITHDRAWN FROM THE POLICY PRIOR TO THE ANNUITY COMMENCEMENT
DATE?

Yes, withdrawals ($500 minimum, unless we agree otherwise or as part of a
Periodic Partial Withdrawal or a Required Minimum Distribution) may be made.
We will pay you all or part of the Accumulation Value when we receive your
written request before the Annuity Commencement Date and while the Annuitant
is living. However, a withdrawal or surrender may be subject to a Surrender
Charge if the Policy is surrendered during the first nine years after it is
issued, as explained under Question 4 at page 10, may be a taxable transac-
tion, and may be subject to a 10% penalty tax if the Owner is less than age 59
1/2. (See "Distributions Under the Policy" at page 26 and "Federal Tax Mat-
ters" at page 33.)

9. HOW WILL INCOME PAYMENTS BE DETERMINED ON THE ANNUITY COMMENCEMENT DATE?

Income Payments under Qualified and Non-Qualified Policies will be on a
fixed basis, or under another annuity option we may offer. Payments under the
Life Income Payment Option will always be in the same specified amount and
will be paid over the life of the Annuitant with a guarantee of 10 years of
payments, even if the Annuitant dies sooner. (See "Income Payments" at page
29.)

10. WHAT IS A LIFE INCOME PAYMENT OPTION?

A retirement annuity provides payments for the life of an Annuitant (or an
Annuitant and another person, the "Joint Annuitant") with a guaranteed number
of Income Payments or for an ascertainable sum. Income Payments which remain
the same throughout the payment period are referred to in this prospectus as
"Fixed Income Payments". Fixed Income Payments will always be the same speci-
fied amount. (See "Income Payments" at page 29.)

11. WHAT HAPPENS IF THE OWNER OR ANNUITANT DIES BEFORE THE ANNUITY COMMENCE-
MENT DATE?

In the event the Owner or Annuitant dies before the Annuity Commencement
Date, we will pay the Beneficiary named in the Policy an amount equal to the
greater of (a) the Accumulation Value, less any outstanding loan balance under
the Policy, or (b) the sum of all Premium Payments made less any outstanding
loan balance, less any partial withdrawals and Surrender Charges previously
imposed, less any rider premiums. However, if the Annuitant's spouse is the
Beneficiary, see Question and Answer 12. (Also see "Death Before Annuity Com-
mencement" at page 28 and "Federal Tax Matters" at page 33.)

11
<PAGE>

12. WHAT HAPPENS IF YOUR SPOUSE IS THE BENEFICIARY?

If your spouse is the Beneficiary and you die before the Annuity Commence-
ment Date, the Policy may, if the Policy is a Non-Qualified Policy, an IRA,
TSA or SEP, be continued with your spouse as the new Owner and, if you are
also the Annuitant, your spouse will be the new Annuitant. If you are not the
Annuitant and the Annuitant dies, you may continue the Policy with you as the
new Annuitant if you are the Annuitant's spouse. If you or your spouse chooses
to continue the Policy, no death benefit proceeds will be paid as a conse-
quence of your death, or the Annuitant's death.

13. CAN THE POLICY BE RETURNED AFTER IT IS DELIVERED?

The Policy contains a provision which permits cancellation by returning it
to us, or to the registered representative through whom it was purchased,
within 10 days of delivery of the Policy or such longer period as required un-
der state law. The Owner will then receive from us the greater of (i) the ini-
tial Premium Payment; or (ii) the Accumulation Value on the date the Policy is
returned, without any deduction for Premium Taxes or a Surrender Charge.

14. WHAT ABOUT VOTING RIGHTS?

You may instruct NYLIAC how to vote shares of the Funds held by your Sepa-
rate Account. (See "Voting Rights" at page 35.)

15. HOW WILL INVESTMENT PERFORMANCE OF THE SEPARATE ACCOUNTS BE CALCULATED?

From time to time, NYLIAC may advertise yields and total returns for the In-
vestment Divisions of the Separate Accounts. In addition, NYLIAC may advertise
the effective yield of the Cash Management Investment Division. These figures
will be based on historical information for various periods of time measured
from the date the Investment Division commenced operations. They are not in-
tended to indicate future performance.

The yield of the Cash Management Investment Division refers to the
annualized income generated by an investment in that Investment Division over
a specified seven-day period. The yield is calculated by assuming that the in-
come 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 ef-
fective yield is calculated similarly but, when annualized, the income earned
by an investment in that Investment Division is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the com-
pounding effect of this assumed reinvestment.

The yield of the Government, High Yield Corporate Bond or Bond Investment
Divisions refers to the annualized income generated by an investment in that
Investment Division over a specified thirty-day period. The yield is calcu-
lated by assuming that the income generated by the investment during that
thirty-day period is generated each thirty-day period over a 12-month period
and is shown as a percentage of the investment.

The total return of the Capital Appreciation, Government, High Yield Corpo-
rate Bond, International Equity, Total Return, Value, Bond, Growth Equity, In-
dexed Equity, or Socially Responsible Investment Divisions refers to return
quotations for various periods of time including, but not limited to, 1, 5 and
10 year periods or, if different, a period measured from the date the Invest-
ment Division commenced operations. The total return quotations will represent
the average annual compounded rates of return that would equate an initial in-
vestment of $1,000 to the redemption value of that investment (after deduction
of any applicable Surrender Charge) as of the last day of each of the periods
for which total return quotations are provided.

The yield calculations do not reflect the effect of any Surrender Charge
that may be applicable to a particular Policy. To the extent that the Surren-
der Charge is applicable to a particular Policy, the yield of that Policy will
be reduced.

For additional information regarding the yields and total returns calculated
using the standard formats

12
<PAGE>

briefly described above, please refer to the Statement of Additional Informa-
tion.

NYLIAC may from time to time also disclose average annual total return in
non-standard formats and cumulative total return for the Investment Divisions.
The non-standard average annual total return and cumulative total return will
assume that no Surrender Charge is applicable. NYLIAC may from time to time
also disclose yield, standard total returns, and non-standard total returns
for the Eligible Portfolios of each of the Funds, but only if the performance
data for the Eligible Portfolios is accompanied by comparable data for the
corresponding Investment Division in equal prominence.

All non-standard performance data will only be disclosed if the standard
performance data for the same period, as well as for the required periods, is
also disclosed. For additional information regarding the calculation of other
performance data, please refer to the Statement of Additional Information.

16. ARE POLICY LOANS AVAILABLE?

If you have purchased your Policy in connection with a tax-sheltered annuity
("TSA") or Section 403(b) Plan, you may be able to borrow some of your Accumu-
lation Value subject to certain conditions. (See "Loans" at page 30.)

FINANCIAL STATEMENTS

The Audited Financial Statements of NYLIAC for the fiscal years ended Decem-
ber 31, 1994 and 1993, and for the Separate Accounts for the year ended Decem-
ber 31, 1994, including the auditors' report thereon, are included in the
Statement of Additional Information.

13
<PAGE>

CONDENSED FINANCIAL INFORMATION

SEPARATE ACCOUNT I

The following accumulation unit values and the number of accumulation units
outstanding for each Investment Division for the year ended December 31, 1994
and for the period beginning from January 29, 1993 through December 31, 1993
have been audited by Price Waterhouse LLP, independent accountants, whose re-
port on the related financial statements appears in the Statement of Addi-
tional Information. This information should be read in conjunction with the
financial statements and notes thereto for the years ended December 31, 1994
and 1993 which appear in the Statement of Additional Information.

<TABLE>
<CAPTION>
CAPITAL CASH
APPRECIATION MANAGEMENT GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ----------------
1994(a) 1993(b) 1994(a) 1993(b) 1994(a) 1993(b)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
(beginning of period)......... $11.91* $10.00* $ 1.01* $ 1.00* $10.44* $10.00*
Accumulation unit value
(end of period)............... $11.24* $11.91* $ 1.04* $ 1.01* $10.11* $10.44*
Number of units outstanding
(in 000s) as of 12/31/94...... 5,702 2,239 19,630 15,549 3,686 2,843
</TABLE>

<TABLE>
<CAPTION>
TOTAL GROWTH INDEXED
RETURN BOND EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------------- ---------------- ----------------
1994(a) 1993(b) 1994(a) 1993(c) 1994(a) 1993(c) 1994(a) 1993(b)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value
(beginning of period).. $11.37* $10.00* $9.97* --** $10.27* $10.00** $10.72* $10.00*
Accumulation unit value
(end of period)........ $10.77* $11.37* $9.51* --** $10.26* $10.27** $10.66* $10.72*
Number of units
outstanding
(in 000s) as of
12/31/94............... 6,584 3,067 961 -- 881 2 3,236 2,187
</TABLE>
-------
* Per unit data based on average monthly units outstanding during the period.
** Per unit data based on average daily units outstanding during the period.
(a) For the year ended December 31, 1994.
(b) For the period January 29, 1993 (Commencement of Operations) through
December 31, 1993.
(c) Commencement of Operations December 15, 1993.

14
<PAGE>

SEPARATE ACCOUNT II

<TABLE>
<CAPTION>
TOTAL GROWTH INDEXED
RETURN BOND EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------------- ---------------- ----------------
1994(a) 1993(b) 1994(a) 1993(c) 1994(a) 1993(c) 1994(a) 1993(b)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value
(beginning of period).. $11.37* $10.00* $9.97* $10.00** $10.27* $10.00** $10.72* $10.00*
Accumulation unit value
(end of period)........ $10.77* $11.37* $9.51* $ 9.97** $10.26* $10.27** $10.66* $10.72*
Number of units
outstanding
(in 000s) as of
12/31/94............... 4,441 1,805 641 3 514 3 2,567 1,819
</TABLE>
-------
* Per unit data based on average monthly units outstanding during the period.
** Per unit data based on average daily units outstanding during the period.
(a) For the year ended December 31, 1994.
(b) For the period January 29, 1993 (Commencement of Operations) through
December 31, 1993.
(c) Commencement of Operations December 15, 1993.

15
<PAGE>

NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION AND THE SEPARATE ACCOUNTS

NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION

New York Life Insurance and Annuity Corporation ("NYLIAC") is a stock life
insurance company incorporated in Delaware in 1980. NYLIAC is licensed to sell
life, accident and health insurance and annuities in the District of Columbia
and all states. In addition to the Policies described in this prospectus,
NYLIAC offers other life insurance policies and annuities. NYLIAC's Financial
Statements are found in the Statement of Additional Information.

NYLIAC is a wholly-owned subsidiary of New York Life Insurance Company ("New
York Life"), a mutual life insurance company founded in New York in 1845. New
York Life had consolidated total assets amounting to $68.9 billion at the end
of 1994, and is authorized to do business in all states, the District of Co-
lumbia, the Commonwealth of Puerto Rico and all the provinces and territories
of Canada. New York Life has invested in NYLIAC, and will, in order to main-
tain capital and surplus in accordance with state requirements, occasionally
make additional contributions to NYLIAC.

THE SEPARATE ACCOUNTS

Each of the Separate Accounts was established as of October 5, 1992, pursu-
ant to resolutions of the NYLIAC Board of Directors. The Separate Accounts are
registered as unit investment trusts with the Securities and Exchange Commis-
sion under the Investment Company Act of 1940, but such registration does not
signify that the Securities and Exchange Commission supervises the management,
or the investment practices or policies, of the Separate Accounts. The Sepa-
rate Accounts meet the definition of "separate account" under the federal se-
curities laws.

Although the assets of each of the Separate Accounts belong to NYLIAC, these
assets are held separately from the other assets of NYLIAC, and are not
chargeable with liabilities incurred in any other business operations of
NYLIAC (except to the extent that assets in the Separate Accounts exceed the
reserves and other liabilities of that Account). The income, capital gains and
capital losses incurred on the assets of the Separate Accounts are credited to
or are charged against the assets of those Accounts, without regard to the in-
come, capital gains or capital losses arising out of any other business NYLIAC
may conduct. Therefore, the investment performance of the Separate Accounts is
entirely independent of both the investment performance of NYLIAC's Fixed Ac-
count and the performance of any other separate account.

Each of the Separate Accounts currently has eleven Investment Divisions
which invest Premium Payments solely in the corresponding Eligible Portfolios
of the relevant Fund. The Eligible Portfolios are: the Capital Appreciation
Portfolio, the Cash Management Portfolio, the Government Portfolio, the High
Yield Corporate Bond Portfolio, the International Equity Portfolio, the Total
Return Portfolio, the Value Portfolio, the Bond Portfolio, the Growth Equity
Portfolio, the Indexed Equity Portfolio and the Socially Responsible Portfo-
lio.

Additional Investment Divisions may be added at the discretion of NYLIAC.

NEW YORK LIFE MFA SERIES FUND, INC.

The Separate Accounts currently invest in the MFA Series Fund, a diversified
open-end management investment company.

MacKay-Shields is the investment adviser to the Capital Appreciation, Cash
Management, Government, High Yield Corporate Bond, International Equity, Total
Return and Value Portfolios, Monitor is the investment adviser to the Indexed
Equity Portfolio, and New York Life is the investment adviser to the Bond and
Growth Equity Portfolios. MacKay-Shields, Monitor and New York Life provide
investment advisory services to the Portfolios in accordance with the poli-
cies, programs and guidelines established by the Board of Directors of MFA Se-
ries Fund. As compensation for such services, MFA Series Fund pays MacKay-
Shields a fee in the form of a

16
<PAGE>

daily charge at an annual rate of .36%, .25%, .30%, .30%, .60%, .32% and .36%
of the aggregate average daily net assets of the Capital Appreciation Portfo-
lio, the Cash Management Portfolio, the Government Portfolio, the High Yield
Corporate Bond Portfolio, the International Equity Portfolio, the Total Return
Portfolio, and the Value Portfolio, respectively. MFA Series Fund pays Monitor
a fee in the form of a daily charge at an annual rate of .10% of the average
daily net assets of the Indexed Equity Portfolio. MFA Series Fund pays New
York Life a fee in the form of a daily charge at an annual rate of .25% of the
aggregate average daily net assets of the Bond and Growth Equity Portfolios.

MFA Series Fund currently has ten Eligible Portfolios: the Capital Apprecia-
tion Portfolio, the Cash Management Portfolio, the Government Portfolio, the
High Yield Corporate Bond Portfolio, the International Equity Portfolio, the
Total Return Portfolio, the Value Portfolio, the Bond Portfolio, the Growth
Equity Portfolio and the Indexed Equity Portfolio.

The assets of each Eligible Portfolio of the MFA Series Fund are separate
from the others and each such Portfolio has different investment objectives
and policies. As a result, each Eligible Portfolio operates as a separate in-
vestment fund and the investment performance of one Portfolio has no effect on
the investment performance of any other Portfolio.

ACACIA CAPITAL CORPORATION

The Separate Accounts currently invest in the Socially Responsible Portfolio
of Acacia Capital Corporation. Currently, the Socially Responsible Portfolio
is the only Eligible Portfolio available through the Acacia Fund for invest-
ment by the Separate Accounts.

Calvert Asset Management provides investment advisory services to the So-
cially Responsible Portfolio in accordance with the policies, programs and
guidelines established by the Board of Directors of the Acacia Fund. As com-
pensation for such services, the Acacia Fund pays Calvert Asset Management a
fee in the form of a daily charge at an annual rate of 0.70% of the first $500
million of the average daily net assets of the Socially Responsible Portfolio,
0.65% of the next $500 million of average daily net assets of the Portfolio,
and 0.60% of the average daily net assets of the Portfolio in excess of $1
billion.

THE PORTFOLIOS

THE CAPITAL APPRECIATION PORTFOLIO

The Capital Appreciation Portfolio seeks long-term growth of capital. It
seeks to achieve its primary investment objective by maintaining a flexible
approach towards investing in various types of companies as well as types of
securities depending upon the economic environment and the relative attrac-
tiveness of the various securities markets. Generally, the Portfolio will seek
to invest in securities issued by companies with investment characteristics
such as participation in expanding markets, increasing unit sales volume,
growth in revenues and earnings per share superior to that of the average com-
mon stocks comprising indices such as the Standard & Poor's 500 Composite
Price Index ("S&P 500") and increasing return on investment. Dividend income,
if any, is a consideration incidental to the Portfolio's objective of growth
of capital.

THE CASH MANAGEMENT PORTFOLIO

The Cash Management Portfolio seeks as high a level of current income as is
consistent with preservation of capital and maintenance of liquidity. It in-
vests 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. Gov-
ernment, and there can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.

THE GOVERNMENT PORTFOLIO

The Government Portfolio seeks a high level of current income, consistent
with safety of principal. It will invest primarily in U.S. Government Securi-
ties which include U.S. Treasury obligations and obligations issued or guaran-
teed by the U.S. Government or its agencies or instrumentalities.

17
<PAGE>

THE HIGH YIELD CORPORATE BOND PORTFOLIO

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

THE INTERNATIONAL EQUITY PORTFOLIO

The International Equity Portfolio seeks long-term growth of capital by in-
vesting in a portfolio consisting primarily of non-U.S. equity securities.
Current income is a secondary objective. In pursuing its investment objective,
the Portfolio will seek to invest in securities that provide the potential for
strong return but that do not, in MacKay-Shields' judgment, present undue or
imprudent risk. The Portfolio pursues its objectives by investing its assets
in a diversified portfolio of common stocks, preferred stocks, warrants and
comparable equity securities. Foreign investing involves certain risks which
are discussed in greater detail below.

THE TOTAL RETURN PORTFOLIO

The Total Return Portfolio seeks to realize current income consistent with
reasonable opportunity for future growth of capital and income. The Portfolio
maintains a flexible approach by investing in a broad range of securities,
which may be diversified by company, by industry and by type. The Portfolio
may invest in common stocks, convertible securities, warrants and fixed-income
securities, such as bonds, preferred stocks and other debt obligations, in-
cluding money market instruments.

THE VALUE PORTFOLIO

The Value Portfolio seeks maximum long-term total return from a combination
of capital growth and income. It seeks to achieve this objective by following
flexible investment policies emphasizing investment in common stocks which
are, in the opinion of MacKay-Shields, undervalued at the time of purchase.
This Portfolio will normally invest in dividend-paying common stocks that are
listed on a national securities exchange or traded in the over-the-counter
market, but may also invest in non-dividend paying stocks in accordance with
MacKay-Shields' judgment.

THE BOND PORTFOLIO

The Bond Portfolio seeks the highest income over the long-term consistent
with preservation of principal. It will invest primarily in fixed-income debt
securities of an investment grade, but may also invest in lower-rated securi-
ties, convertible debt, and preferred and convertible preferred stock.

THE GROWTH EQUITY PORTFOLIO

The Growth Equity Portfolio seeks long-term growth of capital, with income
as a secondary consideration. It will invest principally in common stock (and
securities convertible into, or with rights to purchase, common stock) of
well-established, well-managed companies which appear to have better than av-
erage growth potential.

THE INDEXED EQUITY PORTFOLIO

The Indexed Equity Portfolio seeks to provide investment results that corre-
spond to the total return performance (reflecting reinvestment of dividends)
of common stocks in the aggregate, as represented by the S&P 500. Using a full
replication method, the Portfolio invests in all 500 stocks in the S&P 500 in
the same proportion as their representation in the S&P 500. The S&P 500 is an
unmanaged index considered representative of the U.S. stock market. The In-
dexed Equity Portfolio is neither sponsored by nor affiliated with the S&P
500.

18
<PAGE>

THE SOCIALLY RESPONSIBLE PORTFOLIO

The Socially Responsible Portfolio seeks to achieve a total return above the
rate of inflation through an actively managed, diversified portfolio of common
and preferred stocks, bonds and money market instruments which offer income
and capital growth opportunity and which satisfy the social concern criteria
established for this Portfolio.

THERE IS NO ASSURANCE THAT ANY OF THE ELIGIBLE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES

Additional information concerning the investment objectives and policies of
the Eligible Portfolios and the investment advisory services and charges can
be found in the current prospectus for the relevant Fund, which is attached to
this prospectus. The Funds' prospectuses should be read carefully before any
decision is made concerning the allocation of Premium Payments to an Invest-
ment Division corresponding to a particular Eligible Portfolio.

The Funds' shares may also be available to certain separate accounts funding
variable life insurance policies offered by NYLIAC. This is called "mixed
funding". Although we do not anticipate any inherent difficulties arising from
mixed funding, it is theoretically possible that, due to differences in tax
treatment or other considerations, the interests of owners of various con-
tracts participating in the Funds might at some time be in conflict. The Board
of Directors of each Fund, each Fund's investment advisers, and NYLIAC are re-
quired to monitor events to identify any material conflicts that arise from
the use of the Funds for mixed funding. For more information about the risks
of mixed funding please refer to the relevant Fund prospectus.

ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS

NYLIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Eligible Portfolio shares held
by any Investment Division. NYLIAC reserves the right to eliminate the shares
of any of the Eligible Portfolios and to substitute shares of another portfo-
lio of a Fund, or of another registered open-end management investment compa-
ny, if the shares of the Eligible Portfolios are no longer available for in-
vestment, or if in NYLIAC's judgment, investment in any Eligible Portfolio
would become inappropriate in view of the purposes of the Separate Accounts.
To the extent required by the Investment Company Act of 1940, substitutions of
shares attributable to an Owner's interest in an Investment Division will not
be made until the Owner has been notified of the change. Nothing contained
herein shall prevent the Separate Accounts from purchasing other securities
for other series or classes of policies, or from effecting a conversion be-
tween series or classes of policies on the basis of requests made by Owners.

Each of the Separate Accounts currently has eleven Investment Divisions
which invest Premium Payments solely in the corresponding Eligible Portfolios
of the Funds. NYLIAC may also establish additional Investment Divisions for
each of the Separate Accounts. Each additional Investment Division will pur-
chase shares in a new portfolio of a Fund or in another mutual fund. New In-
vestment Divisions may be established when, in the sole discretion of NYLIAC,
marketing, tax, investment or other conditions so warrant. Any new Investment
Divisions will be made available to existing Owners on a basis to be deter-
mined by NYLIAC. NYLIAC may also eliminate one or more Investment Divisions,
if, in its sole discretion, marketing, tax, investment or other conditions
warrant.

