<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996
File No. 33-36962
File No. 811-6175
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE [X]
SECURITIES ACT OF 1933
Post-Effective Amendment No. 13 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 15 [X]
MAINSTAY INSTITUTIONAL FUNDS INC.
--------------------------------
(formerly New York Life Institutional Funds Inc.)
(Exact name of Registrant as Specified in Charter)
51 Madison Avenue
New York, New York 10010
------------------------
(Address of Principal Executive Offices)
(212) 576-5773
--------------
(Registrant's Telephone Number, including Area Code)
A. Thomas Smith, Esq.
MainStay Institutional Funds Inc.
51 Madison Avenue
New York, New York 10010
------------------------
(Name and Address of Agent for Service)
with a copy to:
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
[X] It is proposed that this filing will become effective on May 1, 1996
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933.
Registrant has elected to register an indefinite number of shares of its common
stock under the Securities Act of 1933, as amended, pursuant to Rule 24f-2 under
the investment Company Act of 1940. Registrant filed a notice pursuant to Rule
24f-2 on February 26, 1996 (i.e., within two months after the end of its fiscal
-----
year).
<PAGE>
MAINSTAY INSTITUTIONAL FUNDS INC.
CROSS REFERENCE SHEET
Items Required by Form N-1A
---------------------------
Item Number in Part A Prospectus Caption
- --------------------- ------------------
1. Cover Page Cover Page
2. Synopsis Tell Me The Key Facts -
Analyze the Costs of
Investing: Ongoing Fees;
If you Invest $1,000 You
Might Pay
3. Condensed Financial Information Financial Highlights
4. General Description of Tell Me The Key Facts -
Registrant Descriptions of Each
Fund; General Investment
Considerations; Tell Me
The Details - The
Company; Other
Information About the
Funds; Description of
Investments and
Investment Practices
5. Management of the Fund Tell Me The Key Facts -
Know Who You're Investing
With; Tell Me The Details
- The Company; Investment
Advisers and Administrator
5A. Management's Discussion of Information Contained in
Fund Performance Registrant's Annual
Report
6. Capital Stock and Other Tell Me The Key Facts -
Securities Understand the Tax
Consequences; Tell Me The
Details - The Company;
Portfolio Transactions
7. Purchase of Securities Tell Me The Key Facts -
Being Offered Open an Account and Buy
Shares
<PAGE>
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MainStay Institutional Funds Inc. Prospectus (May 1, 1996)
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Read This!
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These Funds aren't federally insured or guaranteed by the U.S. government.
Shares of these Funds are not deposits or obligations of, or guaranteed or
insured by, any financial institution, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.
Investments in the Funds are subject to investment risks, including possible
loss of principal.
No guarantees. There can be no assurance that the investment objective of any
Fund will be achieved. All mutual funds involve risk, including the potential to
lose some or all of your original investment. Except for money market funds, the
price of a mutual fund share will fluctuate, and, when sold, may be higher or
lower than your original purchase price. Furthermore, although the Money Market
Fund attempts to maintain a stable net asset value of $1.00 per share, there can
be no assurance that it will succeed in doing so.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Please read this Prospectus carefully before you invest, and keep it for future
reference. We hope you will easily find and understand the information you need;
but if you have any suggestions for improvement or if you need any help
please call 1-800-695-2126 ext. 2055 or write to us at:
MainStay Institutional Funds Inc.
Box 461
Parsippany, NJ 07054-0461
If you are considering investing in a Group IRA or Group Account, please call
1-800-695-4451 or write to us at:
MainStay Institutional Funds Inc.
Box 424
Parsippany, NJ 07054-0424
This Prospectus includes information you should know before investing. For even
more details, call or write for a free copy of the Statement of Additional
Information (SAI) dated May 1, 1996 (as amended from time to time). The SAI is
incorporated by reference into this Prospectus and also has been filed with the
Securities and Exchange Commission.
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MainStay Institutional Funds offers 11 no-load mutual funds with a broad range
of investment choices.
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Equity Page
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EAFE Index Fund............................................................. 17
Growth Equity Fund.......................................................... 18
Indexed Equity Fund......................................................... 19
International Equity Fund................................................... 20
Multi-Asset Fund............................................................ 21
Value Equity Fund........................................................... 22
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Fixed Income
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Bond Fund................................................................... 23
Indexed Bond Fund........................................................... 24
International Bond Fund..................................................... 25
Money Market Fund........................................................... 26
Short-Term Bond Fund........................................................ 27
[LOGO OF MAINSTAY INSTITUTIONAL FUNDS APPEARS HERE]
<PAGE>
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What's Inside?
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Tell Me Quickly Page
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The Funds; The Numbers to Call for Help................................ 1
MainStay Institutional Funds -- Two Classes of Shares.................. 3
A Quick Overview: Understanding MainStay Institutional Funds........... 4
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Tell Me The Key Facts
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Analyze the Costs of Investing: Ongoing Fees........................... 6
If You Invest $1,000 You Might Pay..................................... 6
Financial Highlights................................................... 11 - 16
Descriptions of Each Fund.............................................. 17 - 27
General Investment Considerations...................................... 28
Open an Account and Buy Shares......................................... 30 - 31
Know How to Sell and Exchange Shares................................... 32 - 33
Decide How to Receive Your Earnings.................................... 34
Understand the Tax Consequences........................................ 35
Know Who You're Investing With......................................... 36 - 37
Know Your Rights as a Shareholder...................................... 38
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Tell Me The Details
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The Company............................................................ 39
Other Information About the Funds...................................... 39
Description of Investments and Investment Practices.................... 43
Investment Restrictions................................................ 51
Investment Advisers and Administrator.................................. 52
Portfolio Transactions................................................. 54
Performance and Yield Information...................................... 55
Appendix A: Description of Securities Ratings......................... 55
2
<PAGE>
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MAINSTAY INSTITUTIONAL FUNDS -- TWO CLASSES OF SHARES
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INSTITUIONAL CLASS AND INSTITUTIONAL SERVICE CLASS
Owning Institutional Class shares will be less expensive, but owning Institional
Service Class shares will give you more shareholder services. Depending upon how
you're investing, you may be able to choose either type of shares.
The main differences between the two classes of shares are:
. the shareholder services you receive,
. the fees you pay to receive those services, and
. the effect of extra fees on your earnings.
If you buy either class of shares...
the Funds' administrator, New York Life Insurance Company, will provide services
such as furnishing the Funds with office facilities, performing clerical,
recordkeeping and bookkeeping services, and carrying out certain financial and
accounting functions. Each Fund pays a monthly fee for receiving these services.
If you buy shares of the Institutional Service Class...
the administrator or a service agent will provide additional shareholder
services for which fees are billed to the Fund, and then factored into the
share price. They are not billed to you separately, but they do reduce the
value of each share you own. The services provided may include receiving,
collecting and processing your orders, providing and maintaining check writing
and wire transfer services, communicating periodically with you; maintaining
your account records, answering your questions and handling correspondence about
your account; issuing reports and confirming your transactions; and performing
other services.
- -------------------------------------------------------------------------------
Take note:
Because of the additional fee associated with the Institutional Service Class,
you will not earn as much owning that Class of shares as you would owning
Institutional Class shares of the same Fund. (To get an idea of the difference,
see pg. 6, "If You Invest $1,000 You Might Pay...")
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Not everyone is eligible to buy Institutional Class shares
You are eligible to buy both Classes of shares if you:
. are an institutional investor investing as an employer, association or other
group retirement plan; an employee benefit trust; financial institution;
endowment, foundation or corporation.
. invest directly in a Group IRA or Group Account and you bought shares in any
MainStay Institutional Fund before January 1, 1995; but
You may only buy Institutional Service Class shares if you are a member of a
Group Account or Group IRA and have not bought shares in any MainStay
Institutional Fund prior to January 1, 1995.
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3
<PAGE>
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A Quick Overview ...
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1
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Set your investment priorities
- --------------------------------------------------------------------------------
Decide if they are:
. protecting what you have
. receiving income from dividends
. participating in the potential for greater investment returns
. diversifying your current investment portfolio
. a combination of any of the above
How much risk of losing money are you willing to take; how aggressive are you
willing to be to make money? This two-part question may be the most difficult
question in the world of investing. If you are not a professional investor, you
should talk it over with your service agent or registered representative. He or
she may have some ideas you hadn't considered.
2
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Study the Funds' objectives, policies and risks
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Focus on the Funds that seem to be seeking your objectives. Read about the
people who manage each Fund. Understand the types of securities in which each
Fund invests and the risks associated with those investments.
If you have a registered representative or service agent, discuss the Funds with
him or her or call 1-(800) 695-2126 ext. 2055.
For key facts about, and risks associated with, the Funds, see pages 17-27.
(For more detailed information, see "Tell Me The Details" in this Prospectus and
the Statement of Additional Information (SAI).)
3
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Determine which class of shares to buy
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There are two classes of shares of MainStay Institutional Funds. Depending on
whether you're investing directly or through a group, you may have a choice of
investing in either class. The Institutional Class is less expensive, but the
Institutional Service Class offers more shareholder services.
(See pg. 3 to determine if you have a choice of Class, and pg. 52, "Investment
Advisers and Administrator--Shareholder Services Plan," to learn about the
additional services.)
7
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See how many shares your money will buy
- --------------------------------------------------------------------------------
You can calculate the number of shares of a Fund your money buys by dividing the
amount of your investment by the price of one share ("net asset value" or "NAV")
of the Fund.
Each Fund's net asset value is calculated at the close of business of the New
York Stock Exchange, normally 4:00 p.m. Eastern time each business day (noon for
the Money Market Fund). The number of shares you receive is based on the NAV
next calculated after your order is received. You'll receive written
confirmation of your purchase.
(To learn more, see pgs. 30 - 31, "Open an Account and Buy Shares.")
8
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Ongoing fees
- --------------------------------------------------------------------------------
Every mutual fund pays fees for services. These may include administration,
distribution and marketing, investment management and shareholder services. Fees
are generally charged on a regular schedule. You're not charged directly; the
Fund pays the fees to the firms who provide the services and then deducts the
amounts from the Fund's assets. This, consequently, reduces the NAV of your
shares.
(To learn more, see pg. 52, "Investment Advisers and Administrator.")
9
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Earn dividends and capital gains
- --------------------------------------------------------------------------------
Your Fund may earn money through interest payments, dividend payments or through
capital appreciation of the securities it owns. The Fund periodically
distributes these earnings to you based on the number of shares you own. For tax
qualified plans, distributions are reinvested in additional shares. You should
check how often a Fund makes distributions, especially if current income is
important to you.
You may elect to have earnings sent to you or have them automatically reinvested
in more shares.
