<PAGE>
SCHEDULE 14A
(Rule 14a-101)
-----------------------------------------------
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant X
Filed by a party other than the registrant
Check the appropriate box:
X Preliminary proxy statement
Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c)
or Rule 14a-12
The MainStay Funds
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
X No fee required.
No Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
<PAGE>
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
MAINSTAY/ALICE T. KANE LETTERHEAD--LETTER 1
Dear MainStay Shareholder:
We are pleased to announce a Special Meeting of Shareholders of The
MainStay/(R)/ Funds to be held on October 24, 1997. Important issues that affect
your investments will be decided at the meeting and your vote will help shape
the policies that affect your Fund(s). Whether you plan to attend or not, please
complete the enclosed proxy ballot, sign it, and return it in the postage-paid
envelope as soon as possible.
What are the proposals?
While several proposals will be raised at the meeting, only those listed below
require your consideration and vote. The Board of Trustees, which represents
your interests in the management of The MainStay Funds, recommends that you vote
FOR each of the following proposals:
- ---
Proposal One Election of Trustees
You will find detailed information about the nominees in the
enclosed proxy statement.
Proposal Two Approval of Management Agreement
The proposed Agreement would bring arrangements for management
of The MainStay Funds more closely in line with standard
industry practice and provide an additional level of oversight
at no additional cost to shareholders.
Proposal Three Approval of Sub-Advisory Agreement Between the Manager and
MacKay-Shields Financial Corporation
This arrangement would allow for continuity of the day-to-day
management of the Funds, with provisions that are substantially
identical to the terms of the Funds' current Investment Advisory
Agreement.
Proposal Five Elimination or Revision of Certain Fundamental Investment
Restrictions of the Funds
Your approval is requested to change certain fundamental
investment policies to reduce unnecessary or unwarranted
restrictions, establish flexibility, and increase consistency
among Funds. Please note that not all changes apply to all
Funds.
Proposal Six Ratification of Selection of Independent Certified Public
Accountants
The Board of Trustees recommends that you vote to approve the
selection of Price Waterhouse LLP as independent certified
public accountants of the Trust.
<PAGE>
You will find complete details on each of these proposals in the enclosed Proxy
Statement. Please read this information carefully before you vote.
How do I vote?
Voting is simple. Just mark your choices on the enclosed ballot card, sign it,
and return it in the postage-paid envelope by DATE TK. We urge you to return
your ballot as soon as possible. Your prompt response benefits all shareholders
by helping avoid the added expense of a second proxy mailing.
If you have any questions about the enclosed materials, please contact your
Registered Representative or call us at 1-800-xxx-xxxx.
Sincerely,
[SIGNATURE]
Alice T. Kane
Chairperson
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting and to minimize the
expenses involved in remailing ballots, please complete, sign, and date the
enclosed proxy as soon as possible and return it in the enclosed postage-
paid envelope.
- --------------------------------------------------------------------------------
<PAGE>
MAINSTAY/ALICE T. KANE LETTERHEAD--LETTER 2
Dear MainStay Shareholder:
We are pleased to announce a Special Meeting of Shareholders of The
MainStay/(R)/ Funds to be held on October 24, 1997. Important issues that affect
your investments will be decided at the meeting and your vote will help shape
the policies that affect your Fund(s). Whether you plan to attend or not, please
complete the enclosed proxy ballot, sign it, and return it in the postage-paid
envelope as soon as possible.
What are the proposals?
While several proposals will be raised at the meeting, only those listed below
require your consideration and vote. The Board of Trustees, which represents
your interests in the management of The MainStay Funds, recommends that you vote
FOR each of the following proposals:
- ---
Proposal One Election of Trustees
You will find detailed information about the nominees in the
enclosed proxy statement.
Proposal Two Approval of Management Agreement
The proposed Agreement would bring arrangements for management
of The MainStay Funds more closely in line with standard
industry practice and provide an additional level of oversight
at no additional cost to shareholders.
Proposal Three Approval of Sub-Advisory Agreement Between the Manager and
MacKay-Shields Financial Corporation
This arrangement would allow for continuity of the day-to-day
management of the Funds, with provisions that are substantially
identical to the terms of the Funds' current Investment Advisory
Agreement.
Proposal Four Approval of Amendment to Plan of Distribution Pursuant to Rule
12b-1 for Class B shares
If this proposal is approved, the Trust will implement a
procedure for the automatic conversion of Class B shares to
Class A shares after eight years. While this proposal changes
the fee calculation method and may as a result increase fees,
your approval is recommended to enhance the ability of NYLIFE
Distributors to service existing and potential shareholders and
dealers, eliminate certain competitive disadvantages, and
conform to standard industry practice among Funds with respect
to distribution fees. In addition, this proposal will simplify
calculations and make distribution fees easier for investors to
understand.
<PAGE>
Proposal Five Elimination or Revision of Certain Fundamental Investment
Restrictions of the Funds
Your approval is requested to change certain fundamental
investment policies to reduce unnecessary or unwarranted
restrictions, establish flexibility, and increase consistency
among Funds. Please note that not all changes apply to all
Funds.
Proposal Six Ratification of Selection of Independent Certified Public
Accountants
The Board of Trustees recommends that you vote to approve the
selection of Price Waterhouse LLP as independent certified
public accountants of the Trust.
You will find complete details on each of these proposals in the enclosed Proxy
Statement. Please read this information carefully before you vote.
How do I vote?
Voting is simple. Just mark your choices on the enclosed ballot card, sign it,
and return it in the postage-paid envelope by DATE TK. We urge you to return
your ballot as soon as possible. Your prompt response benefits all shareholders
by helping avoid the added expense a second proxy mailing.
If you have any questions about the enclosed materials, please contact your
Registered Representative or call us at 1-800-xxx-xxxx.
Sincerely,
[SIGNATURE]
Alice T. Kane
Chairperson
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting and to minimize the
expenses involved in remailing ballots, please complete, sign, and date the
enclosed proxy as soon as possible and return it in the enclosed postage-
paid envelope.
- --------------------------------------------------------------------------------
<PAGE>
MAINSTAY/ALICE T. KANE LETTERHEAD--LETTER 3
Dear MainStay Shareholder:
We are pleased to announce a Special Meeting of Shareholders of The
MainStay/(R)/ Funds to be held on October 24, 1997. Important issues that affect
your investments will be decided at the meeting and your vote will help shape
the policies that affect your Fund(s). Whether you plan to attend or not, please
complete the enclosed proxy ballot, sign it, and return it in the postage-paid
envelope as soon as possible.
What are the proposals?
While several proposals will be raised at the meeting, only those listed below
require your consideration and vote. The Board of Trustees, which represents
your interests in the management of The MainStay Funds, recommends that you vote
FOR each of the following proposals:
- ---
Proposal One Election of Trustees
You will find detailed information about the nominees in the
enclosed proxy statement.
Proposal Two Approval of Management Agreement
The proposed Agreement would bring arrangements for management
of The MainStay Funds more closely in line with standard
industry practice and provide an additional level of oversight
at no additional cost to shareholders.
Proposal Three Approval of Sub-Advisory Agreement Between the Manager and
Monitor Capital Advisors, Inc.
This arrangement would allow for continuity of the day-to-day
management of the Funds, with provisions that are substantially
identical to the terms of the Fund's current Investment Advisory
Agreement.
Proposal Five Elimination or Revision of Certain Fundamental Investment
Restrictions of the Funds
Your approval is requested to change certain fundamental
investment policies to reduce unnecessary or unwarranted
restrictions, establish flexibility, and increase consistency
among Funds. Please note that not all changes apply to all
Funds.
Proposal Six Ratification of Selection of Independent Certified Public
Accountants
The Board of Trustees recommends that you vote to approve the
selection of Price Waterhouse LLP as independent certified
public accountants of the Trust.
<PAGE>
You will find complete details on each of these proposals in the enclosed Proxy
Statement. Please read this information carefully before you vote.
How do I vote?
Voting is simple. Just mark your choices on the enclosed ballot card, sign it,
and return it in the postage-paid envelope by DATE TK. We urge you to return
your ballot as soon as possible. Your prompt response benefits all shareholders
by helping avoid the added expense of a second proxy mailing.
If you have any questions about the enclosed materials, please contact your
Registered Representative or call us at 1-800-xxx-xxxx.
Sincerely,
[SIGNATURE]
Alice T. Kane
Chairperson
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting and to minimize the
expenses involved in remailing ballots, please complete, sign, and date the
enclosed proxy as soon as possible and return it in the enclosed postage-
paid envelope.
- --------------------------------------------------------------------------------
<PAGE>
THE MAINSTAY FUNDS
51 MADISON AVENUE
NEW YORK, NY 10010
(800) 624-6782
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 24, 1997 AT 10:00 A.M.
To the Shareholders of The MainStay Funds
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of the following series of The MainStay Funds (the "Trust"):
California Tax Free Fund, Capital Appreciation Fund, Convertible Fund, Equity
Index Fund, Government Fund, High Yield Corporate Bond Fund, International
Bond Fund, International Equity Fund, Money Market Fund, New York Tax Free
Fund, Strategic Income Fund, Tax Free Bond Fund, Total Return Fund and Value
Fund (individually a "Fund" and collectively the "Funds"), will be held at the
offices of the Trust, 51 Madison Avenue, New York, NY 10010, on October 24,
1997 at 10:00 a.m. for the following purposes, all of which are more fully
described in the accompanying Proxy Statement dated September 5, 1997.
1. To elect the Trustees of the Trust, each to hold office for the lifetime
of the Trust and until his or her successor is duly elected and
qualified;
2. To approve a Management Agreement between the Trust on behalf of each of
the Funds and MainStay Management, Inc. (the "Manager") (the "Management
Agreement");
3. To approve Sub-Advisory Agreements between the Manager and MacKay-
Shields Financial Corporation ("MacKay-Shields") on behalf of the
California Tax Free Fund, Capital Appreciation Fund, Convertible Fund,
Government Fund, High Yield Corporate Bond Fund, International Bond
Fund, International Equity Fund, Money Market Fund, New York Tax Free
Fund, Strategic Income Fund, Tax Free Bond Fund, Total Return Fund and
Value Fund and to approve a Sub-Advisory Agreement between the Manager
and Monitor Capital Advisors, Inc. ("Monitor") on behalf of the Equity
Index Fund;
4. To approve an amendment to the Plans of Distribution Pursuant to Rule
12b-1 for Class B Shares of each of the Funds other than the Equity
Index Fund, which does not offer Class B shares, the Money Market Fund
and the Strategic Income Fund;
5. To eliminate or revise certain fundamental investment restrictions of
the Funds;
6. To ratify the selection of Price Waterhouse LLP as independent certified
public accountants of the Trust for its fiscal year ending December 31,
1997; and
7. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
<PAGE>
The Trustees have fixed the close of business on August 25, 1997 as the
record date for the determination of shareholders entitled to notice of and to
vote at the Meeting or any adjournment thereof. The enclosed proxy is being
solicited on behalf of the Trustees.
By order of the Board of Trustees,
(ART)
A. Thomas Smith III
New York, New York
September 5, 1997
YOUR VOTE IS IMPORTANT
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, SIGN
AND DATE IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO SAVE THE FUND ANY
ADDITIONAL EXPENSE OF FURTHER SOLICITATION, PLEASE MAIL YOUR PROXY
PROMPTLY.
2
<PAGE>
PROXY STATEMENT
THE MAINSTAY FUNDS
51 MADISON AVENUE
NEW YORK, NY 10010
(800) 624-6782
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 24, 1997 AT 10:00 A.M.
----------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Trustees of The MainStay Funds, a
Massachusetts business trust (the "Trust"), to be voted at the Special Meeting
of Shareholders of California Tax Free Fund, Capital Appreciation Fund,
Convertible Fund, Equity Index Fund, Government Fund, High Yield Corporate
Bond Fund, International Bond Fund, International Equity Fund, Money Market
Fund, New York Tax Free Fund, Strategic Income Fund, Tax Free Bond Fund, Total
Return Fund and Value Fund (individually a "Fund" and collectively the
"Funds"), each a separate investment series of the Trust, to be held at the
offices of the Trust, 51 Madison Avenue, New York, New York 10010 on October
24, 1997 at 10:00 a.m., and at any adjournments thereof (collectively, the
"Meeting"). Such solicitation will be by mail and the cost (including printing
and mailing this Proxy Statement, Notice of Meeting and Proxy, as well as any
necessary supplementary solicitation) will be borne by the Funds in proportion
to their average net assets. The Notice of Meeting, Proxy Statement and Proxy
are being mailed to shareholders on or about September 5, 1997.
The presence in person or by proxy of the holders of record of one half of
the shares of a series or any class of a series of the Trust entitled to vote
thereat shall constitute a quorum at the Meeting for that Fund. If, however,
such quorum shall not be present or represented at the Meeting or if fewer
shares are present in person or by proxy than the minimum required to take
action with respect to any proposal presented at the Meeting, the holders of a
majority of the shares of the series or class present in person or by proxy
shall have the power to adjourn the Meeting with respect to that series or
class, from time to time, without notice other than announcement at the
Meeting, until the requisite amount of shares entitled to vote at the Meeting
shall be present. At any such adjourned Meeting, if the relevant quorum is
subsequently constituted, any business may be transacted which might have been
transacted at the Meeting as originally called. For purposes of determining
the presence of a quorum for transacting business at the Meeting, abstentions
and broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owner or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be treated
as shares that are present but which have not been voted. For this reason,
abstentions and broker non-votes will have the effect of a "no" vote for
purposes of obtaining the requisite approval of each proposal.
The Board of Trustees has fixed the close of business on August 25, 1997 as
the record date for the determination of shareholders entitled to notice of
and to vote at the Meeting and at any
<PAGE>
adjournments thereof. Each share is entitled to one vote. The numbers of
outstanding voting Class A and Class B shares of each Fund as of August ,
1997 are indicated in the following table:
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
California Tax Free Fund.....................................
Capital Appreciation Fund....................................
Convertible Fund.............................................
Equity Index Fund............................................ None
Government Fund..............................................
High Yield Corporate Bond Fund...............................
International Bond Fund......................................
International Equity Fund....................................
Money Market Fund............................................
New York Tax Free Fund.......................................
Strategic Income Fund........................................
Tax Free Bond Fund...........................................
Total Return Fund............................................
Value Fund...................................................
</TABLE>
Additional information regarding share ownership of the Funds is included as
Exhibit A.
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon or as otherwise
provided therein. Accordingly, unless instructions to the contrary are marked,
proxies will be voted FOR the matters specified on the proxy card. Any
shareholder may revoke his proxy at any time prior to exercise thereof by
giving written notice to the Secretary of the Trust at its offices at 51
Madison Avenue, New York, New York 10010, or by signing another proxy of a
later date or by personally casting his or her vote at the Meeting.
The most recent annual and semi-annual reports of the Funds, including
financial statements, have been previously mailed to shareholders. If you have
not received these reports or would like to receive additional copies free of
charge, please contact the Trust at 51 Madison Avenue, New York, New York
10010, (800) 624-6782 and they will be sent promptly by first-class mail.
To obtain the necessary representation at the Meeting, supplementary
solicitations may be made by mail, telephone, telegraph, facsimile or personal
contact by officers of the Trust, employees of New York Life Insurance
Company, MacKay-Shields, Monitor or their affiliates, or proxy solicitation
firms. Shareholder Communications Corporation has been retained to assist
proxy solicitation activities at a cost of approximately $800,000.
Shareholders' votes may be taken by telephone by representatives of
Shareholders Communication Corporation, subject to procedures designed to
authenticate shareholders' identities and confirm voting instructions.
VOTES REQUIRED
The election of Trustees, as set forth in Proposal One, will require a vote
of the holders of a plurality of the Trust's shares present at the Meeting.
Approval of the Management Agreement, as set forth in Proposal Two, will
require a majority vote of the outstanding voting securities of each Fund. The
approval of the Sub-Advisory Agreements between the Manager and MacKay-Shields
and the
2
<PAGE>
Manager and Monitor as set for the in Proposal Three requires a majority vote
of the outstanding voting securities of each Fund. The approval of the
amendment to the Plans of Distribution Pursuant to Rule 12b-1 for Class B
Shares of each Fund other than the Equity Index Fund, Money Market Fund
and the Strategic Income Fund as set forth in Proposal Four requires the
approval of a majority of the outstanding voting securities of the Class B
shares of each Fund. The elimination or revision of certain fundamental
investment restrictions of the Funds, as set forth in Proposal Five, will
require a majority vote of the outstanding voting securities of each Fund. For
purposes of Proposals Two, Three, Four and Five, a majority of the outstanding
voting securities of a class or a Fund means the lesser of (1) 67% of the
shares of that class or Fund present at a meeting if the holders of more than
50% of the outstanding shares of that class or Fund are present in person or
by proxy, or (2) more than 50% of the outstanding shares of that class or
Fund. Ratification of the selection of the independent certified public
accountants, set forth in Proposal Six, will require a vote of the holders of
a majority of the Trust's shares present at the Meeting.
<TABLE>
<CAPTION>
SHAREHOLDERS
PROPOSALS ENTITLED TO VOTE
--------- ----------------
<C> <S> <C>
Proposal One-- ELECTION OF TRUSTEES All Funds
Proposal Two-- APPROVAL OF MANAGEMENT All Funds
AGREEMENT
Proposal Three--A APPROVAL OF SUB-ADVISORY All Funds other than Equity
AGREEMENT BETWEEN THE MANAGER Index Fund
AND MACKAY-SHIELDS
Proposal Three--B APPROVAL OF SUB-ADVISORY Equity Index Fund
AGREEMENT BETWEEN THE MANAGER
AND MONITOR
Proposal Four-- APPROVAL OF AMENDMENT TO PLANS Class B Shareholders of all
OF DISTRIBUTION PURSUANT TO Funds other than Equity
RULE 12b-1 FOR CLASS B SHARES Index Fund, Money Market
Fund and Strategic Income
Fund
Proposal Five-- ELIMINATION OR REVISION OF All Funds
CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS OF THE FUNDS
Proposal Six-- RATIFICATION OF SELECTION OF All Funds
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
</TABLE>
PROPOSAL ONE -- ELECTION OF TRUSTEES
ALL FUNDS
At the Meeting, eleven Trustees will be elected, each to serve until he or
she resigns, dies or is removed and until his or her successor is duly elected
and qualified. The nominees are Edward J. Hogan, Harry G. Hohn, Alice T. Kane,
Nancy Maginnes Kissinger, Terry L. Lierman, John B. McGuckian, Donald E.
Nickelson, Donald K. Ross, Stephen Roussin, Richard S. Trutanic and Walter
3
<PAGE>
W. Ubl, who, if elected, will each serve for an indefinite term. It is the
intention of the persons named in the enclosed proxy to nominate and vote in
favor of the nominees.
Each of the nominees has consented to serve as a Trustee. All the nominees
are currently Trustees of the Trust, except for Stephen Roussin who is the
President of the Trust. The Board of Trustees knows of no reason why any of
the nominees would be unable to serve, but in the event of such
unavailability, the proxies received will be voted for such substitute
nominees as the Board of Trustees may recommend.