In the event of any such substitution or change, NYLIAC may, by appropriate
endorsement, make such changes in the Policies as may be necessary or appro-
priate to reflect such substitution or change. If deemed to be in the best in-
terests of persons having voting rights under the Policies, the Separate Ac-
counts may be operated as management companies under the Investment Company
Act of 1940, may be deregistered under such Act in the event such registration
is no longer required, or may be combined with one or more other separate ac-
counts.

REINVESTMENT

All dividends and capital gain distributions from Eligible Portfolios are
automatically reinvested in shares

19
<PAGE>

of the distributing Portfolio at their net asset value on the payable date.

THE POLICIES

PURPOSE OF POLICIES

The Policies described in this Prospectus are designed to establish retire-
ment benefits for two types of purchasers.

The first type of purchaser is one who is eligible to participate in, and
purchases a Policy for use with, any one of the following: (1) pension, profit
sharing, or annuity plans qualified under Sections 401 and 403(a) of the In-
ternal Revenue Code (the "Code"); (2) annuity purchase plans adopted by cer-
tain private tax exempt organizations and certain state supported educational
institutions under certain circumstances under Section 403(b) of the Code; (3)
individual retirement annuities ("IRAs") meeting the requirements of Section
408(b) or 408(k) of the Code; or (4) deferred compensation plans with respect
to service for state and local governments (and certain other entities) under
Section 457 of the Code. Policies purchased by these individuals for use with
these plans are referred to as "Qualified Policies." (See "Federal Tax Mat-
ters" at page 33.)

The second type of purchaser is one, other than those described above, who
purchases a Policy to provide supplemental retirement income. Policies pur-
chased by these individuals are referred to as "Non-Qualified Policies."

The Accumulation Value will fluctuate based on the investment experience of
the Investment Divisions selected by the Owner and the interest credited on
the Fixed Accumulation Value. NYLIAC does not guarantee the investment perfor-
mance of the Separate Accounts or of the Funds, and the Owner bears the entire
investment risk with respect to amounts allocated to the Investment Divisions
of the Separate Accounts. There is no assurance that the investment objectives
will be achieved. Accordingly, amounts allocated to the Investment Divisions
of the Separate Accounts are subject to the risks inherent in the securities
markets and, specifically, to price fluctuations of the shares of the Funds.

TYPES OF POLICIES

The Policies are only offered on the lives of individual Annuitants. Only
Flexible Premium Policies are available (for which additional Premium Payments
can be made). They may be either Qualified Policies or Non-Qualified Policies.

POLICY APPLICATION AND PREMIUM PAYMENTS

Individuals wishing to purchase a Policy must complete an application and
provide an initial Premium Payment which will be sent to NYLIAC's Executive
Office, except for salary reduction plans in which case the application is
sent to the Executive Office and the Policy becomes part of a pre-authorized
billing arrangement. If the application can be accepted in the form received,
the initial Premium Payment will be credited within two Business Days after
receipt. If the initial Premium Payment cannot be credited within five Busi-
ness Days after receipt by NYLIAC because the application is incomplete,
NYLIAC will contact the applicant and explain the reason for the delay and
will offer to refund the initial Premium Payment immediately, unless the ap-
plicant consents to NYLIAC's retaining the initial Premium Payment and credit-
ing it as soon as the necessary requirements are fulfilled. Acceptance is sub-
ject to NYLIAC's rules and NYLIAC reserves the right to reject any application
or initial Premium Payment. NYLIAC's rules generally require that only one
Owner be named. However, there are exceptions to these rules, such as when the
application is related to certain exchanges of in-force annuities in accor-
dance with Section 1035 of the Internal Revenue Code.

Initial Premium Payments allocated to the Fixed Account or to Investment Di-
visions of the Separate Accounts will be allocated to the Cash Management In-
vestment Division until 15 days after the Policy Issue Date. Thereafter, Pre-
mium Payments will be allocated in accordance with the Owner's instructions.
Subsequent Premium Payments are credited to the Policy at the close of the
first Business Day on or after which they are received at NYLIAC, P.O. Box
19289, Newark, New Jersey 07195-0289.

20
<PAGE>

Unless we provide otherwise, the minimum initial Premium Payment for Quali-
fied Policies is as follows: (a) $50 per month or a $2,000 single premium for
tax-sheltered annuities; (b) $1,200 initial Premium Payment plus pre-autho-
rized monthly deductions of $100 per month, or pre-authorized monthly deduc-
tions of $165 per month or a $2,000 single premium for IRAs; (c) $50 per month
for Deferred Compensation plans; and (d) $600 initial Premium Payment, or $50
per month if part of a pre-authorized billing arrangement, for Simplified Em-
ployee Pension plans. For Non-Qualified Policies, the minimum initial Premium
Payment is a $5,000 single premium or a $2,500 deposit plus $50 per month as
either pre-authorized monthly deduction or as part of a pre-authorized monthly
billing arrangement. Premium Payments (of at least $50 each or such lower
amount as we may permit) may be made at any interval, or by any method NYLIAC
makes available. The currently available methods of payment are direct pay-
ments to NYLIAC, and pre-authorized monthly deductions from bank, credit union
or similar accounts and public or private employee payroll deductions. Premium
Payments may be made at any time before the Annuity Commencement Date and
while the Annuitant and the Owner are living provided that the aggregate
amount of Premium Payments may not be more than $1,000,000, without our prior
approval.

For Qualified Policies, the Premium Payments made in any Policy Year may not
be more than the amount permitted by the plan or by law for the plan indicated
in the application for the Policy. NYLIAC reserves the right to limit the dol-
lar amount of any Premium Payment. NYLIAC also reserves the right in its dis-
cretion to accept Premium Payments less than $50, provided such discretion is
exercised in a non-discriminatory manner.

If no Premium Payments are made under a Policy for two or more Policy Years
in a row, and both (a) the total Premium Payments made, less any partial with-
drawals and any surrender charges, and (b) the Accumulation Value, are less
than $2,000, then NYLIAC may, in its sole discretion, subject to any applica-
ble state insurance law or regulation, cancel the Policy and pay the Owner the
Accumulation Value. (See "Cancellations" at page 28.)

ISSUE AGES

Non-Qualified Policies can be issued if both the Owner and the Annuitant are
not older than age 85 (age 78 in Pennsylvania and age 75 in New York) and we
will accept additional Premium Payments until either the Owner or the Annui-
tant reaches the age of 85, unless we agree otherwise. Qualified Policies can
be issued if both the Owner and the Annuitant are between the ages of 18-75
and we will accept additional Premium Payments until either the Owner or the
Annuitant reaches the age of 75, unless otherwise limited by the terms of a
particular plan or unless we agree otherwise.

TRANSFERS

Prior to 30 days before the Annuity Commencement Date, amounts may be trans-
ferred between Investment Divisions of the same Separate Account or to the
Fixed Account. Except in connection with transfers made pursuant to the Dollar
Cost Averaging or Automatic Asset Reallocation options, the minimum value of
Accumulation Units that may be transferred from one Investment Division to an-
other Investment Division within the Separate Accounts, or to the Fixed Ac-
count, is the lesser of (i) $500 or (ii) the total value of the Accumulation
Units in the Investment Division. Except in connection with the Dollar Cost
Averaging or Automatic Asset Reallocation options, if, after an ordered trans-
fer, the value of the remaining Accumulation Units in an Investment Division
or Fixed Account must have a value of at least $500, unless NYLIAC in its dis-
cretion determines otherwise. If, after an ordered transfer, the value of the
remaining Accumulation Units in an Investment Division or Fixed Account would
be less than $500, the entire value will be transferred unless NYLIAC in its
discretion determines otherwise. There is no charge for the first twelve
transfers in any one Policy Year. NYLIAC reserves the right to charge up to
$30 for each transfer in excess of twelve, subject to any applicable state in-
surance law requirements. Transfers may also be made from the Fixed Account to
the Investment Divisions in certain situations. (See "The Fixed Account" at
page 32.)

21
<PAGE>

Transfer requests must be in writing on a form approved by NYLIAC or by tel-
ephone in accordance with established procedures. (See "Procedures for Tele-
phone Transfers" at page 22.) Transfers from Investment Divisions will be made
based on the Accumulation Unit values at the end of the Valuation Period dur-
ing which NYLIAC receives the transfer request. (See "Delay of Payments" at
page 29.)

PROCEDURES FOR TELEPHONE TRANSFERS

Owners may effect telephone transfers in two ways. All Owners may directly
contact a service representative. Owners may in the future also request access
to an electronic service known as a Voice Response Unit (VRU). The VRU will
permit the unassisted transfer of monies among the Investment Divisions and/or
the Fixed Account and change of the allocation of future payments. All Owners
intending to conduct telephone transfers through the VRU will be asked to com-
plete a Telephone Authorization Form.

NYLIAC will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Before a service representative accepts
any request, the caller will be asked for his or her social security number
and address. All calls will also be recorded. A Personal Identification Number
(PIN) will be assigned to all Owners who request VRU access. The PIN is se-
lected by and known only to the Owner. Proper entry of the PIN is required be-
fore any transactions will be allowed through the VRU. Furthermore, all trans-
actions performed over the VRU, as well as with a service representative, will
be confirmed by NYLIAC through a written letter. Moreover, all VRU transac-
tions will be assigned a unique confirmation number which will become part of
the Policy's history. NYLIAC is not liable for any loss, cost or expense for
action on telephone instructions which are believed to be genuine in accor-
dance with these procedures.

DOLLAR COST AVERAGING

The Owner may specify, prior to the Annuity Commencement Date, a specific
dollar amount to be transferred from any Investment Divisions to any combina-
tion of Investment Divisions and/or the Fixed Account. The Owner will specify
the Investment Divisions to transfer money from, the Investment Divisions
and/or Fixed Account to transfer money to, the amounts to be transferred, the
date on which transfers will be made, subject to our rules, and the frequency
of the transfers, either monthly, quarterly, semi-annually or annually. This
process is called Dollar Cost Averaging. Dollar Cost Averaging transfers are
not available from the Fixed Account, but these transfers may be made into the
Fixed Account. NYLIAC reserves the right to charge up to $30 for each transfer
in excess of twelve, subject to any applicable state insurance law require-
ments. All Dollar Cost Averaging Transfers to or from an Investment Division
or to the Fixed Account made on the same date will count as one transfer for
purposes of determining whether the transfer is free or may be subject to a
charge. A minimum of $100 must change Investment Divisions (for each Invest-
ment Division and the Fixed Account) with each transfer. The minimum Accumula-
tion Value required to elect this option is $5,000. The minimum transfer
amount and minimum Accumulation Value may be reduced at NYLIAC's discretion.

The main objective of Dollar Cost Averaging is to shield your investment
from short term price fluctuations. Since the same dollar amount is trans-
ferred to an Investment Division with each transfer, more units are purchased
in an Investment Division if the value per unit is low and less units are pur-
chased if the value per unit is high. Therefore, a lower than average cost per
unit may be achieved over the long term. This plan of investing allows invest-
ors to take advantage of market fluctuations but does not assure a profit or
protect against a loss in declining markets.

NYLIAC will make all Dollar Cost Averaging transfers on the day of each cal-
endar month specified by the Owner, or on the next Business Day. The Owner may
specify any day of the month with the exception of the 29th, 30th or 31st of a
month. In order to process a Dollar Cost Averaging transfer, NYLIAC must have
received a request in writing no later than one week prior to the date Dollar
Cost Averaging transfers are to commence.

22
<PAGE>

The Dollar Cost Averaging option may be canceled at any time by written re-
quest or if the Accumulation Value is less than $5,000, or such lower amount
as we may determine. The Dollar Cost Averaging option may not be elected if
you have selected the Automatic Asset Reallocation option.

AUTOMATIC ASSET REALLOCATION

Selection of this option allows an Owner to maintain the percentage of the
Owner's Variable Accumulation Value allocated to each Separate Account Invest-
ment Division at a pre-set level. For example, an Owner might specify that 50%
of the Variable Accumulation Value of a Policy be allocated to the Growth Eq-
uity Portfolio and 50% of the Variable Accumulation Value be allocated to the
Bond Portfolio. Over time, the variations in each such Investment Division's
investment results will shift this balance. If you elect this reallocation op-
tion, NYLIAC will automatically transfer your Variable Accumulation Value back
to the percentages you specify. You may choose to have reallocations made
quarterly, semi-annually or annually. NYLIAC will process Automatic Asset
Reallocations of less than $500. Each time that NYLIAC automatically
reallocates your Variable Accumulation Value among the Separate Account In-
vestment Divisions under this option will be counted as one transfer for pur-
poses of determining whether the transfer is free or may be subject to a
charge. NYLIAC reserves the right to charge up to $30 for each transfer in ex-
cess of twelve, subject to any applicable state insurance law requirements.
The minimum Variable Accumulation Value required to elect this option is
$5,000. There is no minimum amount which you must allocate among the Separate
Account Investment Divisions pursuant to this option. The Automatic Asset Re-
allocation option may not be elected if you have selected the Dollar Cost Av-
eraging option.

ACCUMULATION PERIOD

(a) Crediting of Premium Payments

The Owner may allocate a portion of each Premium Payment to one or more In-
vestment Divisions or the Fixed Account. Owners may currently maintain Accumu-
lation Value in up to ten Allocation Alternatives. The minimum amount that may
be allocated to any one Investment Division or the Fixed Account is $25 (or
such lower amount as we may permit). The initial Premium Payment will be
placed in the Cash Management Investment Division until 15 days after the Pol-
icy Issue Date. Subsequently, the allocation percentages for the first and any
later premiums will be as requested in the application, unless subsequently
changed by the Owner.

That portion of each Premium Payment allocated to a designated Investment
Division of a Separate Account is credited to the Policy in the form of Accu-
mulation Units. The number of Accumulation Units credited to a Policy is de-
termined by dividing the amount allocated to each Investment Division by the
Accumulation Unit value for that Investment Division for the Valuation Period
during which the Premium Payment and documentation is received at NYLIAC's Ex-
ecutive Office or at P.O. Box 19289, Newark, New Jersey 07195-0289. The value
of an Accumulation Unit will vary in accordance with the investment experience
of the Portfolio in which the Investment Division invests. The number of Accu-
mulation Units credited to a Policy will not, however, change as a result of
any fluctuations in the value of an Accumulation Unit. (See "The Fixed Ac-
count" at page 32 for a description of interest credited thereto.)

(b) Valuation of Accumulation Units

The value of Accumulation Units is expected to increase or decrease from
Valuation Period to Valuation Period. The value of Accumulation Units in each
Investment Division will change daily to reflect the investment experience of
the corresponding Portfolio as well as the daily deduction of the risk charges
(and any charges or credits for taxes). The Statement of Additional Informa-
tion contains a detailed description of how the Accumulation Units are valued.

OWNER INQUIRIES

Owner inquiries should be addressed to NYLIAC, Variable Product Service Cen-
ter, P.O. Box 354, Haddam, Connecticut 06438-0354, or made by calling (212)
576-6569.

23
<PAGE>

CHARGES AND DEDUCTIONS

SURRENDER CHARGES

Since no deduction for a sales charge is made from Premium Payments, a Sur-
render Charge (sometimes referred to as a contingent deferred sales charge) is
imposed on certain partial withdrawals and surrenders of the Policies, to
cover certain expenses relating to the sale of the Policies, including commis-
sions to registered representatives and other promotional expenses. The Sur-
render Charge is measured as a percentage of the amount withdrawn or surren-
dered. The Surrender Charge may apply to amounts applied under certain Income
Payment options.

In the case of a surrender, the Surrender Charge is deducted from the amount
paid to the Owner. In the case of a partial withdrawal, the Owner directs
NYLIAC to take Surrender Charges either from the remaining value of the Allo-
cation Alternatives from which the Owner directs NYLIAC to make partial with-
drawals, or from the amount paid to the Owner. If the remaining value in an
Allocation Alternative is less than the necessary Surrender Charge, the re-
mainder of the charge will be deducted from the amount withdrawn from that Al-
location Alternative.

The Surrender Charge is 7% of the amounts withdrawn or surrendered during
the first three Policy Years. The amount of the charge declines 1% for each
additional Policy Year, until the ninth Policy Year, after which no charge is
made, as shown in the following chart:

AMOUNT OF SURRENDER CHARGE

<TABLE>
<CAPTION>
PAYMENT YEAR CHARGE
------------ ------
<S> <C>
1-3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
10 and later 0
</TABLE>

The duration of the Surrender Charge schedule is based solely on the Policy
Date. Additional Premium Payments do not begin their own unique Surrender
Charge schedules.

During 1994, NYLIAC received $210,164 in surrender charges.

EXCEPTIONS TO SURRENDER CHARGES

There are a number of exceptions to the imposition of a Surrender Charge.
First, for all Policies, the Surrender Charge will only be applied to any
amounts withdrawn in any Policy Year which, when aggregated with any other
withdrawals during such Policy Year, exceed 10% of the Accumulation Value at
the time of surrender. Second, for Policies with accumulated Premium Payments
of $100,000 or more, no Surrender Charge will be applied if either (1) the to-
tal amount withdrawn in any Policy Year is 10% or less of the Accumulation
Value at the time of surrender or (2) the amount withdrawn is less than or
equal to the gain in the Policy which is measured as the Accumulation Value of
the Policy less accumulated Premium Payments. Third, no Surrender Charge will
be applied if NYLIAC cancels the Policy. (See "Cancellations" at page 28.)
Fourth, no Surrender Charge will be applied when proceeds are paid on the
death of the Owner or the Annuitant. Fifth, no Surrender Charge will be ap-
plied when an Income Payment Option is selected in any Policy Year after the
first Policy Year. Sixth, no Surrender Charge will be applied when the
Policy's Required Minimum Distribution Option is selected. However, amounts
withdrawn under the Required Minimum Distribution option will count against
the first exception described above. (See "Periodic Partial Withdrawals" at
page 27.) Seventh, no Surrender Charge will be applied for any withdrawals at
age 59 1/2 or older if the Policy is tax-qualified and if the Policy was ac-
quired as the result of a transfer or rollover of a NYLIAC tax-deferred annu-
ity policy. Eighth, no surrender charge will be imposed in connection with
withdrawals made in accordance with the terms of the Living Needs Benefit
Rider or Unemployment Benefit Rider (See "Riders" at page 31 of this Prospec-
tus for additional information). Finally, in no event may the aggregate Sur-
render Charges under a Policy exceed 8.5% of

24
<PAGE>

the total Premium Payments. (See "The Fixed Account" at page 32 for additional
exceptions to the imposition of a Surrender Charge.)

OTHER CHARGES

During the Accumulation Period, NYLIAC imposes certain charges which have
been set at a level to recover no more than the cost for providing Policy ad-
ministration services. All Policies are subject to a daily charge equal, on an
annual basis, to .10% of the average daily net asset value of the applicable
Separate Account. A charge for Policy administration expenses will be made
once each Policy Year on the Policy Anniversary or upon Policy surrender if on
that date the Accumulation Value does not equal or exceed $10,000. This Policy
administration expense charge will be the lesser of $30 or 2% of the Accumula-
tion Value at the end of the Policy Year or on the date of surrender, which-
ever is applicable. It will be deducted from each Allocation Alternative in
proportion to its percentage of the Accumulation Value on the Policy Anniver-
sary. These charges are intended to offset the administrative expenses associ-
ated with the Policies, e.g., the costs of collecting, processing, and con-
firming Premium Payments. They are also intended to offset the cost of estab-
lishing and maintaining the available methods of payment.

NYLIAC also imposes risk charges to compensate it for bearing certain mor-
tality and expense risks under the Policies. The Policies contain guaranteed
minimum monthly fixed Income Payment amount tables. NYLIAC promises to con-
tinue to make Income Payments to each Annuitant determined according to those
tables and other provisions contained in the Policy regardless of how long the
Annuitant lives and regardless of how long all Annuitants as a group live.
Thus neither an Annuitant's own longevity nor a greater improvement in life
expectancy than that anticipated in those tables will have an adverse effect
on the Income Payments received under the Policy. Therefore the Annuitant is
relieved of the risk of outliving the fund accumulated for retirement. That
risk is NYLIAC's. A risk also arises from NYLIAC's guarantee that if the Annu-
itant or the Policy Owner dies prior to the Annuity Commencement Date, an
amount will be paid to the Beneficiary which will be equal to the greater of
(a) the Accumulation Value less any outstanding loan balance under the Policy
as of the date due proof of death and all requirements necessary to make pay-
ments are received; or (b) the sum of all Premium Payments made, less any out-
standing loan balance, less any partial withdrawals and Surrender Charges pre-
viously imposed, less any rider premiums. (See "Death Before Annuity Commence-
ment" at page 28). In addition, NYLIAC assumes the risk that the annual
charges may be insufficient to cover the actual costs incurred by NYLIAC for
providing Policy administration services to Owners and Annuitants. Moreover
NYLIAC does not anticipate that the Surrender Charges on withdrawals and sur-
renders will generate sufficient funds to pay the distribution expenses. If
these charges are insufficient to cover the expenses, the deficiency will be
met from NYLIAC's general corporate funds including the amount derived from
the risk charge. For assuming these risks NYLIAC makes a daily charge equal to
a percentage of the value of the net assets in the Separate Accounts. This
charge is equal, on an annual basis, to 1.20% (of which .70% is attributable
to mortality risks and .50% to expense risks) of the daily net asset values.
If these charges are insufficient to cover actual costs and assumed risks the
loss will fall on NYLIAC. Conversely if the charge proves more than sufficient
any excess will be added to the NYLIAC surplus. NYLIAC guarantees that these
charges will not be increased.

The value of the assets in the Separate Accounts will reflect the value of
Fund shares and therefore the fees and expenses paid by the Funds, which are
described in the relevant Fund's prospectus.