(To learn more, see pg. 34, "Decide How To Receive Your Earnings.")
4
<PAGE>
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... Understanding MainStay Institutional Funds
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4
- --------------------------------------------------------------------------------
Evaluate each Fund's track record, fees and expenses
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Turn to pgs. 11-16 for Financial Highlights. Read down the columns (by year)
and find, in particular, the beginning and ending share prices, the amount of
income produced, and the "total investment return" figures, to see how each Fund
has done in the past.
Don't just look at recent performance, which may or may not be repeated. Read
the "total investment return" for each year to look for a performance pattern.
Remember, though, no fund can ever guarantee it will continue to perform at the
same levels.
Understand the ongoing fees.
(See the Examples beginning on pg. 6, "Analyze the Costs of Investing: Ongoing
Fees," for your Fund's ongoing fees and the impact of those costs on a $1,000
investment.)
5
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Decide how much to invest in each Fund
- --------------------------------------------------------------------------------
You may split your investment among as many MainStay Institutional Funds as you
desire. If you are an institutional investor, your initial investment must be at
least $250,000 over the first 13 months; if investing through a Group IRA, you
must invest at least $3,500 to start; if investing through a Group Account, you
must invest at least $25,000 to start. There are also minimum requirements for
subsequent investments.
(See pgs. 30 - 31, "Open an Account and Buy Shares," for the amounts.)
6
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Open an account/Buy shares
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To open an account, fill out an application and place the order directly or
through your registered representative or service agent.
Make sure you provide complete information, including who will own the account,
and especially your Social Security number or Taxpayer ID. If you're
participating through an employer sponsored plan, your employer will complete
the application.
This is also the time to decide how to make other choices that will affect how
you manage your investments including how to receive earnings.
(For more on opening an account see pgs. 30 - 31, "Open an Account and Buy
Shares.")
10
- --------------------------------------------------------------------------------
Exchange shares/Redeem shares
- --------------------------------------------------------------------------------
You generally may redeem your shares on any business day, or transfer them to
another Fund by exchanging shares. The Fund will redeem shares at the current
net asset value and give you a check, or, if you wish, exchange shares of one
Fund for shares of another. An exchange is considered a sale of shares of one
Fund and a purchase of another and may have tax consequences. You can only
exchange shares of the same class. Participation in a systematic withdrawal plan
may be available for Group IRA or Group Account investors.
(To learn more, see pgs. 32 - 33, "Know How to Sell and Exchange Shares.")
11
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Manage your taxes/Align your goals
- --------------------------------------------------------------------------------
If you've made a profit on your investment either through dividends,
distributions or capital gains, you may have to pay taxes at tax time.
Generally, taxes are deferred if you're investing through a "tax-exempt" plan,
such as an IRA or 401(k). Distributions from tax exempt plans may be taxable.
Consult your tax adviser.
Be aware that your Fund may earn 1996 income that will be paid to you in January
1997, but will apply to your 1996 tax return.
(See pg. 35 "Understand the Tax Consequences," for an explanation.)
12
- --------------------------------------------------------------------------------
Know your rights/Stay informed
- --------------------------------------------------------------------------------
Most of all, you have the right to ask questions--and have them answered
intelligently. You may call your registered representative or service agent,
or call us directly at 1-800-695-2126 ext. 2055. If investing through a Group
Plan, call us at 1-800-695-4451.
(See pg. 38, "Know Your Rights as a Shareholder," to learn more.)
5
<PAGE>
- --------------------------------------------------------------------------------
Tell Me The Key Facts
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Analyze the Costs of Investing: Ongoing Fees
- --------------------------------------------------------------------------------
To help you understand the costs of investing in a MainStay Institutional Fund,
we've provided expense information based on expenses paid by each Fund for the
most recent fiscal year. Because some expenses are based on the value of the
Fund's assets, which fluctuates daily, you should only use these figures as
estimates of what you might actually pay.
Ongoing fees
Each Fund pays ongoing operating fees to the investment adviser, administrator,
custodian and other professionals who provide services to the Fund. These fees
are billed to the Fund and are then factored into the share price. They're not
billed to you separately; but they do reduce the value of each share you own.
(See pg. 52, "Investment Advisers and Administrator," for further details.)
Expenses have been capped
The Funds' administrator has voluntarily agreed to limit total expenses on all
Funds except the Growth Equity Fund and Value Equity Fund. (See pg. 53,
"Voluntary Expense Limitation," for full details.) Where this limit applies,
this has the effect of lowering a Fund's total operating expenses and increasing
its earnings.
After December 31, 1996 (or December 31, 1997 for the EAFE Index Fund), the
administrator may end or revise the voluntary expense limitations. If this
occurs, the Funds' expenses may increase and their earnings may be reduced,
depending on each Fund's total assets. (See pg. 53, "Voluntary Expense
Limitation," for more on the limitation for each Fund.)
Institutional Service Class service fees
If you own Institutional Service Class shares, you will pay a fee for receiving
extra services. The fee is 0.25% of the annualized average daily net assets
attributable to Institutional Service Class shares. The fee is calculated daily,
and the Fund pays it monthly or according to the schedule set by the Board of
Directors. (See pg. 53, "Shareholder Services Plan," for further details.)
The No-Fee IRA feature
All custodial fees will be waived under the No-Fee IRA feature for Group IRAs
(available only to Institutional Service Class shareholders) if your total
account balance (for all Funds) on December 31 is $50,000 or more. If,
however, your total balance is less than $50,000, the fee will still be waived
for any Fund in which you have a balance of $5,000 or more. (The No-Fee IRA may
be eliminated at any time without notice.)
Service agents
You may buy shares of a Fund through a service agent: broker-dealers, financial
institutions or others having a shareholder servicing relationship with the
Funds on your behalf. Service agents may impose other conditions on buying and
selling shares. They may also charge you additional fees. They are responsible
for giving you a schedule of fees and information about any conditions they've
added. Ask your service agent, if you have one, about these fees and
conditions.
- --------------------------------------------------------------------------------
Why read about costs?
Costs are important: they lower your earnings. For example, a Fund with higher
costs must perform better just to equal the return of a Fund with lower costs.
All things being equal, therefore, a lower-cost Fund will begin with an
advantage. Lower fees alone however, will not guarantee better total return
performance. Because of the deduction of a service fee, the performance of the
Institutional Service Class of each Fund will be lower than the performance of
the Institutional Class of that Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If You Invest $1,000 You Might Pay...
- --------------------------------------------------------------------------------
The "Examples" on the following pages are provided to help you understand the
various costs and expenses that an investor in each Fund will bear directly or
indirectly.
The examples on pgs. 7-10 are based on a hypothetical 5% annual return on an
investment of $1,000, redemption at the end of each period and reinvestment of
all your dividends and distributions. Each pie chart illustrates the expenses
that would be paid by a shareholder for shares held for a period of five years
with the same assumptions.
The actual return on your investment, of course, may be more or less than 5%;
and the actual expenses may also be more or less than those shown depending on a
variety of factors, including the performance of the Fund. The figures in the
following charts, therefore, do not necessarily represent how your investment
will perform, nor do they show how the Funds have actually performed in the
past. They are strictly hypothetical examples.
- --------------------------------------------------------------------------------
Take note:
- --------------------------------------------------------------------------------
We have also assumed that total Fund operating expenses remain the same each
year, and that the 1996 voluntary expense limitation would apply for all
periods. Without the limitation, your expenses would generally be higher. The
Funds' administrator may end or revise these limitations at any time after
December 31, 1996 (December 31, 1997 for the EAFE Index Fund).