Certain information concerning the Trustees is set forth as follows:
<TABLE>
<CAPTION>
NAME, POSITIONS WITH THE TRUST, AGE, YEAR FIRST YEAR TERM APPROXIMATE NUMBER OF SHARES
PRINCIPAL OCCUPATIONS DURING THE BECAME AS TRUSTEE BENEFICIALLY OWNED DIRECTLY OR
PAST FIVE YEARS AND OTHER TRUSTEESHIPS A TRUSTEE WILL EXPIRE INDIRECTLY AS OF AUGUST 1, 1997
- -------------------------------------- ---------- ----------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Edward J. Hogan, Trustee 1997 Indefinite N/A
Independent management
consultant, 1991 to
1995; President,
Westinghouse--Airship
Industries, Inc. and
Managing Director,
Airship Industries
U.K., Ltd., 1987 to
1990. Age: 64
Harry G. Hohn, Trustee* 1996 Indefinite Capital Appreciation - A 2267.573
Retired Chairman and Value - A 4088.183
Chief Executive Money Market - A 42109.49
Officer, New York Life
Insurance Company;
Chairman of the Board
and Chief Executive
Officer, New York Life
Insurance Company, 1990
to 1997; Director,
Million Dollar
Roundtable Foundation,
1996 to present;
Director, Insurance
Marketplace Standards
Association, 1996 to
present; Director,
Witco Corporation, 1989
to present; Member,
International Advisory
Board of Credit
Commercial de France,
1995 to present; and a
Life Fellow of the
American Bar
Foundation. Age: 65
Alice T. Kane, 1994 Indefinite Capital Appreciation - A 173.4
Chairperson and Value - A 266.313
Trustee*
Executive Vice
President, New York
Life Insurance Company,
1992 to present;
General Counsel, 1992
to 1995; Corporate
Secretary, 1989 to
1994; Senior Vice
President and General
Counsel, 1986 to 1992;
Director and
Chairperson, MainStay
Institutional Funds
Inc., 1994 to present;
Director, New York Life
Foundation, 1992 to
1995; Director, New
York Life International
Investment Inc., 1988
to present; Director,
NYLIFE Inc., 1990 to
present; Director,
Greystone Realty
Corporation, 1994 to
present; Director,
Monitor Capital
Advisors, Inc., 1994 to
present; Director,
NYLCare Health Plans,
Inc. (formerly Sanus
Corp. Health Systems),
1984 to present;
Director, MacKay-
Shields Financial
Corporation, 1994 to
present; Director, New
York Life Benefit
Services Inc. (pension
consultant and third
party administrator),
1994 to present;
Director, NYLIFE
Securities Inc., 1994
to present; Director,
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITIONS WITH THE TRUST, AGE, YEAR FIRST YEAR TERM APPROXIMATE NUMBER OF SHARES
PRINCIPAL OCCUPATIONS DURING THE BECAME AS TRUSTEE BENEFICIALLY OWNED DIRECTLY OR
PAST FIVE YEARS AND OTHER TRUSTEESHIPS A TRUSTEE WILL EXPIRE INDIRECTLY AS OF AUGUST 1, 1997
- -------------------------------------- ---------- ----------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Eagle Strategies Corp.
(registered investment
adviser), 1994 to
present; Director,
NYLIFE Distributors
Inc., 1994 to present;
Director, NYL Management
Limited, 1995 to
present; Director, NYL
Trust Company, 1995 to
present; Director,
NYLINK Insurance Agency
Incorporated, 1996 to
present; Director, Japan
Gamma Asset Management
Limited, 1995 to
present; Director, New
York Life Worldwide
Holding, Inc., 1995 to
present; Director, New
York Life and Health
Insurance Company, 1996
to present; Director,
MainStay Shareholder
Services, Inc., 1997 to
present; Director, NASD
Regulation, Inc., 1996
to present; and Member,
Board of Governors of
the National Association
of Securities Dealers,
Inc., 1994 to 1996. Age:
49
Nancy Maginnes Kissinger, 1986 Indefinite N/A
Trustee
Member, Council of
Rockefeller University,
New York, NY, 1991 to
present; Trustee,
Council of Rockefeller
University, 1995 to
present; Trustee, Animal
Medical Center, 1993 to
present; and Trustee,
The Masters School, 1994
to present. Age: 63
Terry L. Lierman, Trustee 1991 Indefinite Capital Appreciation - A 1243.51
President, Capitol Value - A 3608.136
Associates, Inc., 1984 High Yield Corporate Bond - A 5651.502
to present; President, Government - A 6137.24
Employee Health International Equity - A 4193.023
Programs, 1990 to International Bond - A 1717.586
present; Vice Chairman, Total Return - A 4448.224
TheraCom Inc., 1994 to
present; Member, UNICEF
National Board, 1993 to
present; Director,
Harvard University,
Pollin Institute, 1995
to present; Director,
PeacePac, 1994 to
present; and
Commissioner, State of
Maryland, Higher
Education Commission,
1995 to present. Age: 49
John B. McGuckian, 1997 Indefinite N/A
Trustee
Chairman of the Board,
Ulster Television plc,
1990 to present;
Director, Ulster
Television plc, 1970 to
present; Chairman of the
Board, Tedcastle Holding
Ltd. (energy), 1995 to
present; Director,
Cooneen Textiles Ltd.
(clothing manufacturer),
1967 to present;
Director Allied Irish
Banks plc, 1977 to
present; Director, First
Trust Bank, 1991 to
present; Director,
Unidare plc
(engineering), 1986 to
present; Director, Irish
Continental Group plc
(ferry operations), 1988
to present; Director,
Harbour Group Ltd.
(management company),
1980 to present;
Chairman, Industrial
Development Board, 1990
to present; and Chairman
of Senate and Senior
Pro-Chancellor, Queen's
University, 1986 to
present. Age: 57
Donald E. Nickelson, 1994 Indefinite N/A
Trustee
Vice Chairman, Harbour
Group Industries, Inc.,
1991 to present;
Director, PaineWebber
Group, 1980 to 1993;
President, PaineWebber
Group, 1988 to 1990;
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITIONS WITH THE TRUST, AGE, YEAR FIRST YEAR TERM APPROXIMATE NUMBER OF SHARES
PRINCIPAL OCCUPATIONS DURING THE BECAME AS TRUSTEE BENEFICIALLY OWNED DIRECTLY OR
PAST FIVE YEARS AND OTHER TRUSTEESHIPS A TRUSTEE WILL EXPIRE INDIRECTLY AS OF AUGUST 1, 1997
- -------------------------------------- ---------- ----------- ---------------------------------------
<S> <C> <C> <C> <C>
Chairman of the Board,
PaineWebber Properties,
1985 to 1989; Director,
Harbour Group, 1986 to
present; Director, CPA
10 Real Estate Inv.
Trust, 1990 to present;
Director, CIP 11 Real
Estate Inv. Trust, 1991
to present; Chairman of
the Board and Director,
Rapid Rock Industries,
Inc., 1986 to present;
Director and Chairman
of the Board, Del
Industries, 1990 to
present; Trustee, Jones
Foundation (Los
Angeles), 1978 to
present; Director,
Allied Healthcare
Products, Inc., 1992 to
present; Director,
Sugen, Inc., 1992 to
present; Director and
Chairman of the Board,
Greenfield Industries,
Inc., 1993 to present;
Director, DT
Industries, 1992 to
present; Chairman of
the Board, Omniquip
International, Inc.,
1996 to present; and
Advisory Panel,
Sedgwick James of NY,
1996 to present. Age:
63
Donald K. Ross, Trustee* 1991 Indefinite Money Market - B 34956.95
Retired Chairman and
Chief Executive
Officer, New York Life
Insurance Company;
Director, New York Life
Insurance Company, 1978
to 1996; President, New
York Life Insurance
Company, 1986 to 1990;
Chairman of the Board,
New York Life Insurance
Company, 1981 to 1990;
Chief Executive
Officer, New York Life
Insurance Company, 1981
to 1990; Director,
MacKay-Shields
Financial Corporation,
1984 to present; and
Trustee, Consolidated
Edison Company of New
York, Inc., 1976 to
present. Age: 71
Stephen Roussin, N/A Indefinite N/A
President and Chief
Executive Officer*
Senior Vice President,
New York Life Insurance
Company, 1997 to
present; Senior Vice
President, Smith
Barney, 1994 to 1997;
and Division Sales
Manager, Prudential
Securities, 1989 to
1994. Age: 34
Richard S. Trutanic, 1994 Indefinite N/A
Trustee
Managing Director, The
Somerset Group
(financial advisory
firm), 1990 to present;
and Director, Allin
Communications
Corporation, 1996 to
present. Age: 44
Walter W. Ubl, Trustee* 1993 Indefinite Money Market - A 65617.14
Senior Vice President, High Yield Corporate Bond - A 11191.864
New York Life Insurance Equity Index 1411.879
Company, 1995 to Capital Appreciation - A 1821.706
present; Vice Value - A 2023.235
President, 1984 to Convertible - A 461.461
1995; Vice President in Government - A 1596.335
charge of Mutual Funds Tax Free - A 2695.768
Department, 1989 to International Bond - A 2168.025
present; Director and International Equity - A 2036.249
Vice President, NYLIFE Total Return - A 2129.281
Distributors Inc., 1993 Strategic Income - A 1023.327
to present; and
Director and Senior
Vice President NYLIFE
Securities Inc., 1996
to present. Age: 55
</TABLE>
- --------
* "Interested person," as defined in the Investment Company Act of 1940.
6
<PAGE>
During the Trust's fiscal year ended December 31, 1996, the Board of
Trustees met four times. The Trust's Board of Trustees has a standing Audit
Committee and Nominating Committee, each of which is comprised of the Trustees
who are not "interested persons" as defined in the Investment Company Act of
1940 (the "Independent Trustees"). During the Trust's fiscal year ended
December 31, 1996, the Audit Committee met twice and the Nominating Committee
met three times. The Audit Committee reviews reports prepared by the Trust's
independent auditors, recommends approval of audit services and fees,
evaluates the independence of the independent auditors and recommends whether
to retain the independent auditors. The Nominating Committee selects and
nominates individuals to serve as Trustees. For the fiscal year ended December
31, 1996, Mr. Trutanic attended 75 percent of the meetings of the Board of
Trustees but fewer than 75 percent of the aggregate of the total number of
meetings of the Board of Trustees and the total number of meetings of the
Audit and Nominating Committees. It is not expected that the Nominating
Committee ordinarily will consider nominees recommended by shareholders.
As of August 1, 1997, the Trustees and officers of the Trust as a group
owned less than 1% of the shares of any class of shares of beneficial interest
of each of the Funds. Additional information regarding the Trust's executive
officers is included in Exhibit B.
COMPENSATION OF TRUSTEES
The Independent Trustees of the Trust receive from the Trust an annual
retainer of $40,000 and a fee of $1,000 for each Board of Trustees meeting and
for each Board committee meeting attended and are reimbursed for all out-of-
pocket expenses related to attendance at such meetings. Trustees who are
affiliated with New York Life Insurance Company do not receive compensation
from the Trust.
For the fiscal year ended December 31, 1996, the Independent Trustees
received the following compensation from the Trust:
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM REGISTRANT
COMPENSATION AND FUND COMPLEX
NAME OF TRUSTEE FROM THE TRUST PAID TO TRUSTEES
--------------- -------------- ----------------
<S> <C> <C>
Edward J. Hogan*............................. $ 0 $ 0
Nancy M. Kissinger........................... $46,000 $46,000
Terry L. Lierman............................. $45,000 $45,000
John B. McGuckian**.......................... $ 0 $ 0
Donald E. Nickelson.......................... $45,000 $45,000
Richard S. Trutanic.......................... $44,000 $44,000
Ralph A. Pfeiffer***......................... $33,000 $33,000
</TABLE>
- --------
* Mr. Hogan was elected to his position as Trustee of the Trust on October
28, 1996, effective January 27, 1997.
** Mr. McGuckian was elected to his position as Trustee of the Trust on July
28, 1997.
*** Mr. Pfeiffer passed away on September 13, 1996.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
TRUST VOTE FOR THE ELECTION OF THE NOMINEES TO SERVE AS TRUSTEES OF THE TRUST.
7
<PAGE>
PROPOSAL TWO -- APPROVAL OF MANAGEMENT AGREEMENT
ALL FUNDS
Management has proposed, and the Board of Trustees has approved, a
restructuring of certain entities providing services to the Trust. Under the
current structure, MacKay-Shields Financial Corporation, 9 West 57th Street,
New York, NY 10019, is the investment adviser to each of the Funds other than
the Equity Index Fund. Monitor Capital Advisors, Inc., 504 Carnegie Center,
Princeton, NJ 08540, is the investment adviser to the Equity Index Fund.
NYLIFE Distributors Inc., 300 Interpace Parkway, Parsippany, NJ 07054 serves
as the Funds' administrator. Additional information regarding the Funds'
current investment advisory and administrative arrangements is included as
Exhibit C.
Under the proposed structure, a newly formed entity, MainStay Management,
Inc., would serve as manager to each of the Funds pursuant to a Management
Agreement with the Trust. The Manager would have responsibility for oversight
of the portfolio management services provided by MacKay-Shields and Monitor
and for managing the Funds' business affairs. A copy of the proposed form of
Management Agreement is included as Exhibit D. MacKay-Shields or Monitor
(collectively, the "Sub-Advisers") would serve as sub-adviser of each of the
Funds and thereby retain primary day-to-day portfolio management
responsibility for the Funds and continue to provide the same services it
currently provides to each Fund.
MainStay Management, Inc., whose address is Morris Corporate Center I,
Building A, 300 Interpace Parkway, Parsippany, New Jersey 07054, is a newly-
organized Delaware corporation. MainStay Management, Inc. is an indirect,
wholly-owned subsidiary of New York Life Insurance Company, 51 Madison Avenue,
New York, NY 10010. MainStay Management, Inc. is a wholly-owned subsidiary of
MainStay Asset Management, Inc., which is a wholly-owned subsidiary of NYLIFE
Inc. Additional information regarding the principal executive officers and
directors of MainStay Management, Inc. is included as Exhibit E.
In addition to engaging the services of the Sub-Advisers, the Manager's
administrative functions pursuant to the proposed Management Agreement would
include furnishing the Trust with office facilities and providing ordinary
clerical, recordkeeping and bookkeeping services. The Manager would assume all
the administrative duties performed by NYLIFE Distributors, Inc., which
currently serves as administrator of the Funds. Those persons currently
associated with NYLIFE Distributors who perform such duties will continue to
perform them on behalf of the Manager. Accordingly, there should not be any
change in, or disruption of the administrative services provided to the Funds.
8
<PAGE>
With respect to each Fund, the Manager would be paid a fee equal to the
aggregate of the current investment advisory and administrative fee for that
Fund. Thus, there would be no increase in fees paid for investment advisory
and administrative services under the proposed structure. All applicable fee
breakpoints and fee waivers would remain in effect under the proposed
structure. The proposed fees and the current fees are as follows:
PROPOSED MANAGEMENT FEES (INCLUDES FEES FOR INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES) AND CURRENT INVESTMENT ADVISORY AND ADMINISTRATIVE
FEES
<TABLE>
<CAPTION>
ADMINISTRATIVE
ADVISORY FEE FEE RATE
RATE PAID FOR PAID FOR
FISCAL YEAR FISCAL YEAR
PROPOSED CURRENT ENDED CURRENT ENDED
MANAGEMENT ADVISORY DECEMBER 31, ADMINISTRATIVE DECEMBER 31,
FUND FEE FEE 1996 FEE 1996
- ---- ---------- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
California Tax Free
Fund................... 0.50% 0.25%** 0.20% 0.25%** 0.20%
Capital Appreciation
Fund................... 0.72% 0.36%* 0.29% 0.36%* 0.29%
Convertible Fund........ 0.72% 0.36% 0.36% 0.36% 0.36%
Equity Index Fund....... 0.50% 0.10% 0.10% 0.40%+ 0.22%
Government Fund......... 0.60% 0.30%* 0.30% 0.30%* 0.30%
High Yield Corporate
Bond Fund.............. 0.60% 0.30%* 0.28% 0.30%* 0.28%
International Bond
Fund................... 0.70% 0.45%# 0.25% 0.25%# 0.15%
International Equity
Fund................... 1.00% 0.60% 0.60% 0.40% 0.40%
Money Market Fund....... 0.50% 0.25%## 0.11% 0.25%# 0.11%
New York Tax Free Fund.. 0.50% 0.25%** 0.15% 0.25%** 0.15%
Strategic Income Fund... 0.60% 0.30%*** N/A 0.30%*** N/A
Tax Free Bond Fund...... 0.60% 0.30% 0.30% 0.30% 0.30%
Total Return Fund....... 0.64% 0.32%* 0.31% 0.32%* 0.31%
Value Fund.............. 0.72% 0.36%### 0.30% 0.36%# 0.30%
</TABLE>
- --------
* NYLIFE Distributors Inc. and MacKay-Shields have voluntarily established
combined fee breakpoints for certain of the Funds as follows: for the
Government Fund of .55% on assets exceeding $1 billion; for the High Yield
Corporate Bond Fund of .55% on assets in excess of $500 million; for the
Total Return Fund of .60% on assets in excess of $500 million; and for the
Capital Appreciation Fund of .65% on assets in excess of $200 million and
.50% on assets in excess of $500 million.
** MacKay-Shields and NYLIFE Distributors Inc. have voluntarily agreed to
reimburse the expenses of California Tax Free Fund and New York Tax Free
Fund to the extent that operating expenses would exceed on an annualized
basis 1.24% and 1.49% for the Class A and Class B shares, respectively, of
the average daily net assets.
+ Effective January 1, 1996, in the event the total expenses of Equity Index
Fund (including Rule 12b-1 fees) for any fiscal year exceeds .80% of the
value of the Fund's average annual net assets, NYLIFE Distributors Inc.
will reduce its fees payable by the Fund by the difference between the
Fund's total expenses and .80%. This fee waiver is voluntary and may be
terminated at any time.
# MacKay-Shields and NYLIFE Distributors Inc. have jointly agreed to waive a
portion of their fees payable by the International Bond Fund until such
time as the Fund reaches $50 million in assets.
9
<PAGE>
## Up to $300 million; .225% from $300 to $700 million; .20% from $700 million
to $1.0 billion; and .175% in excess of $1.0 billion. MacKay-Shields and
NYLIFE Distributors Inc. have voluntarily agreed to assume the expenses of
Money Market Fund to the extent that such expenses would exceed on an
annualized basis .70% of the average daily net assets of the Fund.
### Up to $200 million; .325% from $200 to $500 million; and .25% in excess of
$500 million.
*** MacKay-Shields and NYLIFE Distributors Inc. have jointly agreed to
voluntarily reduce their fees payable by the Fund to the extent necessary
such that total expenses do not exceed on an annual basis 1.15% and 1.90%
of the average daily net assets for Class A and B shares, respectively,
until such time as the Fund reaches $100 million in assets or one year
from the date of the Fund's commencement of operations, whichever may
occur first.
Pursuant to a separate Accounting Agreement, the Manager will serve as Fund
Accounting Agent for which the Manager will be paid a separate fee which
generally will be less than 0.05% per Fund on an annual basis.
BOARD CONSIDERATION
At a meeting held on July 28, 1997 the Board of Trustees, including the
Trustees who are not interested parties to the Management Agreement or
interested persons of such parties, considered the proposed restructuring of
the entities providing services to the Trust and the services to be provided
by the Manager under the Management Agreement. The Board concluded that it
would be in the best interests of the Trust and its shareholders to enter into
the Management Agreement with the Manager. In coming to that conclusion, the
Trustees examined information which included the fees and expenses of the
Funds under the current investment advisory and administrative structure and
the proposed management structure. The Board also examined the proposed
management fees in relation to comparative fees for other funds within each
Fund's Lipper peer group.
The Board noted in particular that the fees paid by the Funds for advisory
and administrative services would not increase under the proposed management
structure. The Board members also considered the information provided to them
regarding MainStay Management, Inc. and its qualifications to act as Manager
to the Funds. The Board reviewed information presented by management regarding
the anticipated benefits to the Funds and their shareholders from the proposed
new management structure. The Board noted that the new structure would
centralize overall management responsibility for the Funds and offer the
potential for more efficient management supervision. The Board also considered
that the proposed new structure would allow for continuity of portfolio
management services provided to the Funds because each Fund's current
investment adviser would continue to be responsible for day-to-day portfolio
management of the Fund as the Fund's Sub-Adviser. The proposed structure would
also provide continuity of administrative services since those persons
associated with NYLIFE Distributors Inc., the Fund's current administrator,
would continue to perform the same services on behalf of MainStay Management
Inc. In addition, the Board noted that the Funds could benefit from an
additional level of oversight of the portfolio management services provided to
the Funds through the Manager without subjecting the Funds to an increase in
the fees paid for investment advisory and administrative services. Finally,
the Board noted that the terms of the proposed Management Agreement were
substantially similar to the terms of the Funds' current Investment Advisory
and Administration Agreements.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS APPROVAL OF THE MANAGEMENT AGREEMENT WITH MAINSTAY MANAGEMENT, INC.