GROUP ARRANGEMENTS

In certain instances, we may reduce the Surrender Charge and the administra-
tive charge or change the minimum initial Premium Payment, and the minimum ad-
ditional Premium Payment requirements for the sale of Policies to certain
groups, including those in which a trustee or an employer, for example, pur-
chases Policies covering a group of individuals on a group basis.

Our costs for sales, administration, and mortality generally vary with the
size and stability of the group

25
<PAGE>

among other factors. We take all these factors into account when reducing
charges. To qualify for reduced charges, a group or similar arrangement must
meet certain requirements, including our requirements for size and number of
years in existence. Group arrangements that have been set up solely to buy
Policies or that have been in existence less than six months will not qualify
for reduced charges.

We will make any reductions according to our rules in effect when an appli-
cation or enrollment form for a Policy is approved. We may change these rules
from time to time. Any variation in the Surrender Charge or administrative
charge will reflect differences in costs or services and will not be unfairly
discriminatory.

TAXES

NYLIAC may, where such taxes are imposed by state law, deduct premium taxes
relative to the Policy either (i) when a surrender or cancellation occurs, or
(ii) at the Annuity Commencement Date. Applicable premium tax rates depend
upon such factors as the Owner's current state of residency, and the insurance
laws and the status of NYLIAC in states where premium taxes are incurred. Cur-
rent premium tax rates range from 0% to 3.5%. Applicable premium tax rates are
subject to change by legislation, administrative interpretations or judicial
acts.

Under present laws, NYLIAC will incur state and local taxes (in addition to
the premium taxes described above) in several states. At present, these taxes
are not significant. If they increase, however, NYLIAC may make charges for
such taxes.

NYLIAC does not expect to incur any federal income tax liability attribut-
able to investment income or capital gains retained as part of the reserves
under the Policies. (See "Federal Tax Matters" at page 33.) Based upon these
expectations, no charge is being made currently to the Separate Accounts for
corporate federal income taxes which may be attributable to the Separate Ac-
counts.

NYLIAC will review the question of a charge to the Separate Accounts for
corporate federal income taxes periodically. Such a charge may be made in fu-
ture years for any federal income taxes incurred by NYLIAC. This might become
necessary if the tax treatment of NYLIAC is ultimately determined to be other
than what NYLIAC currently believes it to be, if there are changes made in the
federal income tax treatment of annuities at the corporate level, or if there
is a change in NYLIAC's tax status. In the event that NYLIAC should incur fed-
eral income taxes attributable to investment income or capital gains retained
as part of the reserves under the Policies, the Accumulation Value of the Pol-
icies would be correspondingly adjusted by any provision or charge for such
taxes.

DISTRIBUTIONS UNDER THE POLICY

SURRENDERS AND PARTIAL WITHDRAWALS

The Owner may make a partial withdrawal or surrender the Policy to receive
part or all of the Accumulation Value at any time before the Annuity Commence-
ment Date and while the Annuitant is living, by sending a written request to
NYLIAC. The amount available for withdrawal is the Accumulation Value at the
end of the Valuation Period during which the surrender or withdrawal request
is received at NYLIAC's Variable Product Service Center, P.O. Box 354, Haddam,
Connecticut 06438-0354, less any outstanding loan balance, any Surrender
Charges and any premium taxes which we may deduct, less the charge for Policy
administration expenses, if applicable. The Policy administration expense
charge will be the lesser of $30 or 2% of the Accumulation Value at the end of
the Policy Year or on the date of surrender, whichever is applicable. If at
the time the Owner makes a withdrawal or surrender request, he or she has not
provided NYLIAC with a written election not to have federal income taxes with-
held, NYLIAC must by law withhold such taxes from the taxable portion of any
surrender or withdrawal, and remit that amount to the federal government. In
addition, some states have enacted legislation requiring withholding. All sur-
renders or withdrawals will be paid within seven days of receipt of all docu-
ments (including documents necessary to comply with federal and state tax
law), subject to postponement in certain circumstances. (See "Delay of Pay-
ments" at page 29.)

26
<PAGE>

Since the Owner assumes the investment risk with respect to amounts allo-
cated to the Separate Accounts and because certain surrenders or withdrawals
are subject to a Surrender Charge and premium tax deduction, the total amount
paid upon surrender of the Policy (taking into account any prior withdrawals)
may be more or less than the total Premium Payments made.

Surrenders and withdrawals may be taxable transactions, and the Internal
Revenue Code provides that a 10% penalty tax may be imposed on certain early
surrenders or withdrawals. (See "Federal Tax Matters--Taxation of Annuities in
General" at page 33.)

(a) Surrenders

A Surrender Charge and any premium tax, if applicable, less any outstanding
loan balance, and less the charge for Policy administration expenses, if ap-
plicable, may be deducted from the amount paid. The Policy administration ex-
pense charge will be the lesser of $30 or 2% of the Accumulation Value at the
end of the Policy Year or on the date of surrender, whichever is applicable.
The proceeds will be paid in a lump sum to the Owner unless the Owner elects a
different Income Payment method. (See "Income Payments" at page 29.) Surren-
ders may be taxable transactions and the 10% penalty tax provisions may be ap-
plicable. (See "Federal Tax Matters--Taxation of Annuities in General" at page
33.)

(b) Partial withdrawals

The minimum amount that can be withdrawn is $500, unless we agree otherwise.
The amount will be withdrawn from the Allocation Alternatives in accordance
with the Owner's request. If the Owner does not specify how to allocate a par-
tial withdrawal among the Allocation Alternatives, NYLIAC will allocate the
partial withdrawal on a pro-rata basis. Partial withdrawals may be taxable
transactions and the 10% penalty tax provisions may be applicable. (See "Fed-
eral Tax Matters--Taxation of Annuities in General" at page 33.)

If the value in any of the Allocation Alternatives from which the withdrawal
is being made is less than or equal to the amount requested from that Alloca-
tion Alternative, NYLIAC will pay the entire value of that Allocation Alterna-
tive, less any Surrender Charge that may apply, to the Owner.

The Owner may elect to receive regularly scheduled withdrawals from the Pol-
icy. These withdrawals may be paid on a monthly, quarterly, semi-annual, or
annual basis. The Owner elects the frequency of the withdrawals, and the day
of the month for the withdrawals to be made (may not be the 29th, 30th, or
31st of a month). The Owner specifies which Investment Divisions and/or Fixed
Account to make the withdrawals from. The minimum withdrawal under this pro-
gram is $100, or such lower amount as we may permit. Periodic partial with-
drawals may be taxable transactions and the 10% penalty tax provisions may be
applicable. (See "Federal Tax Matters--Taxation of Annuities in General" at
page 33.) If the Owner does not specify otherwise, NYLIAC will withdraw money
on a pro rata basis from each Investment Division and/or the Fixed Account.

(d) Hardship Withdrawals

Under certain Qualified Policies, the Plan Administrator may allow, in its
sole discretion, certain withdrawals it determines to be "Hardship Withdraw-
als." The Surrender Charge, 10% penalty tax and provisions applicable to Par-
tial Withdrawals apply to Hardship Withdrawals. For all Policies, the Surren-
der Charge will only be applied to any amounts withdrawn in any Policy Year
which, when aggregated with any other withdrawals during such Policy Year, ex-
ceed 10% of the Accumulation Value at the time of Surrender. For Policies with
accumulated Premium Payments of $100,000 or more, the Surrender Charge will
not apply if the amount of the Hardship Withdrawal is less than or equal to
the gain in the Policy which is measured as the Accumulation Value of the Pol-
icy less accumulated Premium Payments.

REQUIRED MINIMUM DISTRIBUTION OPTION

For IRAs, TSAs and SEPs, NYLIAC will provide an automatic withdrawal option
for calculating and processing the annual required minimum distribution for
this Policy beginning at age 70 1/2. No surrender charge

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<PAGE>

will be applied. NYLIAC will process required minimum distributions of less
than $500.

CANCELLATIONS

NYLIAC may, in its sole discretion, subject to any applicable state insur-
ance law or regulation, cancel a Policy if no Premium Payments are made for 2
or more Policy Years in a row, and both (a) the total Premium Payments made,
less any partial withdrawals and any Surrender Charges, and (b) the Accumula-
tion Value, are less than $2,000. If such a cancellation occurs, NYLIAC will
pay the Owner the Accumulation Value. We will notify you of our intention to
exercise this right and give you 90 days to make a Premium Payment.

ANNUITY COMMENCEMENT DATE

The Annuity Commencement Date is the date specified on the Policy Data Page.
The Annuity Commencement Date is the day that Income Payments are scheduled to
commence under the Policy unless the Policy has been surrendered or an amount
has been paid as proceeds to the designated Beneficiary prior to that date.
The Owner may change the Annuity Commencement Date to an earlier date by pro-
viding written notice to NYLIAC. The Owner may defer the Annuity Commencement
Date to a later date agreed to by NYLIAC, provided that written notice of the
request is received by NYLIAC at least one month before the last selected An-
nuity Commencement Date. The Annuity Commencement Date and Income Payment
method for Qualified Policies may also be controlled by endorsements, the
plan, or applicable law. The Surrender Charge will be waived if the Life In-
come Payment option is selected after the first policy anniversary.

DEATH BEFORE ANNUITY COMMENCEMENT

If the Owner or Annuitant dies prior to the Annuity Commencement Date, an
amount will be paid as proceeds to the designated Beneficiary. That amount
will be the greater of (a) the Accumulation Value, less any outstanding loan
balance, as of the date proof of death and all requirements necessary to make
the payment are received and (b) the sum of all Premium Payments made less any
outstanding loan balance, less any partial withdrawals and Surrender Charges,
less any rider premiums. The formula guarantees that the amount paid will at
least equal the sum of all Premium Payments (less any outstanding loan bal-
ance, partial withdrawals, Surrender Charges on such partial withdrawals and
any rider premiums), independent of the investment experience of the Separate
Accounts. The Beneficiary may receive the amount payable in a lump sum or un-
der any life income payment option which is then available.

If an Owner or Annuitant dies before the Annuity Commencement Date, the Pol-
icy will no longer be in force and we will pay as proceeds to the Beneficiary
an amount which is the greater of "(a)" or "(b)" as they are described in the
preceding paragraph. Payment will be made in a lump sum to the Beneficiary un-
less the Owner has elected or the Beneficiary elects otherwise in a signed
written notice which gives us the facts that we need. If such an election is
properly made, all or part of these proceeds will be:

(i) applied under the Life Income Payment Option to provide an immediate
annuity for the Beneficiary who will be the Owner and Annuitant; or

(ii) applied under another Income Payment Option we may offer at the
time. Payments under the annuity or under any other method of payment we
make available must be for the life of the Beneficiary, or for a number of
years that is not more than the life expectancy of the Beneficiary at the
time of the Owner's death (as determined for federal tax purposes), and
must begin within one year after the Owner's death. (See "Income Payments"
at page 29.)

If the Owner's spouse is the Beneficiary, the proceeds can be paid to the
surviving spouse if the Owner dies before the Annuity Commencement Date or the
Policy can continue with the Owner's surviving spouse as the new Owner, and,
if the Owner was the Annuitant, as the Annuitant. Generally, NYLIAC will not
issue a Policy to joint owners. However, if NYLIAC makes an exception and is-
sues a jointly owned policy, ownership rights and privileges under the Policy
must be exercised jointly and benefits under the Policy will be paid upon

28
<PAGE>

the death of any joint owner. (See "Federal Tax Matters--Taxation of Annuities
in General" at page 33.)

If the Annuitant and, where applicable under another Income Payment Option,
the Joint Annuitant, if any, die after the Annuity Commencement Date, NYLIAC
will pay the sum required by the Income Payment Option in effect.

Any distribution or application of Policy proceeds will be made within 7
days after NYLIAC receives all documents (including documents necessary to
comply with federal and state tax law) in connection with the event or elec-
tion that causes the distribution to take place, subject to postponement in
certain circumstances. (See "Delay of Payments" at page 29.)

INCOME PAYMENTS

(a) Election of Income Payment Options

Income Payments will be made under the Life Income Payment Option or under
such other option we may offer at that time. We will require that a single sum
payment be made if the Accumulation Value is less than $2,000. At any time be-
fore the Annuity Commencement Date, the Owner may change the Income Payment
Option or request any other method of payment agreeable to NYLIAC. If the Life
Income Payment Option is chosen, proof of birth date may be required before
Income Payments begin. For Income Payment Options involving life income, the
actual age of the Annuitant will affect the amount of each payment. Since pay-
ments to older annuitants are expected to be fewer in number, the amount of
each annuity payment shall be greater. Payments under the Life Income Payment
Option will always be in the same specified amount and will be paid over the
life of the Annuitant with a guarantee of 10 years of payments, even if the
Annuitant dies sooner.

Under Income Payment options involving life income, the Payee may not re-
ceive Income Payments equal to the total Premium Payments if the Annuitant
dies before the actuarially predicted date of death.

(b) Other Methods of Payment

If NYLIAC agrees, the Owner (or the Beneficiary upon the death of the Annui-
tant, or the Owner prior to the Annuity Commencement Date) may choose to have
Income Payments made under some other method of payment or in a single sum.

Income Payment options involving life income are based on annuity tables
that provide the same benefit payments to men and women of the same age. In
some states, however, the use of such tables is restricted to Policies af-
fected by the 1983 Supreme Court decision in Arizona Governing Committee v.
Norris. In those states, Income Payment options involving life income will be
based on annuity tables that provide different benefit payments to men and
women of the same age, unless NYLIAC is requested to endorse the policy to use
unisex actuarial tables in order to comply with the intent of the Norris deci-
sion. If a Policy is to be used in connection with an employment-related re-
tirement or benefit plan, consideration should be given, in consultation with
legal counsel, to whether the Policy should be endorsed to use unisex actuar-
ial tables.

In addition, legislation was introduced in Congress which, had it been en-
acted, would have required the use of tables that do not vary on the basis of
sex for some or all annuities. Currently, several states have enacted such
laws.

(d) Proof of Survivorship

Satisfactory proof of survival may also be required, from time to time, be-
fore any Income Payments or other benefits will be paid. The proof will be re-
quested at least 30 days prior to the next scheduled benefit payment date.

DELAY OF PAYMENTS

Payment of any amounts due from the Separate Accounts under the Policy will
occur within seven days of the date NYLIAC receives all documents (including
documents necessary to comply with federal and state tax law) in connection
with a request unless:

29
<PAGE>

1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;

2. An emergency exists as defined by the Securities and Exchange Commis-
sion;

3. The Securities and Exchange Commission permits a delay for the protec-
tion of security holders; or

4. The check used to pay the premium has not cleared through the banking
system. This may take up to 15 days.

For the same reasons, transfers from the Separate Accounts to the Fixed Ac-
count may be delayed.

Payments of any amount due from the Fixed Account may also be delayed. When
permitted by law, we may defer payment of any partial or full surrender re-
quest for up to six months from the date of surrender from the Fixed Account.
Interest of at least 3.5% per year will be paid on any amount deferred for 30
days or more.

DESIGNATION OF BENEFICIARY

The Owner may select one or more Beneficiaries and name them in the applica-
tion. Thereafter, before the Annuity Commencement Date and while the Annuitant
is living, the Owner may change the Beneficiary by written notice to NYLIAC.
If before the Annuity Commencement Date, the Annuitant dies before the Owner
and no Beneficiary for the proceeds or for a stated share of the proceeds sur-
vives, the right to the proceeds or shares of the proceeds passes to the Own-
er. If the Owner is the Annuitant, the proceeds pass to the Owner's estate.
However, if the Owner who is not the Annuitant dies before the Annuity Com-
mencement Date, and no Beneficiary for the proceeds or for a stated share of
the proceeds survives, the right to the proceeds or shares of the proceeds
passes to the Owner's estate.

RETIREMENT PROGRAM

Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw or surrender their inter-
est in a variable annuity contract issued under the ORP only upon (1) termina-
tion of employment in the Texas public institutions of higher education, (2)
retirement or (3) death. Accordingly, a participant in the ORP (or the partic-
ipant's estate if the participant has died) will be required to obtain a cer-
tificate of termination from the employer before the account can be redeemed.

RESTRICTIONS UNDER INTERNAL REVENUE CODE SECTION 403(B)(11)

Distributions attributable to salary reduction contributions made in years
beginning after December 31, 1988 (including the earnings on these contribu-
tions), as well as to earnings in such years on salary reduction accumulations
held as of the end of the last year beginning before January 1, 1989, may not
begin before the employee attains age 59 1/2, separates from service, dies or
becomes disabled. The plan may also provide for distribution in the case of
hardship. However, hardship distributions are limited to amounts contributed
by salary reduction; the earnings on such amounts may not be withdrawn. Even
though a distribution may be permitted under these rules (e.g. for hardship or
after separation from service), it may nonetheless be subject to a 10% addi-
tional income tax as a premature distribution. To the extent that these limi-
tations on distributions conflict with the redeemability provisions of the In-
vestment Company Act, NYLIAC relies upon the November 28, 1988 SEC "No-Action"
letter for exemptive relief.

Under the terms of your plan you may have the option to invest in other
403(b) funding vehicles, including 403(b)(7) custodial accounts. You should
consult your plan document to make this determination.

LOANS

Under your 403(b) Policy, you may borrow against your Policy's Accumulation
Value after the first Policy Year and prior to the Annuity Commencement Date.
Unless we agree otherwise, only one loan may be outstanding at a time. A mini-
mum Accumulation Value of $5,000 must remain in the Policy. The minimum loan
amount is $500. The maximum loan that may be taken is the lesser of: (a) 50%
of the Policy's Accumulation Value on the date of the loan or (b) $50,000. A
loan

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<PAGE>

processing fee of $25 will be withdrawn from the Accumulation Value on a pro
rata basis, unless prohibited by applicable state law or regulation. If on the
date of the loan you do not have a Fixed Accumulation Value equal to at least
125% of the loan amount, sufficient Accumulation Value will be transferred
from the Investment Divisions on a pro rata basis so that the Fixed Accumula-
tion Value equals 125% of the loan amount. While a loan is outstanding no par-
tial withdrawals or transfers may be made which would reduce the Fixed Accumu-
lation Value to an amount less than 125% of the outstanding loan balance.

For plans not subject to the Employee Retirement Income Security Act of 1974
("ERISA"), the interest rate paid by the Owner of the loan will equal 5%. The
assets being held in the Fixed Account to secure the loan will be credited
with the minimum guaranteed interest rate of 3%. For plans subject to ERISA,
the interest charged on the loan will be applied annually at the Prime Rate at
the beginning of the calendar year, plus 1%. The money being held in the Fixed
Account to secure the loan will be credited with a rate of interest that is
the Prime Rate less 1%, but will always be at least equal to the minimum guar-
anteed interest rate of 3%. For all plans, interest will be assessed in ar-
rears as part of the periodic loan repayments.

The loan must be repaid on a periodic basis at a frequency not less fre-
quently than quarterly and over a period no greater than five years from the
date it is taken. Depending upon applicable state law, if a loan repayment is
in default we will withdraw the amount in default from the Fixed Accumulation
Value to the extent permitted by Federal Income Tax rules. Such a repayment
will be taken first from the Fixed Accumulation Value as of the most recent
Policy Anniversary and then on a first in, first out basis from amounts allo-
cated to the Fixed Account since the most recent Policy Anniversary.

Loans to acquire a principal residence are permitted under the same terms
described above, except that:

(a) the minimum loan amount is $5,000; and

(b) repayment of the loan amount may be extended to a maximum of twenty-
five years.

Any outstanding loan balance will be deducted from the Fixed Accumulation
Value prior to payment of a surrender or the commencement of the annuity bene-
fits. On death of the Owner or Annuitant, any outstanding loan balance will be
deducted from the Fixed Accumulation Value as a partial withdrawal as of the
date the notice of death is received.

Loans are subject to the terms of the Policy, your 403(b) Plan and the Code,
which may impose restrictions upon them. We reserve the right to suspend, mod-
ify, or terminate the availability of loans under this Policy at any time.
However, any action taken by us will not affect already outstanding loans.

RIDERS

For no additional Premium Payment, the Policy includes two riders, an Unem-
ployment Benefit Rider and a Living Needs Benefit Rider, both of which provide
for an increase in the amount that can be withdrawn from your Policy which
will not be subject to the imposition of a surrender charge upon the occur-
rence of certain qualifying events. The Riders are only available in those
states where they have been approved.

(a) Living Needs Benefit Rider

If the annuitant enters a nursing home, becomes terminally ill or disabled
you, as Owner, may be eligible to receive all or a portion of the accumulated
value without paying a surrender charge. There is no additional charge for
this, and as the Owner you are automatically entitled to this benefit if it is
approved by your state. The policy must have been inforce for at least one
year and have a minimum cash value of $5,000. Withdrawals may be taxable
transactions and, prior to age 59 1/2, may be subject to a 10% IRS penalty.
This rider is in effect in all states where approved.

(b) Unemployment Benefit Rider

If you as Owner of the Policy become unemployed, you may be eligible to in-
crease the amount that can be withdrawn from your Policy up to 50% without
paying contract Surrender Charges. There is no additional charge for this, and
as Owner you are automatically entitled to this benefit if it is approved by
your state. This

31
<PAGE>

rider can only be used once. The policy must have been inforce for at least
one year and have a minimum cash value of $5,000. Withdrawals may be taxable
transactions and, prior to age 59 1/2, may be subject to a 10% IRS penalty.
This rider is in effect in all states where approved.

THE FIXED ACCOUNT

The Fixed Account is supported by the assets in NYLIAC's general account,
which includes all of NYLIAC's assets except those assets specifically allo-
cated to NYLIAC's separate accounts. NYLIAC has sole discretion to invest the
assets of the Fixed Account subject to applicable law. An interest in the
Fixed Account is not registered under the Securities Act of 1933, and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940. Accordingly neither the Fixed Account nor any interests
therein are generally subject to the provisions of these statutes, and NYLIAC
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this Prospectus relating to the Fixed Account.
These disclosures regarding the Fixed Account may, however, be subject to cer-
tain applicable provisions of the Federal securities laws relating to the ac-
curacy and completeness of statements made in prospectuses.