6
<PAGE>
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Operating Expenses Examples
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EAFE INDEX FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 11 $ 13
Annual Fund Operating Expenses After 3 years $ 33 $ 41
(as a percentage of average daily net assets) After 5 years $ 57(a) $ 71(b)
After 10 years $126 $155
Advisory Fees .15% .15%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .59 .59
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .29 .29
---- ----
$ 7.50 advisory fees $ 7.50 advisory fees
29.50 administrative fees 31.00 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
20.00 other 20.00 other
--------------------------- --------------------------
$57.00 total fund operating $71.00 total fund operating
expenses expenses
Total Other Expenses .88 1.13
---- ----
Total Fund Operating Expenses* 1.03% 1.28%
==== ====
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH EQUITY FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 10 $ 12
Annual Fund Operating Expenses After 3 years $ 30 $ 38
After 5 years $ 52 $ 65
After 10 years $115 $144
Advisory Fees .25% .25%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees .60 .60 now you would have paid:
Shareholder Service Fees None .25
Other .08 .08 [Two pie charts appear here]
---- ----
$12.50 advisory fees $12.50 advisory fees
30.00 administrative fees 30.50 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
9.50 other 9.50 other
--------------------------- --------------------------
$52.00 total fund operating $65.00 total fund operating
expenses expenses
Total Other Expenses .68 .68
---- ----
Total Fund Operating Expenses .93% 1.18%
==== ====
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INDEXED EQUITY FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 5 $ 8
Annual Fund Operating Expenses After 3 years $16 $24
(as a percentage of average daily net assets) After 5 years $28(a) $42(b)
After 10 years $63 $93
Advisory Fees .10% .10%
Other Expenses If you invest $1,000 today, 5 years
Administrative Fees from now you would have paid:
(reflecting expense limitations) .31 .31
Shareholder Service Fees None .25
Other .09 .09 [Two pie charts appear here]
---- ----
$ 5.00 advisory fees $ 5.00 advisory fees
15.50 administrative fees 17.00 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
7.50 other 7.50 other
--------------------------- --------------------------
$28.00 total fund operating $42.00 total fund operating
expenses expenses
Total Other Expenses .40 .65
---- ----
Total Fund Operating Expenses* .50% .75%
==== ====
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
Operating Expenses Examples
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 10 $ 13
Annual Fund Operating Expenses After 3 years $ 32 $ 40
(as a percentage of average daily net assets) After 5 years $ 55(a) $ 69(b)
After 10 years $123 $152
Advisory Fees .35% .35%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .43 .43
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .22 .22
---- ----
$17.50 advisory fees $17.50 advisory fees
21.50 administrative fees 23.00 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
16.00 other 16.00 other
--------------------------- --------------------------
$55.00 total fund operating $69.00 total fund operating
Total Other Expenses .65 .90 expenses expenses
---- ----
Total Fund Operating Expenses* 1.00% 1.25%
==== ====
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MULTI-ASSET FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 7 $ 10
Annual Fund Operating Expenses After 3 years $22 $ 30
(as a percentage of average daily net assets) After 5 years $39(a) $ 53(b)
After 10 years $87 $117
Advisory Fees .15% .15%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .43 .43
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .12 .12
---- ----
$ 7.50 advisory fees $ 7.50 advisory fees
21.50 administrative fees 23.00 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
10.00 other 10.00 other
--------------------------- --------------------------
$39.00 total fund operating $53.00 total fund operating
Total Other Expenses .55 .80 expenses expenses
---- ----
Total Fund Operating Expenses* .70% .95%
==== ====
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 10 $ 12
Annual Fund Operating Expenses After 3 years $ 30 $ 38
(as a percentage of average daily net assets) After 5 years $ 52 $ 65
After 10 years $115 $144
Advisory Fees .25% .25%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees .60 .60 now you would have paid:
Shareholder Service Fees None .25
Other .08 .08 [Two pie charts appear here]
---- ----
$12.50 advisory fees $12.50 advisory fees
30.00 administrative fees 30.50 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
9.50 other 9.50 other
--------------------------- --------------------------
Total Other Expenses .68 .93 $52.00 total fund operating $65.00 total fund operating
---- ---- expenses expenses
Total Fund Operating Expenses .93% 1.18%
==== ====
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
Operating Expenses Examples
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
BOND FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 8 $ 10
Annual Fund Operating Expenses After 3 years $24 $ 32
(as a percentage of average daily net assets) After 5 years $42(a) $ 55(b)
After 10 years $93 $123
Advisory Fees .20% .20%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .44 .44
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .11 .11
---- ----
$10.00 advisory fees $10.00 advisory fees
22.00 administrative fees 22.50 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
10.00 other 10.00 other
--------------------------- --------------------------
$42.00 total fund operating $55.00 total fund operating
Total Other Expenses .55 .80 expenses expenses
---- ----
Total Fund Operating Expenses* .75% 1.00%
==== ====
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INDEXED BOND FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 5 $ 8
Annual Fund Operating Expenses After 3 years $16 $24
(as a percentage of average daily net assets) After 5 years $28(a) $42(b)
After 10 years $63 $93
Advisory Fees .10% .10%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .27 .27
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .13 .13
---- ----
$ 5.00 advisory fees $ 5.00 advisory fees
13.50 administrative fees 15.00 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
9.50 other 9.50 other
--------------------------- --------------------------
$28.00 total fund operating $42.00 total fund operating
Total Other Expenses .40 .65 expenses expenses
---- ----
Total Fund Operating Expenses* .50% .75%
==== ====
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INTERNATIIONAL BOND FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 10 $ 12
Annual Fund Operating Expenses After 3 years $ 30 $ 38
(as a percentage of average daily net assets) After 5 years $ 53(a) $ 66(b)
After 10 years $117 $146
Advisory Fees .30% .30%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .42 .42
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .23 .23
---- ----
$15.00 advisory fees $15.00 advisory fees
21.00 administrative fees 21.50 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
17.00 other 17.00 other
--------------------------- --------------------------
$53.00 total fund operating $66.00 total fund operating
Total Other Expenses .65 .90 expenses expenses
---- ----
Total Fund Operating Expenses* .95% 1.20%
==== ====
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 5 $ 8
Annual Fund Operating Expenses After 3 years $16 $34
(as a percentage of average daily net assets) After 5 years $28(a) $42(b)
After 10 years $63 $93
Advisory Fees .10% .10%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .17 .17
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .23 .23
---- ----
$ 5.00 advisory fees $ 5.00 advisory fees
8.50 administrative fees 10.00 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
14.50 other 14.50 other
--------------------------- --------------------------
$28.00 total fund operating $42.00 total fund operating
Total Other Expenses .40 .65 expenses expenses
---- ----
Total Fund Operating Expenses* .50% .75%
==== ====
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND FUND INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None None
After 1 year $ 6 $ 9
Annual Fund Operating Expenses After 3 years $19 $ 27
(as a percentage of average daily net assets) After 5 years $34(a) $ 47(b)
After 10 years $75 $105
Advisory Fees .15% .15%
Other Expenses If you invest $1,000 today, 5 years from
Administrative Fees now you would have paid:
(reflecting expense limitations) .23 .23
Shareholder Service Fees None .25 [Two pie charts appear here]
Other .22 .22
---- ----
$ 7.50 advisory fees $ 7.50 advisory fees
11.50 administrative fees 12.00 administrative fees
-- shareholder service 12.50 shareholder service
fees fees
15.00 other 15.00 other
--------------------------- --------------------------
$34.00 total fund operating $47.00 total fund operating
Total Other Expenses .45 .7 expenses expenses
---- ----
Total Fund Operating Expenses* .60% .85%
==== ====
</TABLE>
* New York Life, as the Funds' Administrator, has voluntarily agreed for the
year 1996 to waive a portion of the fees otherwise payable to it under the terms
of the Funds' Administration Agreement (up to the amount of such fees) to the
extent necessary to limit the total operating expenses of the Funds, other than
the Growth Equity Fund and Value Equity Fund, to the amounts shown above. These
expenses are described under "Tell Me The Details--Investment Advisers and
Administrator." Absent the voluntary expense limitations, estimated total Fund
operating expenses for the Institutional Class would have been as follows: EAFE
Index Fund--1.24%; Indexed Equity Fund--.59%; International Equity Fund--1.07%;
Multi-Asset Fund--.77%; Bond Fund--.86%; Indexed Bond Fund--.63%; International
Bond Fund--1.03%; Money Market Fund--.73%; and Short-Term Bond Fund--.82%.
Absent the voluntary expense limitations, estimated total Fund operating
expenses for the Institutional Service Class would have been as follows: EAFE
Index Fund--1.49%; Indexed Equity Fund--.84%; International Equity Fund--1.32%;
Multi-Asset Fund--1.02%; Bond Fund--1.11%; Indexed Bond Fund--.88%;
International Bond Fund--1.28%; Money Market Fund--.98%; and Short-Term Bond
Fund--1.07%. Absent the voluntary expense limitations, total Fund Administrative
Fees would have been as follows: EAFE Index Fund--.80%; Indexed Equity Fund--
.40%; International Equity Fund--.50%; Multi-Asset Fund--.50%; Bond Fund--.55%;
Indexed Bond Fund--.40%; International Bond Fund--.50%; Money Market Fund--.40%;
and Short-Term Bond Fund--.45%.
(a) If the voluntary expense limitations were not applied, the expenses for each
period would generally be higher. For example, the expenses for the five-year
period would be as follows: EAFE Index Fund--$68; Indexed Equity Fund--$33;
International Equity Fund--$59; Multi-Asset Fund--$43; Bond Fund--$48; Indexed
Bond Fund--$35; International Bond Fund--$57; Money Market Fund--$41; and Short-
Term Bond Fund--$46.
(b) If the voluntary expense limitations were not applied, the expenses for each
period would generally be higher. For example, the expenses for the five-year
period would be as follows: EAFE Index Fund--$82; Indexed Equity Fund--$47;
International Equity Fund--$73; Multi-Asset Fund--$57; Bond Fund--$61; Indexed
Bond Fund--$49; International Bond Fund--$71; Money Market Fund--$54; and Short-
Term Bond Fund--$59.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Here are the financial highlights for each of the 11 MainStay Institutional
Funds. The Institutional Service Class was not offered before December 31, 1994.
All information prior to that date refers only to the Institutional Class of
shares.
The information for each of the five years in the period ended December 31, 1995
has been audited by Price Waterhouse LLP, independent accountants to the Funds.
You should read the related financial statements and notes and their unqualified
report on the financial statements of each Fund contained in the Company's 1995
Annual Report, which is incorporated by reference in the Statement of Additional
Information.
Additional performance information is included in the Funds' annual report to
shareholders.
For a free copy of the Statement of Additional Information (SAI) or the Annual
Report, call us at 1-800-695-2126 ext. 2055 or write to: MainStay Institutional
Funds Inc. Box 461, Parsippany, NJ 07054-0461.
EAFE INDEX FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ----------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
----------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 12.63 $12.63 $ 12.03 $ 9.60 $ 11.01 $ 10.00
------- ------ ------- ------- ------- -------
Net investment income... 0.13 0.14 0.10 0.06 0.08 0.08
Net realized and
unrealized gain (loss)
on investments......... 1.11 1.05 0.70 2.71 (1.41) 0.93
Net realized and
unrealized gain (loss)
on foreign currency
transactions........... (0.10) (0.10) 0.03 (0.01) (0.01) --
------- ------ ------- ------- ------- -------
Total from investment
operations............. 1.14 1.09 0.83 2.76 (1.34) 1.01
------- ------ ------- ------- ------- -------
Less dividends and
distributions:
From net investment
income................. (0.04) (0.04) (0.09) (0.14) (0.07) --
From net realized gain
on investments and
foreign currency
transactions........... (0.14) (0.14) (0.14) (0.19) -- --
In excess of net
investment income ..... (0.03) (0.03) -- -- -- --
------- ------ ------- ------- ------- -------
Total dividends and
distributions.......... (0.21) (0.21) (0.23) (0.33) (0.07) --
------- ------ ------- ------- ------- -------
Net asset value at end
of period.............. $ 13.56 $13.51 $ 12.63 $ 12.03 $ 9.60 $ 11.01
======= ====== ======= ======= ======= =======
Total investment
return................. 9.03% 8.63% 6.83% 28.97% (12.22%) 10.10%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.. 1.01% 0.76% 0.57% 0.53% 0.76% 0.71%
Net expenses........... 1.03% 1.28% 1.26% 1.27% 1.32% 1.40%
Expenses (before
reimbursement)........ 1.24% 1.49% 1.26% 1.27% 1.32% 1.40%
Portfolio turnover
rate................... 6% 6% 7% 16% 1% 1%
Net assets at end of
period (in 000's)...... $80,087 $ 257 $72,265 $53,714 $40,531 $45,160
</TABLE>
- --------
(a) Commencement of operations.