10
<PAGE>
If approved by a majority vote of the outstanding shares of each Fund, the
Management Agreement will become effective on the first business day following
shareholder approval and will remain in force for a period of two years, and
from year to year thereafter, subject to approval annually by the Board of
Trustees or by a majority vote of the outstanding shares of each Fund, and
also, in either event, approval by a majority of those Trustees who are not
parties to the Management Agreement or interested persons of any such party at
a meeting called for the purpose of voting on such approval. If the
shareholders of any one or more of the Funds should fail to approve the
Management Agreement, that Fund's current investment adviser may continue to
serve as investment adviser under its current Advisory Agreement with respect
to that Fund and MainStay Management, Inc. would, with Board approval, enter
into an administration agreement substantially identical to the current
Administration Agreement with NYLIFE Distributors. MainStay Management, Inc.
may serve as Manager under the Management Agreement with respect to those
Funds whose shareholders approve the Management Agreement.
PROPOSAL THREE -- APPROVAL OF SUB-ADVISORY AGREEMENTS BETWEEN THE MANAGER AND
MACKAY-SHIELDS AND BETWEEN THE MANAGER AND MONITOR
ALL FUNDS
In connection with the restructuring of the entities providing investment
advisory and administrative services to the Funds, it is proposed that the
Manager enter into Sub-Advisory Agreements with MacKay-Shields on behalf of
each of the Funds for which MacKay-Shields currently serves as Investment
Adviser, i.e., each of the Funds other than the Equity Index Fund. Similarly,
it is proposed that with respect to the Equity Index Fund, the Manager enter
into a Sub-Advisory Agreement with Monitor, the current investment adviser to
the Equity Index Fund. Such an arrangement would provide for the maintenance
of continuity of the day-to-day portfolio management of the Funds with the
additional benefit of the Manager serving in an oversight capacity. A copy of
the proposed form of composite Sub-Advisory Agreement is included as Exhibit
F.
Pursuant to the proposed Sub-Advisory Agreements between the Manager and
MacKay-Shields or Monitor on behalf of each Fund, the Sub-Adviser, subject to
the supervision of the Trustees of the Trust and the Manager, shall manage the
investment operations of each Fund and the composition of the portfolio of
each Fund, including the purchase, retention and disposition of Fund assets,
in accordance with the investment objectives, policies and restrictions of the
Fund.
MacKay-Shields, whose address is 9 West 57th Street, New York, New York
10019, was incorporated in 1969 as an independent investment advisory firm and
was privately held until 1984 when it became a wholly-owned but autonomously
managed subsidiary of New York Life Insurance Company. As of June 30, 1997,
MacKay-Shields managed over $26.9 billion in assets. Additional information
regarding the principal executive officer and directors of MacKay-Shields is
included as Exhibit G.
Monitor, whose address is 504 Carnegie Center, Princeton, New Jersey 08540,
is a wholly-owned subsidiary of NYLIFE Inc. and an indirect wholly-owned
subsidiary of New York Life Insurance Company. Monitor, a registered
investment adviser incorporated in 1988, specializes in quantitative
investment techniques such as enhanced indexing and asset allocation. As of
June 30, 1997, Monitor managed assets totaling approximately $2.2 billion,
mainly of index funds. Additional information regarding the principal
executive officer and directors of Monitor is included as Exhibit H.
11
<PAGE>
Under the proposed Sub-Advisory Agreements, the Manager, not the Funds,
would pay MacKay-Shields or Monitor the following annual fee rates on behalf
of each Fund for its services as Sub-Adviser. As shown below, the sub-advisory
fees to be paid to MacKay-Shields and Monitor by the Manager under the
proposed Sub-Advisory Agreements are equal to the current investment advisory
fee rates for each of the Funds with respect to MacKay-Shields and Monitor.
All applicable fee breakpoints and fee waivers would remain in effect under
the proposed sub-advisory structure. The proposed sub-advisory fee rates and
the current investment advisory fee rates are as follows:
PROPOSED SUB-ADVISORY FEES RATES (TO BE PAID BY MANAGER, NOT THE FUNDS)AND
CURRENT INVESTMENT ADVISORY FEE RATES
<TABLE>
<CAPTION>
RATE PAID FOR
FISCAL YEAR
PROPOSED CURRENT ENDED
SUB-ADVISORY ADVISORY DECEMBER 31,
FUND FEE RATE FEE RATE 1996
- ---- ------------ -------- -------------
<S> <C> <C> <C>
California Tax Free Fund.................. 0.25% 0.25%** 0.20%
Capital Appreciation Fund................. 0.36% 0.36%* 0.29%
Convertible Fund.......................... 0.36% 0.36% 0.36%
Equity Index Fund......................... 0.10% 0.10% 0.10%
Government Fund........................... 0.30% 0.30%* 0.30%
High Yield Corporate Bond Fund............ 0.30% 0.30%* 0.28%
International Bond Fund................... 0.45% 0.45%# 0.25%
International Equity Fund................. 0.60% 0.60% 0.60%
Money Market Fund......................... 0.25% 0.25%## 0.11%
New York Tax Free Fund.................... 0.25% 0.25%** 0.15%
Strategic Income Fund..................... 0.30% 0.30%*** N/A
Tax Free Bond Fund........................ 0.30% 0.30% 0.30%
Total Return Fund......................... 0.32% 0.32%* 0.31%
Value Fund................................ 0.36% 0.36%### 0.30%
</TABLE>
- --------
* NYLIFE Distributors Inc. and MacKay-Shields have voluntarily established
combined fee breakpoints for certain of the Funds as follows: for the
Government Fund of .55% on assets exceeding $1 billion; for the High Yield
Corporate Bond Fund of .55% on assets in excess of $500 million; for the
Total Return Fund of .60% on assets in excess of $500 million; and for the
Capital Appreciation Fund of .65% on assets in excess of $200 million and
.50% on assets in excess of $500 million.
** MacKay-Shields and NYLIFE Distributors Inc. have voluntarily agreed to
reimburse the expenses of California Tax Free Fund and New York Tax Free
Fund to the extent that operating expenses would exceed on an annualized
basis 1.24% and 1.49% for the Class A and Class B shares, respectively, of
the average daily net assets.
+ Effective January 1, 1996, in the event the total expenses of Equity Index
Fund (including Rule 12b-1 fees) for any fiscal year exceeds .80% of the
value of the Fund's average annual net assets, NYLIFE Distributors Inc.
will reduce its fees payable by the Fund by the difference between the
Fund's total expenses and .80%. This fee waiver is voluntary and may be
terminated at any time.
# MacKay-Shields and NYLIFE Distributors Inc. have jointly agreed to waive a
portion of their fees payable by the International Bond Fund until such
time as the Fund reaches $50 million in assets.
12
<PAGE>
## Up to $300 million; .225% from $300 to $700 million; .20% from $700 million
to $1.0 billion; and .175% in excess of $1.0 billion. MacKay-Shields and
NYLIFE Distributors Inc. have voluntarily agreed to assume the expenses of
Money Market Fund to the extent that such expenses would exceed on an
annualized basis .70% of the average daily net assets of the Fund.
### Up to $200 million; .325% from $200 to $500 million; and .25% in excess of
$500 million.
*** MacKay-Shields and NYLIFE Distributors Inc. have jointly agreed to
voluntarily reduce their fees payable by the Fund to the extent necessary
such that total expenses do not exceed on an annual basis 1.15% and 1.90%
of the average daily net assets for Class A and B shares, respectively,
until such time as the Fund reaches $100 million in assets or one year
from the date of the Fund's commencement of operations, whichever may
occur first.
Information regarding comparable funds advised by MacKay-Shields and Monitor
is included as Exhibits I and J, respectively.
PORTFOLIO TRANSACTIONS
Pursuant to the proposed Sub-Advisory Agreements, a Fund's Sub-Adviser will
place orders for the purchase and sale of portfolio investments for the Fund's
accounts with brokers or dealers selected by it in its discretion. In
effecting purchases and sales of portfolio securities for the account of a
Fund, the Fund's Sub-Adviser will seek the best price and execution of the
Fund's orders. In doing so, a Fund may pay higher commission rates than the
lowest available when the Fund's Sub-Adviser believes it is reasonable to do
so in light of the value of the brokerage and research services provided by
the broker effecting the transaction. Consistent with the foregoing primary
consideration, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and such other policies as the Trustees may
determine, the Sub-Advisers may consider sales of shares of the respective
Funds as a factor in the selection of broker-dealers to execute each Fund's
portfolio transactions. NYLIFE Securities Inc. may act as a broker for the
Trust in accordance with applicable regulations. For the fiscal year ended
December 31, 1996, none of the Funds paid brokerage commissions to affiliated
brokers.
BOARD CONSIDERATION
At a meeting held on July 28, 1997, the Board of Trustees, including the
Trustees who are not interested parties to the Sub-Advisory Agreements or
interested persons of such parties considered the Sub-Advisory Agreements in
connection with the proposed restructuring of the entities providing services
to the Funds and determined that it would be in the best interests of the
Funds and the shareholders to approve the Sub-Advisory Agreements with MacKay-
Shields and Monitor. In coming to that conclusion, the Trustees examined
information which included the nature and quality of portfolio management
services provided by MacKay-Shields and Monitor and the past performance of
the Funds. The Trustees also examined the fees and expenses of the Funds and
the fees to be paid to the Sub-Advisers by the Manager. The Board noted the
continued quality of services provided by MacKay-Shields and Monitor and the
desirability of retaining continuity in the management of the Funds' assets.
The Board also noted that the terms of the proposed Sub-Advisory Agreements
are substantially identical to the terms of the Funds' current Investment
Advisory Agreements.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS APPROVAL OF THE SUB-ADVISORY AGREEMENTS BETWEEN THE MANAGER AND
MACKAY-SHIELDS AND BETWEEN THE MANAGER AND MONITOR ON BEHALF OF THE FUNDS.
13
<PAGE>
If approved by a majority vote of the outstanding shares of each Fund, the
Sub-Advisory Agreements will become effective on the first business day
following shareholder approval and will remain in force for a period of two
years, and from year to year thereafter, subject to approval annually by the
Board of Trustees or by a majority vote of the outstanding shares of each
Fund, and also, in either event, approval by a majority of those Trustees who
are not parties to the Sub-Advisory Agreements or interested persons of any
such party at a meeting called for the purpose of voting on such approval.
Approval of Proposal Three with respect to each Fund is contingent upon
shareholders approving Proposal Two for that Fund. Accordingly, if the
shareholders of one or more of the Funds should fail to approve the Management
Agreement for any Fund, the proposed Sub-Advisory Agreement will not be put
into effect with respect to that Fund, and MacKay-Shields or Monitor shall
continue to serve as investment adviser to that Fund under its current
Investment Advisory contract with the Trust. Similarly, if the shareholders of
one or more of the Funds should fail to approve a Sub-Advisory Contract
between the Manager and MacKay-Shields or between the Manager and Monitor,
Proposal Two relating to the Management Agreement shall not take effect with
respect to that Fund and MacKay-Shields or Monitor shall continue to serve as
investment adviser to that Fund under its current Investment Advisory Contract
with the Trust.
PROPOSAL FOUR -- APPROVAL OF AMENDMENT TO PLANS OFDISTRIBUTION PURSUANT TO
RULE 12B-1 FOR CLASS B SHARES
CLASS B SHARES OF ALL FUNDS OTHER THAN THE EQUITY INDEX FUND, MONEY MARKET
FUND AND STRATEGIC INCOME FUND
The Board of Trustees recommends that the shareholders of the Class B shares
of the California Tax Free Fund, Capital Appreciation Fund, Convertible Fund,
Government Fund, High Yield Corporate Bond Fund, International Bond Fund,
International Equity Fund, New York Tax Free Fund, Tax Free Bond Fund, Total
Return Fund and Value Fund, approve an Amended and Restated Distribution Plan
(the "Amended Plan") for each of these Funds. A copy of the form of Amended
Plan is included as Exhibit K. The Amended Plan provides that each Fund will
pay a distribution fee equal to 0.75% (0.25% in the case of each of the three
Tax Free Funds) per annum of average daily net assets of Class B shares. The
fee under the existing Distribution Plan ("Existing Plan") is equal to 0.75%
(0.25% in the case of each of the three Tax Free Funds) per annum of the
lesser of (i) aggregate gross sales of Fund Class B shares since the Fund's
inception (not including reinvestment of dividends and capital gains
distributions from the Fund), less the aggregate net asset value of the shares
exchanged or redeemed since the Fund's inception upon which a contingent
deferred sales charge was imposed (or waived) or (ii) the Fund's average daily
net assets attributable to the Fund's Class B shares. Both the Amended Plan
and the Existing Plan for each of the Funds also make provision for a separate
service payment of 0.25% of average daily net assets on an annual basis which
would be unaffected by the proposed change. In addition, if the Amended Plan
is adopted, the Trust will implement a procedure for the automatic conversion
of Class B shares to Class A shares after eight years.
The Board of Trustees has concluded that the Amended Plan is in the best
interests of each Fund and its Class B shareholders. In reaching this
conclusion, the Trustees determined that there is a
14
<PAGE>
reasonable likelihood that adoption of the Amended Plan will benefit each Fund
and its Class B shareholders by:
--bringing about the implementation of an automatic conversion of Class B
shares to Class A shares after eight years,
--allocating distribution fees more equitably among the Funds,
--strengthening the Funds' distributor's capacity to provide enhanced
distribution services,
--eliminating a competitive disadvantage for the Funds and their
distributor, and
--making the Funds' distribution plan more easily understood by investors
and easier to administer.
Rule 12b-1 under the 1940 Act permits mutual funds, such as the Funds, to
pay expenses of distributing their shares if they comply with various
conditions. The Rule requires in part that any mutual fund bearing
distribution expenses adopt a written plan which describes all material
aspects of the proposed financing of distribution. In accordance with Rule
12b-1, each Fund has previously adopted with respect to each class of shares a
Distribution Plan (the "Existing Plan") which, among other things, permits it
to pay NYLIFE Distributors Inc. ("NYLIFE Distributors"), 300 Interpace
Parkway, Parsippany, NJ 07054, the Funds' distributor, a distribution fee for
distribution and other related services. Distribution fees received by NYLIFE
Distributors may be used to cover a variety of expenses, including but not
limited to, compensation to dealers, overhead and interest expenses on amounts
advanced to cover commissions to salesmen, printing of prospectuses and
reports for persons other than existing Fund shareholders, advertising and
preparation and distribution of sales literature. NYLIFE Distributors also
receives the proceeds of any contingent deferred sales charge on certain
redemptions of shares. The Board of Trustees reviews the operation of the
Existing Plan quarterly in accordance with Rule 12b-1. The Existing Plan was
most recently approved by shareholders of the Funds on December 28, 1994. For
additional information regarding the Existing Plan, see Exhibit L.
After reviewing the Existing Plan and the Amended Plan at a meeting held on
July 28, 1997, the Board of Trustees, including the Independent Trustees,
voted unanimously to approve the Amended Plan and recommended its submission
to shareholders for their approval. The Amended Plan varies from the Existing
Plan only in the manner in which the distribution fee is calculated as noted
above. Under the Amended Plan, each Fund will pay NYLIFE Distributors a
distribution fee which is accrued daily and paid monthly at the annual rate of
0.75% of the average daily net assets of that Fund's Class B shares. The
Amended Plan, unlike the Existing Plan, uses the fee calculation method--a
simple percentage of average daily net assets--most commonly used by other
mutual funds today.
In considering whether each Fund should adopt the Amended Plan, the Trustees
requested and evaluated the information they deemed necessary to make an
informed determination. The Trustees reviewed the operation of the Existing
Plan and first took note of the importance of distribution plans in connection
with the sale of mutual funds, particularly those funds which are sold by
investment dealers and other financial advisers or consultants. The Trustees
were advised that, for such funds, distribution plans are today a virtual
necessity. Class B shares of the Funds (like Class B shares of competing
mutual funds) are sold without any front end sales load paid by investors.
However, the distributor must pay sales commissions to dealers to assure that
dealers receive adequate compensation for their services and to assure that
potential shareholders receive the investment
15
<PAGE>
related services that they need and have come to expect. Accordingly, NYLIFE
Distributors pays, out of its own resources, a commission to all dealers
selling Class B shares of the Funds. Distribution plans, such as the Existing
Plan and the Amended Plan, are intended to reimburse, over time, mutual fund
distributors for these costs and to assure continuation of distribution
related services to new and existing shareholders. In this way, distribution
plans are intended to provide the financial resources needed to attract and
maintain investors. To the extent a distributor is able to effectively use
those resources, shareholders and dealers can expect to receive better quality
services, mutual funds can reach and maintain a size where expense ratios are
reasonable and competitive, and portfolio management for a fund can be
enhanced by minimizing redemptions which disrupt normal investment operations.
The Trustees also took note that the Funds offer Class A shares which are
sold with a front-end sales load but a lower distribution fee. In connection
with the Board's approval of the Amended Plan, the Trustees concluded that
Class B shareholders should be offered a related benefit by making possible
the automatic conversion of Class B shares to Class A shares (without the
imposition of a front end sales load) at the end of the calendar quarter
occurring eight years after (i) the effective date of the Amended Plan, or
(ii) the date a shareholder purchases his shares, whichever is later. Since
the Class A shares have lower operating expenses than the Class B shares, the
conversion feature will benefit all long term shareholders who initially
decided to purchase Class B shares. Although existing shareholders of Class B
shares would not have purchased their shares with any expectation that they
could be converted (most Funds have only in recent years begun to offer Class
A shares and, in any event, a conversion feature has not previously been
available), the Trustees believe that this new feature may also facilitate and
enhance distribution of Class B shares and provide a direct benefit to all
long term Class B shareholders. It is the Trustees' intention that all share
conversions be made on a tax-free basis and if this cannot be reasonably
assured, the Trustees reserve the right to modify or eliminate this share
class conversion feature. Implementation of the automatic conversion feature
is contingent upon approval of the Amended Plan by the Class B shareholders of
each Fund.
In reviewing the Existing Plan and the Amended Plan, the Board of Trustees
was advised that increasing market volatility combined with growth in the
number and type of MainStay Funds has resulted in increased exchanges between
the Funds. Under the Existing Plan, historically the distribution fee has been
calculated on the basis of the aggregate gross sales of each Fund's shares
since inception of the Fund (not including reinvestment of dividends and
capital gains distributions from the Funds), less the aggregate net asset
value of the shares exchanged or redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed (or waived).
Therefore, under the Existing Plan, the Fund from which shares have been
exchanged or redeemed may continue to bear the distribution fee on assets
which have left the Fund; in addition, the Fund into which the shares were
exchanged does not bear the distribution fee on such assets acquired through
exchange. The Board of Trustees considered that under the Existing Plan, a
Fund that experiences significant exchanges can bear a distribution fee with
regard to assets that are no longer in that Fund and determined that it would
be more appropriate for the distribution fee to follow the movement of assets
among the Funds so as to more appropriately allocate distribution related
expenses among the Funds. To accomplish this result, the Board of Trustees
concluded that the distribution fee should be based solely on the net assets
of each Fund.