(a) Interest Crediting

NYLIAC guarantees that it will credit interest at an effective rate of at
least 3% to amounts allocated or transferred to the Fixed Account under the
Policies. NYLIAC may, AT ITS SOLE DISCRETION, credit a higher rate of interest
to amounts allocated or transferred to the Fixed Account. The interest rate
will be set quarterly on the first day of each new calendar quarter. All Pre-
mium Payments and additional payments (including transfers from other Invest-
ment Divisions) received during a calendar quarter receive the interest rate
declared for that quarter until the end of that Policy Year. All other amounts
in the Fixed Account are credited with the rate set for the quarter in which
the last Policy Anniversary occurred, guaranteed for the current Policy Year.

(b) Bail-Out

Surrender Charges may be applied to withdrawals from the Fixed Account. (See
"Surrender Charges" at page 24.) In addition to the "Exceptions to Surrender
Charges" described at page 24, subject to any applicable state insurance law
or regulation, a Surrender Charge will not be imposed on any amount which is
withdrawn from the Fixed Account if on any Policy Anniversary the interest
rate set for that amount falls more than 2.5 percentage points below the rate
which was set for the immediately preceding Policy Year, or below the minimum
rate specified on your Policy's Data Page, and the Owner, within 60 days after
that Policy Anniversary, withdraws part or all of that amount allocated to the
Fixed Account. NYLIAC reserves the right to set a separate yearly interest
rate and period for which this rate is guaranteed for amounts transferred to
the Fixed Account.

Amounts may be transferred from the Fixed Account to the Separate Account
Investment Divisions up to 30 days prior to the Annuity Commencement Date,
subject to the following conditions.

1. An amount may be transferred from the Fixed Account to the Investment
Divisions if, on any Policy Anniversary, the interest rate set for that
amount falls more than 2.5 percentage points below the rate which was set
for the immediately preceding Policy Year, or below the minimum rate speci-
fied on your Policy Data Page, and the Owner, within 60 days after that
Policy Anniversary, makes a request for such transfer. There is no minimum
transfer requirement and no charges will be imposed under this condition.

2. An amount not greater than 20% of the Fixed Accumulation Value at the
beginning of the Policy Year may be transferred during that Policy Year
from the Fixed Account to the Investment Divisions.

3. Transfers of at least the minimum amount are permitted. The minimum
amount that may be transferred from the Fixed Account to the Investment Di-
visions is the lesser of (i) $500 or (ii) the

32
<PAGE>

Fixed Accumulation Value, unless we agree otherwise. (Additionally, the re-
maining values in the Fixed Account must be at least $500. If, after a con-
templated transfer, the remaining values in the Fixed Account would be less
than $500, that amount must be included in the transfer, unless NYLIAC in
its discretion determines otherwise.)

Transfer requests must be in writing on a form approved by NYLIAC or by tel-
ephone in accordance with established procedures. For a more detailed discus-
sion of procedures that may be used for requesting transfers by telephone,
please see "Procedures for Telephone Transfers" at page 22 of this Prospectus.

Unlimited transfers are permitted each Policy Year, although we reserve the
right to impose a charge of $30 per transfer for each transfer in excess of
twelve transfers in any Policy Year. Partial withdrawals will be deducted and
any Surrender Charges will be applied to the Fixed Account in the following
sequence: first, from any value in the Fixed Account as of the last Policy An-
niversary, then from any value in the Fixed Account attributed to additional
Premium Payments or transfers from Investment Divisions in the same order in
which they were allocated to the Fixed Account during the current Policy Year.

See the Policy itself for details and a description of the Fixed Account.

FEDERAL TAX MATTERS

INTRODUCTION

THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. The
Qualified Policies are designed for use by individuals in retirement plans
which are intended to qualify as plans qualified for special income tax treat-
ment under Sections 219, 401, 403, 408 or 457 of the Code. The ultimate effect
of federal income taxes on the Accumulation Value, on Income Payments and on
the economic benefit to the Owner, the Annuitant or the Beneficiary depends on
the type of retirement plan for which the Qualified Policy is purchased, on
the tax and employment status of the individual concerned and on NYLIAC's tax
status. The following discussion assumes that Qualified Policies are used in
retirement plans that qualify for the special federal income tax treatment de-
scribed above. This discussion is not intended to address the tax consequences
resulting from all of the situations in which a person may be entitled to or
may receive a distribution under a Policy. Any person concerned about these
tax implications should consult a competent tax adviser before making a Pre-
mium Payment. This discussion is based upon NYLIAC's understanding of the
present federal income tax laws as they are currently interpreted by the In-
ternal Revenue Service. No representation is made as to the likelihood of con-
tinuation of the present federal income tax laws or of the current interpreta-
tions by the Internal Revenue Service. Moreover, no attempt has been made to
consider any applicable state or other tax laws except with respect to the im-
position of any state premium taxes.

TAXATION OF ANNUITIES IN GENERAL

The following discussion assumes that the Policies will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional Infor-
mation discusses such qualifications.

Section 72 of the Code governs taxation of annuities in general. NYLIAC be-
lieves that an annuity contract owner generally is not taxed on increases in
the value of a policy until distribution occurs either in the form of a lump
sum received by withdrawing all or part of the cash value (Accumulation Value)
(i.e., "surrenders" or "partial withdrawals") or as Income Payments under the
Income Payment option elected. The exception to this rule is that generally,
an owner of any deferred annuity Policy who is not a natural person must in-
clude in income any increase in the excess of the Owner's Accumulation Value
over the Owner's investment in the contract during the taxable year. However,
there are some exceptions to this exception and you may wish to discuss these
with your tax counsel. The taxable portion of a distribution (in the form of
an annuity or lump sum payment) is generally taxed as ordinary income. For
this purpose, the assignment, pledge, or agreement to assign or pledge any
portion of

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<PAGE>

the Accumulation Value generally will be treated as a distribution.

In the case of a withdrawal or surrender distributed to a participant or
Beneficiary under a Qualified Policy (other than a Qualified Policy used in a
retirement plan that qualifies for special federal income tax treatment under
Section 457 of the Code as to which there are special rules), a ratable por-
tion of the amount received is taxable, generally based on the ratio of the
investment in the contract to the total policy value. The "investment in the
contract" generally equals the portion, if any, of any Premium Payments paid
by or on behalf of an individual under a Policy which is not excluded from the
individual's gross income. For Policies issued in connection with qualified
plans, the "investment in the contract" can be zero.

Generally, in the case of a withdrawal under a Non-Qualified Policy before
the Annuity Commencement Date, amounts received are first treated as taxable
income to the extent that the Accumulation Value immediately before the with-
drawal exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable.

Although the tax consequences may vary depending on the Income Payment op-
tion elected under the Policy, in general, only the portion of the Income Pay-
ment that represents the amount by which the Accumulation Value exceeds the
"investment in the contract" will be taxed; after the investment in the Policy
is recovered, the full amount of any additional Income Payments is taxable.
For Fixed Income Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Income Payments for the term of the
payments; however, the remainder of each Income Payment is taxable until the
recovery of the investment in the contract, and thereafter the full amount of
each annuity payment is taxable. If death occurs before full recovery of the
investment in the contract, the unrecovered amount may be deducted on the
annuitant's final tax return.

In the case of a distribution pursuant to any Policy, there may be imposed a
penalty tax equal to 10% of the amount treated as taxable income. The penalty
tax is not imposed in certain circumstances, including, generally, distribu-
tions: (1) made on or after the date on which the taxpayer is actual age 59
1/2, (2) made as a result of the Owner's or Annuitant's death or disability,
or (3) received in substantially equal installments as a life annuity. Other
tax penalties may apply to certain distributions pursuant to a Qualified Poli-
cy.

All non-qualified, deferred annuity contracts issued by NYLIAC (or its af-
filiates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includible in an indi-
vidual's gross income. In addition, there may be other situations in which the
Treasury Department may conclude (under its authority to issue regulations)
that it would be appropriate to aggregate two or more annuity contracts pur-
chased by the same Owner. Accordingly, an Owner should consult a competent tax
adviser before purchasing more than one Policy or other annuity contract.

A transfer of ownership of a Policy, or designation of an Annuitant or other
Beneficiary who is not also the Owner, may result in certain income or gift
tax consequences to the Owner that are beyond the scope of this discussion. An
Owner contemplating any transfer or assignment of a Policy should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.

QUALIFIED PLANS

The Qualified Policy is designed for use with several types of qualified
plans. The tax rules applicable to participants and beneficiaries in such
qualified plans vary according to the type of plan and the terms and condi-
tions of the plan itself. Special favorable tax treatment may be available for
certain types of contributions and distributions (including special rules for
certain lump sum distributions). Adverse tax consequences may result from con-
tributions in excess of specified limits, distributions prior to age 59 1/2
(subject to certain exceptions), distributions that do not conform to speci-
fied minimum distribution rules, aggregate distributions in excess of a speci-
fied annual amount, and in certain other circumstances. Therefore, NYLIAC
makes no attempt to

34
<PAGE>

provide more than general information about use of the Policies with the vari-
ous types of qualified plans. Owners and participants under qualified plans as
well as Annuitants and Beneficiaries are cautioned that the rights of any per-
son to any benefits under qualified plans may be subject to the terms and con-
ditions of the plans themselves, regardless of the terms and conditions of the
Policy issued in connection therewith. Purchasers of Policies for use with any
qualified plan should seek competent legal and tax advice regarding the suit-
ability of the Policy therefor.

(a) Section 403(b) Plans. Under Section 403(b) of the Code, payments made
by public school systems and certain tax exempt organizations to purchase
annuity policies for their employees are excludible from the gross income
of the employee, subject to certain limitations. However, such payments may
be subject to FICA (Social Security) taxes.

(b) Individual Retirement Annuities. Section 219 and 408 of the Code per-
mit individuals or their employers to contribute to an individual retire-
ment program known as an "Individual Retirement Annuity" or "IRA", includ-
ing an employer-sponsored Simplified Employee Pension or "SEP". Individual
Retirement Annuities are subject to limitations on the amount which may be
contributed and deducted and the time when distributions may commence. In
addition, distributions from certain other types of qualified plans may be
placed into Individual Retirement Annuities on a tax-deferred basis.

(c) Corporate Pension and Profit Sharing Plans and H.R. 10
Plans. Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of retirement plans for employees, and self-em-
ployed individuals to establish qualified plans for themselves and their
employees. Such retirement plans may permit the purchase of the Policies to
provide benefits under the plans.

(d) Deferred Compensation Plans. Section 457 of the Code, while not actu-
ally providing for a qualified plan as that term is normally used, provides
for certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies, instru-
mentalities and certain affiliates of such entities and tax exempt organi-
zations which enjoy special treatment. The Policies can be used with such
plans. Under such plans, a participant may specify the form of investment
in which his or her participation will be made. All such investments, how-
ever, are owned by, and are subject to, the claims of the general creditors
of the sponsoring employer.

DISTRIBUTOR OF THE POLICIES

NYLIFE Distributors, Inc., 51 Madison Avenue, New York, New York 10010 is
the principal underwriter and the distributor of the Policies and is an indi-
rect wholly-owned subsidiary of New York Life. The maximum commission paid to
registered representatives of NYLIFE Distributors and other broker-dealers who
have entered into dealer agreements with NYLIFE Distributors is 4 1/2%. From
time to time, NYLIFE Distributors may enter into a special arrangement with a
broker-dealer, which provides for the payment of higher commissions to such
broker-dealer in connection with sales of the Policies. Purchasers of Policies
will be informed prior to purchase of any applicable special arrangement.

VOTING RIGHTS

The Funds are not required to hold routine annual stockholder meetings. Each
Fund's Board of Directors has decided not to hold routine annual stockholder
meetings. Special stockholder meetings will be called when necessary. Not
holding routine annual meetings will result in Owners having a lesser role in
governing the business of the Funds.

To the extent required by law, the Eligible Portfolio shares held in the
Separate Accounts will be voted by NYLIAC at special shareholder meetings of
the Funds in accordance with instructions received from persons having voting
interests in the corresponding Investment Division. If, however, the Invest-
ment Company Act of 1940 or any regulation thereunder should be amended, or if
the present interpretation thereof should change,

35
<PAGE>

and as a result, NYLIAC determines that it is allowed to vote the Eligible
Portfolio shares in its own right, NYLIAC may elect to do so.

The number of votes which are available to an Owner will be calculated sepa-
rately for each Investment Division of the Separate Accounts. That number will
be determined by applying his or her percentage interest, if any, in a partic-
ular Investment Division to the total number of votes attributable to the In-
vestment Division. Prior to the Annuity Commencement Date, the Owner holds a
voting interest in each Investment Division to which Policy Value is allocat-
ed. The number of votes which are available to an Owner will be determined by
dividing the Accumulation Value attributable to an Investment Division by the
net asset value per share of the applicable Eligible Portfolios.

The number of votes of the Eligible Portfolio which are available will be
determined as of the date coincident with the date established by that Portfo-
lio for determining shareholders eligible to vote at the meeting of the rele-
vant Fund. Voting instructions will be solicited by written communication
prior to such meeting in accordance with procedures established by the rele-
vant Fund.

Fund shares as to which no timely instructions are received will be voted in
proportion to the voting instructions which are received with respect to all
Policies participating in that Investment Division. Voting instructions to ab-
stain on any item to be voted upon will be applied on a pro rata basis to re-
duce the votes eligible to be cast. Each person having a voting interest in an
Investment Division will receive proxy material, reports and other materials
relating to the appropriate Eligible Portfolio.

STATEMENT OF ADDITIONAL INFORMATION

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES............................................................... 2
Valuation of Accumulation Units........................................... 2
INVESTMENT PERFORMANCE CALCULATIONS........................................ 2
NEW YORK LIFE MFA SERIES FUND, INC......................................... 5
GENERAL MATTERS............................................................ 5
FEDERAL TAX MATTERS........................................................ 5
DISTRIBUTOR OF THE POLICIES................................................ 6
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS..................................... 6
STATE REGULATION........................................................... 7
RECORDS AND REPORTS........................................................ 7
LEGAL PROCEEDINGS.......................................................... 7
LEGAL MATTERS.............................................................. 7
INDEPENDENT ACCOUNTANTS.................................................... 7
OTHER INFORMATION.......................................................... 7
FINANCIAL STATEMENTS....................................................... F-1
</TABLE>

36
<PAGE>

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

New York Life MFA Series Fund, Inc. (the "Fund") is a diversified, open-end
management investment company (commonly known as a "mutual fund") that is de-
signed to meet a wide range of investment objectives. The Fund has ten sepa-
rate portfolios, which are available for investment by, among others, New York
Life Insurance and Annuity Corporation ("NYLIAC") Variable Annuity Separate
Account-I, NYLIAC Variable Annuity Separate Account-II, NYLIAC Variable Uni-
versal Life Separate Account-I and NYLIAC LifeStages Annuity Separate Account
(collectively with NYLIAC Variable Universal Life Separate Account II, the
"Separate Accounts"). NYLIAC Variable Universal Life Separate Account-II may
be available for investment in the future. The portfolios are: the Capital Ap-
preciation Portfolio, the Cash Management Portfolio, the Government Portfolio,
the High Yield Corporate Bond Portfolio, the International Equity Portfolio,
the Total Return Portfolio, the Value Portfolio, the Bond Portfolio, the
Growth Equity Portfolio and the Indexed Equity Portfolio (hereinafter, collec-
tively the "Portfolios" or individually a "Portfolio").

THE CAPITAL APPRECIATION PORTFOLIO seeks long-term growth of capital. It seeks
----------------------------------
to achieve its primary investment objective by maintaining a flexible approach
towards investing in various types of companies as well as types of securi-
ties, depending upon the economic environment and the relative attractiveness
of the various securities markets. Generally, the Portfolio will seek to in-
vest in securities issued by companies with investment characteristics such as
participation in expanding markets, increasing unit sales volume, growth in
revenues and earnings per share superior to that of the average common stocks
comprising indices such as the S&P 500 and increasing return on investment.
Dividend income, if any, is a consideration incidental to the Portfolio's ob-
jective of growth of capital.

THE CASH MANAGEMENT PORTFOLIO seeks as high a level of current income as is
-----------------------------
consistent with preservation of capital and maintenance of liquidity. It in-
vests 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. Gov-
ernment, and there can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.

THE GOVERNMENT PORTFOLIO seeks a high level of current income, consistent with
------------------------
safety of principal. It will invest primarily in U.S. Government securities,
which include U.S. Treasury obligations and obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.

THE HIGH YIELD CORPORATE BOND PORTFOLIO seeks maximum current income through
---------------------------------------
investment in a diversified portfolio of high yield, high risk debt securi-
ties. This Portfolio seeks to achieve its primary objective by investment in a
diversified portfolio of high yield, high risk debt securities which are ordi-
narily in the lower rating categories of recognized rating agencies that is,
rated Baa to B by Moody's Investors Services, Inc. ("Moody's") or BBB to B by
Standard & Poors ("S&P"). Securities rated lower than Baa by Moody's or BBB by
S&P, or, if not rated, of equivalent quality, are sometimes referred to as
"high yield" securities or "junk bonds." The potential for high yield is ac-
companied by higher risk. Certain of the Portfolio's investments have specula-
tive characteristics, as further discussed below. Capital appreciation is a
secondary objective which will be sought only when consistent with this Port-
folio's primary objective.

THE INTERNATIONAL EQUITY PORTFOLIO seeks long-term growth of capital by in-
----------------------------------
vesting in a portfolio consisting primarily of non-U.S. equity securities.
Current income is a secondary objective. In pursuing its investment objective,
the Portfolio will seek to invest in securities that provide the potential for
strong return but that do not, in MacKay-Shields' judgment, present undue or
imprudent risk. The Portfolio pursues its objectives by investing its assets
in a diversified portfolio of common stocks, preferred stocks, warrants and
comparable equity securities. Foreign investing involves certain risks which
are discussed in greater detail below.

THE TOTAL RETURN PORTFOLIO seeks to realize current income consistent with
--------------------------
reasonable opportunity for future growth of capital and income. The Portfolio
maintains a flexible approach by investing in a broad range of securities,
which may be diversified by company, by industry and by type. The Portfolio
may invest in common stocks, convertible securities, warrants and fixed-income
securities such as bonds, preferred stocks and other debt obligations, includ-
ing money market instruments.

THE VALUE PORTFOLIO seeks maximum long-term total return from a combination of
-------------------
capital growth and income. It seeks to achieve this objective by following
flexible investment policies emphasizing investment in common stocks which
are, in the opinion of MacKay-Shields, undervalued at the time of purchase.
This Portfolio will normally invest in dividend-paying common stocks that are
listed on a national securities exchange or traded in the over-the-counter
market, but may also invest in non-dividend paying stocks in accordance with
MacKay-Shields' judgment.

THE BOND PORTFOLIO seeks the highest income possible over the long term con-
------------------
sistent 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 princi-
pally in common stocks and securities convertible into or with rights to pur-
chase common stocks of well established, well managed companies which appear
to have better than average growth potential.

THE INDEXED EQUITY PORTFOLIO seeks to provide investment results that corre-
----------------------------
spond to the total return performance (reflecting reinvestment of dividends)
of common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Price Index ("S&P 500"). Using a full replication method, the Port-
folio invests in all 500 stocks in the S&P 500 in the same proportion as their
representation in the S&P 500. The S&P 500 is an unmanaged index considered
representative of the U.S. stock market. The Indexed Equity Portfolio is nei-
ther sponsored by or affiliated with S&P.

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

This Prospectus sets forth concisely the essential information that a pro-
spective investor should know before investing in the Portfolios, and it
should be read and kept for future reference. A Statement of Additional Infor-
mation dated May 1, 1995, which contains more information about the Portfo-
lios, has been filed with the Securities and Exchange Commission and is incor-
porated by reference in this Prospectus. A copy of the Statement of Additional
Information may be obtained without charge by calling the Fund at (212) 576-
7000 or by writing the Fund at 51 Madison Avenue, New York, New York 10010.

NEW YORK LIFE MFA SERIES FUND, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND AND THE SEPARATE ACCOUNTS......................................... 3
FINANCIAL HIGHLIGHTS....................................................... 4
Performance and Yield Information........................................ 7
INVESTMENT OBJECTIVES AND POLICIES......................................... 7
Capital Appreciation Portfolio........................................... 8
Cash Management.......................................................... 8
Government Portfolio..................................................... 9
High Yield Corporate Bond Portfolio...................................... 10
International Equity Portfolio........................................... 12
Total Return Portfolio................................................... 13
Value Portfolio.......................................................... 14
Bond Portfolio........................................................... 15
Growth Equity Portfolio.................................................. 15
Indexed Equity Portfolio................................................. 16
Investment Practices Common to Two or More Portfolios.................... 17
Other Information........................................................ 26
THE FUND AND ITS MANAGEMENT................................................ 26
Investment Advisers...................................................... 26
Portfolio Managers....................................................... 27
Administrator............................................................ 28
Capital Stock............................................................ 29
PURCHASE AND REDEMPTION OF SHARES.......................................... 29
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 29
Taxes.................................................................... 29
Dividends and Distributions.............................................. 30
GENERAL INFORMATION........................................................ 30
Custodian................................................................ 30
Reports to Shareholders.................................................. 30
Other Information........................................................ 30
</TABLE>

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

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

2
<PAGE>

THE FUND AND THE SEPARATE ACCOUNTS

This Prospectus describes the shares offered by New York Life MFA Series
Fund, Inc. (the "Fund"). The Fund, a diversified open-end management invest-
ment company, is a Maryland corporation organized on June 3, 1983.