11
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- -----------------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
--------------------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
----------------------------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 13.68 $13.68 $ 14.40 $ 14.71 $ 16.70 $ 10.00
-------- ------ -------- -------- -------- --------
Net investment income
(loss)................. 0.02 (0.01) 0.01 (0.01) (0.03) 0.01
Net realized and
unrealized gain (loss)
on investments......... 5.16 5.14 (0.33) 1.41 0.80 6.69
-------- ------ -------- -------- -------- --------
Total from investment
operations............. 5.18 5.13 (0.32) 1.40 0.77 6.70
-------- ------ -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.02) (0.01) (0.01) -- (0.02) --
From net realized gain
on investments......... -- -- (0.39) (1.68) (2.74) --
In excess of net
investment income...... (0.00)(b) (0.00)(b) -- -- -- --
In excess of net
realized gain on
investments............ (0.00)(b) (0.00)(b) (0.00)(b) (0.03) -- --
-------- ------ -------- -------- -------- --------
Total dividends and
distributions.......... (0.02) (0.01) (0.40) (1.71) (2.76) --
-------- ------ -------- -------- -------- --------
Net asset value at end
of period.............. $ 18.84 $18.80 $ 13.68 $ 14.40 $ 14.71 $ 16.70
======== ====== ======== ======== ======== ========
Total investment
return................. 37.88% 37.50% (2.23%) 9.59% 5.63% 67.00%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income
(loss)................ 0.12% (0.13%) 0.04% (0.07%) (0.19%) 0.13%
Net expenses........... 0.93% 1.18% 0.92% 0.90% 0.90% 0.90%
Expenses (before
reimbursement)........ 0.93% 1.18% 0.92% 0.93% 0.95% 0.99%
Portfolio turnover
rate................... 33% 33% 37% 81% 121% 225%
Net assets at end of
period (in 000's)...... $412,129 $2,729 $284,388 $258,751 $212,619 $191,495
</TABLE>
- --------
(a) Commencement of operations.
(b) Less than one cent per share.
INDEXED EQUITY FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- --------------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
---------------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 13.53 $13.53 $ 13.86 $ 13.50 $ 12.98 $ 10.00
-------- ------ -------- -------- -------- --------
Net investment income... 0.35 0.33 0.33 0.30 0.30 0.32
Net realized and
unrealized gain (loss)
on investments......... 4.64 4.64 (0.20) 0.93 0.61 2.66
-------- ------ -------- -------- -------- --------
Total from investment
operations............. 4.99 4.97 0.13 1.23 0.91 2.98
-------- ------ -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.34) (0.33) (0.33) (0.61) (0.32) --
From net realized gain
on investments......... (0.36) (0.36) (0.13) (0.25) (0.07) --
In excess of net
realized gain on
investments............ -- -- 0.00(b) (0.01) -- --
-------- ------ -------- -------- -------- --------
Total dividends and
distributions.......... (0.70) (0.69) (0.46) (0.87) (0.39) --
-------- ------ -------- -------- -------- --------
Net asset value at end
of period.............. $ 17.82 $17.81 $ 13.53 $ 13.86 $ 13.50 $ 12.98
======== ====== ======== ======== ======== ========
Total investment
return................. 36.88% 36.70% 0.90% 9.41% 7.19% 29.80%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.. 2.21% 1.96% 2.43% 2.39% 2.52% 2.78%
Net expenses........... 0.50% 0.75% 0.50% 0.45% 0.45% 0.45%
Expenses (before
reimbursement)........ 0.59% 0.84% 0.58% 0.60% 0.62% 0.68%
Portfolio turnover
rate................... 4% 4% 5% 5% 4% 4%
Net assets at end of
period (in 000's)...... $354,420 $ 969 $244,685 $219,351 $164,858 $144,055
</TABLE>
- --------
(a) Commencement of operations.
(b) Less than one cent per share.
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
JANUARY 1, 1995(a)
THROUGH
DECEMBER 31, 1995
----------------------------
<S> <C> <C>
Net asset value at beginning of period........... $ 10.00 $10.00
------- ------
Net investment income............................ 0.36 0.35
Net realized and unrealized gain on investments.. 0.17 0.16
Net realized and unrealized gain on foreign
currency transactions........................... 0.18 0.17
------- ------
Total from investment operations................. 0.71 0.68
------- ------
Less dividends and distributions:
From net investment income....................... (0.10) (0.09)
From net realized gain on investments and foreign
currency transactions........................... (0.26) (0.26)
In excess of net investment income............... (0.00)(b) (0.00)(b)
------- ------
Total dividends and distributions................ (0.36) (0.35)
------- ------
Net asset value at end of period................. $ 10.35 $10.33
======= ======
Total investment return ......................... 7.17% 6.86%
Ratios (to average net assets)/Supplemental Data:
Net investment income........................... 1.05% 0.80%
Net expenses.................................... 1.00% 1.25%
Expenses (before reimbursement)................. 1.07% 1.32%
Portfolio turnover rate.......................... 26% 26%
Net assets at end of period (in 000's)........... $96,714 $ 213
</TABLE>
- --------
(a) Commencement of operations.
(b) Less than one cent per share.
MULTI-ASSET FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- -------------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
--------------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 10.67 $10.67 $ 11.67 $ 12.02 $ 11.79 $ 10.00
-------- ------ -------- -------- -------- --------
Net investment income... 0.48 0.47 0.45 0.39 0.50 0.51
Net realized and
unrealized gain (loss)
on investments......... 2.39 2.39 (0.55) 0.59 0.29 1.28
Net realized and
unrealized loss on
foreign currency
transactions........... (0.01) (0.01) -- -- -- --
-------- ------ -------- -------- -------- --------
Total from investment
operations............. 2.86 2.85 (0.10) 0.98 0.79 1.79
-------- ------ -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.48) (0.47) (0.45) (0.88) (0.51) --
From net realized gain
on investments......... (1.18) (1.18) (0.42) (0.44) (0.05) --
In excess of net
realized gain on
investments............ (0.08) (0.08) (0.03) (0.01) -- --
-------- ------ -------- -------- -------- --------
Total dividends and
distributions.......... (1.74) (1.73) (0.90) (1.33) (0.56) --
-------- ------ -------- -------- -------- --------
Net asset value at end
of period.............. $ 11.79 $11.79 $ 10.67 $ 11.67 $ 12.02 $ 11.79
======== ====== ======== ======== ======== ========
Total investment
return................. 26.81% 26.70% (0.86%) 8.79% 7.09% 17.90%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.. 4.03% 3.78% 3.63% 3.55% 4.65% 5.87%
Net expenses........... 0.70% 0.95% 0.70% 0.60% 0.60% 0.60%
Expenses (before
reimbursement)........ 0.77% 1.02% 0.75% 0.75% 0.79% 0.88%
Portfolio turnover
rate................... 261% 261% 128% 101% 89% 22%
Net assets at end of
period (in 000's)...... $273,351 $3,536 $229,079 $258,345 $190,899 $139,449
</TABLE>
- --------
(a) Commencement of operations.
13
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS INSTITUTIONAL CLASS
------------- ------------- ------------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
-------------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 11.58 $11.58 $ 12.40 $ 14.16 $ 13.66 $ 10.00
-------- ------ -------- -------- -------- --------
Net investment income... 0.21 0.20 0.17 0.16 0.21 0.28
Net realized and
unrealized gain (loss)
on investments......... 3.20 3.20 (0.02) 1.63 2.22 3.38
-------- ------ -------- -------- -------- --------
Total from investment
operations............. 3.41 3.40 0.15 1.79 2.43 3.66
-------- ------ -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.21) (0.20) (0.17) (0.37) (0.28) --
From net realized gain
on investments......... (0.35) (0.35) (0.80) (3.18) (1.65) --
-------- ------ -------- -------- -------- --------
Total dividends and
distributions.......... (0.56) (0.55) (0.97) (3.55) (1.93) --
-------- ------ -------- -------- -------- --------
Net asset value at end
of period.............. $ 14.43 $14.43 $ 11.58 $ 12.40 $ 14.16 $ 13.66
======== ====== ======== ======== ======== ========
Total investment
return................. 29.42% 29.32% 1.22% 14.90% 20.71% 36.60%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.. 1.64% 1.39% 1.50% 1.38% 1.67% 2.33%
Net expenses........... 0.93% 1.18% 0.92% 0.90% 0.90% 0.90%
Expenses (before
reimbursement)........ 0.93% 1.18% 0.92% 0.93% 0.95% 0.99%
Portfolio turnover
rate................... 51% 51% 43% 83% 133% 142%
Net assets at end of
period (in 000's)...... $603,749 $3,213 $396,537 $305,060 $230,836 $182,627
</TABLE>
- --------
(a) Commencement of operations.
BOND FUND
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS INSTITUTIONAL CLASS
------------- ------------- -------------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
--------------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 8.93 $8.93 $ 9.98 $ 11.08 $ 11.40 $ 10.00
-------- ----- -------- -------- -------- --------
Net investment income... 0.68 0.67 0.72 0.74 0.61 0.70
Net realized and
unrealized gain (loss)
on investments......... 0.92 0.90 (1.05) 0.26 0.05 0.70
-------- ----- -------- -------- -------- --------
Total from investment
operations............. 1.60 1.57 (0.33) 1.00 0.66 1.40
-------- ----- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.68) (0.67) (0.72) (1.35) (0.70) --
From net realized gain
on investments......... -- -- -- (0.65) (0.28) --
In excess of net
realized gain on
investments............ -- -- -- (0.10) -- --
-------- ----- -------- -------- -------- --------
Total dividends and
distributions.......... (0.68) (0.67) (0.72) (2.10) (0.98) --
-------- ----- -------- -------- -------- --------
Net asset value at end
of period.............. $ 9.85 $9.83 $ 8.93 $ 9.98 $ 11.08 $ 11.40
======== ===== ======== ======== ======== ========
Total investment
return................. 17.88% 17.55% (3.31%) 9.74% 6.39% 14.00%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.. 6.62% 6.37% 7.13% 6.86% 6.02% 7.05%
Net expenses........... 0.75% 1.00% 0.75% 0.70% 0.70% 0.70%
Expenses (before
reimbursement)........ 0.86% 1.11% 0.82% 0.84% 0.85% 0.90%
Portfolio turnover
rate................... 470% 470% 478% 567% 609% 301%
Net assets at end of
period (in 000's)...... $193,518 $ 749 $202,970 $219,834 $203,531 $186,253
</TABLE>
- --------
(a) Commencement of operations.
14
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
INDEXED BOND FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- -------------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
--------------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 10.06 $10.06 $ 11.08 $ 11.65 $ 11.47 $ 10.00
-------- ------ -------- -------- -------- --------
Net investment income... 0.82 0.81 0.65 0.67 0.79 0.56
Net realized and
unrealized gain (loss)
on investments......... 1.00 1.00 (1.03) 0.38 (0.02) 0.91
-------- ------ -------- -------- -------- --------
Total from investment
operations............. 1.82 1.81 (0.38) 1.05 0.77 1.47
-------- ------ -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.82) (0.81) (0.64) (1.46) (0.56) --
From net realized gain
on investments......... (0.07) (0.07) -- (0.15) (0.03) --
In excess of net
realized gain on
investments............ -- -- -- (0.01) -- --
-------- ------ -------- -------- -------- --------
Total dividends and
distributions.......... (0.89) (0.88) (0.64) (1.62) (0.59) --
-------- ------ -------- -------- -------- --------
Net asset value at end
of period.............. $ 10.99 $10.99 $ 10.06 $ 11.08 $ 11.65 $ 11.47
======== ====== ======== ======== ======== ========
Total investment
return................. 18.07% 17.97% (3.44%) 9.64% 7.09% 14.70%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.. 6.38% 6.13% 6.13% 6.19% 7.30% 7.80%
Net expenses........... 0.50% 0.75% 0.50% 0.45% 0.45% 0.45%
Expenses (before
reimbursement)........ 0.63% 0.88% 0.61% 0.61% 0.61% 0.73%
Portfolio turnover
rate................... 284% 284% 274% 213% 78% 34%
Net assets at end of
period (in 000's)...... $163,219 $ 471 $169,404 $159,792 $125,003 $109,744
</TABLE>
- --------
(a) Commencement of operations.
INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
JANUARY 1, 1995(a)
THROUGH
DECEMBER 31, 1995
---------------------------
<S> <C> <C>
Net asset value at beginning of period............ $ 10.00 $10.00
------- ------
Net investment income............................. 0.70 0.70
Net realized and unrealized gain on investments... 1.12 1.10
Net realized and unrealized gain on foreign
currency transactions............................ 0.02 0.02
------- ------
Total from investment operations.................. 1.84 1.82
------- ------
Less dividends and distributions:
From net investment income........................ (0.55) (0.55)
From net realized gain on investments and foreign
currency transactions............................ (0.13) (0.13)
------- ------
Total dividends and distributions................. (0.68) (0.68)
------- ------
Net asset value at end of period.................. $ 11.16 $11.14
======= ======
Total investment return........................... 18.46% 18.26%
Ratios (to average net assets)/Supplemental Data:
Net investment income............................ 6.61% 6.36%
Net expenses..................................... 0.95% 1.20%
Expenses (before reimbursement).................. 1.03% 1.28%
Portfolio turnover rate........................... 92% 92%
Net assets at end of period (in 000's)............ $44,388 $ 6
</TABLE>
- --------
(a) Commencement of operations.
15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ---------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
----------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------ ------- ------- ------- --------
Net investment income... 0.05 0.05 0.04 0.03 0.03 0.06
------- ------ ------- ------- ------- --------
Less dividends from net
investment income...... (0.05) (0.05) (0.04) (0.03) (0.03) (0.06)
------- ------ ------- ------- ------- --------
Net asset value at end
of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ======= ======= ======= ========
Total investment
return................. 5.63% 5.46% 3.88% 2.89% 3.66% 5.95%
Ratios (to average net
assets)/ Supplemental
Data:
Net investment income.. 5.48% 5.23% 3.89% 2.85% 3.64% 5.84%
Net expenses........... 0.50% 0.75% 0.50% 0.45% 0.45% 0.45%
Expenses (before
reimbursement)........ 0.73% 0.98% 0.68% 0.67% 0.65% 0.65%
Net assets at end of
period (in 000's)...... $67,869 $2,784 $65,106 $75,832 $71,573 $126,690
</TABLE>
- --------
(a) Commencement of operations.
SHORT-TERM BOND FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- -----------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 2, 1991(a)
------------------------------------------------------- THROUGH
1995 1994 1993 1992 DECEMBER 31, 1991
--------------------------- ------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 9.37 $ 9.37 $ 10.33 $ 11.23 $ 11.13 $ 10.00
------- ------ ------- -------- -------- --------
Net investment income... 0.65 0.64 0.97 0.72 0.66 0.48
Net realized and
unrealized gain (loss)
on investments......... 0.31 0.30 (0.96) (0.12) (0.03) 0.65
------- ------ ------- -------- -------- --------
Total from investment
operations............. 0.96 0.94 0.01 0.60 0.63 1.13
------- ------ ------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.65) (0.64) (0.97) (1.36) (0.48) --
From net realized gain
on investments......... -- -- -- (0.04) (0.05) --
In excess of net
investment income...... -- -- -- (0.02) -- --
In excess of net
realized gain on
investments............ -- -- -- (0.08) -- --
------- ------ ------- -------- -------- --------
Total dividends and
distributions.......... (0.65) (0.64) (0.97) (1.50) (0.53) --
------- ------ ------- -------- -------- --------
Net asset value at end
of period.............. $ 9.68 $ 9.67 $ 9.37 $ 10.33 $ 11.23 $ 11.13
======= ====== ======= ======== ======== ========
Total investment
return................. 10.27% 10.07% 0.11% 5.67% 5.94% 11.30%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.. 6.38% 6.13% 5.90% 6.32% 6.64% 7.33%
Net expenses........... 0.60% 0.85% 0.60% 0.55% 0.55% 0.55%
Expenses (before
reimbursement)........ 0.82% 1.07% 0.72% 0.68% 0.72% 0.81%
Portfolio turnover
rate................... 171% 171% 269% 232% 270% 151%
Net assets at end of
period (in 000's)...... $50,902 $1,128 $62,340 $148,846 $161,499 $130,141
</TABLE>
- --------
(a) Commencement of operations.
16
<PAGE>
---------------
EAFE Index Fund
---------------
- --------------------------------------------------------------------------------
EAFE Index Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to provide investment results that correspond to the total return
performance (reflecting reinvestment of dividends) of common stocks in the
aggregate, as represented by the Morgan Stanley Capital International Europe,
Australia and Far East ("EAFE") Index.
- --------------------------------------------------------------------------------
The EAFE Index is a capitalization-weighted index of approximately 1,200
equities (stocks and stock-related securities) from countries outside the United
States.
Many funds generally seek to beat market averages, often with unpredictable
results. Index funds, like this one, seek to match the market average
represented by the index they are trying to mirror. No attempt is made to manage
the Fund in the traditional sense using economic, financial or market analysis.
It's expected that there will be a close correlation (about 95%) between the
Fund's performance and the EAFE Index in both rising and falling markets.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...a statistically selected sample of approximately 350 securities included in
the Index.
...at least 80% of total assets, under normal market conditions, in stocks in
the EAFE Index and related derivative securities (options, futures, options on
futures, or swap agreements).
...the Fund may also invest in:
...up to 20% of total assets in stock index options, futures contracts and
options on futures to maintain cash reserves while fully invested, to
facilitate trading, or to reduce transaction costs.
...up to 10% of total assets in index and currency exchange rate swap
agreements.
...foreign currency exchange transactions using currencies, options, futures or
options on futures, or forward contracts for any legally permissible purpose,
including to protect against foreign currency exchange risks involving
securities the Fund owns or plans to own. (See pg. 45, "Foreign Currency
Transactions," for details.)
The Fund will attempt to remain fully invested at all times; however, to keep
money working or to keep cash available for shareholder redemptions,
the Fund may invest temporarily in:
...other investments suitable for most or all MainStay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations"; and pg. 43, "Description of
Investments and Investment Practices".)
- --------------------------------------------------------------------------------
Who's managing your money?
James A. Mehling of Monitor Capital Advisors, Inc.
Mr. Mehling is President and Chief Investment Officer of Monitor. He joined
Monitor in October 1991 after serving as director of risk management in the
Investment Department of New York Life Insurance Company from 1989 - 1991. He
has served as portfolio manager of the Fund since 1991.
- --------------------------------------------------------------------------------
Risks? The Fund's ability to mirror the EAFE Index may be affected by, among
other things, transaction costs, changes in either the makeup of the Index or
number of shares outstanding for the components of the Index, and the timing and
amount of contributions to and redemptions from the Fund by shareholders.
Investments in foreign securities could be more volatile and more difficult to
sell than U.S. investments, and involve additional risks. (For more on risks of
investing in foreign securities, see pg. 45, "Description of Investments and
Investment Practices"--"Foreign Currency Transactions" and "Foreign
Securities.")
Some options on foreign currencies could force the investment adviser to buy or
sell foreign currencies at unfavorable exchange rates, creating losses. It is
also possible that the Fund could forfeit the entire amount of the premium paid
for the purchased options plus transaction costs.
A lack of market activity may keep the investment adviser from closing out a
futures contract or a futures option position when they want to. The Fund would
remain obligated to make margin deposits until it could close the position.
There are no guarantees that hedging transactions or the use of options and
futures will successfully protect investments, or lead to better Fund
performance. In some instances, the Fund may lose money.
- --------------------------------------------------------------------------------
17
<PAGE>
------------------
Growth Equity Fund
------------------
- --------------------------------------------------------------------------------
Growth Equity Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek long-term growth of capital. Dividend income, if any, is a consideration
incidental to the Fund's objective of growth of capital.
- --------------------------------------------------------------------------------
This Fund is not for investors who need current income but is for investors who
are in a financial position to take above-average risks in search of long-term
growth.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...a variety of companies and securities. The investment adviser selects
investments according to the economic environment and the attractiveness of
particular markets.
...securities of companies with these characteristics:
. participation in expanding markets
. increasing return on investment
. increasing unit sales volume, and
. revenue growth and earnings per share superior to the average of common stocks
included in indices such as the S&P 500 Composite Stock Price Index.
...securities of companies without some or all of those characteristics, if the
investment adviser considers them to be ready for a rise in price; for example,
companies expected to have accelerated growth in earnings due to special factors
like new management, new products, changes in consumer demand or changes in the
economy.
...at least 65% of its total assets, under normal market conditions, in equity
securities including common stocks, nonconvertible preferred stocks, securities
convertible into or exchangeable for common stocks (e.g., convertible preferred
stocks and convertible debentures) and warrants. Convertible preferred stocks
and debentures must be rated when purchased Baa or better by Moody's Investors
Service Inc. ("Moody's") or BBB or better by Standard & Poor's ("S&P" or
"Standard & Poor's"), or if unrated, considered by the investment adviser to be
of comparable quality. (See "Appendix A-- Description of Securities Ratings.")
...the Fund may also invest in:
...options on common stocks and stock indices, futures contracts and related
options, stocks represented by American Depositary Receipts ("ADRs") or European
Depositary Receipts ("EDRs"), foreign equity securities, obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, cash equivalents, or cash.
...short sales "against the box," securities purchased on a when-issued basis,
and firm or standby commitments to purchase securities.
...foreign currency exchange transactions using currencies, options,
futures or options on futures, or forward contracts to help protect against
foreign currency exchange risks involving foreign securities the Fund owns or
plans to own. (See pg. 45, "Foreign Currency Transactions," for details.)
...other investments suitable for most or all MainStay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations"; and pg. 43, "Description of
Investments and Investment Practices.")
- --------------------------------------------------------------------------------
Who's managing your money?
Edmund C. Spelman and Rudolph C. Carryl of MacKay-Shields Financial Corporation.