In reviewing the Amended Plan, the Trustees also took note of the fact that
the costs (including overhead) to NYLIFE Distributors of distributing the
Class B shares of each Fund have exceeded, and
16
<PAGE>
are likely to continue to exceed, the distribution plan fees and deferred
sales charges received by NYLIFE Distributors. While the Existing Plan may,
over time, reimburse NYLIFE Distributors for these losses, it will do so more
slowly than the Amended Plan or most other distribution plans currently in
effect for comparable mutual funds. As noted above, most distribution plans
simply provide for a fee based on average net assets which is likely to result
in higher annual distribution fees than is the case under the Existing Plan.
Consequently, NYLIFE Distributors is currently at a competitive disadvantage
relative to many other mutual fund distributors. This means that it can not as
easily finance the costs of distribution or assure continuation of the same or
an enhanced level of distribution services as many of its competitors. In that
regard, NYLIFE Distributors advised the Trustees that the demands placed upon
it were increasing as it has broadened its distribution effort through a
growing network of unaffiliated dealers. Historically, the Funds were offered
primarily to customers of NYLIFE Securities, Inc. a broker-dealer affiliated
with NYLIFE Distributors. More recently, efforts have been made to expand
sales of the Funds through independent or unaffiliated broker-dealers. These
efforts to increase sales have been and are expected to continue to be costly
and place considerable financial and personnel demands upon NYLIFE
Distributors. The Trustees were advised that the Amended Plan would better
enable NYLIFE Distributors to service existing and potential dealers and
investors and to attract and retain qualified marketing personnel.
NYLIFE Distributors, therefore, recommended to the Trustees that they
approve the Amended Plan because it would strengthen NYLIFE Distributors'
capacity to enhance distribution efforts for each Fund and eliminate the
existing competitive disadvantage inherent in the operation of the Existing
Plan.
In determining to recommend to shareholders the adoption of the Amended
Plan, the Board of Trustees also considered that: (1) a distribution fee based
solely on the net assets of a Fund would be administratively easier to
calculate and far easier for investors to understand, and (2) most other
mutual funds with distribution arrangements similar to the Funds calculate
their distribution fee solely on the basis of net assets.
The Trustees also gave particular attention in their deliberations to the
estimated additional costs (see Comparative Fee Table below) that would be
incurred by each Fund under the Amended Plan and each Fund's existing and
projected expense ratios, as well as expense ratio information for the
industry average of each Fund's Lipper peer group and expense ratios for
select funds within each Fund's Lipper peer group. The Trustees also
considered the likelihood that the Amended Plan would succeed in producing the
intended results and the fact that no one can be sure that all the intended
benefits can be achieved. The Trustees concluded that it is likely that the
Amended Plan will benefit shareholders of each Fund for the reasons stated
above and by better enabling the Fund to maintain or increase its present
asset base in the face of competition from various financial products. In
reviewing the Amended Plan, in accordance with the requirements of Rule 12b-1,
the Fund's Independent Trustees, therefore, determined that there is a
reasonable likelihood that the Amended Plan will benefit each Fund and its
Class B shareholders.
17
<PAGE>
COMPARATIVE FEE TABLE
ANNUAL OPERATING EXPENSES -- DECEMBER 31, 1996 (AS A % OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CALIFORNIA TAX FREE FUND CAPITAL APPRECIATION FUND
-------------------------- --------------------------
INDUSTRY INDUSTRY
CURRENT PRO-FORMA AVERAGE+ CURRENT PRO-FORMA AVERAGE+
------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......... 0.40% 0.40% 0.43% 0.58% 0.58% 0.71%
12b-1 Fees.............. 0.25% 0.25% 0.74% 0.50% 0.75% 0.90%
Other Expenses.......... 0.84%* 0.84%* 0.29% 0.51%* 0.51%* 0.48%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses............... 1.49% 1.49% 1.46% 1.59% 1.84% 2.09%
===== ===== ===== ===== ===== =====
<CAPTION>
CONVERTIBLE FUND GOVERNMENT FUND
-------------------------- --------------------------
INDUSTRY INDUSTRY
CURRENT PRO-FORMA AVERAGE+ CURRENT PRO-FORMA AVERAGE+
------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......... 0.72% 072% 0.64% 0.60% 0.60% 0.55%
12b-1 Fees.............. 0.63% 0.75% 0.91% 0.58% 0.75% 0.88%
Other Expenses.......... 0.80%* 0.80%* 0.45% 0.44%* 0.44%* 0.31%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses............... 2.15% 2.27% 2.00% 1.62% 1.79% 1.74%
===== ===== ===== ===== ===== =====
<CAPTION>
HIGH YIELD
CORPORATE BOND FUND INTERNATIONAL BOND FUND
-------------------------- --------------------------
INDUSTRY INDUSTRY
CURRENT PRO-FORMA AVERAGE+ CURRENT PRO-FORMA AVERAGE+
------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......... 0.56% 0.56% 0.53% 0.40% 0.40% 0.47%
12b-1 Fees.............. 0.58% 0.75% 0.92% 0.66% 0.75% 0.66%
Other Expenses.......... 0.42%* 0.42%* 0.41% 1.06%* 1.06%* 1.08%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses............... 1.56% 1.73% 1.86% 2.12% 2.21% 2.21%
===== ===== ===== ===== ===== =====
<CAPTION>
INTERNATIONAL EQUITY FUND NEW YORK TAX FREE FUND
-------------------------- --------------------------
INDUSTRY INDUSTRY
CURRENT PRO-FORMA AVERAGE+ CURRENT PRO-FORMA AVERAGE+
------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......... 1.00% 1.00% 0.88% 0.30% 0.30% 0.47%
12b-1 Fees.............. 0.71% 0.75% 0.91% 0.25% 0.25% 0.82%
Other Expenses.......... 1.02%* 1.02%* 0.70% 0.94%* 0.94%* 0.23%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses............... 2.73% 2.77% 2.49% 1.49% 1.49% 1.52%
===== ===== ===== ===== ===== =====
<CAPTION>
TAX FREE BOND FUND TOTAL RETURN FUND
-------------------------- --------------------------
INDUSTRY INDUSTRY
CURRENT PRO-FORMA AVERAGE+ CURRENT PRO-FORMA AVERAGE+
------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......... 0.60% 0.60% 0.58% 0.62% 0.62% 0.58%
12b-1 Fees.............. 0.21% 0.25% 0.79% 0.49% 0.75% 0.88%
Other Expenses.......... 0.39%* 0.39%* 0.22% 0.48%* 0.48%* 0.54%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses............... 1.20% 1.24% 1.59% 1.59% 1.85% 2.00%
===== ===== ===== ===== ===== =====
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
VALUE FUND
-----------------------
PRO- INDUSTRY
CURRENT FORMA AVERAGE+
------- ----- --------
<S> <C> <C> <C>
Management Fees......................................... 0.60% 0.60% 0.52%
12b-1 Fees.............................................. 0.53% 0.75% 0.89%
Other Expenses.......................................... 0.48%* 0.48%* 0.51%
----- ----- -----
Total Fund Operating Expenses........................... 1.61% 1.83% 1.92%
===== ===== =====
</TABLE>
- --------
* Includes 0.25% service fee.
+ As of December 31, 1996. Source: Lipper Analytical Services Inc.
Aside from the calculation of the distribution fees described above, the
Amended Plan and the Existing Plan are substantially identical. Both Plans
provide for quarterly written reports to the Fund's Board of Trustees of
expenditures pursuant to the Plan, including the purposes of such
expenditures. Each Plan may be terminated by a Fund by the vote of a majority
of Independent Trustees or by vote of a majority of the applicable class of
shares of the Fund. Each Plan will continue in effect for successive one-year
periods, provided that each continuance is specifically approved (i) by the
vote of a majority of the Independent Trustees and (ii) either (a) by the vote
of a majority of the outstanding shares or (b) by the vote of a majority of
the entire Board of Trustees. Any change in either Plan that would materially
increase the distribution cost to a Fund requires shareholder approval;
otherwise, the Plan may be amended by the Trustees, including a majority of
the Independent Trustees as described above.
Distribution fee payments under the Existing and Amended Plans are not tied
exclusively to the distribution expenses actually incurred by NYLIFE
Distributors and the payments may exceed distribution expenses actually
incurred by NYLIFE Distributors. However, as noted above, distribution related
expenses incurred by NYLIFE Distributors have resulted in expenditures by
NYLIFE Distributors since each Fund's inception considerably in excess of
distribution fees received pursuant to the Existing Plan and amounts received
from contingent deferred sales charges.
If approved by shareholders, each Amended Plan will be implemented after
operational requirements to implement the Amended Plan have been completed.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS APPROVAL OF THE AMENDED PLAN FOR CLASS B SHARES OF ALL FUNDS OTHER
THAN THE EQUITY INDEX FUND, MONEY MARKET FUND AND STRATEGIC INCOME FUND.
19
<PAGE>
PROPOSAL FIVE -- ELIMINATION OR REVISION OF CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS OF THE FUNDS
ALL FUNDS
(CERTAIN CHANGES ARE PROPOSED FOR ALL FUNDS, BUT SOME CHANGES APPLYONLY TO
CERTAIN FUNDS AS INDICATED BELOW)
Pursuant to the Investment Company Act of 1940 (the "1940 Act"), each of the
Funds has adopted certain fundamental investment restrictions and policies
("fundamental restrictions"), which are set forth in the Funds' prospectus or
statement of additional information, and which may be changed only with
shareholder approval. Restrictions and policies that a Fund has not
specifically designated as being fundamental are considered to be "non-
fundamental" and may be changed by the Fund's Board without shareholder
approval.
Certain of the fundamental restrictions that the Funds have adopted in the
past reflect regulatory, business or industry conditions, practices or
requirements which at one time, for a variety of reasons, led to the
imposition of restrictions upon the ability of the Funds to manage their
investment operations. With the passage of time and the development of new
practices, these restrictions appear unnecessary or unwarranted. Other
restrictions were imposed by certain states but are no longer required since
the U.S. Congress preempted the states from imposing such restrictions with
the enactment of the National Securities Markets Improvement Act of 1996.
Other fundamental restrictions reflect federal regulatory requirements which
remain in effect, but which are not required to be stated as fundamental
restrictions. Also, as new Funds have been created over a period of years,
substantially similar fundamental restrictions often have been phrased in
different ways, sometimes resulting in minor but unintended differences in
effect or potentially giving rise to unintended differences in interpretation.
Accordingly, the Board has approved revisions to the Funds' fundamental
restrictions in order to simplify, modernize and make more uniform those
investment restrictions that are required to be fundamental, and to eliminate
those fundamental restrictions that are not legally required. Existing
fundamental restrictions that are not required to be fundamental would be re-
classified as non-fundamental restrictions.
The Board believes that eliminating the disparities among the Funds'
fundamental restrictions will enhance management's ability to manage
efficiently and effectively the Funds' assets, particularly in changing
regulatory and investment environments. In addition, by minimizing the number
of policies that can be changed only by shareholder vote, the Board and the
Funds will have greater flexibility to modify Fund policies, as appropriate,
in response to changing markets and in light of new investment opportunities
and instruments. Each Fund will then be able to avoid the costs and delays
associated with a shareholder meeting when making changes to its non-
fundamental investment policies that, at a future time, the Board considers
desirable. Although the proposed changes in fundamental restrictions will
allow the Funds greater investment flexibility to respond to future investment
opportunities, the Board does not anticipate that the changes, individually or
in the aggregate, will result at this time in a material change in the level
of investment risk associated with an investment in any Fund.
The text and a summary description of each proposed change to the Funds'
fundamental restrictions are set forth below.
20
<PAGE>
The text below also describes those non-fundamental restrictions that would
be adopted by the Boards in conjunction with the elimination of fundamental
restrictions under this Proposal. Any non-fundamental restriction may be
modified or eliminated by the Board at any future date without any further
approval of Shareholders.
If the proposed changes are approved by shareholders of the respective Funds
at the Meeting, the Funds' prospectus and statement of additional information
will be revised, as appropriate, to reflect those changes.
A. STATE-IMPOSED FUNDAMENTAL RESTRICTIONS
Funds to which this change applies: All Funds; however, restriction 1 below
does not apply to the International Equity Fund, International Bond Fund or
Strategic Income Fund and restrictions 4 and 5 below apply only to the Equity
Index Fund
One of the provisions of the National Securities Markets Improvement Act of
1996 is the preemption of substantive state regulation of securities issued by
investment companies registered with the Securities and Exchange Commission
under the 1940 Act. States are no longer able to impose their own investment
restrictions or require additional disclosure in offering documents as a
condition of registration in that state. In the past, the Funds have adopted a
number of fundamental investment restrictions in order to comply with
provisions of various state securities laws. In light of the new legislation,
it is proposed that certain of the Funds' fundamental restrictions based on
state securities laws be eliminated.
The following are state-imposed investment restrictions proposed to be
eliminated:
1. The Trust, on behalf of any Fund, may not pledge, mortgage or
hypothecate its assets, except that, to secure permitted borrowings, it may
pledge securities having a market value at the time of pledge not exceeding
15% (10% in the case of the California Tax Free Fund and New York Tax Free
Fund) of the cost of a Fund's total assets, and except in connection with
permitted transactions in options, futures contracts and options on futures
contracts. This restriction does not apply to the International Bond Fund,
International Equity Fund or Strategic Income Fund.
2. The Trust may not, on behalf of any Fund, purchase interests in oil,
gas or mineral leases.
3. The Trust may not, on behalf of any Fund, purchase limited partnership
interests in real estate.
4. The Equity Index Fund may not purchase securities of any company
having less than three years' continuous operations (including operations
of any predecessors) if such purchase would cause the value of the Fund's
investments in all such companies to exceed 5% of the value of its total
assets.
5. The Equity Index Fund may not hold the securities of any issuer when
more than 1/2 of 1% of the issuer's securities are owned beneficially by
one or more of the Fund's officers or Trustees or by one or more of the
officers or directors of the Fund's underwriter or investment manager.
B. FUNDAMENTAL RESTRICTIONS WHICH ARE NOT REQUIRED TO BE FUNDAMENTAL
Funds to which this change applies: California Tax Free Fund, New York Tax
Free Fund and Equity Index Fund
21
<PAGE>
Certain of the Funds' fundamental restrictions are not required to be
fundamental, i.e. they are not required to be designated as restrictions that
can be changed only with shareholder approval. It is proposed that these
fundamental restrictions, which are listed below, be changed from fundamental
to non-fundamental and re-stated as appropriate. This change will provide for
flexibility in revising these restrictions in the future should industry or
regulatory conditions warrant and will enable the Funds to avoid the
additional expense of a shareholder solicitation in connection with future
revisions. Furthermore, in certain cases, the same investment restriction is
fundamental for some Funds and non-fundamental for others. For purposes of
consistency and ease of administration, it is recommended that each of these
investment restrictions be changed to non-fundamental for all of the Funds.
It is proposed that the classification of the following investment
restrictions be changed from fundamental to non-fundamental:
1. The Trust may not with respect to the California Tax Free Fund and New
York Tax Free Fund, purchase securities with contractual or other
restrictions on resale or other illiquid assets (such as repurchase
agreements with maturities in excess of seven days or other securities
which are not readily marketable) if more than 10% of the total assets of
the Fund would be invested in such securities. The Equity Index Fund may
not invest more than 10% of its total assets in repurchase agreements
providing for settlement in more than seven days after notice and in other
securities that are not readily marketable.
2. The Equity Index Fund may not purchase securities of closed-end
investment companies except (a) in the open market where no commission
other than the ordinary broker's commission is paid, which purchases are
limited to a maximum of (i) 3% of the total outstanding voting stock of any
one closed-end investment company, (ii) 5% of the Fund's net assets with
respect to the securities issued by any one closed-end investment company,
and (iii) 10% of the Fund's net assets in the aggregate, or (b) those
received as part of a merger or consolidation. The Fund may not purchase
the securities of other open-end investment companies.
3. The Equity Index Fund may not invest in the securities of a company
for the purpose of exercising management or control, but the Fund will vote
the securities it owns in its portfolio as a shareholder in accordance with
its views.
4. The California Tax Free Fund and New York Tax Free Fund may not sell
securities short, or purchase securities on margin, except that the Fund
may enter into and make margin deposits in connection with transactions in
options, futures and options on futures.
5. The California Tax Free Fund and New York Tax Free Fund may not invest
in companies for the purpose of exercising control.
6. The California Tax Free Fund and New York Tax Free Fund may not invest
in securities of other investment companies, except as they may be acquired
as part of a merger, consolidation or acquisition of assets.
Restriction 1 above would be restated in the form of the following non-
fundamental restriction:
1. The California Tax Free Fund, New York Tax Free Fund and Equity Index
Fund may not invest more than 10% of the assets of a Fund (taken at market
value at the time of the investment) in "illiquid securities," illiquid
securities being defined to include securities subject to legal or
contractual restrictions on resale (other than restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of
1933).
22
<PAGE>
Restrictions 2 and 6 above would be restated in the form of the following
non-fundamental restriction:
1. The Funds may not purchase the securities of other investment
companies, except to the extent permitted by the 1940 Act or in connection
with a merger, consolidation, acquisition or reorganization.
Restrictions 3 and 5 above would be restated in the form of the following
non-fundamental restriction:
1. A Fund may not invest in other companies for the purpose of exercising
control or management.
Restriction 4 above would be restated in the form of the following non-
fundamental restriction:
1. A Fund may not purchase securities on margin or make short sales,
except in connection with arbitrage transactions or unless it owns the
securities sold short or it has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is conditional,
the sale is made upon the same conditions, except that the Trust may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities (this restriction has no application to
transactions in futures, options and foreign currency exchange contracts).
C. FUNDAMENTAL RESTRICTIONS PROPOSED TO BE REVISED OR ELIMINATED IN ORDER TO
ESTABLISH FLEXIBILITY AND CONSISTENCY AMONG FUNDS
1. Funds to which this change applies: Capital Appreciation Fund,
Convertible Fund, Government Fund, High Yield Corporate Bond Fund, Money
Market Fund, Tax Free Bond Fund, Total Return Fund and Value Fund.
For a Fund to be considered a "diversified fund", the 1940 Act requires that
at least 75% of the value of the Fund's total assets be represented by cash,
and cash items, government securities, securities of other investment
companies, and other securities limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the
Fund and to not more than 10% of the outstanding voting securities of such
issuer.
In light of the above requirement, it is proposed that the following
investment restrictions be revised to apply only with respect to 75% of the
total assets of the above listed Funds, as opposed to the Funds' entire
portfolios, which is the effect of the current restriction. The fundamental
restrictions listed below already are limited to 75% of the total assets of
the International Equity Fund and Strategic Income Fund. The proposed revision
would provide management with greater flexibility in managing the Funds' asset
and would provide for greater consistency of the restrictions applicable to
each of the Funds.
Current Text
1. The Trust may not, on behalf of any Fund, invest more than 5% of the
value of the total assets of a Fund in the securities of any one issuer,
except U.S. government securities. This restriction applies only with
respect to 75% of the International Equity Fund's and Strategic Income
Fund's total assets and does not apply to the California Tax Free Fund,
Equity Index Fund, International Bond Fund and New York Tax Free Fund.
23
<PAGE>
2. The Trust may not, on behalf of any Fund, purchase the securities of
any issuer if such purchase would cause more than 10% of the voting
securities of such issuer to be held by a Fund. This restriction applies
only with respect to 75% of the International Equity Fund's and Strategic
Income Fund's total assets and does not apply to the California Tax Free
Fund, Equity Index Fund, International Bond Fund and New York Tax Free
Fund.
Proposed Text
1. The Trust may not, on behalf of any Fund, with respect to 75% of each
Fund's total assets, invest more than 5% of the value of the total assets
of a Fund in the securities of any one issuer, except U.S. government
securities, or purchase the securities of any issuer if such purchase would
cause more than 10% of the voting securities of such issuer to be held by a
Fund. This restriction does not apply to the California Tax Free Fund,
Equity Index Fund, International Bond Fund and New York Tax Free Fund.