The Fund issues for investment by the Separate Accounts ten separate classes
of capital stock, each of which represents a separate portfolio of invest-
ments--the Capital Appreciation Portfolio, the Cash Management Portfolio, the
Government Portfolio, the High Yield Corporate Bond Portfolio, the Interna-
tional Equity Portfolio, the Total Return Portfolio, the Value Portfolio, the
Bond Portfolio, the Growth Equity Portfolio and the Indexed Equity Portfolio.
In many respects, each Portfolio resembles a separate fund. At the same time,
in certain important respects, the Fund is treated as a single entity.

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

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

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

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following Per Share Income and Capital Changes (for a share outstanding
throughout the period) and selected ratios with respect to each Portfolio of
the Fund has been audited by Price Waterhouse LLP, Independent Accountants,
whose report appears in the Statement of Additional Information. This informa-
tion should be read in conjunction with the financial statements and notes
thereto for the year ended December 31, 1994, 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 tel-
ephone number given on the front cover page of this prospectus.

<TABLE>
<CAPTION>
CASH
CAPITAL APPRECIATION MANAGEMENT GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------- ----------------------------- -----------------------------
FOR YEAR JAN. 29, 1993** FOR YEAR JAN. 29, 1993** FOR YEAR JAN. 29, 1993**
ENDED TO ENDED TO ENDED TO
DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1994 DEC. 31, 1993
------------- --------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 12.03 $ 10.00 $ 1.00 $ 1.00 $ 10.15 $ 10.00
-------- ------- ------- ------- ------- -------
Net investment
income........... 0.05 0.02 0.04 0.02 0.75 0.82
Net realized and
unrealized gain
(loss) on
investments...... (0.58) 2.03 -- -- (0.94) (0.25)
-------- ------- ------- ------- ------- -------
Total from
investment
operations....... (0.53) 2.05 0.04 0.02 (0.19) 0.57
-------- ------- ------- ------- ------- -------
Less
distributions:
Dividends to
shareholders
from net
investment
income.......... (0.05) (0.02) (0.04) (0.02) (0.75) (0.42)
Distributions to
shareholders
from net
realized gain on
investment
transactions.... -- -- -- -- -- --
Distributions in
excess of net
realized gain... -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Total
distributions.... (0.05) (0.02) (0.04) (0.02) (0.75) (0.42)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE
AT END OF PERIOD. $ 11.45 $ 12.03 $ 1.00 $ 1.00 $ 9.21 $ 10.15
======== ======= ======= ======= ======= =======
Total investment
return#.......... (4.38)% 20.54% 3.82% 2.40% (1.84)% 5.63%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Ratio of net
investment
income.......... 0.63% 0.46%* 3.97% 2.65%* 8.16% 8.46%*
Ratio of net
expenses........ 0.73% 0.73%* 0.62% 0.62%* 0.67% 0.67%*
Ratio of
expenses (before
reimbursement).. 0.91% 1.15%* 0.89% 1.10%* 0.87% 1.02%
Portfolio
turnover rate... 39% 28% -- -- 483% 501%
Net assets at
end of period
(in 000's)...... $113,999 $43,485 $71,116 $26,733 $61,641 $46,766
<CAPTION>
INDEXED EQUITY TOTAL RETURN
PORTFOLIO PORTFOLIO
----------------------------- -----------------------------
FOR YEAR JAN. 29, 1993** FOR YEAR JAN. 29, 1993**
ENDED TO ENDED TO
DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1994 DEC. 31, 1993
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD........... $ 10.58 $ 10.00 $ 11.32 $ 10.00
------------- --------------- ------------- ---------------
Net investment
income........... 0.24 0.19 0.27 0.16
Net realized and
unrealized gain
(loss) on
investments...... (0.15) 0.67 (0.72) 1.34
------------- --------------- ------------- ---------------
Total from
investment
operations....... 0.09 0.86 (0.45) 1.50
------------- --------------- ------------- ---------------
Less
distributions:
Dividends to
shareholders
from net
investment
income.......... (0.24) (0.19) (0.29) (0.16)
Distributions to
shareholders
from net
realized gain on
investment
transactions.... (0.05) (0.08) -- --
Distributions in
excess of net
realized gain... -- (0.01) -- (0.02)
------------- --------------- ------------- ---------------
Total
distributions.... (0.29) (0.28) (0.29) (0.18)
------------- --------------- ------------- ---------------
NET ASSET VALUE
AT END OF PERIOD. $ 10.38 $ 10.58 $ 10.58 $ 11.32
------------- --------------- ------------- ---------------
Total investment
return#.......... 0.76% 8.53% (3.99)% 15.04%
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Ratio of net
investment
income.......... 2.61% 2.54%* 3.50% 3.48%*
Ratio of net
expenses........ 0.47% 0.47%* 0.69% 0.69%*
Ratio of
expenses (before
reimbursement).. 0.68% 0.96%* 0.88% 1.07%*
Portfolio
turnover rate... 8% 7% 297% 197%
Net assets at
end of period
(in 000's)...... $63,164 $43,081 $122,333 $55,548
</TABLE>
----
* Annualized
** Commencement of operations.
# The total investment return quotations reflected above do not reflect ex-
penses incurred by the Separate Accounts or in connection with the Poli-
cies. Including such expenses in these quotations would have reduced such
figures for all periods shown.

4
<PAGE>

BOND PORTFOLIO

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD..... $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99 $ 13.55 $ 12.21 $ 10.07
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net investment income... 0.88 0.95 0.92 1.02 1.12 1.11 1.20 1.06 1.04 1.10
Net realized and
unrealized gain (loss)
on investments.......... (1.34) 0.53 0.13 0.91 (0.23) 0.30 (0.21) (0.91) 0.61 1.04
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total from investment
operations.............. (0.46) 1.48 1.05 1.93 0.89 1.41 0.99 0.15 1.65 2.14
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Less distributions:
Dividends to
shareholders from net
investment income...... (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18) (1.71) (0.20) --
Distributions to
shareholders from net
realized gain on
investment
transactions........... -- -- -- -- -- -- -- -- (0.11) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total distributions..... (0.88) (0.96) (0.91) (1.02) (1.12) (1.12) (1.18) (1.71) (0.31) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE AT END
OF PERIOD............... $ 12.09 $ 13.43 $ 12.91 $ 12.77 $ 11.86 $ 12.09 $ 11.80 $ 11.99 $ 13.55 $ 12.21
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Total investment
return*................. (3.39)% 11.40% 8.26% 16.27% 7.36% 11.95% 8.26% 1.07% 13.55% 21.25%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Ratio of net investment
income................. 6.53% 6.79% 7.54% 8.22% 8.88% 8.83% 8.66% 8.15% 7.98% 9.63%
Ratio of net expenses.. 0.62%# 0.27%# 0.25% 0.25% 0.25% 0.25% 0.26% 0.25% 0.26% 0.29%
Ratio of expenses
(before reimbursement). 0.67%# 0.27%# 0.25% 0.25% 0.25% 0.25% 0.26% 0.25% 0.26% 0.29%
Portfolio turnover
rate................... 88% 41% 10% 57% 81% 20% 105% 53% 68% 226%
Net assets at end of
period (in 000's)...... $206,686 $228,683 $203,947 $164,124 $138,826 $134,542 $122,725 $130,901 $132,942 $22,492
</TABLE>
----
# At the Fund's shareholder meeting on December 14, 1993, the shareholders
voted to have the Portfolio assume certain administrative and operating ex-
penses of the Fund previously borne by New York Life.
* The total investment return quotations reflected above do not reflect ex-
penses incurred by the Separate Accounts or in connection with the Policies.
Including such expenses in these quotations would have reduced such figures
for all periods shown.

5
<PAGE>

GROWTH EQUITY PORTFOLIO

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD..... $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87 $ 11.60 $ 9.37
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net investment income... 0.22 0.24 0.22 0.27 0.32 0.42 0.46 0.36 0.34 0.29
Net realized and
unrealized gain (loss)
on investments.......... (0.03) 1.88 1.72 4.10 (1.20) 2.82 1.43 (0.49) 0.03 1.94
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total from investment
operations.............. 0.19 2.12 1.94 4.37 (0.88) 3.24 1.89 (0.13) 0.37 2.23
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Less distributions:
Dividends to
shareholders from net
investment income...... (0.22) (0.25) (0.22) (0.29) (0.33) (0.44) (0.41) (0.52) (0.06) --
Distributions to
shareholders from net
realized gain on
investment
transactions........... (0.92) (1.76) (1.76) (1.51) (0.01) (1.28) -- -- (0.04) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total distributions..... (1.14) (2.01) (1.98) (1.80) (0.34) (1.72) (0.41) (0.52) (0.10) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE AT END
OF PERIOD............... $ 14.69 $ 15.64 $ 15.53 $ 15.57 $ 13.00 $ 14.22 $ 12.70 $ 11.22 $ 11.87 $ 11.60
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Total investment
return*................. 1.20% 13.71% 12.42% 33.62% (6.19)% 25.51% 16.85% (1.13)% 3.21% 23.80%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Ratio of net investment
income................. 1.41% 1.42% 1.50% 1.78% 2.33% 2.80% 3.32% 2.71% 2.76% 2.75%
Ratio of net expenses.. 0.62%# 0.27%# 0.27% 0.29% 0.29% 0.28% 0.30% 0.26% 0.26% 0.29%
Ratio of expenses
(before reimbursement). 0.65%# 0.27%# 0.27% 0.29% 0.29% 0.28% 0.30% 0.26% 0.26% 0.29%
Portfolio turnover
rate................... 108% 121% 82% 100% 114% 108% 111% 71% 43% 45%
Net assets at end of
period (in 000's)...... $330,161 $319,196 $272,834 $204,147 $152,824 $171,116 $150,538 $156,198 $122,100 $20,801
</TABLE>
----
# At the Fund's shareholder meeting on December 14, 1993, the shareholders
voted to have the Portfolio assume certain administrative and operating ex-
penses of the Fund previously borne by New York Life.
* The total investment return quotations reflected above do not reflect ex-
penses incurred by the Separate Accounts or in connection with the Policies.
Including such expenses in these quotations would have reduced such figures
for all periods shown.

6
<PAGE>

PERFORMANCE AND YIELD INFORMATION

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

The yield of the Cash Management Portfolio refers to the annualized income
generated by an investment in that Portfolio over a specified seven-day peri-
od. 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 rein-
vestment.

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

The total return of the Capital Appreciation, Government, High Yield Corpo-
rate Bond, International Equity, Total Return, Value, Bond, Growth Equity, and
Indexed Equity Portfolios refers to return quotations assuming an investment
has been held in the Portfolio for various periods of time including, but not
limited to, one year and a period measured from the date the Portfolio com-
menced 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. Per-
formance 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 be-
low. 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 invest-
ment objective of each Portfolio will result in the preservation or growth of
capital.

Because each Portfolio has different investment objectives and policies, the
investment returns of each Portfolio and the degree of financial and market
risks to which each Portfolio is subject can be expected to differ. Financial
risk refers to the ability of an issuer of a debt 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 mar-
kets in general and, particularly for debt securities, to changes in the over-
all 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; howev-
er, such high turnover rate may not have any effect on the tax obligations of
the Fund since the Fund intends to qualify as a

7
<PAGE>

"regulated investment company." (See "Taxes" at page 29 and the Statement of
Additional Information).

CAPITAL APPRECIATION PORTFOLIO

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

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

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

During periods of unusual market conditions, when MacKay-Shields believes
that investing for temporary defensive purposes is appropriate, all or a por-
tion of the Portfolio's assets may be invested in cash or cash equivalent
short-term obligations (see page 17).

It is not the Portfolio's policy generally to invest or trade for short-term
profits; however, portfolio securities may be disposed of without regard to
the length of time held whenever MacKay-Shields is of the opinion that a secu-
rity no longer has an appropriate appreciation potential or has reached its
anticipated level of performance, or when another security appears to offer
relatively greater appreciation potential or a relatively greater anticipated
level of performance, subject to certain tax requirements for qualification as
a regulated investment company under the Internal Revenue Code of 1986, as
amended ("the Code").

CASH MANAGEMENT PORTFOLIO

The Portfolio's investment objective is to seek as high a level of current
income as is considered consistent with the preservation of capital and li-
quidity. 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 invest-
ing in the following instruments:

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

(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 associa-
tions 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 corpora-
tions 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.

8
<PAGE>

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 dol-
lar-weighted average portfolio maturity of not more than 90 days. Further, in-
vestments 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 ob-
ligations by at least two major rating agencies assigning a rating to the se-
curities or issuer, or, if only one rating agency has assigned a rating, by
that agency. Purchases of securities which are unrated or rated by only one
rating agency must be approved or ratified by the Fund's Board of Directors
(the "Directors"). Securities which are rated (or that have been issued by an
issuer that is rated with respect to a class of short-term debt obligations,
or any security within that class, comparable in priority and quality with
such securities) in the highest category by at least two major rating agencies
are designated "First Tier Securities." Securities rated in the top two cate-
gories by at least two major rating agencies, but which are not rated in the
highest category by two or more major rating agencies, are designated "Second
Tier Securities." Securities which are unrated may be purchased only if they
are deemed to be of comparable quality to rated securities. MacKay-Shields,
the Portfolio's investment adviser, shall determine whether a security pre-
sents minimal credit risk under procedures adopted by the Directors.

The Portfolio may not invest more than 5% of its total assets in the securi-
ties of any one issuer, except this limitation shall not apply to U.S. Govern-
ment securities and repurchase agreements thereon. The Portfolio may, however,
invest more than 5% of its total assets in the First Tier Securities of a sin-
gle issuer for a period of up to three business days after the purchase there-
of, 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 invest-
ment, 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 as-
sets in the securities of banks and bank holding companies, including certifi-
cates of deposit and bankers' acceptances.

For a description of the ratings referred to above, see Appendix A to the
Statement of Additional Information.

GOVERNMENT PORTFOLIO

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

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

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

The agencies and instrumentalities that issue U.S. Government securities in-
clude, among others specifically mentioned in this Prospectus: Federal Land
Banks, Farmers Home Administration, Central Bank for Coop-

9
<PAGE>

eratives, Federal Intermediate Credit Banks, Federal Farm Credit Bank, Student
Loan Marketing Association and U.S. Maritime Administration.

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

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

Except during temporary defensive periods, not less then 65% of the value of
the Portfolio's total assets will be invested in U.S. Government securities.
The remaining 35% of the value of the Portfolio's total assets may be invested
in cash or cash equivalent obligations (see page 17). Such assets may also be
invested in securities such as privately-issued collateralized mortgage obli-
gations which are not U.S. Government securities, but which are backed or col-
lateralized by U.S. Government securities.

The Portfolio may purchase and write options, enter into futures contracts
and purchase and write options on futures, which are not U.S. Government secu-
rities, in order to attempt to hedge against changes in interest rates and to
seek current income. Transactions in options and futures contracts and the re-
alization of short-term gains when it is deemed advantageous to do so may re-
sult in higher brokerage and other transaction costs (see pages 20-23).

HIGH YIELD CORPORATE BOND PORTFOLIO

This Portfolio's primary objective is to maximize current income through in-
vestment in a diversified portfolio of high yield, high risk debt securities
which are ordinarily in the lower rating categories of recognized rating agen-
cies (that is, rated Baa to B by Moody's or BBB to B by S&P). The potential
for higher yields from these securities is accompanied by higher risk. Securi-
ties rated lower than Baa by Moody's or BBB by S&P or, if not rated, of equiv-
alent quality, are sometimes referred to as "high yield" securities or "junk
bonds." Capital appreciation is a secondary objective which will be sought
only when consistent with the Portfolio's primary objective. For example, cap-
ital appreciation will be sought by lengthening the maturities of high yield
debt securities held in the Portfolio's portfolio during periods when MacKay-
Shields, the Portfolio's invest-

10
<PAGE>

ment adviser, expects interest rates to decline. Debt securities offering the
high current income sought by the Portfolio normally include securities which
offer a current yield above that generally available on debt securities in the
three highest rating categories of the recognized rating agencies. They gener-
ally are considered speculative, lack characteristics of desirable invest-
ments, and involve greater volatility of price and risk of principal and in-
come default than securities in the higher rating categories. While the Port-
folio may invest without restriction in securities rated Ba or B by Moody's or
BB or B by S&P, (or unrated, but considered to be of comparable quality by
MacKay-Shields), the Portfolio will invest no more than 15% of the value of
its net assets in securities rated lower than B by Moody's or S&P (or unrated,
but considered to be of comparable quality by MacKay-Shields). For temporary
defensive purposes, the Portfolio may invest without limit in corporate debt
securities rated A or higher by Moody's or S&P whenever this is deemed appro-
priate by MacKay-Shields in response to market conditions. For a description
of these rating categories, see Appendix A to the Statement of Additional In-
formation. Since available yields and yield differentials vary over time, no
specific level of income or yield differential can ever be ensured.

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

Under normal market conditions at least 75% of the value of the Portfolio's
net assets will be invested in corporate debt securities. For temporary defen-
sive purposes the Portfolio may invest more than 25% of its net assets in U.S.
Government securities during periods of abnormal market conditions. The Port-
folio 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 indus-
try (issue size of $50 million or more) have averaged in excess of 105% of
yields of new issue long-term industrial bonds similarly rated (issue size of
$50 million or more). During periods of unusual market conditions, when Mac-
Kay-Shields believes that investing for defensive purposes is appropriate, all
or a portion of the Portfolio's assets may be invested in cash or cash equiva-
lent short-term obligations (see page 17). The Portfolio may invest up to 10%
of the value of its net assets in securities which are subject to legal or
contractual restrictions on resale (other than restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933) and securi-
ties which are not readily marketable.

Investments in securities offering the high current income sought by the
Portfolio, while generally providing greater income and potential opportunity
for gain than investments in higher rated securities, also entail greater
risk, including the possibility of default or bankruptcy of the issuer of such
securities. Risk of default or bankruptcy may be greater in periods of eco-
nomic uncertainty or recession, as the issuers of high yield securities may be
less able to withstand general economic downturns. MacKay-Shields seeks to re-
duce risk through diversification, credit analysis and attention to current
developments and trends in both the economy and financial markets. In addi-
tion, investments in foreign securities may serve to provide further diversi-
fication (see page 18). The value of all fixed-income securities, such as
those held by Portfolio, can be expected to change inversely with interest
rates. For a further discussion of the special risks of investing in lower
rated securities, see "Investment Practices Common to Two or More Portfolios--
Risks of Investing in High Yield Securities," at page 24 of this Prospectus.

The Portfolio seeks to maximize the return on its portfolio by taking advan-
tage of market developments, yield disparities and variations in the credit-
worthiness of issuers. This may result in increases or decreases in the Port-
folio's current income available for distribution to the Portfolio's share-
holders, and in the holding by the Portfolio of debt securities which sell at
moderate to substantial premiums or discounts from face value.

11
<PAGE>

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

INTERNATIONAL EQUITY PORTFOLIO

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

In pursuing its investment objective, the Portfolio will seek to invest in
securities that provide the potential for strong return but that do not, in
the judgment of MacKay-Shields, the Portfolio's investment adviser, present
undue or imprudent risk. Foreign investing involves certain risks which are
discussed in greater detail in the Statement of Additional Information and in
"Investment Practices Common to Two or More Portfolios--Foreign Securities,"
at page 18 of this Prospectus.

The Portfolio pursues its objectives by investing its assets in a diversi-
fied portfolio of common stocks, preferred stocks, warrants and comparable eq-
uity securities. Under normal circumstances, the Portfolio will invest at
least 65% of its total assets in equity securities of foreign corporations.
The Portfolio defines a "foreign corporation" to be an issuer, wherever orga-
nized, which does business primarily outside the United States. The Portfolio
intends to diversify across a variety of countries and will be invested in a
minimum of five countries exclusive of the United States. The Portfolio may
invest in the securities of issuers in Europe, the Far East, Canada, Australia
and Africa, as well as in the securities of issuers located in emerging market
countries, including countries in Latin America and other newly industrialized
countries such as South Korea and Taiwan, which MacKay-Shields believes pres-
ent favorable investment opportunities. Because the Portfolio will be invest-
ing in non-U.S. securities, it may be subject to greater risks and higher bro-
kerage and custodian expenses than funds which invest in U.S. securities. The
International Equity Portfolio is intended for long-term investors. An invest-
ment in the Portfolio should not constitute a complete investment program. For
a description of these and other risks and considerations, see "Investment
Practices Common to Two or More Portfolios," at page 17 of this Prospectus.

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

In making investment decisions for this Portfolio, MacKay-Shields will con-
sider such factors as prospects for relative economic growth, government poli-
cies 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 in-
vesting, under normal conditions, in foreign equity securities. However, under
exceptional conditions abroad or when it is believed that economic or market
conditions warrant, the Portfolio may, for temporary defensive purposes, in-
vest 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 the Statement of Additional
Information--Description of Securities Ratings"); and cash, including foreign
currency, or cash equivalents such as obligations of banks, commercial paper
and short-term

12
<PAGE>

obligations of U.S. or foreign issuers. Debt securities may have fixed, vari-
able or floating (including inverse floating) rates of interest.

The Portfolio also may invest in foreign securities in the form of American
Depository Receipts (ADRs), European Depository Receipts (EDRs), Global Depos-
itory Receipts (GDRs), International Depository Receipts (IDRs) or other simi-
lar 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 contrac-
tually 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 Euro-
pean bank or trust company evidencing ownership of the underlying foreign se-
curities. GDRs are receipts issued by either a U.S. or non-U.S. banking insti-
tution 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 "In-
vestment Practices Common to Two or More Portfolios," at page 17 of this Pro-
spectus for additional information on the Portfolio's permitted investments.

The Portfolio also may purchase and sell forward foreign exchange contracts
for purposes of seeking to enhance portfolio returns and manage portfolio risk
more efficiently. See "Investment Practices Common to Two or More Portfolios."
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 be-
tween 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 di-
versification when combined with a portfolio of foreign securities, and the
market risks of investing in specific foreign markets can at times be reduced
by currency strategies which may not involve the currency in which the foreign
security is denominated.