Mr. Spelman is a Director of MacKay-Shields, and specializes in equity
securities. He joined MacKay-Shields in 1991 after working as a securities
analyst at Oppenheimer & Co., Inc. (1984 - 1991), and has been a portfolio
manager for the Fund since February 1991.
Mr. Carryl joined MacKay-Shields as a Director in 1992 with twelve years of
investment management and research experience. Mr. Carryl was Research Director
and Senior Portfolio Manager at Value Line, Inc. from 1978 to 1992. Mr. Carryl
has acted as a portfolio manager of the Fund since August 1992.
- --------------------------------------------------------------------------------
Risks? Opportunities for greater gains often come with greater risks of loss.
Some of the securities held by the Fund may have high price-earnings ratios and
carry an above-average risk of price deterioration.
- --------------------------------------------------------------------------------
18
<PAGE>
-------------------
Indexed Equity Fund
-------------------
- --------------------------------------------------------------------------------
Indexed Equity Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to provide investment results that correspond to the total return
performance (reflecting reinvestment of dividends) of common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock Price
Index.
- --------------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Price Index ("the Index") is
capitalization-weighted and includes 500 different industrial, utility,
financial and transportation sector companies selected by Standard & Poor's. The
Index is used as the standard for performance comparison because it represents
about two-thirds of the total market value of all U.S. common stocks and is well
known to investors. Typically, companies included in the Index are the largest
and most dominant firms in their respective industries.
Unlike other funds which generally seek to beat market averages often with
unpredictable results, index funds seek to match their respective indices. No
attempt is made to manage the portfolio in the traditional sense using economic,
financial and market analysis. This Fund attempts to achieve its objective by
using a "full replication method" in which the Fund attempts to "mirror" the
performance of the Index by investing in all 500 stocks in the same proportion
as they are represented in the Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...all 500 stocks, in the same proportion as they are represented in the Index,
to the extent feasible.
...at least 80% of total assets, under normal market conditions, in stocks in
the Index and related derivative securities (options, futures, options on
futures, or swap agreements);
...the Fund may also invest in:
...up to 20% of total assets in options and futures contracts to maintain cash
reserves while fully invested, to facilitate trading or to reduce transaction
costs.
...up to 10% of total assets in index swap agreements (for a description of
"Swap Agreements," see pg. 50).
The Fund will attempt to remain fully invested at all times; however, to keep
money working or to keep cash available for shareholder redemptions, the Fund
may invest in:
...other investments suitable for most or all MainStay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations," for details; and pg. 43,
"Description of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
Who's managing your money?
James A. Mehling of Monitor Capital Advisors, Inc.
Mr. Mehling is President and Chief Investment Officer of Monitor. He joined
Monitor in October 1991 after serving as director of risk management in the
Investment Department of New York Life Insurance Company from 1989 - 1991. He
has served as portfolio manager of the Fund since 1991.
- --------------------------------------------------------------------------------
Risks? The Fund's ability to mirror the Index may be affected by, among other
things, transaction costs, changes in either the makeup of the Index or number
of shares outstanding for the components of the Index, and the timing and amount
of contributions to and redemptions from the Fund by shareholders.
The values of common stocks of major U.S. corporations tend to fluctuate based
on a variety of market and general economic conditions.
- --------------------------------------------------------------------------------
19
<PAGE>
-------------------------
International Equity Fund
-------------------------
- --------------------------------------------------------------------------------
International Equity Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek long-term growth of capital by investing in a portfolio consisting
primarily of non-U.S. equity securities. Current income is a secondary
objective.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...at least 65% of total assets, under normal market conditions, in equity
securities of foreign corporations wherever organized, which do business mainly
outside the U.S.
...a diversified portfolio of securities, including common stocks, preferred
stocks, warrants and other comparable equity securities.
...a variety of countries, with a minimum of 5 countries other than the U.S.
This includes countries with established economies as well as emerging market
countries, including those in Latin America and other newly industrialized
countries, such as South Korea and Taiwan, that the Fund's investment adviser
believes present favorable opportunities.
...ADRs (American Depositary Receipts); EDRs (European Depositary Receipts);
GDRs (Global Depositary Receipts); IDRs (International Depositary Receipts) or
other similar securities convertible into securities of foreign issuers. (See
pg. 43, "ADRs," for more details.)
...to enhance returns, manage risk more efficiently and protect against price
changes in securities, currency on a spot or forward basis, securities and
securities index options, foreign currency options, futures contracts and
related options, and may enter into swap agreements. Futures and related options
may be used for any legal purpose including to reduce trading costs.
...the Fund may also invest in:
...U.S. equity securities;
...notes and bonds which, when purchased are rated in one of the top four
categories by Moody's or Standard & Poor's. (See "Appendix A--Description of
Securities Ratings.")
...up to 5% of net assets in short-term instruments rated below BBB by S&P or
Baa by Moody's. (See pg. 47, "High Yield Securities ("Junk Bonds").")
...cash, including foreign currency, or cash equivalents such as obligations of
banks, commercial paper and short-term obligations of U.S. or foreign
issuers.
...in unusual market conditions, the Fund may invest all or a portion of its
assets in equity securities of U.S. issuers, investment grade notes and bonds
and cash equivalents or cash.
...other investments suitable for most or all Mainstay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations"; and pg. 43, "Description of
Investments and Investment Practices.")
- --------------------------------------------------------------------------------
Who's managing your money?
Michael Perelstein and Shigemi Takagi of MacKay-Shields Financial
Corporation.
Mr. Perelstein joined MacKay-Shields as a Managing Director in 1989 with more
than six years of international and global investment experience. Just prior to
joining MacKay-Shields, he was the international strategist at Brinson Partners,
Inc. Mr. Perelstein has been a portfolio manager of the International Equity
Fund and International Bond Fund since their inception in January 1995. Mr.
Takagi is a Director specializing in international equities at MacKay-Shields .
He joined MacKay-Shields in 1989 after working at First Boston Corp. as an
international equity analyst. He has served as a portfolio manager for the Fund
since its inception in January 1995.
- --------------------------------------------------------------------------------
Risks? Alone, this Fund is not a balanced investment plan. It is intended for
long-term investors who seek growth over current income. It is appropriate for
investors wanting investments in markets outside the U.S. who are willing to
accept the risks of foreign investing discussed above. The Fund's orientation is
in avoiding excessive risk, although there are risks associated with any kind of
investment. Due to this philosophy, the Fund may not attain as high a level of
return as more aggressively managed international funds, although there may be
times when the Fund outperforms some funds in down markets.
Investments in foreign securities could be more volatile and more difficult to
sell than U.S. investments, and involve additional risks. (For more on risks of
investing in foreign securities, see pg. 45, "Description of Investments and
Investment Practices" -- "Foreign Currency Transactions" and "Foreign
Securities.")
- --------------------------------------------------------------------------------
20
<PAGE>
----------------
Multi-Asset Fund
----------------
- --------------------------------------------------------------------------------
Multi-Asset Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to maximize total return, consistent with certain percentage constraints
on amounts allocated to each asset class, from a combination of common stocks,
fixed income securities, and money market investments.
- --------------------------------------------------------------------------------
The Fund attempts to achieve this objective through active management and
allocation of investments among three asset classes. The presence of the
constraints, however, may restrict the investment adviser's ability to fully
maximize total return.
The allocations of the Fund's net assets reflect the anticipated risks and
returns of each asset class. Although these levels maintain the balanced nature
of the overall investments, they are not intended to act as a fully balanced
investment program. (For a full explanation of the investment method, see pg.
40, "Multi-Asset Fund.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...three asset classes, limited by the following constraints:
...30% to 80% of net assets in common stocks.
...10% to 60% of net assets in fixed income securities selected to parallel the
performance of the Salomon Brothers Broad Investment Grade Bond Index (although
the bonds don't have to be in the Index). These debt securities may have fixed,
variable, or floating rates of interest.
...10% to 60% of net assets in selected money market instruments.
Within these constraints, the Fund may also invest:
...up to 20% of total assets in foreign securities (defined as "traded primarily
in a market outside the U.S.") of developed and emerging market countries.
...up to 10% of total assets in interest rate, index, and currency exchange rate
swap agreements.
...in futures transactions to rebalance its portfolio composition and risk
profile. (See pg. 46, "Futures Contracts and Options on Futures Contracts.")
...in foreign currency exchange transactions using currencies, options, futures
or options on futures, or forward contracts for any legally permissible
purpose, including to protect against foreign currency exchange risks
involving securities the Fund owns or plans to own. (See pg. 45, "Foreign
Currency Transactions.")
...in other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 28-29, "General Investment Considerations"; and pg. 43,
"Description of Investments and Investment Practices.")
At times, the actual allocation for each asset class may differ from the
constraints, due to market fluctuations or cash entering or leaving the Fund.
This could happen for instance, if the investment adviser has positioned the
assets close to a minimum or maximum for one or more asset classes, and the
Fund's cash position changes because of investors buying or selling the Fund's
shares. To correct the situation, the investment adviser will move cash or
reallocate assets within seven days.
- --------------------------------------------------------------------------------
Who's managing your money?
James A. Mehling of Monitor Capital Advisors, Inc.
Mr. Mehling is President and Chief Investment Officer of Monitor. He joined
Monitor in October 1991 after serving as director of risk management in the
Investment Department of New York Life Insurance Company from 1989 - 1991. He
has served as portfolio manager of the Fund since 1991.
- --------------------------------------------------------------------------------
Risks? The Fund's performance depends on the investment adviser's ability to
consistently and correctly determine the relative attractiveness of the asset
classes. However, prices change not only in response to economic factors but to
psychological factors as well. These factors are difficult to interpret and
quantify. It is therefore possible for the Fund to have a small investment in
stocks during a period of rising stock prices, or a small investment in bonds
during a period of rising bond prices.
Investments in foreign securities could be more volatile and more difficult to
sell than U.S. investments, and involve additional risks. (For more on risks of
investing in foreign securities, see pg. 45, "Description of Investments and
Investment Practices"--"Foreign Currency Transactions" and "Foreign
Securities.")
- --------------------------------------------------------------------------------
21
<PAGE>
-----------------
Value Equity Fund
-----------------
- --------------------------------------------------------------------------------
Value Equity Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek maximum long-term total return from a combination of capital growth and
income. The Fund is not designed or managed primarily to produce current income.
- --------------------------------------------------------------------------------
The Fund takes a flexible approach, emphasizing investments in common stocks
which are, in the opinion of the Fund's investment adviser, undervalued at the
time of purchase. If, in the investment adviser's opinion, a stock has reached
its full value, it will usually be sold and replaced by securities considered to
be undervalued.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...at least 65% of total assets, under normal market conditions, in equity
securities, including common stocks and securities that can be exchanged for or
converted into common stocks (e.g., convertible preferred stocks and convertible
debentures), nonconvertible preferred stocks and warrants.