2. Funds to which this change applies: California Tax Free Fund, Capital
Appreciation Fund, Convertible Fund, Equity Index Fund, Government Fund, High
Yield Corporate Bond Fund, Money Market Fund, New York Tax Free Fund, Tax Free
Bond Fund, Total Return Fund and Value Fund.
It is proposed that the Funds' fundamental investment restrictions regarding
borrowing be revised to make clear that the restriction does not prohibit the
Funds from engaging in reverse repurchase agreements or comparable portfolio
transactions. This clarification would provide flexibility to the Funds should
the Board determine that such instruments are appropriate investment for the
Funds.
Current Text
1. The Trust may not, on behalf of any Fund, borrow money except from
banks on a temporary basis for extraordinary or emergency purposes,
including the meeting of redemption requests (or by engaging in reverse
repurchase agreements for comparable portfolio transactions in the case of
the International Equity Fund, International Bond Fund and Strategic Income
Fund provided that those Funds maintain asset coverage of at least 300% for
all such borrowings), and no purchases of securities will be made while
such borrowings exceed 5% of the value of the Fund's assets (10% in the
case of the California Tax Free Fund and New York Tax Free Fund).
Proposed Text
1. The Trust may not, on behalf of any Fund, borrow money except from
banks on a temporary basis for extraordinary or emergency purposes,
including the meeting of redemption requests (or by engaging in reverse
repurchase agreements for comparable portfolio transactions provided that
the Funds maintain asset coverage of at least 300% for all such
borrowings), and no purchases of securities will be made while such
borrowings exceed 5% of the value of the Fund's assets (10% in the case of
the California Tax Free Fund and New York Tax Free Fund).
3. Funds to which this change applies: California Tax Free Fund, Capital
Appreciation Fund, Convertible Fund, Equity Index Fund, Government Fund, High
Yield Corporate Bond Fund, Money Market Fund, New York Tax Free Fund, Tax Free
Bond Fund, Total Return Fund and Value Fund
Under the requirements of the 1940 Act, and as stated in the Funds'
fundamental restriction below, a Fund, subject to certain exceptions, may not
purchase securities if such purchase would
24
<PAGE>
cause 25% or more in the aggregate of the market value of the total assets of
a Fund to be invested in the securities of one or more issuers having their
principal business activities in the same industry. With respect to the
International Bond Fund, International Equity Fund and Strategic Income Fund,
the fundamental restriction provides that at such time as the 1940 Act is
amended to permit a Fund to elect to be "industry nondiversified," (i.e., a
fund that does not concentrate its investment in a particular industry would
be permitted, but not required, to invest 25% or more of its assets in a
particular industry), the Fund would elect to be so classified. It is proposed
that this provision be expanded to include the other Funds. Such a provision
would provide flexibility to the Funds should the 1940 Act be amended and
would avoid the cost of a shareholder solicitation should a Fund's Board
determine that electing to be industry nondiversified would be appropriate and
beneficial for a Fund.
Current Text
1. The Trust may not, on behalf of any Fund, purchase securities (or with
respect to the California Tax Free Fund, New York Tax Free Fund, and Tax
Free Bond Fund purchase (i) Pollution Control and Industrial Development
Bonds or (ii) securities the interest from which is not exempt from regular
federal income tax) if such purchase would cause 25% or more in the
aggregate of the market value of the total assets of a Fund to be invested
in the securities of one or more issuers having their principal business
activities in the same industry, provided that there is no limitation in
respect to investments in U.S. government securities or, in the case of the
California Tax Free Fund and New York Tax Free Fund, investments in
repurchase agreements with respect thereto (for the purposes of this
restriction, telephone companies are considered to be a separate industry
from gas or electric utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents) except that
(a) the above limitation does not apply to the Equity Index Fund to the
extent that the Standard & Poor's 500 Composite Stock Price Index is so
concentrated; (b) up to 40% of the High Yield Corporate Bond Fund's and
Strategic Income Fund's total assets, taken at market value, may be
invested in each of the electric utility and telephone industries, but each
Fund will not invest 25% or more in either of those industries unless
yields available for four consecutive weeks in the four highest rating
categories on new issue bonds in such industry (issue size of $50 million
or more) have averaged in excess of 105% of yields of new issue long-term
industrial bonds similarly rated (issue size of $50 million or more); (c)
more than 25% of the market value of the total assets of the Money Market
Fund will be invested in the securities of banks and bank holding
companies, including certificates of deposit and bankers' acceptances; and
(d) at such time that the 1940 Act is amended to permit a registered
investment company to elect to be "industry nondiversified," (i.e., a fund
that does not concentrate its investments in a particular industry would be
permitted, but not required, to invest 25% or more of its assets in a
particular industry) the International Bond Fund, International Equity Fund
and Strategic Income Fund elect to be so classified and the foregoing
limitation shall no longer apply with respect to those Funds. With respect
to the California Tax Free Fund and New York Tax Free Fund, private
activity bonds ultimately payable by companies within the same industry are
treated as if they were issued by issuers in the same industry for purposes
of this restriction.
Proposed Text
1. The Trust may not, on behalf of any Fund, purchase securities (or with
respect to the California Tax Free Fund, New York Tax Free Fund, and Tax
Free Bond Fund purchase
25
<PAGE>
(i) Pollution Control and Industrial Development Bonds or (ii) securities
the interest from which is not exempt from regular federal income tax) if
such purchase would cause 25% or more in the aggregate of the market value
of the total assets of a Fund to be invested in the securities of one or
more issuers having their principal business activities in the same
industry, provided that there is no limitation in respect to investments in
U.S. government securities or investments in repurchase agreements with
respect thereto (for the purposes of this restriction, telephone companies
are considered to be a separate industry from gas or electric utilities,
and wholly-owned finance companies are considered to be in the industry of
their parents if their activities are primarily related to financing the
activities of the parents) except that (a) the above limitation does not
apply to the Equity Index Fund to the extent that the Standard & Poor's 500
Composite Stock Price Index is so concentrated; (b) up to 40% of the High
Yield Corporate Bond Fund's and Strategic Income Fund's total assets, taken
at market value, may be invested in each of the electric utility and
telephone industries, but each Fund will not invest 25% or more in either
of those industries unless yields available for four consecutive weeks in
the four highest rating categories on new issue bonds in such industry
(issue size of $50 million or more) have averaged in excess of 105% of
yields of new issue long-term industrial bonds similarly rated (issue size
of $50 million or more); (c) more than 25% of the market value of the total
assets of the Money Market Fund will be invested in the securities of banks
and bank holding companies, including certificates of deposit and bankers'
acceptances; and (d) at such time that the 1940 Act is amended to permit a
registered investment company to elect to be "industry nondiversified,"
(i.e., a fund that does not concentrate its investments in a particular
industry would be permitted, but not required, to invest 25% or more of its
assets in a particular industry) the Funds elect to be so classified and
the foregoing limitation shall no longer apply with respect to those Funds.
With respect to the California Tax Free Fund and New York Tax Free Fund,
private activity bonds ultimately payable by companies within the same
industry are treated as if they were issued by issuers in the same industry
for purposes of this restriction.
4. Funds to which this change applies: All Funds
Under the 1940 Act and the Funds' fundamental restriction stated below, the
Funds are restricted from issuing senior securities. In order to provide
maximum flexibility to the operations of the Funds while ensuring that the
Funds' policies with respect to issuing senior securities continue to comply
with the provisions of the 1940 Act, it is proposed that the restriction on
issuing senior securities be revised to stated that the Funds may not issue
senior securities to the extent prohibited by the 1940 Act.
Current Text
1. The Trust may not, on behalf of any Fund, issue senior securities,
except as appropriate to evidence indebtedness that a Fund is permitted to
incur and except for shares of existing or additional series of the Trust.
Proposed Text
1. The Trust may not, on behalf of any Fund, issue senior securities,
except to the extent permitted under the Investment Company Act of 1940.
26
<PAGE>
5. Fund to which this change applies: Equity Index Fund
As provided in the Fund's fundamental restriction stated below, the Equity
Index Fund generally is prohibited from purchasing, selling or writing puts,
calls or combinations thereof. Monitor, the Fund's current investment adviser,
has informed the Board that under certain circumstances, the Fund may from
time to time need to sell individual securities the Fund holds. However, in
order that the Fund continue to maintain exposure to all of the securities in
the S&P 500 Index, the Fund may need to purchase a call on the individual
security sold to continue to maintain exposure to the security while remaining
invested in a manner consistent with the Fund's overall investment objective.
The Board has determined that the elimination of the fundamental restriction
stated below would be in the best interests of the Fund by providing the Fund
the flexibility to invest in certain options transactions to the extent
determined appropriate by the Board. The Board has approved the Fund's ability
to purchase calls on individual securities, subject to the shareholders'
approval of the elimination of the fundamental restriction stated below.
1. The Equity Index Fund may not purchase, sell or write puts, calls or
combinations thereof, except that the Fund may enter into transactions in
stock index options and futures as described in the Prospectus and in this
Statement of Additional Information.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS APPROVAL OF THE PROPOSED ELIMINATION OR REVISION OF CERTAIN
FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS AS DISCUSSED ABOVE.
PROPOSAL SIX -- RATIFICATION OF SELECTION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
ALL FUNDS
The Board of Trustees recommends that the shareholders of the Trust ratify
the selection of Price Waterhouse LLP, independent certified public
accountants, to audit the accounts of the Trust for the fiscal year ending
December 31, 1997. Their selection was approved by the unanimous vote, cast in
person, of the Trustees of the Trust, including the Trustees who are not
"interested persons" of the Trust within the meaning of the 1940 Act, at a
meeting held on January 27, 1997 with respect to each of the Funds. Price
Waterhouse LLP has audited the accounts of the Trust since the Trust's
commencement of business in 1986 and has informed the Trust that Price
Waterhouse does not have any direct financial interest or any material
indirect financial interest in the Trust. Representatives of Price Waterhouse
LLP are not expected to be present at the Meeting but have been given the
opportunity to make a statement if they so desire, and will be available
should any matters arise requiring their presence.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF THE TRUST VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
OF THE TRUST.
27
<PAGE>
OTHER MATTERS
Management does not know of any matters to be presented at the Meeting other
than those mentioned in this Proxy Statement. If any of the persons listed
above is unavailable for election as a Trustee, an event not now anticipated,
or if any other matters properly come before the Meeting, the shares
represented by proxies will be voted with respect thereto in accordance with
the best judgment of the person or persons voting the proxies.
The Trust does not hold annual or regular meetings of its shareholders.
Proposals of shareholders which are intended to be presented at a future
shareholders' meeting must be received by the Trust by a reasonable time prior
to the Trust's solicitation of proxies relating to such future meeting.
Shareholder proposals must meet certain requirements and there is no guarantee
that any proposal will be presented at a shareholders' meeting.
If the accompanying form of proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the proxy. However, if no instructions are specified, shares
will be voted for the election of the Trustees and for the other proposals.
By order of the Board of Trustees,
A. Thomas Smith III
Secretary
September 5, 1997
New York, New York
28
<PAGE>
EXHIBIT A
SHARE OWNERSHIP OF THE FUNDS
The following table sets forth the information concerning beneficial
ownership, as of August , 1997, of the Funds' shares by each person who
beneficially owns more than five percent of the voting securities of any Fund:
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
NAME OF FUND SHAREHOLDER OWNED SHARES OWNED
- ------------ ------------------- ------------ -------------
<S> <C> <C> <C>
</TABLE>
A-1
<PAGE>
EXHIBIT B
ADDITIONAL INFORMATION REGARDING THE TRUST'S EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
YEAR
BECAME
POSITION(S) WITH AN PRINCIPAL OCCUPATION(S)
NAME AND AGE TRUST OFFICER DURING PAST 5 YEARS
- ------------ ---------------- ------- -----------------------
<S> <C> <C> <C>
Stephen Roussin......... President and Chief 1997 Senior Vice President, New York Life
Age: 34 Executive Officer Insurance Company, 1997 to present;
Senior Vice President, Smith Barney,
1994 to 1997; and Division Sales
Manager, Prudential Securities, 1989
to 1994.
Jefferson C. Boyce...... Senior Vice President 1995 Senior Vice President, MainStay
Age: 39 Institutional Funds Inc., 1995 to
present; Senior Vice President, New
York Life Insurance Company, 1994 to
present; Director, NYLIFE Distributors
Inc., 1993 to present; and Chief
Administrative Officer, Pension,
Mutual Funds, Structured Finance,
Corporate Quality, Human Resources and
Employees' Health Departments, New
York Life Insurance Company, 1992 to
1994.
Anthony W. Polis........ Vice President and 1990 Vice President, New York Life
Age: 53 Chief Financial Insurance Company, 1988 to present;
Officer Director, Vice President and Chief
Financial Officer, NYLIFE Securities
Inc., 1988 to present; Vice President
and Chief Financial Officer, NYLIFE
Distributors Inc., 1993 to present;
Treasurer, MainStay Institutional
Funds Inc., 1990 to present;
Treasurer, MainStay VP Series Fund,
Inc., 1993 to present; Assistant
Treasurer, MainStay VP Series Fund,
Inc., 1992 to 1993; Vice President and
Treasurer, Eclipse Financial Asset
Trust, 1992 to present; Vice President
and Chief Financial Officer, Eagle
Strategies Corp. (registered
investment adviser), 1993 to present.
Richard Zuccaro......... Tax Vice President 1991 Vice President, New York Life
Age: 46 Insurance Company, 1995 to present;
Vice President--Tax, New York Life
Insurance Company, 1986 to 1995; Tax
Vice President, NYLIFE Securities
Inc., 1987 to present; Tax Vice
President, NAFCO, Inc., 1990 to
present; Tax Vice President, NYLIFE
Depositary Inc., 1990 to present; Tax
Vice President, NYLIFE Inc., 1990 to
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
YEAR
BECAME
POSITION(S) AN PRINCIPAL OCCUPATION(S)
NAME AND AGE WITH TRUST OFFICER DURING PAST 5 YEARS
- ------------ ----------- ------- -----------------------
<S> <C> <C> <C>
present; Tax Vice President, NYLIFE
Insurance Company of Arizona, 1990 to
present; Tax Vice President, NYLIFE
Realty Inc., 1991 to present; Tax Vice
President, NYLICO Inc., 1991 to
present; Tax Vice President, New York
Life Fund Inc., 1991 to present; Tax
Vice President, New York Life
International Investment, Inc., 1991
to present; Tax Vice President, NYLIFE
Equity Inc., 1991 to present; Tax Vice
President, NYLIFE Funding Inc., 1991
to present; Tax Vice President, NYLCO
Inc., 1991 to present; Tax Vice
President, MainStay VP Series Fund,
Inc., 1991 to present; Tax Vice
President, CNP Realty, 1991 to
present; Tax Vice President, New York
Life Worldwide Holding Inc., 1992 to
present; Tax Vice President, NYLIFE
Structured Asset Management Co. Ltd.,
1992 to present; Tax Vice President,
MainStay Institutional Funds Inc.,
1992 to present; Tax Vice President,
NYLIFE Distributors Inc., 1993 to
present; Vice President & Assistant
Controller, New York Life Insurance
and Annuity Corp., 1995 to present,
and Assistant Controller, 1991 to
present; Vice President, NYLCARE
Health Plans, Inc., 1995 to present;
Vice President--Tax, New York Life and
Health Insurance Co., 1996 to present;
and Tax Vice President, NYL Trust
Company, 1996 to present.
A. Thomas Smith III..... Secretary 1994 Vice President and Associate General
Age: 40 Counsel, New York Life Insurance
Company, 1997 to present; Associate
General Counsel, New York Life
Insurance Company, 1996 to 1997;
Assistant General Counsel, New York
Life Insurance Company, 1994 to 1996;
Secretary, MainStay Institutional
Funds Inc., MainStay VP Series Fund,
Inc., New York Life Fund Inc., 1994 to
1997; Secretary, Eclipse Financial
Asset Trust, 1994 to present;
Secretary, Eagle Strategies Corp.
(registered investment adviser), 1996
to present; and Assistant General
Counsel, Dreyfus Corporation, 1991 to
1993.
</TABLE>
B-2
<PAGE>
EXHIBIT C
ADDITIONAL INFORMATION REGARDING CURRENT INVESTMENT
ADVISORY AND ADMINISTRATIVE ARRANGEMENTS
CURRENT INVESTMENT ADVISORY AGREEMENTS
The Investment Advisory Agreements for Capital Appreciation Fund,
Convertible Fund, Government Fund, High Yield Corporate Bond Fund, Money
Market Fund and Value Fund are dated May 1, 1986; the Investment Advisory
Agreement for Tax Free Bond Fund is dated May 29, 1987; the Investment
Advisory Agreement for Total Return Fund is dated December 28, 1987; the
Investment Advisory Agreements for California Tax Free Fund and New York Tax
Free Fund are dated September 6, 1991; the Investment Advisory Agreement for
Equity Index Fund is dated November 5, 1990; the Investment Advisory
Agreements for International Bond Fund and International Equity Fund are dated
August 25, 1994; and the Investment Advisory Agreement for Strategic Income
Fund is dated January 28, 1997.
On April 27, 1987 the shareholders of Capital Appreciation Fund, Convertible
Fund, Government Fund, High Yield Corporate Bond Fund, Money Market Fund and
Value Fund approved their respective Investment Advisory Agreements and in
connection with the reorganization of such Fund as a series of the Trust, the
shareholders of the MacKay-Shields MainStay Tax Free Bond Fund approved an
Investment Advisory Agreement with MacKay-Shields substantially identical to
the Tax Free Bond Fund's current Investment Advisory Agreement with MacKay-
Shields. On April 25, 1988, the shareholders of Total Return Fund approved its
Investment Advisory Agreement. On December 8, 1992, shareholders of California
Tax Free Fund and New York Tax Free Fund approved their respective Investment
Advisory Agreements with MacKay-Shields. On September 8, 1994, the sole
initial shareholder of International Bond Fund and International Equity Fund
approved their respective Investment Advisory Agreements with MacKay-Shields.
On February 3, 1997, the sole initial shareholder of Strategic Income Fund
approved the Investment Advisory Agreement with MacKay-Shields. The Investment
Advisory Agreements for each Fund except Strategic Income Fund, which did not
require reapproval, were last approved by the Trustees, including a majority
of the Trustees who are not "interested persons" of the Trust or MacKay-
Shields or Monitor (as defined in the 1940 Act), at a meeting held on April
28, 1997.
For the fiscal year ended December 31, 1996, the amount of the advisory fee
paid by each Fund to its respective Adviser was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
California Tax Free Fund................................ $ 45,307+
Capital Appreciation Fund............................... 3,429,258
Convertible Fund........................................ 2,444,000
Equity Index Fund....................................... 163,785
Government Fund......................................... 2,643,801
High Yield Corporate Bond Fund.......................... 5,816,110
International Bond Fund................................. 68,489+
International Equity Fund............................... 342,100
Money Market Fund....................................... 397,071+
New York Tax Free Fund.................................. 29,457+
Strategic Income Fund................................... N/A++
Tax Free Bond Fund...................................... 1,579,820
Total Return Fund....................................... 3,087,111
Value Fund.............................................. 2,682,642
</TABLE>
- --------
+After expense reimbursement.
++The Strategic Income Fund commenced operations on February 28, 1997.
C-1
<PAGE>
MacKay-Shields and NYLIFE Distributors voluntarily agreed to limit the
expenses of the Money Market Fund, described above to the extent that such
expenses for a month would exceed on an annualized basis .70% of the average
daily net assets of the Fund. For the fiscal year ended December 31, 1996, a
total of $870,226 would have been paid by the Money Market Fund had such
expenses not been limited.
MacKay-Shields voluntarily agreed to reimburse 50% of certain expenses for
the California Tax Free Fund and the New York Tax Free Fund to the extent that
operating expenses exceed on an annualized basis .99% of the daily average net
assets of those Funds. For the fiscal year ended December 31, 1996, a total of
$56,535 and $49,369 would have been paid by the California Tax Free Fund and
New York Tax Free Fund, respectively, had such expenses not been limited.