TOTAL RETURN PORTFOLIO

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

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

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

13
<PAGE>

be undervalued based upon factors such as ratios of market price to book val-
ue, estimated liquidating value and projected cash flow.

A minimum of 30% of net assets will be invested in debt securities. It is
contemplated that the Portfolio's long-term debt investments will consist pri-
marily of securities which are rated A or better by S&P or Moody's or, if
unrated, deemed to be of comparable creditworthiness by MacKay-Shields, the
Portfolio's investment adviser. Up to 20% of the value of the Portfolio's in-
vestment in debt securities may be in securities rated below A, provided that
they are rated at least Baa or Ba by Moody's, or BBB or BB by S&P, or, if
unrated, deemed to be of comparable creditworthiness by MacKay-Shields. In-
vestments 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 de-
fault, and other characteristics that may be regarded as speculative. In addi-
tion, Moody's regards securities rated Baa as having speculative characteris-
tics. Securities rated lower than Baa by Moody's or lower than BBB by S&P or,
if not rated, of equivalent quality, are sometimes referred to as "high yield"
(or "junk") bonds. For a further discussion of these special risks, see "Risks
of Investing in High Yield Securities," at page 24 of this Prospectus, and,
for a description of the S&P and Moody's rating categories, see Appendix A to
the Statement of Additional Information.

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

When MacKay-Shields deems it advisable because of unusual economic or market
conditions, the Portfolio may invest all or a portion of its assets in cash or
cash equivalent short-term obligations (see page 17).

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

VALUE PORTFOLIO

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

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

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

14
<PAGE>

its assets in cash or cash equivalent short-term obligations (see page 17).

BOND PORTFOLIO

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

Up to 25% of the total assets of the Bond Portfolio may be invested in debt
securities which are rated lower than the four highest grades described above,
but which are rated at least B, or in convertible debt securities, and pre-
ferred and convertible preferred stocks. Securities rated by S&P or Moody's
below the four highest grades are not considered "investment grade" and gener-
ally involve more investment risks than securities rated investment grade, in-
cluding risks of price volatility, greater risk of issuer default on payments
of interest or repayment of principal, and other characteristics that may be
regarded as speculative. (See "Risks of Investing in High Yield Securities,"
at page 24). 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 25 and "Foreign Securities" at
page 18.) 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 conver-
sion of fixed income securities or by exercising warrants purchased together
with such securities.

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

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

GROWTH EQUITY PORTFOLIO

The Growth Equity Portfolio seeks long term growth of capital, with income
as a secondary consideration. In order to achieve this objective, the Growth
Equity Portfolio will invest principally in common stocks and securities con-
vertible into or with rights to purchase common stocks of well established,
well managed companies which appear to have better than average growth poten-
tial. 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 to-
tal assets in securities convertible into or with rights to purchase common
stocks, such as warrants. The Portfolio may also make loans of portfolio secu-
rities and may invest in foreign securities. These strategies may involve ad-
ditional risks. (See "Lending of Portfolio Securities" at page 25 and "Foreign
Securities" at page 18).

Securities convertible into common stocks consist primarily of debt securi-
ties or preferred stocks which have warrants attached or which are exchange-
able into a specified number of shares of common stock. A warrant is a secu-
rity which gives the holder the right, for a specified period of time, to ac-
quire 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 exer-
cise 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

15
<PAGE>

convertible securities, depending on their terms which vary widely, may in-
volve similar risks of loss.

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

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

INDEXED EQUITY PORTFOLIO

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

The S&P 500 is a capitalization-weighted index of 500 different companies
selected by S&P including companies in the industrial, utility, financial and
transportation sectors. The Portfolio uses the S&P 500 as the standard perfor-
mance comparison because it represents approximately two-thirds of the total
market value of all U.S. common stocks and is well known to investors. Because
of the market-value weighing, the 50 largest companies in the S&P 500 cur-
rently account for approximately 45% of the Index. Typically, companies in-
cluded in the S&P 500 are the largest and most dominant firms in their respec-
tive industries. As of December 31, 1994, the five largest companies in the
S&P 500 were: General Electric (2.61%), AT&T (2.35%), Exxon Corporation
(2.25%), Coca Cola Co. (1.98%), and Royal Dutch Petroleum (1.71%).

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

Monitor, the Portfolio's investment adviser, seeks to provide investment re-
sults 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 propor-
tion as their representation in the S&P 500. The Portfolio will be managed us-
ing 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, ad-
justments 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 corre-
lation between the performance of the Indexed Equity Portfolio and the S&P 500
is expected to be over 0.95 on an annual basis, before fees and expenses. 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 pro-
portion to changes in the S&P 500. Unlike other funds which generally seek to
beat market averages, often with unpredictable results, index funds seek to
match their respective indexes. No attempt is made to manage the Portfolio in
the traditional sense using economic, financial and market analysis.

Monitor believes the indexing approach described above is an effective
method of duplicating percentage changes in the S&P 500. It is a reasonable
expectation that there will be a close correlation between the Portfolio's
performance and that of the S&P 500 in both rising and falling markets. The
Portfolio's ability to track the S&P 500, however, may be affected by, among
other things, transaction costs, changes in either the composition of the S&P
500 or number of shares outstanding for the components of the S&P 500, and the
timing and amount of shareholder contributions and redemptions, if any.

The Portfolio may utilize stock index options and stock index futures con-
tracts and options on stock index futures contracts to a limited extent. Op-
tions, 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

16
<PAGE>

under such contracts or transactions represent not more than 20% of the Port-
folio's total assets (see pages 20-23).

The Portfolio will attempt to be fully invested at all times, and in any
event, at least 80% of its total assets will be invested in stocks or deriva-
tive securities (options, futures, or options on futures).

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 un-
committed cash balances or to maintain liquidity to meet shareholder redemp-
tions. 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' accept-
ances and commercial paper. The Portfolio also may borrow money for temporary
or emergency purposes, purchase securities on a when-issued basis, and enter
into firm commitments to purchase securities.

INVESTMENT PRACTICES COMMON TO TWO OR MORE PORTFOLIOS

As described below, each Portfolio, except the Cash Management, Bond and
Growth Equity Portfolios, for hedging and other appropriate risk management
purposes, may enter into contracts for the future delivery of securities
("futures contracts") or futures contracts based on appropriate securities in-
dexes. Each Portfolio, except the Cash Management, Bond and Growth Equity
Portfolios, may buy put and call options on individual securities, may sell
covered call and put options on individual securities (such as GNMA stand-by
commitments), may purchase put and call options on securities indexes, may
purchase and sell (write) options on futures contracts and may lend portfolio
securities if such loans are fully collateralized. Each Portfolio may engage
in arbitrage. In addition, each Portfolio may also buy securities on a "when-
issued" basis, buy zero coupon bonds, invest in cash equivalents and enter
into repurchase agreements. Each Portfolio, except the Government Portfolio,
may, and the International Equity Portfolio will, invest in foreign securi-
ties. Further, each Portfolio, except the Cash Management Portfolio, Govern-
ment Portfolio, Bond Portfolio and Growth Equity Portfolio, may purchase and
sell options on foreign currencies, enter into forward foreign currency ex-
change contracts and currency futures contracts, and purchase and sell options
on such futures contracts, as discussed below. Finally, the High Yield Corpo-
rate Bond, Total Return and Value Portfolios may invest, to varying degrees,
in debt securities that are rated below investment grade.

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

CASH EQUIVALENTS

Each of the Portfolios may invest in cash or cash equivalents, which in-
clude, 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 instrumen-
tality thereof (including repurchase agreements collateralized by such securi-
ties); obligations of banks (certificates of deposit, bankers' acceptances and
time deposits) which at the date of investment have capital, surplus, and un-
divided profits (as of the date of their most recently published financial
statements) in excess of $100,000,000, and obligations of other banks or sav-
ings and loan associations if such obligations are federally insured; commer-
cial 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.

17
<PAGE>

Each Portfolio may invest in commercial paper issued in reliance on the ex-
emption 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 dis-
position under federal securities laws and is generally sold to institutional
investors, such as the Portfolios, who agree that they are purchasing the pa-
per 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) commer-
cial paper is normally resold to other institutional investors like the Port-
folios 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 cer-
tain restricted securities is permitted under a Securities and Exchange Com-
mission ("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 restric-
tions on resale under federal securities laws. The Rule provides an exemption
from registration for resales of otherwise restricted securities to qualified
institutional buyers. The Fund believes that the Staff of the SEC has left the
question of determining the liquidity of all restricted securities to the Di-
rectors, who will consider established factors in making such a determination.

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements, including foreign re-
purchase agreements, to earn income, provided less than 15% of the net assets
of a portfolio (10% with respect to the Cash Management, Bond and Growth Eq-
uity Portfolios) would be, in the aggregate, invested in repurchase agreements
maturing in more than seven days and illiquid securities which are not readily
marketable. (See "Liquidity," at page 25 of this Prospectus). A repurchase
agreement is an agreement whereby a Portfolio purchases securities and the
seller agrees to repurchase the securities within a particular time at a spec-
ified price. Such price will exceed the original purchase price, the differ-
ence being income to the Portfolio, and will be unrelated to the interest rate
on the purchased security. The Fund's Custodian will maintain the custody of
the purchased securities for the duration of the agreement. The value of the
purchased securities, including accrued interest, will at all times exceed the
value of the repurchase agreement. In the event of the bankruptcy of the
seller or the failure of the seller to repurchase the securities as agreed, a
Portfolio could suffer losses, including loss of interest on or principal of
the security and costs associated with delay and enforcement of the repurchase
agreement. The Directors have reviewed and approved certain sellers who they
believe to be creditworthy and have authorized the Portfolios to enter into
repurchase agreements with such sellers.

REVERSE REPURCHASE AGREEMENTS

Each Portfolio may enter into reverse repurchase agreements, including for-
eign reverse repurchase agreements. These agreements involve the sale of debt
securities (obligations) held by a Portfolio, with an agreement to repurchase
the obligations at an agreed upon price, date and interest payment. The pro-
ceeds will be used to purchase other debt securities either maturing, or under
an agreement to resell, at a date simultaneous with or prior to the expiration
of the reverse repurchase agreement. Reverse repurchase agreements will be
utilized, when permitted by law, only when the interest income to be earned
from the investment of the proceeds from the transaction is greater than the
interest expense of the reverse repurchase transaction. When a Portfolio en-
ters into such an agreement, it will establish a segregated account with the
Fund's Custodian in which it will maintain cash or cash equivalents or other
liquid high grade debt obligations equal in value to the repurchase price
(which price will already include interest charges). If the buyer of the debt
securities pursuant to the reverse repurchase agreement becomes bankrupt, re-
alization upon the underlying securities may be delayed and there is a risk of
loss due to any decline in their value. Reverse repurchase agreements will not
extend for more than 30 days nor will such agreements involve more than 10% of
the net assets of a Portfolio.

FOREIGN SECURITIES

Each Portfolio, except the Government Portfolio, may purchase foreign secu-
rities. The Bond and Growth

18
<PAGE>

Equity Portfolios may purchase foreign securities up to a maximum of 10% of
the Portfolio's total assets. Securities of foreign issuers, particularly non-
governmental 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 reg-
ulations. 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 ac-
counting 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 obli-
gations, and the difficulty of assessing economic trends in foreign countries.

FOREIGN CURRENCY TRANSACTIONS

Each Portfolio, except the Cash Management and the Government Portfolios,
may, to the extent it invests in foreign securities, enter into forward for-
eign currency exchange contracts in order to protect against the adverse ef-
fect that changes in future foreign currency exchange rates may have on its
investment portfolio or on its investment activities that are undertaken in
foreign currencies.

Each Portfolio, except the Cash Management and Government Portfolios, may
enter into contracts to purchase foreign currencies to protect against an an-
ticipated rise in the U.S. dollar price of securities it intends to purchase.
Each Portfolio, except the Government and Cash Management Portfolios, may en-
ter into contracts to sell foreign currencies to protect against the decline
in value of its foreign currency-denominated portfolio securities due to a de-
cline in the value of foreign currencies against the U.S. dollar. The Portfo-
lios 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 ex-
change rates between the two currencies are correlated. Contracts to sell for-
eign 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 secu-
rities 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 and U.S. Government securities or other high-grade debt obliga-
tions at least equal in value to commitments for when-issued securities. Such
segregated securities either will mature or, if necessary, be sold on or be-
fore the settlement date.

MORTGAGE PASS-THROUGH SECURITIES

Each Portfolio, except the Indexed Equity Portfolio, may purchase mortgage
pass-through securities. Mortgage pass-through securities are securities rep-
resenting interests in "pools" of mortgages in which payments of both interest
and principal on the securities are generally made monthly, in effect "passing
through" monthly payments made by the individual borrowers on the residential
mortgage loans which underlie the securities (net of fees paid to the issuer
or guarantor of the securities). Early repayment of principal on mortgage
pass-through securities (arising from prepayments of principal due to sale of
the underlying property, refinancing, or foreclosure, net of fees and costs
which may be incurred) may expose a Portfolio to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, the value of the premium would be lost in the event of
prepayment. Like other fixed-income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when in-
terest rates are declining, the value of mortgage-related securities

19
<PAGE>

with prepayment features may not increase as much as other fixed-income secu-
rities.

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 insti-
tutions, private mortgage insurance companies, mortgage bankers and other sec-
ondary market issuers) may be supported by various forms of insurance or guar-
antees, including individual loan, title, pool and hazard insurance and let-
ters 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 secu-
rities. Similar to a bond, interest and pre-paid principal on a CMO are paid
monthly, quarterly or semiannually. CMOs may be collateralized by whole mort-
gage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are struc-
tured into multiple classes, with each class bearing a different stated matu-
rity. 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 re-
tired.

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

OPTIONS ON SECURITIES

Each Portfolio, except the Cash Management, Bond and Growth Equity Portfo-
lios, may write covered put and call options and purchase put and call options
on any securities in which it may invest that are traded on U.S. and foreign
securities and options exchanges and in the over-the-counter market, each in
accordance with its respective investment objectives and policies. In addi-
tion, the High Yield Corporate Bond and Value Portfolios may purchase puts and
calls, other than "protective puts," (as such term is defined below) with a
value of up to 5% of such Portfolio's respective assets.

Each Portfolio, except the Cash Management, Bond and Growth Equity Portfo-
lios, may sell (write) covered call options, however, the High Yield Corporate
Bond and Value Portfolios may write covered call options with respect to no
more than 25% of the value of their respective net assets. Call options sold
by a Portfolio are agreements by a Portfolio, for a premium received by the
Portfolio, to sell a particular security in its portfolio at a specified price
if the option is exercised during the option period.

Each Portfolio, except the Cash Management, Bond and Growth Equity Portfo-
lios, also may sell covered put options, however, the Government Portfolio may
not write any covered put options on U.S. Government securities if, as a re-
sult, more than 50% of its total assets (taken at current value) would be sub-
ject to put options written by such Portfolio. Put options sold by a Portfolio
are agreements by a Portfolio, for a premium received by the Portfolio, to
purchase specified securities at a specified price if the option is exercised
during the option period. The Portfolio covers options it has sold by holding
a position in the underlying securities (the usual practice in the case of a
call) or by other means which would permit timely satisfaction of the Portfo-
lio's obligations as writer of the option, such as by depositing in a segre-
gated account liquid high-grade debt obligations, or cash, equal in value to
the exercise price of the option
20
<PAGE>

(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 portfo-
lio securities transactions alone. Even a Portfolio that is not designed to
generate income might benefit from selling covered options when MacKay-Shields
or Monitor believes that little risk is involved. However, a Portfolio may
forego the benefits of appreciation on securities sold pursuant to call op-
tions, or pay a higher price for securities acquired pursuant to put options
written by the Portfolio.

Each Portfolio, except the Cash Management, Bond and Growth Equity Portfo-
lios, 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 pur-
chase of a call option would entitle the Portfolio, in exchange for the pre-
mium paid, to purchase a security at a specified price upon exercise of the
option during the option period. The Portfolio would ordinarily realize a gain
if the value of the securities increased during the option period above the
exercise price sufficiently to cover the premium. The Portfolio would have a
loss if the value of the securities remained below the sum of the premium and
the exercise price during the option period.

Each Portfolio, except the Cash Management, Bond and Growth Equity Portfo-
lios, may purchase put options on any securities in which it may invest in an-
ticipation 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 identi-
cal or substantially identical to a security already held by the Portfolio or
to a security which the Portfolio has the right to purchase. The High Yield
Corporate Bond and Value Portfolios may purchase protective puts with a value
of up to 25% of such Portfolios' respective net assets. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased during
the option period below the exercise price sufficiently to cover the premium.
The Portfolio would recognize a loss if the value of the securities remained
above the difference between the premium and the exercise price.

The purchase and writing of options involves certain risks. During the op-
tion 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 obliga-
tions 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 ful-
fill its obligation as a writer of the option. Once an option writer has re-
ceived an exercise notice, it cannot elect a closing purchase transaction in
order to terminate its obligation under the option and must deliver or pur-
chase the underlying securities at the exercise price.

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

OPTIONS ON FOREIGN CURRENCIES

Each Portfolio, except the Cash Management, Government, Bond and Growth Eq-
uity Portfolios, may, to the extent it invests in foreign securities, purchase
and write put and call options on foreign currencies for the purpose of pro-
tecting against declines in the dollar value of foreign portfolio securities
and against increases in the U.S. dollar cost of foreign securities to be ac-
quired. As with other kinds of options transactions, however, the writing of
an option on foreign currency will constitute only a partial hedge up to the
amount of the premium received and a Portfolio could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incur-
ring 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

21
<PAGE>

Portfolio's position, a Portfolio may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by a Portfolio will be traded on U.S. and foreign exchanges or over-
the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Government, High Yield Corporate Bond and Total Return Portfolios may
each enter into contracts for the future delivery of debt securities, and in-
dex-based futures contracts for debt securities that are sufficiently corre-
lated to its respective portfolio, in order to attempt to protect against the
effects of adverse changes in interest rates, to lengthen or shorten the aver-
age maturity or duration of a Portfolio's portfolio (practices sometimes known
as "hedging") and for other appropriate risk management purposes. Such futures
contracts would obligate the Portfolio to make or take delivery of certain
debt securities or an amount of cash upon expiration of the futures contract,
although most futures positions typically are closed out through an offsetting
transaction prior to expiration.

Similarly, the Capital Appreciation, the International Equity, the Total Re-
turn, the Value, and the Indexed Equity Portfolios may enter into contracts
for the future delivery of securities, and stock index futures contracts to
protect against changes in stock market prices. The High Yield Corporate Bond
Portfolio may enter into contracts for the future delivery of debt securities,
and index-based futures contracts that are sufficiently correlated to its
portfolio, in order to attempt to protect against the effects of adverse
changes in interest rates, to lengthen or shorten the average maturity or du-
ration of this Portfolio's portfolio (practices sometimes known as "hedging")
and for other appropriate risk management purposes. Such futures contracts
would obligate the High Yield Corporate Bond Portfolio to make or take deliv-
ery of certain debt securities or an amount of cash upon expiration of the
futures contract, although most futures positions typically are closed out
through an offsetting transaction prior to expiration. In addition, each Port-
folio, except the Cash Management , Government, Bond and Growth Equity Portfo-
lios may, to the extent it invests in foreign securities, enter into contracts
for the future delivery of foreign currencies to protect against changes in
currency exchange rates.

When interest rates are changing and portfolio values are falling, the sale
of futures contracts can offset a decline in the value of a Portfolio's cur-
rent portfolio securities. When interest rates are changing and portfolio val-
ues 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 con-
tracts can also be used as a substitute for the purchase of longer-term secu-
rities to lengthen the average maturity or duration of a Portfolio's portfo-
lio. Similarly, a Portfolio can sell futures contracts on a specified currency
to protect against a decline in the value of such currency and its portfolio
securities which are denominated in such currency. A Portfolio can purchase
futures contracts on foreign currency to fix the price in U.S. dollars of a
security denominated in such currency that a Portfolio has acquired or expects
to acquire.

Each Portfolio, except the Cash Management, Bond and Growth Equity Portfo-
lios, may purchase put and call options on futures contracts, which give a
Portfolio the right to sell or purchase the underlying futures contract for a
specified price upon exercise at any time during the option period. These
Portfolios also may write put and call options on futures contracts. A Portfo-
lio receives a premium in return for granting to the purchaser of the option
the right to sell to or buy from the Portfolio the underlying futures contract
for a specified price upon exercise at any time during the option period.
These Portfolios also may engage in related closing transactions with respect
to options on futures. It is the current policy of the Fund that the Portfo-
lios will purchase or write only options on futures contracts that are traded
on a U.S. or foreign exchange or board of trade.

These Portfolios will engage in transactions in futures contracts only in an
effort to protect against a decline in the value of a Portfolio's securities,
to offset an increase in the price of securities that a Portfolio intends to
acquire, or as a substitute for the purchase of longer-term securities to
lengthen the average maturity

22
<PAGE>

or duration of a Portfolio's portfolio. A Portfolio will enter into futures
contracts on securities, securities indexes or currencies for defensive pur-
poses only to provide a hedge against market fluctuations or for duration man-
agement and other appropriate risk management purposes and not for the purpose
of speculation. The initial margin deposits for futures contracts and premiums
paid for related options may not exceed 5% of the value of the Portfolio's to-
tal assets. Futures transactions involve brokerage costs and require a Portfo-
lio to segregate assets to cover contracts or options. A Portfolio may lose
the expected benefit of the transactions if interest rates, currency exchange
rates or securities prices change in an unanticipated manner. Such unantici-
pated changes in interest rates, currency exchange rates or securities prices
may also result in poorer overall performance of a Portfolio than if the Port-
folio had not entered into futures transactions.