...dividend-paying common stocks listed on a national securities exchange or
traded in the over-the-counter market (although the Fund may invest in non-
dividend paying stock, based on the investment adviser's judgment).
...the Fund may also invest in:
...up to 35% of total assets in options on common stocks and stock indices,
stocks represented by American Depositary Receipts ("ADRs") or European
Depositary Receipts ("EDRs"), foreign equity securities, zero coupon bonds,
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities or by any of the states, cash equivalents, or cash.
. convertible preferred stocks, debentures and zero coupon bonds must be, when
purchased rated Baa or better by Moody's or BBB or better by Standard &
Poor's; or unrated but judged by the investment adviser to be of comparable
quality. (See "Appendix A--Description of Securities Ratings.")
...stock index futures contracts and related options to protect against changes
in stock prices.
...short sales "against the box," securities purchased on a when-issued basis,
and firm or standby commitments to purchase securities.
...foreign currency exchange transactions using currencies, options, futures
or options on futures, or forward contracts to help protect against foreign
currency exchange risks involving foreign securities the Fund owns or plans
to own. (See pg. 45, "Foreign Currency Transactions," for details.)
...other investments suitable for most or all MainStay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations"; and pg. 43, "Description of
Investments and Investment Practices.")
- --------------------------------------------------------------------------------
Who's managing your money?
Denis P. Laplaige and Tom Kolefas of MacKay-Shields Financial Corporation.
Mr. Laplaige is President, Managing Director and Head of the Equity Division of
MacKay-Shields. He joined the firm in 1982 as a research analyst, became a
Director in 1988, Managing Director in 1991 and member of its Board of Directors
in 1993. Prior to that, he was a portfolio manager and research analyst with
Value Line Inc. Mr. Laplaige has been a portfolio manager of the Value Equity
Fund since the Fund's inception in January 1991.
Mr. Kolefas is a Director of MacKay-Shields and specializes in equity
securities. He joined MacKay-Shields in 1991 after working as an equity research
analyst in the Investment Research Department of the investment sector of The
Bank of New York (1987-1991). Mr. Kolefas has been a portfolio manager of the
Value Equity Fund since 1991.
- --------------------------------------------------------------------------------
Risks? The Fund's share price, like the price of other equity-oriented funds,
isn't always stable. The value of the securities in the Fund--and the net asset
value of the Fund--will fluctuate in the marketplace. It is possible that the
adviser's decisions will not produce the growth you anticipate.
- --------------------------------------------------------------------------------
22
<PAGE>
---------
Bond Fund
---------
- --------------------------------------------------------------------------------
Bond Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to maximize total return, consistent with liquidity, low risk to
principal and investment in debt securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...normally at least 70% of total assets in:
. obligations issued or guaranteed by the U.S. or foreign governments, their
agencies or instrumentalities; obligations of international or supranational
entities;
. debt securities issued by domestic or foreign corporate entities, zero coupon
bonds, and municipal bonds;
. mortgage-related and other asset-backed securities; and
. loan participation interests.
The effective maturity of this portion of the Fund's portfolio will usually be
in the intermediate range (i.e., three to ten years), although it may vary
depending on the investment adviser's judgment of market conditions.
The Fund may use, under normal market conditions, up to 30% of its total assets
to shorten or lengthen the portfolio's effective maturity. This portion of the
Fund's assets may be invested in:
. long-term U.S. Treasuries (i.e., ten to thirty years); and
. cash equivalent short-term obligations including certificates of deposit, time
deposits, bankers' acceptances issued by domestic or foreign banks;
certificates of deposit and time deposits issued by savings and loan
associations, commercial paper, repurchase agreements and reverse repurchase
agreements.
...at least 65% of total assets, under normal market conditions, in debt
obligations as described above rated Baa or better by Moody's or BBB or better
by Standard & Poor's when purchased; or, if unrated, considered by the
investment adviser to be of comparable quality. (See "Appendix A--Description of
Securities Ratings.")
...corporate commercial paper only if rated, when purchased, Prime-1 by Moody's
or A-1 by Standard & Poor's; or if unrated, considered by the investment adviser
to be of comparable quality. (See "Appendix A--Description of Securities
Ratings.")
...up to 20% of total assets in securities denominated in foreign currencies. To
the extent possible, the Fund will attempt to protect these investments against
risks stemming from differences in foreign exchange rates.
...foreign currency exchange transactions using currencies, options, futures or
options on futures, or forward contracts to protect against foreign exchange
risks involving securities the Fund owns or plans to own. (See pg. 45, "Foreign
Currency Transactions.")
...interest rate and bond index futures contracts, and options on these
contracts; and options on debt securities.
...other investments suitable for most or all MainStay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations"; and pg. 43, "Description of
Investments and Investment Practices.")
- --------------------------------------------------------------------------------
Who's managing your money?
Ravi Akhoury and Edward J. Munshower of MacKay-Shields Financial Corporation.
Mr. Akhoury joined MacKay-Shields as a Director in 1984, became a Managing
Director in 1988, President and a member of the Board of Directors in 1989 and
Chairman and CEO in 1992. Previously, he worked for four years as a fixed income
manager for Fischer Francis Trees & Watts and for seven years as a fixed income
manager of the Equitable Life Assurance Society. Mr. Akhoury has served as a
portfolio manager of the Bond Fund and the Short-Term Bond Fund since their
inception in January 1991.
Mr. Munshower is a Director of MacKay Shields. He joined MacKay-Shields as a
fixed income investment specialist in 1985 with more than 5 years of prior
investment management and research experience, after having been an investment
analyst for New York Life. Mr. Munshower has been a portfolio manager of the
Bond Fund since its inception and the Short-Term Bond Fund since 1993.
- --------------------------------------------------------------------------------
Risks? Generally, when interest rates fall, the net asset value of a bond fund
rises, and when rates rise, the net asset value of a bond fund generally falls.
Principal and interest payments on some mortgage-related securities may
be guaranteed by the U.S. Government, government agencies or other guarantors.
But there is no guarantee that these securities won't lose value. When people
prepay their mortgage loans, the Fund's return from mortgage-related securities
may be reduced.
The value of some mortgage-related or asset-backed securities may be
particularly sensitive to changes in prevailing interest rates. Because interest
on zero coupon obligations is not paid to the Fund on a current basis but is in
effect compounded, the value of the securities of this type is subject to
greater fluctuations in response to changing interest rates than the value of
debt obligations which distribute income regularly.
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23
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-----------------
Indexed Bond Fund
-----------------
- --------------------------------------------------------------------------------
Indexed Bond Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to provide investment results that correspond to the total return
performance of fixed income securities in the aggregate, as represented by the
Salomon Brothers Broad Investment Grade Bond Index (the "Index").
- --------------------------------------------------------------------------------
The Fund attempts to achieve its objective by investing in a diversified
portfolio of U.S. Government and corporate bonds, as well as mortgage-backed and
asset-backed securities.
The Index is capitalization-weighted and contains about 4900 individually priced
fixed income securities, which include "investment grade" corporate bonds
including U.S. dollar-denominated securities of foreign issuers (rated BBB by
Standard & Poor's or Baa by Moody's, or better), U.S. Treasury/agency issues,
and mortgage pass-through (mortgage-backed) securities, and other securities.
(See "Appendix A--Description of Securities Ratings" for bond ratings.)
As of March 31, 1996, the approximate weighting in the Index of these classes
was as follows: U.S. Treasury and agency securities 52%, Corporate debt
securities 19%, Mortgage-backed securities 29%.
Unlike other funds which generally seek to beat market averages often with
unpredictable results, index funds seek to match their respective indices. No
attempt is made to manage the portfolio in the traditional sense using economic,
financial and market analysis. The Fund expects to invest in approximately 50 or
more securities so that the results fall within the target tracking error of the
Index. It's expected that there will be a close correlation (about 95%) between
the Fund's performance and the Index in both rising and falling markets.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...at least 80% of total assets, under normal market conditions, in fixed income
securities in the Index and related derivative securities (bond index options,
futures and options on futures; interest rate futures and options on these
contracts; or swap agreements related to fixed-income securities).
...up to 20% of total assets in bond and interest rate index options and futures
and options on these futures to maintain cash reserves while fully invested,
facilitate trading, or reduce transaction costs.
...up to 10% of total assets in index and interest rate swap agreements.
(For a description of "Swap Agreements," see pg. 50.)
The Fund will attempt to remain fully invested at all times; however, to keep
money working or to keep cash available for shareholder redemptions, the Fund
may invest in:
...other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 28-29, "General Investment Considerations"; and pg. 43,
"Description of Investments and Investment Practices.")
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Who's managing your money?
James A. Mehling of Monitor Capital Advisors, Inc.
Mr. Mehling is President and Chief Investment Officer of Monitor. He joined
Monitor in October 1991 after serving as director of risk management in the
Investment Department of New York Life Insurance Company from 1989 - 1991. He
has served as portfolio manager of the Fund since 1991.
- --------------------------------------------------------------------------------
Risks? Generally, when interest rates fall, the net asset value of a bond fund
rises, and when rates rise, the net asset value of a bond fund generally falls.
The Fund's ability to track the Index may be affected by, among other
things, transaction costs, changes in either the composition of the Index or
number of bonds outstanding for the components of the Index, and the timing and
amount of contributions to and redemptions from the Fund by shareholders.
Principal and interest payments on some mortgage-related securities may be
guaranteed by the U.S. Government, government agencies or other guarantors. But
there is no guarantee that these securities won't lose value. When people prepay
their mortgage loans, the Fund's return from mortgage-related securities may be
reduced.
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24
<PAGE>
-----------------------
International Bond Fund
-----------------------
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International Bond Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to provide total return by investing primarily in a portfolio of non-
U.S. (primarily government) debt securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...any debt or debt-related investment, domestic or foreign, denominated in
foreign or U.S. currency.
...at least 65% of total assets, under normal market conditions, in foreign
bonds which include debt securities of foreign governments, agencies and
supranational organizations denominated in foreign currencies. These could have
fixed, variable, floating or inverse floating rates of interest. The Fund may
also purchase debt securities of corporate issuers. Some of these securities may
be privately issued and/or convertible into common stock or they may be traded
together with warrants for the purchase of common stock.
...a variety of countries, with a minimum of 5 countries other than the U.S.
This includes countries with established economies as well as emerging market
countries, including those in Latin America and other newly industrialized
countries, such as South Korea and Taiwan, that the investment adviser believes
present favorable opportunities.