Regarding the International Bond Fund, MacKay-Shields and NYLIFE
Distributors each agreed that a portion of its fees would not be imposed,
pursuant to the applicable contracts, until such time as the Fund reaches $50
million in net assets. After deducting the foregoing fee waiver, the advisory
fee paid by the International Bond Fund for the period September 13, 1994 to
December 31, 1994 equaled an annual rate of .25% and for the fiscal years
ended December 31, 1995 and 1996, equaled an annual rate of .25% and .25%,
respectively.
CURRENT ADMINISTRATION AGREEMENTS
NYLIFE Distributors Inc. ("NYLIFE Distributors" or the "Administrator")
currently acts as administrator for the Funds pursuant to the Administration
Agreements which are dated January 1, 1994 (August 25, 1994 in the case of the
International Bond Fund and International Equity Fund and January 28, 1997 in
the case of the Strategic Income Fund).
The Administration Agreements for the Funds were approved by the Trustees,
including a majority of the Trustees who are not "interested persons" of the
Trust or NYLIFE Distributors (as the term is defined in the 1940 Act) at a
meeting held on October 25, 1993 (at a meeting held on July 25, 1994 for the
International Bond Fund and International Equity Fund and at a meeting held on
January 27, 1997 for the Strategic Income Fund). The Administration Agreements
for each Fund except the Strategic Income Fund, which did not require
reapproval, were reapproved by the Trustees, including a majority of the
Trustees who are not "interested persons" of the Trust or NYLIFE Distributors,
at a meeting held on April 28, 1997.
For the fiscal year ended December 31, 1996, the amount of the
administration fee paid by each Fund was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------
<S> <C>
California Tax Free Fund............................... $ 45,307+
Capital Appreciation Fund.............................. 3,429,258
Convertible Fund....................................... 2,444,000
Equity Index Fund...................................... 365,118+
Government Fund........................................ 2,643,801
High Yield Corporate Bond Fund......................... 5,816,110
International Bond Fund................................ 41,100+
International Equity Fund.............................. 228,066
Money Market Fund...................................... 397,071+
New York Tax Free Fund................................. 29,457+
Strategic Income Fund.................................. N/A++
Tax Free Bond Fund..................................... 1,579,820
Total Return Fund...................................... 3,087,111
Value Fund............................................. 2,682,642
</TABLE>
- --------
+The Strategic Income Fund commenced operations on February 28, 1997.
++After expense reimbursement.
C-2
<PAGE>
NYLIFE Distributors and MacKay-Shields have voluntarily agreed to assume the
expenses of the Money Market Fund described above to the extent that such
expenses for a month would exceed on an annualized basis .70% of the average
daily net assets of that Fund. For the fiscal year ended December 31, 1996,
$870,226 in expenses would have been incurred by the Money Market Fund had
such expenses not been limited.
NYLIFE Distributors voluntarily agreed to reimburse 50% of certain expenses
for the California Tax Free Fund and the New York Tax Free Fund to the extent
that operating expenses exceed on an annualized basis .99% of the daily
average net assets of that Fund. For the fiscal year ended December 31, 1996,
a total of $56,535 and $49,369 would have been paid by the California Tax Free
Fund and New York Tax Free Fund, respectively, had such expenses not been
limited.
In the event the total expenses of the Equity Index Fund for any fiscal year
exceed .80% of the value of the Fund's average annual net assets, NYLIFE
Distributors agreed to reduce its fee payable by the Fund by the difference
between the Fund's total expenses and 0.80%. This reduction amounted to
$290,022 for the year ended December 31, 1996.
Regarding the International Bond Fund, MacKay-Shields and NYLIFE
Distributors each agreed that a portion of its fees would not be imposed,
pursuant to the applicable contracts, until such time as the Fund reaches $50
million in net assets. After deducting the foregoing fee waiver, the
administration fee paid by the International Bond Fund for the fiscal year
ended December 31, 1996 equaled an annual rate of .15%.
OTHER SERVICES
Pursuant to an Accounting Agreement with the Trust dated January 1, 1994,
NYLIFE Distributors currently performs certain bookkeeping and pricing
services for the Funds. Each Fund bears an allocable portion of the cost of
providing these services to the Trust.
In addition, each Fund other than the Strategic Income Fund reimbursed
NYLIFE Securities and NYLIFE Distributors for the cost of certain
correspondence to shareholders and establishing shareholder accounts.
For the fiscal year ended December 31, 1996, the amount of the fee paid
under the Accounting Agreement by each Fund was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
California Tax Free Fund................................ $ N/A
Capital Appreciation Fund............................... 145,721
Convertible Fund........................................ 81,568
Equity Index Fund....................................... N/A
Government Fund......................................... 114,622
High Yield Corporate Bond Fund.......................... 233,333
International Bond Fund................................. 12,511
International Equity Fund............................... 22,075
Money Market Fund....................................... 62,593
New York Tax Free Fund.................................. N/A
Strategic Income Fund+.................................. N/A
Tax Free Bond Fund...................................... 80,430
Total Return Fund....................................... 126,154
Value Fund.............................................. 116,985
</TABLE>
- --------
+The Strategic Income Fund commenced operations on February 28, 1997.
C-3
<PAGE>
EXHIBIT D
FORM OF
COMPOSITE
THE MAINSTAY FUNDS
[CALIFORNIA TAX FREE FUND]
[CAPITAL APPRECIATION FUND]
[CONVERTIBLE FUND]
[EQUITY INDEX FUND]
[GOVERNMENT FUND]
[HIGH YIELD CORPORATE BOND FUND]
[INTERNATIONAL BOND FUND]
[INTERNATIONAL EQUITY FUND]
[MONEY MARKET FUND]
[NEW YORK TAX FREE FUND]
[STRATEGIC INCOME FUND]
[STRATEGIC VALUE FUND]
[TAX FREE BOND FUND]
[TOTAL RETURN FUND]
[VALUE FUND]
MANAGEMENT AGREEMENT
Agreement, made as of the day of , 1997 between THE MAINSTAY FUNDS,
a Massachusetts business trust (the "Trust"), on behalf of the [California Tax
Free Fund, Capital Appreciation Fund, Convertible Fund, Equity Index Fund,
Government Fund, High Yield Corporate Bond Fund, International Bond Fund,
International Equity Fund, Money Market Fund, New York Tax Free Fund,
Strategic Income Fund, Strategic Value Fund, Tax Free Bond Fund, Total Return
Fund, and Value Fund] (the "Fund"), a separate series of the Trust, and
MainStay Management, Inc., a Delaware corporation (the "Manager").
witnesseth:
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the shares of beneficial interest of the Trust (the "Shares") are
divided into separate series, each of which is established pursuant to a
written instrument executed by the Trustees of the Trust, and the Trustees may
from time to time terminate such series or establish and terminate additional
series; and
WHEREAS, the Fund desires to retain the Manager to render investment
advisory and related administrative services to the Fund, and the Manager is
willing to render such services on the terms and conditions hereinafter set
forth;
D-1
<PAGE>
NOW, THEREFORE, the parties agree as follows:
1. Appointment. The Fund hereby appoints MainStay Management, Inc. to act as
manager to the Fund for the period and on the terms set forth in this
Agreement. The Manager accepts such appointment and agrees to render the
services herein described, for the compensation herein provided.
2. Duties as Manager. Subject to the supervision of the Trustees of the
Trust, the Manager shall administer the Fund's business affairs and manage the
investment operations of the Fund and the composition of the portfolio of the
Fund, including the purchase, retention and disposition thereof, in accordance
with the investment objectives, policies and restrictions of the Fund, as
stated in the Prospectus (as hereinafter defined) and subject to the following
understandings:
(a) The Manager shall (i) furnish the Fund with office facilities and
(ii) furnish the Fund with ordinary clerical, bookkeeping and recordkeeping
services at such office facilities.
(b) The Manager shall provide supervision of the Fund's investments and
determine from time to time what investments or securities will be
purchased, retained, sold or lent by the Fund, and what portion of the
Fund's assets will be invested or held uninvested as cash.
(c) The Manager shall use its best judgment in the performance of its
duties under this Agreement.
(d) The Manager, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Declaration of Trust, By-
Laws and Prospectus (each as hereinafter defined) of the Trust and with the
instructions and directions of the Trustees of the Trust and will conform
to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(e) The Manager, and any sub-adviser to whom such authority has been
delegated, shall determine the securities to be purchased or sold by the
Fund and will place orders pursuant to its determination with or through
such persons, brokers or dealers (including NYLIFE Securities Inc.) in
conformity with the policy with respect to brokerage as set forth in the
Trust's Registration Statement and Prospectus (each as hereinafter defined)
or as the Trustees may direct from time to time. It is recognized that, in
providing the Fund with investment supervision or the placing of orders for
portfolio transactions, the Manager or any sub-adviser will give primary
consideration to securing the most favorable price and efficient execution.
Consistent with this policy, the Manager or any sub-adviser may consider
the financial responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a party to any
such transaction or other transactions to which other clients of the
Manager or any sub-adviser may be a party. It is understood that neither
the Fund, the Trust nor the Manager or sub-adviser has adopted a formula
for allocation of the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the Manager or any sub-
adviser have access to supplemental investment and market research and
security and economic analyses provided by certain brokers who may execute
brokerage transactions at a higher cost to the Fund than may
D-2
<PAGE>
result when allocating brokerage to other brokers on the basis of seeking
the most favorable price and efficient execution. Therefore, the Manager or
any sub-adviser is authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by the
Trust's Trustees from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided
by such brokers may be useful to the Manager or any sub-adviser in
connection with its services to other clients.
On occasions when the Manager or any sub-adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients, the Manager or any sub-adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be so sold or purchased in order to obtain the
most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or
sold, as well as expenses incurred in the transaction, will be made by the
Manager or any sub-adviser in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and to
such other clients.
(f) The Manager shall maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs (b)(5), (6), (9)
and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act and any other
books and records required to be maintained by it under the 1940 Act and
the Rules thereunder and shall render to the Trust's Trustees such periodic
and special reports as the Trustees may reasonably request.
(g) The Manager shall provide the Trust's Custodian on each business day
with information relating to the execution of all portfolio transactions
pursuant to standing instructions.
(h) With respect to any or all Series of the Trust, including the Fund,
the Manager may enter into one or more contracts ("Sub-Advisory or Sub-
Administration Contract") with a sub-adviser or sub-administrator in which
the Manager delegates to such sub-adviser or sub-administrator any or all
its duties specified in this Agreement, provided that each Sub-Advisory or
Sub-Administration Contract meets all requirements of the 1940 Act and
rules thereunder.
3. Manager Personnel. The Manager shall authorize and permit any of its
directors, officers and employees who may be elected or appointed as Trustees
or officers of the Trust to serve in the capacities in which they are elected
or appointed. Services to be furnished by the Manager under this Agreement may
be furnished through the medium of any of such directors, officers, or
employees.
4. Books and Records. The Manager shall keep the Fund's books and records
required to be maintained by it, pursuant to paragraph 2 hereof. The Manager
agrees that all records which it maintains for the Fund are the property of
the Fund, and it will surrender promptly to the Fund any of such records upon
the Fund's request. The Manager further agrees to preserve for the periods
prescribed by Rule 31a-2 as promulgated by the Commission under the 1940 Act
any such records as are required to be maintained by the Manager pursuant to
paragraph 2 hereof.
5. Services Not Exclusive. The services furnished by the Manager hereunder
are not to be deemed exclusive and the Manager shall be free to furnish
similar services to others so long as its services under this Agreement are
not impaired thereby.
6. Documents. The Trust has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
D-3
<PAGE>
(a) Declaration of Trust of the Trust, filed with the Secretary of the
Commonwealth of Massachusetts (such Declaration of Trust, as in effect on
the date hereof and as amended from time to time, is herein called the
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
(c) Certified Resolutions of the Trustees of the Trust authorizing the
appointment of the Manager and approving the form of this Agreement;
(d) Written Instrument to Establish and Designate Separate Series of
Shares;
(e) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-lA (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating to
the Fund and the Fund's Shares and all amendments thereto;
(f) Notification of Registration of the Trust under the 1940 Act on Form
N-8A as filed with the Commission and all amendments thereto; and
(g) Prospectus and Statement of Additional Information of the Fund (such
Prospectus and Statement of Additional Information, as currently in effect
and as amended or supplemented from time to time, being herein called the
"Prospectus").
7. Expenses. (a) In connection with the services rendered by the Manager
under this Agreement, the Manager will bear all of the following expenses:
(i) the salaries and expenses of all personnel of the Trust and the
Manager, except the fees and expenses of Trustees who are not interested
persons of the Manager or of the Trust; and
(ii) all expenses incurred by the Manager in connection with managing the
investment operations of the Fund and administering the ordinary course of
the Fund's business, other than those assumed by the Fund herein;
(b) The Fund assumes and will pay its expenses, including but not limited to
those described below (where any such category applies to more than one series
of the Trust, the Fund shall be liable only for its allocable portion of the
expenses):
(i) the fees and expenses of Trustees who are not interested persons of
the Manager or of the Trust;
(ii) the fees and expenses of the Fund's custodian which relate to (A)
the custodial function and the recordkeeping connected therewith, (B) the
maintenance of the required accounting records of the Fund not being
maintained by the Manager, (C) the pricing of the Fund's Shares, including
the cost of any pricing service or services which may be retained pursuant
to the authorization of the Trustees of the Trust, and (D) for both mail
and wire orders, the cashiering function in connection with the issuance
and redemption of the Fund's Shares;
(iii) the fees and expenses of the Trust's transfer and dividend
disbursing agent, which may be the custodian, which relate to the
maintenance of each shareholder account;
(iv) the charges and expenses of legal counsel and independent
accountants for the Trust;
(v) brokers' commissions and any issue or transfer taxes chargeable to
the Trust in connection with its securities transactions on behalf of the
Fund;
D-4
<PAGE>
(vi) all taxes and business fees payable by the Fund to federal, state or
other governmental agencies;
(vii) the fees of any trade association of which the Trust may be a
member;
(viii) the cost of share certificates representing the Fund's Shares;
(ix) the fees and expenses involved in registering and maintaining
registrations of the Trust and of its Shares with the Securities and
Exchange Commission, registering the Trust as a broker or dealer and
qualifying its Shares under state securities laws, including the
preparation and printing of the Trust's registration statements and
prospectuses for filing under federal and state securities laws for such
purposes;
(x) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Trustees' meetings and of preparing,
printing and mailing reports to shareholders in the amount necessary for
distribution to the shareholders; and
(xi) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business.
8. Organization Expenses. The Fund hereby agrees to reimburse the Manager
for the organization expenses of, and the expenses incurred in connection
with, the initial offering of Shares of the Fund.
9. Compensation. For the services provided and the facilities furnished
pursuant to this Agreement, the Trust will pay to the Manager as full
compensation therefor a fee at the following annual rate of % of the average
daily net assets of each Fund:
<TABLE>
<S> <C>
[California Tax Free Fund.......................................... 0.50%
Capital Appreciation Fund.......................................... 0.72%
Convertible Fund................................................... 0.72%
Equity Index Fund.................................................. 0.50%
Government Fund.................................................... 0.60%
High Yield Corporate Bond Fund..................................... 0.60%
International Bond Fund............................................ 0.70%
International Equity Fund.......................................... 1.00%
Money Market Fund.................................................. 0.50%
New York Tax Free Fund............................................. 0.50%
Strategic Income Fund.............................................. 0.60%
Tax Free Bond Fund................................................. 0.60%
Total Return Fund.................................................. 0.64%
Value Fund......................................................... 0.72%]
</TABLE>
This fee will be computed daily and will be paid to the Manager monthly.
This fee will be chargeable only to the Fund, and no other series of the Trust
shall be liable for the fee due and payable hereunder. The Fund shall not be
liable for any expense of any other series of the Trust.
10. Standard of Care. Subject to the applicable law, the Manager shall not
be liable for any error of judgment or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
D-5
<PAGE>
11. Duration and Termination. This Agreement shall continue in effect with
respect to the Fund for a period of more than two years from the date hereof
only so long as such continuance is specifically approved at least annually
with respect to the Fund in conformity with the requirements of the 1940 Act
and the Rules thereunder; provided, however, that this Agreement may be
terminated with respect to the Fund at any time, without the payment of any
penalty, by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund, or by
the Manager at any time, without the payment of any penalty, on not more than
60 days' nor less than 30 days' written notice to the other party. This
Agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
12. Other Business. Nothing in this Agreement shall limit or restrict the
right of any of the Manager's directors, officers, or employees who may also
be a Trustee, officer, or employee of the Trust to engage in any other
business or to devote his time and attention in part to the management or
other aspects of any business, whether of a similar or dissimilar nature, nor
limit or restrict the Manager's right to engage in any other business or to
render services of any kind to any other corporation, trust, firm, individual
or association.
13. Independent Contractor. Except as otherwise provided herein or
authorized by the Trustees of the Trust from time to time, the Manager shall
for all purposes herein be deemed to be an independent contractor and shall
have no authority to act for or represent the Fund or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.
14. Trust Materials. During the term of this Agreement, the Trust agrees to
furnish the Manager at its principal office all Prospectuses, proxy
statements, reports to shareholders, sales literature or other material
prepared for distribution to shareholders of the Fund or to the public, which
refer to the Manager in any way, prior to use thereof and not to use such
material if the Manager reasonably objects in writing within five business
days (or such other time as may be mutually agreed) after receipt thereof. In
the event of termination of this Agreement, the Trust will continue to furnish
to the Manager copies of any of the above-mentioned materials which refer in
any way to the Manager. The Trust shall furnish or otherwise make available to
the Manager such other information relating to the business affairs of the
Fund as the Manager at any time, or from time to time, reasonably requests in
order to discharge its obligations hereunder.
15. Amendment. This Agreement may be amended in writing by mutual consent,
but the consent of the Fund, if required, must be obtained in conformity with
the requirements of the 1940 Act and the Rules thereunder.
16. Notice. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Morris Corporate
Center I, Building A, 300 Interpace Parkway, Parsippany, New Jersey 07054; or
(2) to the Trust at 51 Madison Avenue, New York, NY 10010.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18. Limitation of Liability of the Trust and the Shareholders. It is
understood and expressly stipulated that none of the Trustees, officers,
agents or shareholders of the Trust shall be personally
D-6
<PAGE>
liable hereunder. The name "The MainStay Funds" is the designation of the
Trust for the time being under the Declaration of Trust and all persons
dealing with the Trust must look solely to the property of the Trust for the
enforcement of any claims against the Trust, as neither the Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Trust. No series of the Trust shall be liable
for any claims against any other series of the Trust.
19. Use of Name. The Fund may use any name including the word "MainStay"
only for so long as this Agreement or any other Investment Advisory Agreement
between the Manager or any other affiliate of New York Life Insurance Company
and the Trust or any extension, renewal or amendment thereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to the Manager's business as investment adviser. At such time as
such an agreement shall no longer be in effect, the Fund will (to the extent
that it lawfully can) cease to use such name or any other name indicating that
it is advised by or otherwise connected with the Manager or any organization
which shall have so succeeded to its business.
20. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. As used in this Agreement, terms shall have the same meaning
as such terms have in the 1940 Act. Where the effect of a requirement of the
federal securities laws reflected in any provision of this Agreement is made
less restrictive by a rule, regulation or order of the Commission, whether of
special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order. This Agreement may be signed in
counterpart.
In Witness Whereof, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE MAINSTAY FUNDS, on behalf of
FUND, a series
By: _________________________________
Name:
Title:
MAINSTAY MANAGEMENT, INC.
By: _________________________________
Name:
Title:
D-7
<PAGE>
EXHIBIT E
ADDITIONAL INFORMATION REGARDING PRINCIPAL EXECUTIVE OFFICER AND
DIRECTORS OF MAINSTAY MANAGEMENT, INC.