There are several risks associated with the use of futures and options on
futures as hedging and risk management techniques. There may be an imperfect
correlation between changes in the prices of futures and changes in the prices
of securities or currencies which are the subject of the hedge. If the price
of a futures contract changes less than the price of the securities or curren-
cies which are the subject of the hedge, the hedge will not be fully effec-
tive. 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 curren-
cies because the value of such securities is likely to fluctuate as a result
of independent factors not related to currency fluctuations.

It is also possible that, when a Portfolio has sold stock index futures to
hedge its portfolio against a decline in the market, the market may advance
while the value of the particular securities held in the Portfolio's portfolio
may decline. If this occurred, the Portfolio would incur a loss on the futures
contracts and also experience a decline in the value of its portfolio securi-
ties. The Portfolios do not intend to use U.S. stock index futures to hedge
positions in securities of non-U.S. companies.

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

OPTIONS ON SECURITIES INDEXES

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

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

Gains or losses on a Portfolio's transactions in securities index options
depend on price movements in the securities market generally (or, for narrow
market indexes, in a particular industry or segment of the market) rather than
the price movements of individual securities

23
<PAGE>

held by a Portfolio. In this respect, purchasing a securities index put (or
call) option is analogous to the purchase of a put (or call) on a securities
index futures contract.

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

ZERO COUPON BONDS

The Portfolios may purchase zero coupon bonds, which are debt obligations
issued without any requirement for the periodic payment of interest. Zero cou-
pon 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 ma-
turities.

FLOATERS AND INVERSE FLOATERS

Each Portfolio, other than the Capital Appreciation, Growth Equity, Indexed
Equity, and Value 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 periodical-
ly, typically every six months. While, because of the interest rate reset fea-
ture, floaters provide a Portfolio with a certain degree of protection against
rises in interest rates, a Portfolio will participate in any declines in in-
terest rates as well.

Each Portfolio, other than the Capital Appreciation, Cash Management, Gov-
ernment, Growth Equity, Indexed Equity, and Value Portfolios may, to the ex-
tent permitted by law, invest in leveraged inverse floating rate debt instru-
ments ("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 mag-
nitude of the change in the index rate of interest. The higher degree of lev-
erage inherent in inverse floaters is associated with greater volatility in
their market values. Accordingly, the duration of an inverse floater may ex-
ceed its stated final maturity. Certain inverse floaters may be deemed to be
illiquid securities for purposes of the Portfolios' limitation on investments
in such securities.

RISKS OF INVESTING IN HIGH YIELD SECURITIES

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

Investment in high yield bonds involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
bonds may be regarded as predominantly speculative with respect to the is-
suer's continuing ability to meet principal and interest payments. Analysis of
the creditworthiness of

24
<PAGE>

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 invest-
ment 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 eco-
nomic 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 eco-
nomic downturns or individual corporate developments. A projection of an eco-
nomic 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 securi-
ties, the market prices of such securities are affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash.

The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary trad-
ing 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 in-
vestor 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 portfo-
lio security if MacKay-Shields or 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 Capital Appreciation, Government, Interna-
tional Equity, Total Return and Indexed Equity Portfolios may not invest more
than 15% of their respective net assets in securities for which market dispo-
sition is not readily available. The Cash Management, High Yield Corporate
Bond, Value, Bond and Growth Equity Portfolios are limited to an investment of
no more than 10% of their respective net assets in such securities. Market
disposition may not be readily available for repurchase agreements maturing in
more than seven days and for securities having restrictions on resale.

LENDING OF PORTFOLIO SECURITIES

Each Portfolio, except the Cash Management Portfolio, may also seek to in-
crease 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 equiva-
lents, 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 Ad-
viser determines to make securities loans, it is intended that the value of
the securities loaned would not exceed one-third of the value of the total as-
sets of the lending Portfolio if the loan is from the International Equity
Portfolio, would not exceed 30% of the value of the total assets of the lend-
ing Portfolio if the loan is from the Capital Appreciation, Government, High
Yield Coporate Bond, Total Return, Value and Indexed Equity Portfolios and
would not exceed 20% of the value of the total assets of the lending Portfolio
if such Portfolio is the Bond or Growth Equity Portfolio.

The primary risk involved in lending securities is that the borrower will
fail financially when the collateral is insufficient to replace the full
amount of the loaned

25
<PAGE>

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 Portfo-
lio 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 Direc-
tors of the Fund may exercise its fiduciary duties to vote on any material
questions brought before the shareholders or creditors.

ARBITRAGE

Each Portfolio may sell in one market a security which it owns and simulta-
neously 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 in-
vestment program is subject to further restrictions which are described in the
Statement of Additional Information. Unless otherwise specified, the policies
and restrictions for each Portfolio are non-fundamental and may be changed
without shareholder approval.

THE FUND AND ITS MANAGEMENT

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

INVESTMENT ADVISERS

MacKay-Shields Financial Corporation, 9 West 57th Street, New York, NY
10019, is the investment adviser to the Capital Appreciation, Government, Cash
Management, Total Return, High Yield Corporate Bond, Value and International
Equity 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 pri-
vately held until 1984 when it became an autonomously managed subsidiary of
New York Life. As of December 31, 1994, MacKay-Shields managed over $12.6 bil-
lion in assets, primarily for institutional clients.

The investment adviser to the Indexed Equity Portfolio is Monitor Capital
Advisers, Inc., 504 Carnegie Center, Princeton, NJ 08540. As of December 31,
1994, Monitor managed over $963 million in assets. Monitor, which was incorpo-
rated in 1988, is a wholly-owned subsidiary of NYLIFE Inc. and an indirect
wholly-owned subsidiary of New York Life.

New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010 is
the investment adviser to the Growth Equity and Bond Portfolios. New York Life
manages other assets, including assets held in its own general account and
various separate accounts (amounting to $69 billion as of December 31, 1994)
and in the general account and various separate accounts of NYLIAC (amounting
to $14.5 billion as of December 31, 1994).

Pursuant to the Investment Advisory Agreements for each Portfolio, MacKay-
Shields, Monitor or New York Life (each an "Adviser" and collectively the "Ad-
visers"), 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 dis-
position of securities and other supervision of its assets, and maintains cer-
tain records relating thereto.

26
<PAGE>

The Fund, on behalf of each Portfolio, pays MacKay-Shields, Monitor 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 fol-
lows:

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

PORTFOLIO MANAGERS

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

Ravi Akhoury (Government Portfolio, Total Return Portfolio)
------------

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

Edward J. Munshower, III (Government Portfolio)
-------------------

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

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

Mr. Carryl joined MacKay-Shields as a Director in 1992 with twelve years of
prior investment management and research experience. Immediately prior to
joining MacKay-Shields, Mr. Carryl was employed at Value Line as Research Di-
rector and Senior Portfolio manager. Mr. Carryl is a portfolio manager for the
Capital Appreciation and Total Return Portfolios.

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

Mr. Spelman is a Director of MacKay-Shields. He specializes in equity secu-
rities. Mr. Spelman joined MacKay-Shields in 1991 after working as a securi-
ties analyst at Oppenheimer & Co., Inc. Mr. Spelman is a portfolio manager for
the Capital Appreciation and Total Return Portfolios.

Albert R. Corapi, Jr. (Bond Portfolio)
---------------------

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

James Agostisi (Growth Equity Portfolio)
--------------

Mr. Agostisi is an Assistant Vice President for New York Life. He joined New
York Life in 1984 and subsequently served as its head money market trader.
Since 1989, he has worked as an analyst in both equities and high yield secu-
rities and has served as the head equity trader at New York Life for the last
six years. He is a portfolio manager for the Growth Equity Portfolio.

Thomas Kolefas (Value Portfolio)
--------------

Mr. Kolefas is a Director of MacKay-Shields. He specializes in equity secu-
rities. Mr. Kolefas joined

27
<PAGE>

MacKay-Shields in 1991, after working as an equity research analyst in the in-
vestment research department of the investment sector of The Bank of New York
(1987-1991). Mr. Kolefas will serve as a portfolio manager of the Value Port-
folio.

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

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

Steven Tananbaum (High Yield Corporate Bond Portfolio)
----------------

Mr. Tananbaum is a Director of MacKay-Shields. He specializes in high yield
securities. Mr. Tananbaum joined MacKay-Shields in 1989, after working as a
high yield and merger associate intern in the corporate finance department of
Kidder Peabody. Mr. Tananbaum will serve as a portfolio manager of the High
Yield Corporate Bond Portfolio.

Michael M. Perelstein (International Equity Portfolio)
---------------------

Mr. Perelstein joined MacKay-Shields as a Managing Director in 1989 with
more than six years of international and global investment experience. Immedi-
ately prior to joining MacKay-Shields, he had been the International Strate-
gist at Brinson Partners Inc. Mr. Perelstein will serve as a portfolio manager
of the International Equity Portfolio.

Shigemi Takagi (International Equity Portfolio)
--------------

Mr. Takagi is a Director of MacKay-Shields. He specializes in international
equity securities. Mr. Takagi joined MacKay-Shields in 1989, after working at
First Boston Corporation as an equity analyst in their international equity
research department. Mr. Takagi will serve as a portfolio manager of the In-
ternational Equity Portfolio.

ADMINISTRATOR

NYLIAC (the "Administrator"), 51 Madison Avenue, New York, NY 10010, a cor-
poration organized under the laws of the State of Delaware and a wholly-owned
subsidiary of New York Life, is the Administrator for the Portfolios. NYLIAC
may retain NYLIFE Securities Inc. ("NYLIFE Securities"), an indirect wholly-
owned subsidiary of New York Life, to perform certain of the services to be
provided by NYLIAC pursuant to the terms of the Administration Agreement.

Under the Administration Agreement for each Portfolio, NYLIAC administers
the Portfolios' business affairs, subject to the supervision of the Directors
and, in connection therewith, furnishes the Portfolios with office facilities
and is responsible for ordinary clerical, recordkeeping and bookkeeping serv-
ices and for the financial and accounting records required to be maintained by
the Portfolios, excluding those maintained by the Portfolios' Custodian, ex-
cept those as to which the Administrator has supervisory functions, and other
than those being maintained by the Advisers. In connection with its adminis-
tration 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 Admin-
istrator, except the fees and expenses of Directors not affiliated with the
Administrator or the Advisers; and

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

28
<PAGE>

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 transac-
tions, (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 prepa-
ration 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 prepar-
ing, printing and mailing prospectuses and reports to shareholders, (x) liti-
gation and indemnification expenses and other extraordinary expenses not in-
curred 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 governmen-
tal 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 invest-
ment 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 out-
standing 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 ac-
cordance with instructions received from Owners. The current prospectus for
the Policy (which is attached at the front of this Prospectus) more fully de-
scribes 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 re-
demption of the Portfolios' shares.

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

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXES

Each Portfolio intends to elect to qualify as a "regulated investment compa-
ny" under the provisions of

29
<PAGE>

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 re-
spect to an amount, if any, by which such company does not meet specified dis-
tribution requirements. Each Portfolio intends to comply with such distribu-
tion requirements and therefore does not expect to incur the four percent non-
deductible excise tax.

To comply with regulations under Section 817(h) of the Code, each Portfolio
will, after a one-year start-up period, be required to diversify its invest-
ments, so that on the last day of each quarter of a calendar year, no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% is represented by any two investments, no more than 80% is rep-
resented 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 dis-
cussion is included herein as to the federal income tax consequences at the
shareholder level. For information concerning the federal income tax conse-
quences to purchasers of the Policies, see the attached prospectus for the
Policy.

DIVIDENDS AND DISTRIBUTIONS

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

GENERAL INFORMATION

CUSTODIAN

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

REPORTS TO SHAREHOLDERS

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

OTHER INFORMATION

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

30
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
NEW YORK LIFE MFA SERIES FUND, INC. INVESTMENT POLICIES(7)............. 2
Fundamental Investment Policies Applicable to Certain Portfolios of
the Fund............................................................ 2
Fundamental Investment Policies Applicable to the Bond and Growth
Equity Portfolios................................................... 5
Other Investment Policies With Respect to Certain Portfolios......... 6
Additional Investment Restrictions Applicable to Certain Portfolios.. 6
Other Investment Policies of the Bond and Growth Equity Portfolios... 8
Other Investment Policies of the High Yield Corporate Bond Portfolio. 9
Government Portfolio................................................. 9
Cash Management Portfolio............................................ 10
Investment Practices Common to Two or More Portfolios................ 12
Additional Investment Policies Applicable to the International Equity
Portfolio........................................................... 29
State Insurance Law Requirements..................................... 30
Portfolio Turnover................................................... 31
MANAGEMENT OF THE FUND(26)............................................. 32
Investment Advisers(26).............................................. 33
Administration Agreements............................................ 34
Portfolio Brokerage.................................................. 34
DETERMINATION OF NET ASSET VALUE....................................... 35
How Portfolio Securities Will be Valued.............................. 35
INVESTMENT PERFORMANCE CALCULATIONS.................................... 36
Cash Management Portfolio Yield...................................... 36
Government, Bond and High Yield Corporate Bond Portfolio Yield....... 36
Total Return Calculations............................................ 37
PURCHASE AND REDEMPTION OF SHARES(29).................................. 37
TAXES(29).............................................................. 38
GENERAL INFORMATION(30)................................................ 39
LEGAL COUNSEL.......................................................... 40
FINANCIAL STATEMENTS................................................... 40, A-1
APPENDIX A............................................................. B-1
</TABLE>

Numbers in parentheses refer to page numbers of corresponding sections of the
Fund's current Prospectus.

31
<PAGE>

PROSPECTUS
MAY 1, 1995

CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO
4550 MONTGOMERY AVENUE
SUITE 1000N
BETHESDA, MARYLAND 20814
(301) 951-4820
(800) 368-2750

The Calvert Responsibly Invested Balanced Portfolio (formerly the Calvert
Socially Responsible Series) (the "Portfolio") is a series of Acacia Capital
Corporation (the "Fund"), an open-end management investment company whose in-
vestment advisor is Calvert Asset Management Company, Inc. (the "Investment
Advisor").

The investment objective of the Portfolio is to achieve a total return above
the rate of inflation through an actively managed, nondiversified portfolio of
common and preferred stocks, bonds, and money market instruments which offer
income and capital growth opportunity and which satisfy the social concern
criteria established for the Portfolio. There can be no assurance that the ob-
jective of the Portfolio will be realized. See "Investment Objective and Poli-
cies."

This Prospectus sets forth the information that a prospective policyholder
should know before directing investment in the Portfolio and it should be read
and kept for future reference. A Statement of Additional Information dated May
1, 1995, which contains further information about the Fund, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. A copy of the Statement of Additional Information may be
obtained without charge by calling the Fund at the numbers above, or by writ-
ing the Fund at 4550 Montgomery Avenue, Suite 1000N, Bethesda, Maryland 20814.

Shares of the Fund are offered only to insurance companies for allocation to
certain of their variable separate accounts.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights....................................................... 3
The Fund................................................................... 6
Investment Objective and Policies of the Series............................ 6
The Fund and Its Management................................................ 9
Purchase and Redemption of Shares.......................................... 11
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dividends and Distributions................................................ 12
Total Return and Yield Information......................................... 12
Taxes...................................................................... 12
Transfer and Dividend Disbursing Agent..................................... 12
</TABLE>

2
<PAGE>

FINANCIAL HIGHLIGHTS

The following table provides information about the Portfolio's financial
history. It expresses the information in terms of a single share outstanding
throughout each period. The table has been audited by those independent ac-
countants whose reports are included in the Fund's Annual Report to Sharehold-
ers for each of the respective periods presented. The table should be read in
conjunction with the financial statements and their related notes. The current
Annual Report to Shareholders is incorporated by reference into the Statement
of Additional Information.

CRI BALANCED (FORMERLY, CRI MANAGED GROWTH)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Net asset value, beginning of period................ $1.537 $1.465
=========== ===========
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. .046 .045
Net realized and unrealized gain (loss) on invest-
ments............................................ (.097) .072
----------- -----------
Total from investment operations................ (.051) .117
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income.............. (.046) (.045)
----------- -----------
Total distributions............................. (.046) (.045)
----------- -----------
Total increase (decrease) in net asset value........ (.097) .072
----------- -----------
Net asset value, end of period...................... $1.440 $1.537
=========== ===========
Total return/1/..................................... (3.30%) 8.00%
Ratio of expenses to average net assets............. .80% .81%
Ratio of net income to average net assets........... 3.39% 3.69%
Increase reflected in net income ratio due to ex-
pense reimbursement................................ -- --
Portfolio turnover.................................. 43% 14%
Net assets, end of period........................... $66,592,680 $53,999,759
Number of shares outstanding at end of period (in
thousands)......................................... 46,244 35,142
</TABLE>

-------
/1/ Total return is for the Portfolio only and does not reflect sales charges
and expenses deducted by the Insurance Companies. Total return has not been
audited prior to 1989.

3
<PAGE>

CRI BALANCED (FORMERLY, CRI MANAGED GROWTH)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1992 1991 1990
----------- ----------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period..... $1.403 $1.249 $1.247
=========== =========== ==========
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. .044 .050 .050
Net realized and unrealized gain on in-
vestments............................. .062 .154 .002
----------- ----------- ----------
Total from investment operations..... .106 .204 .052
----------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income... (.044) (.050) (.050)
----------- ----------- ----------
Total distributions.................. (.044) (.050) (.050)
----------- ----------- ----------
Total increase in net asset value........ .062 .154 .002
----------- ----------- ----------
Net asset value, end of period........... $1.465 $1.403 $1.249
=========== =========== ==========
Total return/1/.......................... 7.61% 16.40% 4.18%
Ratio of expenses to average net assets.. .85% .85% .77%
Ratio of net income to average net as-
sets.................................... 4.05% 4.49% 5.69%
Increase reflected in net income ratio
due to expense reimbursement............ -- -- --
Portfolio turnover....................... 15% 12% 11%
Net assets, end of period................ $28,471,358 $14,945,973 $6,759,546
Number of shares outstanding at end of
period (in thousands)................... 19,433 10,656 5,410
</TABLE>

-------
/1/ Total return is for the Portfolio only and does not reflect sales charges
and expenses deducted by the Insurance Companies. Total return has not been
audited prior to 1989.

4
<PAGE>

CRI BALANCED (FORMERLY, CRI MANAGED GROWTH)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
FROM INCEPTION
(SEPT. 2, 1986)
TO DEC. 31,
1989 1988 1987 1986
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $1.068 $1.004 $0.958 $1.000
========== ========== ========== ========
INCOME FROM INVESTMENT OP-
ERATIONS
Net investment income.... .042 .054 .019 .010
Net realized and
unrealized gain (loss)
on investments.......... .179 .064 .046 (.042)
---------- ---------- ---------- --------
Total from investment
operations............ .221 .118 .065 (.032)
---------- ---------- ---------- --------
DISTRIBUTIONS TO SHAREHOLD-
ERS
Dividends from net in-
vestment income......... (.042) (.054) (.019) (.010)
---------- ---------- ---------- --------
Total distributions.... (.042) (.054) (.019) (.010)
---------- ---------- ---------- --------
Total increase (decrease)
in net asset value........ .179 .064 .046 (.042)
---------- ---------- ---------- --------
Net asset value, end of pe-
riod...................... $1.247 $1.068 $1.004 $0.958
========== ========== ========== ========
Total return/1/............ 20.69% 11.75% 6.78% 3.31%
Ratio of expenses to aver-
age net assets............ .50% .50% .50% .10%(a)
Ratio of net income to av-
erage net assets.......... 4.85% 4.95% 3.72% 1.59%(a)
Increase reflected in net
income ratio due to
expense reimbursement..... .46% .30% .82% 1.41%(a)
Portfolio turnover......... 28% 40% 17% --
Net assets, end of period.. $2,572,761 $1,293,692 $1,022,484 $143,745
Number of shares
outstanding at end of
period
(in thousands)............ 2,064 1,211 1,018 150
</TABLE>

-------
(a) = Annualized

/1/ Total return is for the Portfolio only and does not reflect sales charges
and expenses deducted by the Insurance Companies. Total return has not been
audited prior to 1989.

5
<PAGE>

THE FUND

Acacia Capital Corporation (the "Fund"), a Maryland corporation, is an open-
end investment company. The shares of the Fund currently are sold only to in-
surance companies (collectively, the "Insurance Companies") for allocation to
their separate accounts (collectively, the "Variable Accounts") to fund the
benefits under certain variable annuity and variable life insurance policies
(collectively, the "Policies") issued by such companies. Accordingly, the in-
terest of a policy owner in the shares is subject to the terms of the particu-
lar annuity or life insurance policy and is described in the attached prospec-
tus for one of the Policies, which should be reviewed carefully by a person
considering the purchase of a Policy. The rights of the Insurance Companies as
shareholders should be distinguished from the rights of a policy owner which
are described in the Policies. Policy owners should consider that the invest-
ment return experience of the Portfolio will affect the value of the policy
and the amount of annuity payments or life insurance benefits received under a
policy. See the attached prospectus(es) for the Policies for a description of
the relationship between increases or decreases in the net asset value of
Portfolio shares (and any distributions on such shares) and the benefits pro-
vided under a policy.

INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO

The investment objective of the Portfolio discussed below is not fundamental
and may be changed upon 60 days' written notice to shareholders without a
shareholder vote. There can be no assurance that the investment objective of
the Portfolio will be realized.

The investment objective of the Portfolio is to seek growth of capital
through investment in enterprises that make a significant contribution to so-
ciety through their products and services and through the way they do busi-
ness. The Portfolio is designed for long-term investment and seeks to achieve
a total return above the rate of inflation through an actively managed portfo-
lio of stocks, bonds and money market instruments (including repurchase agree-
ments secured by such instruments) selected with a concern for the social im-
pact of each investment. It is not the policy of the Portfolio to take great
risks to obtain speculatively or aggressively high returns. There is no prede-
termined percentage of assets allocated to either stocks or bonds or money
market instruments, although, as an operating policy, the Portfolio will have
at least 25% of its assets in fixed income senior securities. Equity invest-
ments are selected by the Sub-Advisor, NCM Capital Management Group, Inc.,
subject to direction and control by the Fund's Advisor and Board of Directors.
Fixed-income investments are selected by the Advisor. The Investment Advisors
determine the mix for the Portfolio depending upon their view of market condi-
tions and the economic outlook.