<TABLE>
<CAPTION>
POSITION WITH MAINSTAY
NAME AND ADDRESS MANAGEMENT, INC. PRINCIPAL OCCUPATION
- ---------------- ---------------------- --------------------
<S> <C> <C>
</TABLE>
E-1
<PAGE>
EXHIBIT F
FORM OF
COMPOSITE
THE MAINSTAY FUNDS
[CALIFORNIA TAX FREE FUND]
[CAPITAL APPRECIATION FUND]
[CONVERTIBLE FUND]
[EQUITY INDEX FUND]
[GOVERNMENT FUND]
[HIGH YIELD CORPORATE BOND FUND]
[INTERNATIONAL BOND FUND]
[INTERNATIONAL EQUITY FUND]
[MONEY MARKET FUND]
[NEW YORK TAX FREE FUND]
[STRATEGIC INCOME FUND]
[STRATEGIC VALUE FUND]
[TAX FREE BOND FUND]
[TOTAL RETURN FUND]
[VALUE FUND]
SUB-ADVISORY AGREEMENT
Agreement made as of , 1997 (the "Agreement") between MainStay
Management, Inc., a Delaware corporation (the "Manager"), and [MacKay-Shields
Financial Corporation, a Delaware corporation] [Monitor Capital Advisors,
Inc., a Delaware corporation] (the "Sub-Adviser") (the "Agreement").
WHEREAS, the Manager has entered into a Management Agreement, dated ,
1997 (the "Management Agreement"), with The MainStay Funds (the "Trust"), an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), on behalf of the California Tax Free
Fund, Capital Appreciation Fund, Convertible Fund, Equity Index Fund,
Government Fund, High Yield Corporate Bond Fund, International Bond Fund,
International Equity Fund, Money Market Fund, New York Tax Free Fund,
Strategic Income Fund, Strategic Value Fund, Tax Free Bond Fund, Total Return
Fund and Value Fund] (the "Fund"), a series of the Trust;
WHEREAS, under the Management Agreement, the Manager has agreed to provide
certain investment advisory and related administrative services to the Fund;
WHEREAS, the Management Agreement permits the Manager to delegate certain of
its investment advisory duties under the Management Agreement to a sub-
adviser; and
F-1
<PAGE>
WHEREAS, the Manager desires to retain the Sub-Adviser to furnish certain
investment advisory services with respect to the Fund and the Sub-Adviser is
willing to furnish such services;
NOW, THEREFORE, the parties agree as follows:
1. Appointment. The Manager hereby appoints the Sub-Adviser as an investment
sub-adviser with respect to the Fund for the period and on the terms set forth
in this Agreement. The Sub-Adviser accepts that appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Duties as Sub-Adviser. Subject to the supervision of the Trustees of the
Trust and the Manager, the Sub-Adviser shall manage the investment operations
of the Fund and the composition of the portfolio of the Fund, including the
purchase, retention and disposition thereof, in accordance with the investment
objectives, policies and restrictions of the Fund, as stated in the Prospectus
(as hereinafter defined) and subject to the following understandings:
(a) The Sub-Adviser shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or lent by the Fund, and what portion of the
Fund's assets will be invested or held uninvested as cash.
(b) The Sub-Adviser shall use its best judgment in the performance of its
duties under this Agreement.
(c) The Sub-Adviser, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Declaration of
Trust, By-Laws and Prospectus (each as hereinafter defined) of the Trust
and with the instructions and directions of the Trustees of the Trust and
the Manager and will conform to and comply with the requirements of the
1940 Act and all other applicable federal and state laws and regulations.
(d) The Sub-Adviser shall determine the securities to be purchased or
sold by the Fund and will place orders pursuant to its determination with
or through such persons, brokers or dealers (including NYLIFE Securities
Inc.) in conformity with the policy with respect to brokerage as set forth
in the Trust's Registration Statement and Prospectus (each as hereinafter
defined) or as the Trustees may direct from time to time. It is recognized
that, in providing the Fund with investment supervision or the placing of
orders for portfolio transactions, the Sub-Adviser will give primary
consideration to securing the most favorable price and efficient execution.
Consistent with this policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other services
provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Sub-Adviser
may be a party. It is understood that none of the Fund, the Trust, the
Manager nor the Sub-Adviser has adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Sub-Adviser have access to supplemental
investment and market research and security and economic analyses provided
by certain brokers who may execute brokerage transactions at a higher cost
to the Fund than may result when allocating brokerage to other brokers on
the basis of seeking the most favorable price and efficient execution.
Therefore, the Sub-Adviser is authorized to place orders for the purchase
and sale of securities for the Fund with such certain brokers, subject to
review by the Trust's Trustees from time to time with respect to the extent
and continuation of this practice. It is understood that the services
provided by such brokers may be useful to the Sub-Adviser in connection
with its services to other clients.
F-2
<PAGE>
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients,
the Sub-Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be so sold or purchased in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as
expenses incurred in the transaction, will be made by the Sub-Adviser in
the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients.
(e) The Sub-Adviser shall maintain all books and records with respect to
the Fund's securities transactions required by sub-paragraphs (b)(5), (6),
(9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act and any
other books and records required to be maintained by it under the 1940 Act
and the Rules thereunder and shall render to the Manager and to the Trust's
Trustees such periodic and special reports as the Manager or the Trustees
may reasonably request.
(f) The Sub-Adviser shall provide the Fund's Custodian on each business
day with information relating to the execution of all portfolio
transactions pursuant to standing instructions.
3. Sub-Adviser Personnel. The Sub-Adviser shall authorize and permit any of
its directors, officers and employees who may be elected or appointed as
Trustees or officers of the Trust to serve in the capacities in which they are
elected or appointed. Services to be furnished by the Sub-Adviser under this
Agreement may be furnished through the medium of any of such directors,
officers, or employees.
4. Books and Records. The Sub-Adviser shall keep the Fund's books and
records required to be maintained by it, pursuant to paragraph 2 hereof. The
Sub-Adviser agrees that all records which it maintains for the Fund are the
property of the Fund, and it will surrender promptly to the Fund any of such
records upon the Fund's request. The Sub-Adviser further agrees to preserve
for the periods prescribed by Rule 31a-2 as promulgated by the Commission
under the 1940 Act any such records as are required to be maintained by the
Sub-Adviser pursuant to paragraph 2 hereof.
5. Services Not Exclusive. The services furnished by the Sub-Adviser
hereunder are not to be deemed exclusive and the Sub-Adviser shall be free to
furnish similar or different services to others so long as its services under
this Agreement are not impaired thereby.
6. Documents. The Manager has delivered to the Sub-Adviser copies of each of
the following documents and will deliver to it all future amendments and
supplements, if any:
(a) Declaration of Trust of the Trust, filed with the Secretary of the
Commonwealth of Massachusetts (such Declaration of Trust, as in effect on
the date hereof and as amended from time to time, is herein called the
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
(c) Certified Resolutions of the Trustees of the Trust authorizing the
appointment of the Sub-Adviser and approving the form of this Agreement;
(d) Written Instrument to Establish and Designate Separate Series of
Shares;
F-3
<PAGE>
(e) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-lA (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating to
the Fund and the Fund's Shares and all amendments thereto;
(f) Notification of Registration of the Trust under the 1940 Act on Form
N-8A as filed with the Commission and all amendments thereto; and
(g) Prospectus and Statement of Additional Information of the Fund (such
Prospectus and Statement of Additional Information, as currently in effect
and as amended or supplemented from time to time, being herein called the
"Prospectus").
7. Expenses. During the term of this Agreement, the Sub-Adviser will bear
all expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses incurred
by the Trust, the Fund or the Manager.
8. Compensation. For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, the Manager, not the Trust or the
Fund, will pay to the Sub-Adviser a fee, computed daily and payable monthly,
at the following annual rate of each Fund's average daily net assets.
<TABLE>
<S> <C>
[California Tax Free Fund.......................................... 0.25%
Capital Appreciation Fund.......................................... 0.36%
Convertible Fund................................................... 0.36%
Equity Index Fund.................................................. 0.10%
Government Fund.................................................... 0.30%
High Yield Corporate Bond Fund..................................... 0.30%
International Bond Fund............................................ 0.45%
International Equity Fund.......................................... 0.60%
Money Market Fund.................................................. 0.25%
New York Tax Free Fund............................................. 0.25%
Strategic Income Fund.............................................. 0.30%
Tax Free Bond Fund................................................. 0.30%
Total Return Fund.................................................. 0.32%
Value Fund......................................................... 0.36%]
</TABLE>
9. Standard of Care. Subject to the applicable law, the Sub-Adviser shall
not be liable for any error of judgment or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
10. Duration and Termination. This Agreement shall continue in effect for a
period of more than two years from the date hereof only so long as such
continuance is specifically approved at least annually with respect to the
Fund in conformity with the requirements of the 1940 Act and the Rules
thereunder. Notwithstanding the foregoing, this Agreement may be terminated:
(a) at any time without penalty by the Fund upon the vote of a majority of the
Trustees or by vote of the majority of the Fund's outstanding voting
securities, upon sixty (60) days' written notice to the Sub-adviser, (b) by
the Manager at any time without penalty upon sixty (60) days' written notice
to the Sub-Adviser or immediately upon material breach by the Sub-Adviser or
immediately if, in the reasonable judgment of
F-4
<PAGE>
the Manager, the Sub-Adviser becomes unable to discharge its duties and
obligations under this Agreement, or (c) by the Sub-Adviser at any time
without penalty, upon sixty (60) days' written notice to the Fund. This
Subadvisory Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act) or the assignment or termination of
the Management Agreement.
11. Other Business. Nothing in this Agreement shall limit or restrict the
right of any of the Sub-Adviser's directors, officers, or employees who may
also be a Trustee, officer, or employee of the Trust to engage in any other
business or to devote his or her time and attention in part to the management
or other aspects of any business, whether of a similar or dissimilar nature,
nor limit or restrict the Sub-Adviser's right to engage in any other business
or to render services of any kind to any other corporation, trust, firm,
individual or association.
12. Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought. No material amendment of this Agreement shall be
effective until approved (i) by a vote of a majority of those Trustees who are
not parties to this Agreement or interested persons of any such party, and
(ii) by a vote of a majority of the Fund's outstanding voting securities
(unless in the case of (ii), the Trust receives an SEC order or no-action
letter permitting it to modify the Agreement without such vote).
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. Notice. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Morris Corporate
Center I, Building A, 300 Interpace Parkway, Parsippany, New Jersey 07054; or
(2) to the Sub-Adviser at 9 West 57th Street, New York, NY 10019.
15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. As used in this Agreement, the terms "majority of the
outstanding voting securities," "affiliated person," "interested person,"
"assignment," "broker," "investment adviser," "net assets," "sale," "sell" and
"security" shall have the same meaning as such terms have in the 1940 Act.
Where the effect of a requirement of the federal securities laws reflected in
any provision of this Agreement is made less restrictive by a rule, regulation
or order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order. This Agreement may be signed in counterpart.
F-5
<PAGE>
In Witness Whereof, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
MAINSTAY MANAGEMENT, INC.
By: _________________________________
Name:
Title:
[MACKAY-SHIELDS FINANCIAL
CORPORATION]
[MONITOR CAPITAL ADVISORS, INC.]
By: _________________________________
Name:
Title:
F-6
<PAGE>
EXHIBIT G
ADDITIONAL INFORMATION REGARDING PRINCIPAL EXECUTIVE OFFICERS AND
DIRECTORS OF MACKAY-SHIELDS FINANCIAL CORPORATION
<TABLE>
<CAPTION>
POSITION WITH
MACKAY-SHIELDS
NAME AND ADDRESS FINANCIAL CORPORATION PRINCIPAL OCCUPATION
---------------- --------------------- --------------------
<S> <C> <C>
Ravi Akhoury Chairman and Chief Chairman and Chief Executive
9 West 57th Street Executive Officer Office, MacKay-Shields Financial
New York, NY 10019 Corporation
Alice T. Kane Director Executive Vice President, New
51 Madison Avenue York Life Insurance Company
New York, NY 10010
Richard M. Kernan, Jr. Director Executive Vice President and
51 Madison Avenue Chief Investment Officer, New York
New York, NY 10010 Life Insurance Company
Denis Laplaige President, Managing President, Managing Director and Chief
9 West 57th Street Director and Chief Investment Officer, MacKay-Shields
New York, NY 10019 Investment Financial Corporation
Officer
Donald K. Ross Director Retired Chairman and Chief
953 Cherokee Lane Executive Officer, New York Life
Franklin Lakes, NJ 07417 Insurance Company
Seymour Sternberg Director Chairman, Chief Executive Officer
51 Madison Avenue and President, New York Life
New York, NY 10010 Insurance Company
</TABLE>
G-1
<PAGE>
EXHIBIT H
ADDITIONAL INFORMATION REGARDING PRINCIPAL EXECUTIVE OFFICER AND
DIRECTORS OF MONITOR CAPITAL ADVISORS, INC.
<TABLE>
<CAPTION>
POSITION WITH MONITOR
NAME AND ADDRESS CAPITAL ADVISORS, INC. PRINCIPAL OCCUPATION
---------------- ---------------------- --------------------
<S> <C> <C>
Jefferson C. Boyce Chairman Senior Vice President,
51 Madison Avenue New York Life Insurance Company
New York, NY 10010
James Mehling President and Director President and Director,
504 Carnegie Center Monitor Capital Advisors, Inc.
Princeton, NJ 08540
Patrick G. Boyle Director Senior Vice President,
51 Madison Avenue New York Life Insurance Company
New York, NY 10010
Alice T. Kane Director Executive Vice President,
51 Madison Avenue New York Life Insurance Company
New York, NY 10010
Richard M. Kernan, Jr. Director Executive Vice President and
51 Madison Avenue Chief Investment Officer,
New York, NY 10010 New York Life Insurance Company
</TABLE>
H-1
<PAGE>
EXHIBIT I
INFORMATION REGARDING COMPARABLE FUNDS ADVISED BY
MACKAY-SHIELDS FINANCIAL CORPORATION
<TABLE>
<CAPTION>
RATE PAID PROPOSED
CURRENT FOR YEAR SUB-
SIZE (IN 000S) ADVISORY ENDED ADVISORY
FUND AS OF 6/30/97 FEE RATE 12/31/96 FEE RATE
---- -------------- -------- --------- --------
<S> <C> <C> <C> <C>
MAINSTAY CAPITAL APPRECIATION
FUND............................. 1,780,231 0.36%* 0.29% 0.36%
MainStay VP Capital Appreciation
Portfolio...................... 636,280 0.36% 0.36% N/A
MAINSTAY CONVERTIBLE FUND......... 924,052 0.36% 0.36% 0.36%
MainStay VP Convertible Portfo-
lio............................ 29,893 0.36% 0.36% N/A
MAINSTAY GOVERNMENT FUND.......... 694,788 0.30%* 0.30% 0.30%
MainStay VP Government Portfo-
lio............................ 69,971 0.30% 0.30% N/A
MAINSTAY HIGH YIELD CORPORATE BOND
FUND............................. 3,121,736 0.30%* 0.28% 0.30%
MainStay VP High Yield Bond
Portfolio...................... 303,106 0.30% 0.30% N/A
MAINSTAY INTERNATIONAL BOND FUND.. 32,526 0.45%** 0.25% 0.45%
MainStay Institutional Interna-
tional Bond Fund............... 52,775 0.30% 0.30% N/A
MAINSTAY INTERNATIONAL EQUITY
FUND............................. 83,724 0.60% 0.60% 0.60%
MainStay Institutional Interna-
tional Equity Fund............. 141,107 0.35% 0.35% N/A
MainStay VP International Equity
Portfolio...................... 29,989 0.60% 0.60% N/A
MAINSTAY MONEY MARKET FUND........ 409,884 0.25%*** 0.11% 0.25%
MainStay VP Cash Management
Portfolio...................... 137,619 0.25% 0.25% N/A
MAINSTAY TOTAL RETURN FUND........ 1,210,214 0.32%* 0.31% 0.32%
MainStay VP Total Return Portfo-
lio............................ 390,014 0.32% 0.32% N/A
MAINSTAY VALUE FUND............... 1,311,625 0.36%+ 0.30% 0.36%
MainStay VP Value Portfolio..... 182,815 0.36% 0.36% N/A
</TABLE>
All fee waivers and fee breakpoints will remain in effect under the proposed
sub-advisory arrangements for The MainStay Funds.
- --------
* NYLIFE Distributors and MacKay-Shields have voluntarily established
combined fee breakpoints for certain of the Funds as follows: for the
Government Fund of .55% on assets exceeding $1 billion; for the High Yield
Corporate Bond Fund of .55% on assets in excess of $500 million; for the
Total Return Fund of .60% on assets in excess of $500 million; and for the
Capital Appreciation Fund of .65% on assets in excess of $200 million and
.50% on assets in excess of $500 million.
** NYLIFE Distributors and MacKay-Shields have jointly agreed to waive a
portion of their fees payable by the International Bond Fund until such
time as the Fund reaches $50 million in assets.
*** up to $300 million; .225% from $300 to $700 million; .20% from $700
million to $1.0 billion; and .175% in excess of $1.0 billion. NYLIFE
Distributors and MacKay-Shields have voluntarily agreed to assume the
expenses of Money Market Fund to the extent that such expenses would
exceed on an annualized basis .70% of the average daily net assets of the
Fund.
+up to $200 million; .325% from $200 to $500 million; and .25% in excess of
$500 million.
I-1
<PAGE>
EXHIBIT J
INFORMATION REGARDING COMPARABLE FUNDS ADVISED BY
MONITOR CAPITAL ADVISORS, INC.
<TABLE>
<CAPTION>
RATE PAID PROPOSED
CURRENT FOR YEAR SUB-
SIZE (IN 000S) ADVISORY ENDED ADVISORY
FUND AS OF 6/30/97 FEE 12/31/96 FEE RATE
---- -------------- -------- --------- --------
<S> <C> <C> <C> <C>
MAINSTAY EQUITY INDEX FUND.......... -- 0.10% 0.10% 0.10%
MainStay Institutional Indexed
Equity Fund...................... -- 0.10%* -- N/A
MainStay VP Indexed Equity
Portfolio........................ -- 0.10% 0.10% N/A
</TABLE>
- --------
* The Fund's administrator, New York Life Insurance Company, and Monitor
Capital Advisors Inc. have voluntarily agreed to limit the total expenses
(excluding interest, taxes, brokerage commissions, litigation and
indemnification expenses, and other extraordinary expenses and any class-
specific expenses) of the Fund to an annual rate of 0.30% of the Fund's
Institutional Class shares' average daily net assets and 0.55% of the Fund's
Institutional Service Class shares' average daily net assets.
J-1
<PAGE>
EXHIBIT K
FORM OF
COMPOSITE
AMENDED AND RESTATED
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
FOR CLASS B SHARES
OF THE MAINSTAY FUNDS
[CALIFORNIA TAX FREE FUND]
[CAPITAL APPRECIATION FUND]
[CONVERTIBLE FUND]
[GOVERNMENT FUND]
[HIGH YIELD CORPORATE BOND FUND]
[INTERNATIONAL BOND FUND]
[INTERNATIONAL EQUITY FUND]
[NEW YORK TAX FREE FUND]
[STRATEGIC INCOME FUND]
[STRATEGIC VALUE FUND]
[TAX FREE BOND FUND]
[TOTAL RETURN FUND]
[VALUE FUND]
Whereas, the MainStay Funds (the "Trust") engages in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
Whereas, shares of beneficial interest of the Trust are currently divided
into a number of separate series including the [CALIFORNIA TAX FREE FUND;
CAPITAL APPRECIATION FUND; CONVERTIBLE FUND; GOVERNMENT FUND; HIGH YIELD
CORPORATE BOND FUND; INTERNATIONAL BOND FUND, INTERNATIONAL EQUITY FUND; NEW
YORK TAX FREE FUND; STRATEGIC INCOME FUND, STRATEGIC VALUE FUND, TAX FREE BOND
FUND; TOTAL RETURN FUND and VALUE FUND] (the "Funds");
Whereas, the Trust has adopted, on behalf of each of the Funds, a Plan of
Distribution pursuant to Rule 12b-1 under the Act (the "Plan") with respect to
Class B shares of the Funds, the Trustees of the Trust have determined that
there is a reasonable likelihood that adoption of this Amended and Restated
Plan of Distribution will benefit the Trust, each Fund and its respective
shareholders.
Whereas, the Trust employs NYLIFE Distributors Inc. ("NYLIFE Distributors")
as distributor of the securities of which it is the issuer including Class B
shares of the Funds; and
Whereas, the Trust and NYLIFE Distributors have entered into a Distribution
Agreement pursuant to which the Trust employs NYLIFE Distributors in such
capacity during the continuous offering of [Class A and Class B] shares of the
Trust.
K-1
<PAGE>
Now, Therefore, the Trust hereby amends and restates on behalf of the Funds,
and NYLIFE Distributors hereby agrees to the terms of, the Plan, as amended
and restated, in accordance with Rule 12b-1 under the Act on the following
terms and conditions:
1. The Funds shall pay to NYLIFE Distributors, as the distributor of
securities of which the Funds are the issuer, a fee for distribution of the
shares, and services to shareholders of the Funds at the annual rate of 0.75%
[(0.25% in the case of the California Tax Free Fund, New York Tax Free Fund
and Tax Free Bond Fund)] of each of the Fund's average daily net assets
attributable to the Fund's Class B shares. Such fee shall be calculated and
accrued daily and paid monthly or at such other intervals as the Trustees
shall determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc. If this Plan is terminated,
the Funds will owe no payments to NYLIFE Distributors other than any portion
of the distribution fee accrued through the effective date of termination but
then unpaid.
2. The amount set forth in paragraph 1 of this Plan shall be paid for NYLIFE
Distributors' services as distributor of the shares of the Funds in connection
with any activities or expenses primarily intended to result in the sale of
the shares of the Funds, including, but not limited to, compensation to
registered representatives or other employees of NYLIFE Distributors and to
other broker-dealers that have entered into a Soliciting Dealer Agreement with
NYLIFE Distributors, compensation to and expenses of employees of NYLIFE
Distributors who engage in or support distribution of the Funds' shares;
telephone expenses; interest expense; printing of prospectuses and reports for
other than existing shareholders; preparation, printing and distribution of
sales literature and advertising materials; administrative services and
expenses; and profit on the foregoing.
3. The Funds will pay to NYLIFE Distributors, in addition to the
distribution fee, a service fee at the rate of 0.25% on an annualized basis of
the average daily net asset value of each Fund (the "Service Fee") as
compensation for "service activities" (as defined below) rendered to
shareholders of the Funds. Such Service Fee shall be calculated daily and paid
monthly or at such other intervals as the Board shall determine.
For purposes of the Plan, "service activities" shall mean activities in
connection with the provision of personal, continuing services to investors in
each Fund, excluding transfer agent and subtransfer agent services for
beneficial owners of Fund shares, aggregating and processing purchase and
redemption orders, providing beneficial owners with share account statements,
processing dividend payments, providing subaccounting services for shares held
beneficially, forwarding shareholder communications to beneficial owners and
receiving, tabulating and transmitting proxies executed by beneficial owners;
provided, however, that if the National Association of Securities Dealers Inc.
("NASD") adopts a definition of "service fee" for purposes of Section 26(d) of
the Rules of Fair Practice of the NASD that differs from the definition of
"service activities" hereunder, or if the NASD adopts a related definition
intended to define the same concept, the definition of "service activities" in
this Paragraph shall be automatically amended, without further action of the
parties, to conform to such NASD definition. Overhead and other expenses of
NYLIFE Distributors related to its "service activities," including telephone
and other communications expenses, may be included in the information
regarding amounts expended for such activities.
4. This Amended and Restated Plan shall not take effect with respect to a
Fund, other than the Strategic Income and Strategic Value Funds, until it has
been approved by a vote of at least a majority (as defined in the Act) of the
outstanding voting securities of such Fund.
K-2
<PAGE>
5. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Trustees
of the Trust and (b) those Trustees of the Trust who are not "interested
persons" of the Trust (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
6. The Plan of Distribution shall continue in full force and effect as to
the Funds for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in paragraph 5.
7. NYLIFE Distributors shall provide to the Trustees of the Trust and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
8. This Plan may be terminated as to the Funds at any time, without payment
of any penalty, by vote of a majority of the Rule 12b-l Trustees, or by a vote
of a majority of the outstanding voting securities of the Funds on not more
than 30 days' written notice to any other party to the Plan.
9. This Plan may not be amended to increase materially the amount of
distribution fee (including any Service Fee) provided for in paragraph 1
hereof unless such amendment is approved in the manner provided for initial
approval in paragraph 4 hereof, and no material amendment to the Plan shall be
made unless approved in the manner provided for approval and annual renewal in
paragraph 5 hereof.
10. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons (as defined in the Act) of the Trust shall be
committed to the discretion of the Trustees who are not such interested
persons.
11. The Trust shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 6 hereof, for a period of not less
than six years from the date of this Plan, any such agreement or any such
report, as the case may be, the first two years in an easily accessible place.
12. The Trustees of the Trust and the shareholders of each Fund shall not be
liable for any obligations of the Trust or any Fund under this Plan, and
NYLIFE Distributors or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or
such Funds in settlement of such right or claim, and not to such Trustees or
shareholders.
K-3
<PAGE>
In Witness Whereof, the Trust, on behalf of the Funds, and NYLIFE
Distributors have executed this amended and restated Plan of Distribution as of
the day of , 1997.
THE MAINSTAY FUNDS
By: _________________________________
Title:
NYLIFE DISTRIBUTORS INC.
By: _________________________________
Title:
K-4
<PAGE>
EXHIBIT L
ADDITIONAL INFORMATION REGARDING THE CURRENT CLASS B RULE 12B-1 PLANS
Originally, Rule 12b-1 plans of distribution were adopted by each of the
Funds (except the California Tax Free Fund, New York Tax Free Fund) for the
then sole existing class of shares of the Funds. More specifically, Rule 12b-1
distribution plans were approved on September 8, 1994 by the sole initial
shareholder of each of the International Bond Fund and International Equity
Fund, on April 25, 1988 by the shareholders of the Total Return Fund, on May
29, 1987 by the sole initial shareholder of the Tax Free Bond Fund and on
April 27, 1987 by the shareholders of the Capital Appreciation Fund,
Convertible Fund, Government Fund, High Yield Corporate Bond Fund and Value
Fund. The Trustees of the Trust, including a majority of the Trustees who are
not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of such plans of distribution, by vote
cast in person at meetings called for the purpose of voting on such Plans,
initially approved the Plans of the Total Return Fund on October 26, 1987,
initially approved the Plans of the Tax Free Bond Fund on April 27, 1987,
initially approved the Plans of the Capital Appreciation Fund, Convertible
Fund, Government Fund, High Yield Corporate Bond Fund and Value Fund on April
28, 1986, and initially approved the Plans of the International Bond and
International Equity Funds on July 25, 1994. In addition, on October 31, 1988,
the Trustees of the Trust, including a majority of the Trustees who are not
interested persons, amended the Tax Free Bond Fund's Plan to permanently
reduce the amount of the distribution fee to be imposed subsequent to that
date. On October 26, 1992, the Trustees of the Trust, including a majority of
the Trustees who are not interested persons of the Trust, amended each of the
plans of distribution to provide that a portion of total amount of the
distribution fee as a service fee, to pay for a variety of account maintenance
and personal services to shareholders after the sale. On October 25, 1993, the
Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust, amended each of the plans of distribution to
reflect that NYLIFE Distributors would serve as principal underwriter of the
Funds' shares, effective January 1, 1994. Prior to the implementation of the
multi-class distribution system the distribution plans in effect for the Funds
were amended and redesignated and, now, are applicable only to the Class B
shares of each Fund. The current plans were approved by shareholders on
December 28, 1994. On October 30, 1995, the Trustees of the Trust, including a
majority of the Trustees who are not interested persons of the Trust, amended
the Class A Plans and the Class B Plans to clarify that the Plans contemplate
payment for expenses that may generally be characterized as administrative.
Regarding the California Tax Free Fund and New York Tax Free Fund, the Class
B Plans were approved by the sole initial shareholder of the Class B shares of
each Fund on December 31, 1994. The Trustees of the Trust, including a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of such Plans,
by vote cast in person at meetings called for the purpose of voting on such
Plans, initially approved such Plans now designated as the Class B Plans on
October 24, 1994.
At a meeting held on April 28, 1997, the Trustees of the Trust, including a
majority of the Independent Trustees, approved the continuation of the Plans.
L-1
<PAGE>
For the fiscal year ended December 31, 1996, the Funds paid distribution and
service fees pursuant to the Class B Plans as follows:
<TABLE>
<CAPTION>
AMOUNT OF FEE
PURSUANT TO
CLASS B PLAN
-------------
<S> <C>
California Tax Free Fund..................................... $ 19,206
Capital Appreciation Fund.................................... 8,346,723
Convertible Fund............................................. 5,623,832
Government Fund.............................................. 7,206,791
High Yield Corporate Bond Fund............................... 16,701,333
International Bond Fund...................................... 141,984
International Equity Fund.................................... 395,760
New York Tax Free Fund....................................... 14,072
Tax Free Bond Fund........................................... 2,367,663
Total Return Fund............................................ 7,048,842
Value Fund................................................... 6,604,450
</TABLE>
L-2
<PAGE>
THE MAINSTAY FUNDS
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST. The Board of
Trustees recommends that you vote FOR each of the Nominees and FOR each of the
--- ---
following proposals:
<TABLE>
<S> <C> <C> <C>
Proposal 1 - Election of Trustees:
Edward J. Hogan Harry G. Hohn Alice T. Kane
Nancy Maginnes Kissinger Terry L. Lierman John B. McGuckian
Donald E. Nickelson Donald K. Ross Stephen Roussin
Richard S. Trutanic Walter W. Ubl
[_] FOR ALL [_] AGAINST ALL
[_] FOR ALL EXCEPT [to withhold authority to vote for any nominee
listed above, strike a line through the name
of the nominee(s)]
Proposal 2 - Approval of Management Agreement
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 3A - Approval of Sub-Advisory Agreement Between the Manager and
MacKay-Shields Financial Corporation
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 5 - Elimination or Revision of Certain Fundamental Investment
Restrictions of the Funds
[_] FOR [_] AGAINST [_] ABSTAIN
[_] To vote against the proposed changes to one or more of the specific
fundamental investment restrictions, but to approve the others, place an
"X" in the box at left AND indicate the number(s) (as set forth in the
proxy statement) of the investment restriction(s) you do not want to
change on this line:
------------------------------------------------------------------
Proposal 6 - Ratification of the Selection of Price Waterhouse LLP as
Independent Certified Public Accountants of the Trust
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
<PAGE>
This proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL OF THE NOMINEES AND FOR ALL OF THE PROPOSALS.
---
YOUR SHAREHOLDER VOTE IS IMPORTANT!
Your prompt response can save you money.
Please vote, sign and mail your proxy ballot (this card) in the enclosed
postage-paid envelope today, no matter how many shares you own. A majority of
each Fund's shares must be represented in person or by proxy. Please vote so
your Fund can avoid the expense of another mailing.
Code 1
<PAGE>
THE MAINSTAY FUNDS
SPECIAL MEETING OF SHAREHOLDERS
October 24, 1997
The undersigned hereby appoints A. Thomas Smith III, Sara L. Badler and
Gregory J. Mulligan, and each of them, his or her attorneys and proxies with
full power of substitution to vote and act with respect to all shares of The
MainStay Funds listed in the accompanying proxy statement (the "Funds") held by
the undersigned at the Special Meeting of Shareholders of the Funds to be held
at 10:00 a.m., Eastern Time, on October 24, 1997, at the offices of The MainStay
Funds (the "Trust"), 51 Madison Avenue, New York, NY 10010, and at any
adjournment thereof (the "Meeting"), and instructs them to vote as indicated on
the matters referred to in the Proxy Statement for the Meeting, receipt of which
is hereby acknowledged, with discretionary power to vote upon such other
business as may properly come before the Meeting.
YOUR SHAREHOLDER VOTE IS IMPORTANT!
Your prompt response can save your Fund the expense of another mailing.
PLEASE VOTE BY MARKING YOUR PROXY
ON THE REVERSE SIDE, SIGN AND DATE IT
AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
This proxy must be signed by the beneficial
owner of Fund shares. If signing as
attorney, executor, guardian or in some
representative capacity or as an officer of
a corporation, please add title as such.
Receipt of the Notice of Special Meeting
and Proxy Statement is hereby acknowledged.
Dated , 1997
--------------------
--------------------------------------
Signature(s) of Shareholder(s)
--------------------------------------
Signature(s) of Shareholder(s)
<PAGE>
THE MAINSTAY FUNDS
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST. The Board of
Trustees recommends that you vote FOR each of the Nominees and FOR each of the
--- ---
following proposals:
Proposal 1 - Election of Trustees:
Edward J. Hogan Harry G. Hohn Alice T. Kane
Nancy Maginnes Kissinger Terry L. Lierman John B. McGuckian
Donald E. Nickelson Donald K. Ross Stephen Roussin
Richard S. Trutanic Walter W. Ubl
[_] FOR ALL [_] AGAINST ALL
[_] FOR ALL EXCEPT [to withhold authority to vote for any
nominee listed above, strike a
line through the name of the nominee(s)]
Proposal 2 - Approval of Management Agreement
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 3A - Approval of Sub-Advisory Agreement Between the Manager and MacKay-
Shields Financial Corporation
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 4 - Approval of Amendment to Plan of Distribution Pursuant to Rule
12b-1 for Class B shares
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 5 - Elimination or Revision of Certain Fundamental Investment
Restrictions of the Funds
[_] FOR [_] AGAINST [_] ABSTAIN
[_] To vote against the proposed changes to one or more of the
specific fundamental investment restrictions, but to approve the
others, place an "X" in the box at left AND indicate the number(s)
(as set forth in the proxy statement) of the investment
restriction(s) you do not want to change on this line:
-----------------------------------------------------------------
<PAGE>
Proposal 6 - Ratification of the Selection of Price Waterhouse LLP as
Independent Certified Public Accountants of the Trust
[_] FOR [_] AGAINST [_] ABSTAIN
This proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL OF THE NOMINEES AND FOR ALL OF THE PROPOSALS.
---
YOUR SHAREHOLDER VOTE IS IMPORTANT!
Your prompt response can save you money.
Please vote, sign and mail your proxy ballot (this card) in the enclosed
postage-paid envelope today, no matter how many shares you own. A majority of
each Fund's shares must be represented in person or by proxy. Please vote so
your Fund can avoid the expense of another mailing.
Code 2
<PAGE>
THE MAINSTAY FUNDS
SPECIAL MEETING OF SHAREHOLDERS
October 24, 1997
The undersigned hereby appoints A. Thomas Smith III, Sara L. Badler and
Gregory J. Mulligan, and each of them, his or her attorneys and proxies with
full power of substitution to vote and act with respect to all shares of The
MainStay Funds listed in the accompanying proxy statement (the "Funds") held by
the undersigned at the Special Meeting of Shareholders of the Funds to be held
at 10:00 a.m., Eastern Time, on October 24, 1997, at the offices of The MainStay
Funds (the "Trust"), 51 Madison Avenue, New York, NY 10010, and at any
adjournment thereof (the "Meeting"), and instructs them to vote as indicated on
the matters referred to in the Proxy Statement for the Meeting, receipt of which
is hereby acknowledged, with discretionary power to vote upon such other
business as may properly come before the Meeting.
YOUR SHAREHOLDER VOTE IS IMPORTANT!
Your prompt response can save your Fund the expense of another mailing.
PLEASE VOTE BY MARKING YOUR PROXY
ON THE REVERSE SIDE, SIGN AND DATE IT
AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
This proxy must be signed by the beneficial owner
of Fund shares. If signing as attorney, executor,
guardian or in some representative capacity or as
an officer of a corporation, please add title as
such.
Receipt of the Notice of Special Meeting and Proxy
Statement is hereby acknowledged.
Dated , 1997
--------------------
--------------------------------------
Signature(s) of Shareholder(s)
--------------------------------------
Signature(s) of Shareholder(s)
<PAGE>
THE MAINSTAY FUNDS
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST. The Board of
Trustees recommends that you vote FOR each of the Nominees and FOR each of the
--- ---
following proposals:
<TABLE>
<CAPTION>
Proposal 1 - Election of Trustees:
<S> <C> <C> <C>
Edward J. Hogan Harry G. Hohn Alice T. Kane
Nancy Maginnes Kissinger Terry L. Lierman John B. McGuckian
Donald E. Nickelson Donald K. Ross Stephen Roussin
Richard S. Trutanic Walter W. Ubl
[_] FOR ALL [_] AGAINST ALL
[_] FOR ALL EXCEPT [to withhold authority to vote for any nominee
listed above, strike a line through the name of the
nominee(s)]
Proposal 2 - Approval of Management Agreement
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 3B - Approval of Sub-Advisory Agreement Between the Manager and Monitor Capital Advisors, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 5 - Elimination or Revision of Certain Fundamental Investment Restrictions of the Funds
[_] FOR [_] AGAINST [_] ABSTAIN
[_] To vote against the proposed changes to one or more of the specific
fundamental investment restrictions, but to approve the others, place an "X" in the
box at left AND indicate the number(s) (as set forth in the proxy statement) of the
investment restriction(s) you do not want to change on this line:
------------------------------------------------------------------------------------
Proposal 6 - Ratification of the Selection of Price Waterhouse LLP as Independent Certified
Public Accountants of the Trust
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
<PAGE>
This proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL OF THE NOMINEES AND FOR ALL OF THE PROPOSALS.
---
YOUR SHAREHOLDER VOTE IS IMPORTANT!
Your prompt response can save you money.
Please vote, sign and mail your proxy ballot (this card) in the enclosed
postage-paid envelope today, no matter how many shares you own. A majority of
each Fund's shares must be represented in person or by proxy. Please vote so
your Fund can avoid the expense of another mailing.
Code 3
<PAGE>
THE MAINSTAY FUNDS
SPECIAL MEETING OF SHAREHOLDERS
October 24, 1997
The undersigned hereby appoints A. Thomas Smith III, Sara L. Badler and
Gregory J. Mulligan, and each of them, his or her attorneys and proxies with
full power of substitution to vote and act with respect to all shares of The
MainStay Funds listed in the accompanying proxy statement (the "Funds") held by
the undersigned at the Special Meeting of Shareholders of the Funds to be held
at 10:00 a.m., Eastern Time, on October 24, 1997, at the offices of The MainStay
Funds (the "Trust"), 51 Madison Avenue, New York, NY 10010, and at any
adjournment thereof (the "Meeting"), and instructs them to vote as indicated on
the matters referred to in the Proxy Statement for the Meeting, receipt of which
is hereby acknowledged, with discretionary power to vote upon such other
business as may properly come before the Meeting.
YOUR SHAREHOLDER VOTE IS IMPORTANT!
Your prompt response can save your Fund the expense of another mailing.
PLEASE VOTE BY MARKING YOUR PROXY
ON THE REVERSE SIDE, SIGN AND DATE IT
AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
This proxy must be signed by the beneficial owner
of Fund shares. If signing as attorney, executor,
guardian or in some representative capacity or as
an officer of a corporation, please add title as
such.
Receipt of the Notice of Special Meeting and Proxy
Statement is hereby acknowledged.
Dated , 1997
--------------------
--------------------------------------
Signature(s) of Shareholder(s)
--------------------------------------
Signature(s) of Shareholder(s)