To implement its investment objectives, the Portfolio follows the following
policies which, unless otherwise specified as a fundamental policy, are oper-
ating policies and may be changed without shareholder vote. The Portfolio may
purchase both common and preferred stock. For its fixed-income investments,
the Portfolio normally invests in bonds which are considered investment grade,
including bonds which are direct or indirect obligations of the U.S. Govern-
ment, or which at the date of investment are rated AAA, AA, A, or BBB by Stan-
dard & Poor's Corporation or Aaa, Aa, A, or Baa by Moody's Investors Service,
Inc. Bonds rated Baa or BBB are considered medium grade obligations and pos-
sess speculative characteristics. The Portfolio may purchase lower-rated obli-
gations but no more than 20% of its assets may be invested in obligations
rated lower than B. The Portfolio may purchase without limitation bonds which
are unrated but of comparable quality to bonds rated B or better, as deter-
mined by the Advisors under the supervision of the Board of Directors. See Ad-
ditional Risk Factors--Non-Investment Grade Securities, and the Statement of
Additional Information for additional information concerning bond ratings.

The Portfolio may purchase money market instruments, including repurchase
agreements with recognized securities dealers and banks secured by such in-
struments, selected in accordance with the Portfolio's social criteria. Such
money market instruments may include: obligations issued or guaranteed as to
principal by the U.S. Government, its agencies and instrumentalities;

6
<PAGE>

U.S. dollar-denominated certificates of deposit, time deposits and bankers'
acceptances of U.S. banks, generally banks with assets in excess of $1 bil-
lion; and commercial paper which at the date of investment is rated A-1 by
Standard and Poor's Corporation or Prime-1 by Moody's Investors Service, Inc.,
or if not rated, is of comparable quality.

Due to the particular social objective of the Portfolio, opportunities may
exist to promote promising approaches to social goals through privately placed
instruments. Since private placement investments are restricted securities and
have no readily available market, the Portfolio has a fundamental policy that
such investments in the Portfolio are limited to no more than 10% of the Port-
folio's assets.

All investments for the Portfolio are selected with a concern for the social
impact of each investment. The Portfolio has developed the following criteria
for the selection of organizations in which the Portfolio invests. The Portfo-
lio seeks to invest in a producer or service provider which:

1. Delivers safe products and services in ways that sustain our natural
environment.

2. Is managed with participation throughout the organization in defining
and achieving objectives.

3. Negotiates fairly with its workers, provides an environment supportive
of their wellness, does not discriminate on the basis of race, gender, re-
ligion, age, disability, ethnic origin or sexual orientation, does not con-
sistently violate regulations of the Equal Employment Opportunity Commis-
sion, and provides opportunities for women, disadvantaged minorities and
others from whom equal opportunities have often been denied.

4. Fosters awareness of a commitment to human goals, such as creativity,
productivity, self-respect, and responsibility, within the organization and
the world, and continually recreates a context within which these goals can
be realized.

The Portfolio will not invest in an issuer primarily engaged in the produc-
tion of nuclear energy or in the manufacture of equipment to produce nuclear
energy, business activities in support of repressive regimes, or the manufac-
ture of weapons systems.

Each investment is selected on the basis of its abilities to contribute to
the dual objective of the Portfolio. All potential investments are first
screened for financial soundness and then evaluated according to the Portfo-
lio's social criteria. To the greatest extent possible, investments are made
in companies exhibiting unusual, positive accomplishment with respect to one
or more of the criteria. All companies must meet the Portfolio's minimum stan-
dards for all the criteria. It should be noted that the Portfolio's social
criteria tend to limit the availability of investment opportunities more than
is customary with other investment companies.

The selection of an organization for investment by the Series does not con-
stitute endorsement or validation by the Fund, nor does the exclusion of an
organization necessarily reflect failure to satisfy the Series' social crite-
ria. Policyholders directing investment in the Series are invited to send
brief descriptions of companies they believe might be suitable for investment
by the Series.

RISKS OF FOREIGN SECURITIES

The Portfolio may invest up to 10% of its assets in the securities of for-
eign issuers. There are substantial and different risks involved in investing
in foreign securities. You should consider these risks carefully. For example,
there is generally less publicly available information about foreign companies
than is available about companies in the U.S. Foreign companies are generally
not subject to uniform audit and financial reporting standards, practices and
requirements comparable to those in the U.S.

Foreign securities involve currency risks. The U.S. dollar value of a for-
eign security tends to decrease when the value of the dollar rises against the
foreign currency in which the security is denominated and tends to increase
when the value of the dollar falls against such currency. Fluctuations in ex-
change rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be returned to
the country of origin, based on the exchange rate at the time of disbursement,
and restrictions on capital flows may be imposed. Losses and other expenses
may be incurred in converting between various currencies in connections with
purchases and sales of foreign securities.

7
<PAGE>

Foreign stock markets are generally not as developed or efficient as those
in the U.S. In most foreign markets volume and liquidity are less than in the
U.S. and, at times, volatility of price can be greater than that in the U.S.
Fixed commissions on foreign stock exchanges are generally higher than the ne-
gotiated commissions on U.S. exchanges. There is generally less government su-
pervision and regulation of foreign stock exchanges, brokers and companies
than in the U.S.

There is also the possibility of adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, political or social instability, or dip-
lomatic developments which could adversely affect investments, assets or secu-
rities transactions of the Fund in some foreign countries. The Fund is not
aware of any investment or exchange control regulations which might substan-
tially impair the operations of the Fund as described, although this could
change at any time.

Investing in emerging markets in particular, those countries whose economies
and capital markets are not as developed as those of more industrialized na-
tions, carries its own special risks. Among other risks, the economies of such
countries may be affected to a greater extent than in other countries by price
fluctuations of a single commodity, by severe cyclical climatic conditions,
lack of significant history in operating under a market-oriented economy, or
by political instability, including risk of expropriation.

For many foreign securities, there are U.S. dollar-denominated American De-
positary Receipts ("ADRs"), which are traded in the U.S. on exchanges or over
the counter and are generally sponsored and issued by domestic banks. ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. ADRs do not eliminate all the risk in-
herent in investing in the securities of foreign issuers. However, by invest-
ing in ADRs rather than directly in foreign issuers' stock, the Fund can avoid
currency risks during the settlement period for either purchases or sales. In
general, there is a large, liquid market in the U.S. for many ADRs. The infor-
mation available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are trad-
ed, which standards are more uniform and more exacting than those to which
many foreign issuers may be subject. The Fund may also invest in European De-
positary Receipts ("EDRs"), which are receipts evidencing an arrangement with
a European bank similar to that for ADRs and are designed for use in the Euro-
pean securities markets. EDRs are not necessarily denominated in the currency
of the underlying security.

The dividends and interest payable on certain of the Fund's foreign securi-
ties may be subject to foreign withholding taxes, thus reducing the net amount
available for distribution to the Fund's shareholders. You should understand
that the expense ratio of the Portfolio can be expected to be higher than
those of investment companies investing only in domestic securities since the
costs of operations are higher.

ADDITIONAL NONFUNDAMENTAL INVESTMENT POLICIES

The Portfolio has adopted the following operating (i.e., nonfundamental) in-
vestment policies which may be changed by the Board of Directors without
shareholder approval:

The Portfolio may invest up to less than one percent of its respective as-
sets in investments in securities that offer a rate of return below the then
prevailing market rate and that present attractive opportunities for further-
ing the Portfolio's social criteria. In applying this restriction, the per-
centage of a Portfolio's assets in such securities is based on the aggregate
cumulative value at the time of the respective acquisitions of such securities
currently held by the Portfolio. These securities are unrated and are gener-
ally considered non-investment grade debt securities which involve a greater
risk of default or price decline than investment-grade securities. Through di-
versification and credit analysis, investment risk can be reduced, although
there can be no assurance that losses will not occur.

ADDITIONAL RISK FACTORS

Nondiversified Portfolios

There may be risks associated with the Portfolio being nondiversified. Spe-
cifically, since a relatively high

8
<PAGE>

percentage of the assets of the Portfolio may be invested in the obligations
of a limited number of issuers, the value of the shares of a nondiversified
Portfolio may be more susceptible to any single economic, political or regula-
tory event than the shares of a diversified Portfolio would be.

Interest Rate Risk

All fixed income instruments are subject to interest-rate risk: that is, if
market interest rates rise, the current principal value of a bond will de-
cline. In general, the longer the maturity of the bond, the greater the de-
cline in value will be.

Non-Investment Grade Securities

Noninvestment-grade securities tend to be less sensitive to interest rate
changes than higher-rated investments, but are more sensitive to adverse eco-
nomic changes and individual corporate developments. This may affect the is-
suer's ability to make principal and interest payments on the debt obligation.
There is also a greater risk of price declines due to changes in the issuer's
creditworthiness. Because the market for lower-rated securities may be less
active ("thinner") than for higher-rated securities, it may be difficult for
the fund to sell the securities. Because of a lack of objective data, a thin-
ly-traded market may make it difficult to value the securities, so that the
Board of Directors may have to exercise its judgment in assigning a value. See
the Appendix in the Statement of Additional Information for more information
on bond ratings.

REPURCHASE AGREEMENTS

A repurchase agreement is a transaction where the Portfolio buys a security
at one price and simultaneously agrees to sell that same security back to the
original owner at a higher price. Under the direction and supervision of the
Fund's Board of Directors, the Investment Advisor and Sub-Advisor review the
creditworthiness of the other party to the agreement and must find it satis-
factory before engaging in a repurchase agreement. In all instances the Fund
holds underlying securities with a value equal to the total repurchase price
the other party has agreed to pay. However, in the event of the bankruptcy of
the other party, the Portfolio could experience delays in recovering its mon-
ey, may realize only a partial recovery or even no recovery, and may also in-
cur disposition costs. The Portfolio is not expected generally to invest more
than a very small portion of its assets in repurchase agreements.

OTHER INFORMATION

In addition to the investment policies described above, the investment pro-
gram is subject to further policies and restrictions which are described in
the Statement of Additional Information. The Portfolio may, to a limited ex-
tent, lend its portfolio securities and engage in reverse repurchase agree-
ments. Unless otherwise specified, the policies and restrictions for the Port-
folio are not fundamental and may be changed without shareholder approval.
Policyholder inquiries should be directed to the Fund at (301) 951-4820 or
(800) 368-2750, 4550 Montgomery Avenue, Suite 1000N, Bethesda, Maryland 20814.

THE FUND AND ITS MANAGEMENT

The Fund is an open-end management investment company. The Board of Direc-
tors supervises the business affairs and investments of the Fund, which are
managed on a daily basis by the Fund's Investment Advisor. The Fund was incor-
porated under the laws of the State of Maryland on September 27, 1982. The
Fund is a series fund which issues classes of stock, one for each Portfolio.

INVESTMENT ADVISOR

The Fund's investment advisor is Calvert Asset Management Company, Inc. (the
"Investment Advisor"), which is located at 4550 Montgomery Avenue, Suite
1000N, Bethesda, Maryland 20814. Calvert Asset Management is a wholly-owned
subsidiary of Calvert Group, Ltd., which is in turn an indirect wholly-owned
subsidiary of Acacia Mutual Life Insurance Company. As of December 31, 1994,
Calvert Group, Ltd. had assets in excess of $4.2 billion under management and
administration. Pursuant to its investment advisory agreement with the Fund,
the Investment Advisor man-

9
<PAGE>

ages the fixed-income investments of the Portfolio and is responsible for the
overall management of the business affairs of each Portfolio, subject to the
direction and authority of the Fund's Board of Directors.

The Sub-Advisor to the Portfolio is NCM Capital Management Group, Inc.
(NCM). Pursuant to its Investment Sub-Advisory Agreement with the Investment
Advisor, NCM manages the equity portion of the Portfolio selections for the
Portfolio. NCM was founded by Maceo K. Sloan in 1986 as a subsidiary of North
Carolina Mutual Life Insurance Company, which was established by Mr. Sloan's
ancestors in 1898 and is one of the oldest and largest minority-owned finan-
cial institutions in the country. NCM has been an employee-owned subsidiary of
Sloan Financial Group since 1991. Sloan Financial Group is controlled by Mr.
Sloan and Justin F. Beckett, Executive Vice President and a Director of NCM.
NCM is one of the largest minority-owned investment management firms in the
country, and provides products in equity, fixed-income and balanced portfolio
management. It is also one of the industry leaders in the employment and
training of minority and women investment professionals. NCM has served as
sub-advisor to the Portfolio since February 1995.

Wendell E. Mackey, Vice President of NCM, is the portfolio manager with re-
spect to the Portfolio's equity investments. Mr. Mackey earned his B.B.A. de-
gree from Howard University, and his M.M degree from Kellogg Graduate School
of Management at Northwestern University. He subsequently worked with several
securities firms before joining NCM as an equity portfolio manager in 1993. He
has managed the Portfolio since February 1995.

Ms. Denzler manages the Portfolio's fixed-income investments. She has been
managing funds for the Advisor since 1988. She holds a B.S. degree from Rad-
ford University and is a Chartered Financial Analyst.

ADVISORY FEE

The Investment Advisor is receives from the Portfolio a monthly base fee,
computed on a daily basis at an annual rate of 0.70% of the average daily net
assets of the Portfolio.

The Advisor pays the Sub-advisor a base fee of 0.25% of one-half of the
Portfolio's average net assets. In addition, under the circumstances described
below, the Advisor and Sub-advisor may earn (or have their fees reduced by)
performance fee adjustments based on the extent to which performance of the
Portfolio exceeds or trails the Lipper Balanced Funds Index. Payment of the
performance fee adjustment begins July 1, 1996. The specific adjustments are
as follows:

Advisor's Performance Fee Adjustment

<TABLE>
<CAPTION>
PERFORMANCE VERSUS THE PERFORMANCE FEE
LIPPER BALANCED FUNDS INDEX ADJUSTMENT
--------------------------- ---------------
<S> <C>
6% to (less than) 12% 0.05%
12% to (less than) 18% 0.10%
18% or more 0.15%
</TABLE>

Sub-advisor's Performance Fee Adjustment

The performance fee adjustment to the Sub-advisor is paid out of the fee the
Advisor receives from the Portfolio. The initial performance period will be
the twelve month period between July 1, 1995, and July 1, 1996. Each month an
additional month's performance will be factored into the calculation until a
total of 36 months comprises the performance computation period. Payment by
the Portfolio of the performance adjustment will be conditioned on: (1) the
performance of the Portfolio as a whole having exceeded the Lipper Balanced
Funds Index; and (1) payment of the performance adjustment not causing the
Portfolio's performance to fall below the Lipper Balanced Funds Index.

EXPENSES

The Fund's expenses, which are accrued daily, include: the fee of the In-
vestment Advisor; costs of executing portfolio transactions; pricing costs;
interest; taxes; custodian and transfer agent fees; legal and auditing fees;
bookkeeping and dividend disbursing expenses; and certain other expenses re-
lating to the Fund's operations. The

10
<PAGE>

Fund's organizational expenses were paid by the Investment Advisor, and other
expenses that the investment advisory agreement does not state are payable by
the Fund will be assumed by the Investment Advisor. Certain expenses are paid
by the Portfolio that incurs them, while other expenses are allocated among
each Series on the basis of its relative size (that is, the amount of its net
assets), or by the Board of Directors as appropriate.

The Investment Advisor has agreed to reimburse the Fund for the amount, if
any, by which the aggregate expenses of the Portfolio (including the invest-
ment advisory fee but excluding brokerage commissions, interest, taxes, and
extraordinary expenses) exceed the limit of any state in which the Portfolios'
shares are qualified for sale. Expenses constituted 0.80% of the average net
assets of the Portfolio for 1994.

CAPITAL STOCK

The Fund issues separate shares of stock for each of its Portfolios. Shares
of each of the series have equal rights with regard to voting, redemptions,
dividends, distributions, and liquidations with respect to that series. No se-
ries has preference over another series. When issued, shares are fully paid
and nonassessable and do not have preemptive or conversion rights or cumula-
tive voting rights. The Fund's shareholders, the Insurance Companies, will
vote Fund shares allocated to the Variable Accounts in accordance with in-
structions received from policy owners. Under certain circumstances, which are
described in the accompanying prospectus of the variable life policy, the vot-
ing instructions received from variable life insurance policy owners may be
disregarded.

PURCHASE AND REDEMPTION OF SHARES

The Fund offers its shares, without sales charge, only for purchase by the
Insurance Companies for allocation to their Variable Accounts. Shares are pur-
chased by the Variable Accounts at the net asset value of the Portfolio next
determined after the Insurance Company receives the premium payment. The Fund
continuously offers its shares in the Portfolio at a price equal to the net
asset value per share. Initial and subsequent payments allocated to the Fund
are subject to the limits applicable in the Policies issued by the Insurance
Companies.

It is conceivable that in the future it may be disadvantageous for both an-
nuity Variable Accounts and life insurance Variable Accounts, or for Variable
Accounts of different Insurance Companies, to invest simultaneously in the
Fund, although currently neither the Insurance Companies nor the Fund foresee
any such disadvantages to either variable annuity or variable life insurance
policy owners of any Insurance Company. The Fund's Board of Directors intends
to monitor events in order to identify any material conflicts between such
policy owners and to determine what action, if any, should be taken in re-
sponse thereto.

The Insurance Companies redeem shares of the Fund to make benefit and sur-
render payments under the terms of its Policies. Redemptions are processed on
any day on which the Fund is open for business (each day the New York Stock
Exchange is open), and are effected at the Fund's net asset value next deter-
mined after the appropriate Insurance Company receives a surrender request in
acceptable form.

Payment for redeemed shares will be made promptly, but in no event later
than seven days. However, the right of redemption may be suspended or the date
of payment postponed in accordance with the Rules under the 1940 Act. The
amount received upon redemption of the shares of the Fund may be more or less
than the amount paid for the shares, depending upon the fluctuations in the
market value of the assets owned by the Fund. The Fund redeems all full and
fractional shares of the Portfolio for cash. The redemption price is the net
asset value per share. Payment for shares redeemed will generally be made
within seven days after receipt of a proper notice of redemption.

The net asset value of the shares of the Portfolio is determined once daily
as of the close of business of the New York Stock Exchange, on days when the
Exchange is open for business, or for any other day when there is a sufficient
degree of trading in the investments of the Portfolio to affect materially its
net asset value per share (except on days when no orders to purchase or redeem
shares of the Portfolio have been received). The net

11
<PAGE>

asset value is determined by adding the values of all securities and other as-
sets of the Portfolio, subtracting liabilities and expenses, and dividing by
the number of outstanding shares of the Portfolio.

Except for money market instruments maturing in 60 days or less, securities
held by the Portfolio are valued at their market value if market quotations
are readily available. Otherwise, such securities are valued at fair value as
determined in good faith by the Board of Directors, although the actual calcu-
lations may be made by persons acting pursuant to the direction of the Board.
All money market instruments with a remaining maturity of 60 days or less are
valued on an amortized cost basis.

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute substantially all of the net in-
vestment income, if any, of the Portfolio. For dividend purposes, net invest-
ment income of the Portfolio consists of all payments of dividends or interest
received by such Portfolio less estimated expenses (including the investment
advisory fee). All net realized capital gains, if any, of each Portfolio are
declared and distributed periodically, no less frequently than annually. All
dividends and distributions are reinvested in additional shares of the Portfo-
lio at net asset value.

TOTAL RETURN AND YIELD INFORMATION

The Portfolio may advertise its "total return" from time to time. Total re-
turn refers to the total change in value of an investment in the Portfolio
over a specified period. It differs from yield in that yield figures measure
only the income component of the Portfolios portfolio investments, while total
return includes not only the effect of income dividends but also any change in
net asset value, or principal amount, during the stated period. The total re-
turn of the Portfolio is the ratio of the increase (or decrease) in value of a
hypothetical investment in the Portfolio at the end of a measuring period to
the amount initially invested in the Portfolio. Total return is computed by
taking the total number of shares purchased by a hypothetical $1,000 invest-
ment, adding all additional shares purchased within the period with reinvested
dividends and distributions, calculating the value of those shares at the end
of the period, and dividing the result by the initial $1,000 investment. For
periods of more than one year, the cumulative total return is then adjusted
for the number of years, taking compounding into account, to calculate average
annual total return during that period.

Total return is historical in nature and is not intended to indicate future
performance. Total return will be quoted for the most recent one-year period,
and the average annual total return will be quoted for the most recent five-
and ten-year periods, or the period from the commencement of the public offer-
ing of the Portfolio, if shorter.

Actual total return quotations may also be advertised for other specified
periods, such as calendar years and calendar quarters. Cumulative total return
for periods of more than one year may also be quoted. These figures will be
accompanied by the standard, average annual total return quotations. The total
return of the Portfolio does not include the effect of paying the sales
charges on the particular insurance policy or annuity contract for which the
Portfolio serves as the investment vehicle.

TAXES

As a "regulated investment company" under the provisions of Subchapter M of
the Internal Revenue Code, as amended, the Fund is not subject to federal in-
come tax, nor to the federal excise tax imposed by the Tax Reform Act of 1986,
to the extent that it distributes its net investment income and realized capi-
tal gains. Since the only shareholders of the Fund are the Insurance Compa-
nies, no discussion is included herein as to the federal income tax conse-
quences at the shareholder level. For information concerning the federal tax
consequences to purchasers of the annuity or life insurance policies, see the
prospectuses for the Policies.

TRANSFER AND DIVIDEND DISBURSING AGENT

Calvert Shareholder Services, Inc., having its principal place of business
at 4550 Montgomery Avenue, Bethesda, Maryland 20814, is the Fund's transfer
agent and dividend disbursing agent.