...the Fund may also invest in:
...up to 25% of net assets in lower-rated debt securities, including short-term
instruments. Lower rated securities are rated below BBB by S&P or Baa by
Moody's. (See "Appendix A - Description of Securities Ratings.")
...to enhance returns, manage risk more efficiently and help protect against
price changes in securities the Fund owns or may own, currency on a spot or
forward basis, securities or securities index options, foreign currency
options, futures contracts and related options on futures contracts; and may
enter into swap agreements. Futures and related options may be used for any
legal purpose including to reduce trading costs.
...other investments suitable for most or all MainStay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations"; and pg. 43, "Description of
Investments and Investment Practices.")
In unusual market conditions, the Fund may invest all or a portion of its assets
in U.S. dollars or foreign currencies or in U.S.-denominated or foreign
currency-denominated money market instruments of U.S. or foreign issuers.
- --------------------------------------------------------------------------------
Who's managing your money?
Michael Perelstein of MacKay-Shields Financial Corporation.
Mr. Perelstein joined MacKay-Shields as a Managing Director in 1989 with more
than six years of international and global investment experience. Just prior to
joining MacKay-Shields, he was the international strategist at Brinson Partners,
Inc. Mr. Perelstein has been a portfolio manager of the International Bond Fund
and International Equity Fund since their inception in January 1995.
- --------------------------------------------------------------------------------
Risks? Generally, when interest rates fall, the net asset value of a bond fund
rises, and when rates rise, the net asset value of a bond fund generally falls.
Alone, this Fund is not a balanced investment plan. It is intended for long-term
investors. It may be appropriate for investors wanting investments in markets
outside the U.S. who are willing to accept the risks of foreign investing
discussed below. The orientation is in avoiding excessive risk, although there
are risks associated with any kind of investment. Due to this philosophy, the
Fund may not attain as high a level of return as more aggressively managed
international funds, although there may be times when the Fund outperforms some
funds in down markets.
Securities rated below BBB or Baa (sometimes called "junk bonds") are not
considered "investment grade" and run greater risks of price fluctuations, loss
of principal and interest, default or bankruptcy by the issuer and other risks,
which is why these securities are considered speculative. (See pg. 47, "High
Yield Securities ("Junk Bonds")," for additional risks.)
Investments in foreign securities could be more volatile and more difficult to
sell than U.S. investments, and involve additional risks. (For more on risks of
investing in foreign securities, see pg. 45, "Description of Investments and
Investment Practices"--"Foreign Currency Transactions" and "Foreign
Securities.")
There are certain risks associated with investment securities with floating or
inverse floating rates of interest. (See pg. 44, "Description of Investments and
Investment Practices," "Floating and Variable Rate Securities and Inverse
Floaters.")
This Fund is classified as a "non-diversified" investment company. It may,
therefore, invest a greater portion of its assets in a single issuer than the
other Funds, which are "diversified." As a result, this Fund may be more
susceptible to any one economic, political or regulatory event than the other
Funds. Although the Fund is characterized as a non-diversified Fund, it still
must comply with the diversification requirements imposed upon a "regulated
investment company" under federal tax law. (See "Tax Information" in the
Statement of Additional Information.)
- --------------------------------------------------------------------------------
25
<PAGE>
-----------------
Money Market Fund
-----------------
- --------------------------------------------------------------------------------
Money Market Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to provide a high level of current income while preserving capital and
maintaining liquidity.
- --------------------------------------------------------------------------------
Investments in the Fund are neither insured nor guaranteed by the U.S.
Government. Although the Fund attempts to maintain a stable net asset value
(NAV) of $1 per share, there can be no assurance that it will succeed in doing
so.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...high quality, short-term securities (that mature within 13 months)
denominated in U.S. dollars (except securities used as collateral for repurchase
agreements may mature in more than 13 months), including obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances, commercial paper,
repurchase agreements, reverse repurchase agreements, loan participation
interests and corporate bonds.
...up to 5% of total assets in the securities of one issuer (this doesn't apply
to U.S. Government securities and related repurchase agreements) except, more
than 5% of total assets may be invested in securities of one issuer for up to 3
days if they're rated in the highest category ("First Tier") by at least two
major rating agencies. (Only one of these investments at a time.)
...up to 1% of total assets (or $1 million, whichever is greater at the time of
purchase) in securities of any one issuer rated in the top two categories by at
least two major rating agencies ("Second Tier").
...up to 5% of total assets in securities that were "Second Tier" when acquired.
...unrated securities considered of comparable quality to rated securities.
The Fund may borrow money for temporary or emergency purposes, purchase
securities on a when-issued basis, and enter into firm or standby commitments to
purchase securities.
This Fund generally cannot invest in securities with remaining maturities longer
than 397 days (13 months). In addition, the weighted average portfolio maturity
may not exceed 90 days. (See the SAI for a more detailed explanation.)
- --------------------------------------------------------------------------------
Who's managing your money?
David Clement of New York Life Insurance Company.
Mr. Clement has served as portfolio manager for the Fund since its inception in
1991, and is a member of the fixed income portfolio management team. Mr. Clement
joined the Asseet Management Group of New York Life in 1990.
- --------------------------------------------------------------------------------
Risks? Any investment the Fund makes must present minimal credit risk in the
opinion of the adviser. If rated, a security must be rated within the two
highest rating categories for short-term debt securities by at least two major
rating agencies (or by one major agency, if only that agency has rated the
security or issuer).
Unrated securities and one-agency-rated securities may only be bought with the
approval or ratification of the Directors. (For a description of ratings, see
"Appendix A.")
- --------------------------------------------------------------------------------
26
<PAGE>
--------------------
Short-Term Bond Fund
--------------------
- --------------------------------------------------------------------------------
Short-Term Bond Fund
The Fund's objective is:
- --------------------------------------------------------------------------------
to seek to maximize total return, consistent with liquidity, preservation of
capital and investment in short-term debt securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------
...at least 65% of total assets, under normal market conditions, in a
diversified portfolio of actively managed short-term debt securities, including
securities with special features (e.g., puts, variable or floating coupon rates
and mortgage pass-throughs) which have price characteristics similar to short-
term debt securities. These include:
...obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; mortgage-related and other asset-backed securities;
certificates of deposit, time deposits and bankers' acceptances issued by
domestic or foreign banks and denominated in U.S. dollars or foreign currencies;
certificates of deposit and time deposits issued by savings and loan
associations.
...domestic and foreign corporate debt securities, municipal bonds, zero coupon
bonds and variable or floating rate securities rated Baa or better by Moody's or
BBB or better by S&P when purchased; or, if unrated, considered by the
investment adviser to be of comparable quality. (See "Appendix A--Description of
Securities Ratings.")
...corporate commercial paper only if rated, when purchased, Prime-1 by Moody's
or A-1 by S&P; or if unrated, considered by the investment adviser to be of
comparable quality. (See "Appendix A--Description of Securities Ratings.")
...the Fund may also invest in:
...up to 20% of total assets in securities denominated in foreign currencies. To
the extent possible, the investment adviser will attempt to protect against
risks stemming from differences in foreign exchange rates.
...foreign currency exchange transactions using currencies, options, futures or
options on futures, or forward contracts to protect against foreign currency
exchange risks involving securities the Fund owns or plans to own. (See pg. 45,
"Foreign Currency Transactions.")
...interest rate and bond index futures contracts and options on these
contracts; and options on debt securities.
...U.S. dollar- or foreign currency-denominated obligations of foreign
governments or their subdivisions, agencies or instrumentalities, international
agencies or supranational entities.
...other investments suitable for most or all MainStay Institutional Funds. (See
pgs. 28-29, "General Investment Considerations"; and pg. 43, "Description of
Investments and Investment Practices.")
The effective maturity of the Fund's portfolio will be less than three years.
- --------------------------------------------------------------------------------
Who's managing your money?
Ravi Akhoury and Edward J. Munshower of MacKay-Shields Financial Corporation.
Mr. Akhoury joined MacKay-Shields as a Director in 1984, became a Managing
Director in 1988, President and a member of the Board of Directors in 1989 and
Chairman and CEO in 1992. Previously, he worked for four years as a fixed income
manager for Fischer Francis Trees & Watts and for seven years as a fixed income
manager of the Equitable Life Assurance Society. Mr. Akhoury has served as a
portfolio manager of the Short-Term Bond Fund and the Bond Fund since their
inception in January 1991.
Mr. Munshower is a Director of MacKay Shields. He joined MacKay-Shields as a
fixed income investment specialist in 1985 with more than 5 years of prior
investment management and research experience, after having been an investment
analyst for New York Life. Mr. Munshower has been a portfolio manager of the
Short-Term Bond Fund since 1993.
- --------------------------------------------------------------------------------
Risks? Generally, when interest rates fall, the net asset value of a bond fund
rises, and when rates rise, the net asset value of a bond fund generally falls.
Because of the comparatively short term of most of the Fund's investments, the
net asset value is expected to be relatively stable.
Principal and interest payments on some mortgage-related securities may be
guaranteed by the U.S. Government, government agencies or other guarantors. But
there is no guarantee that these securities won't lose value. When people prepay
their mortgage loans, the Fund's return from mortgage-related securities may be
reduced.
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
General Investment Considerations
- --------------------------------------------------------------------------------
SOME IMPORTANT POINTS TO UNDERSTAND ABOUT INVESTING IN MAINSTAY INSTITUTIONAL
FUNDS.
. Investment objectives
There cannot be any assurance that each Fund will achieve its investment
objective. The investment objective of each Fund is fundamental, which means it
can't be changed without shareholder approval. Other investment policies may,
however, be changed by the Board of Directors. Unless an investment policy or
restriction is defined or described as "fundamental", it may be changed without
shareholder approval.
The share price of a Fund isn't always stable
Because the market value of a Fund's investments will change, the net asset
value (NAV) of each Fund (other than the Money Market Fund)will also change.
Historically, the prices of equity-oriented funds have generally been more
volatile over the short-term than debt-oriented funds. Rapid changes in interest
rates can, however, affect bond prices significantly. The value of the
securities in a Fund (and, therefore, its NAV) will fluctuate in response to
factors such as:
. conditions in the securities markets;
. business success of the security's issuer;
. creditworthiness of the issuer of the security;
. changing interest rates;
. average maturity of a Fund's non-equity investments;
. real or perceived economic and competitive industry conditions;
. foreign currency exchange rates (for foreign-investing Funds); and
. other factors.
THE EFFECTS OF TRADING COSTS ON YOUR TOTAL RETURN
Each Fund's investment adviser places orders to purchase and sell portfolio
investments for the Fund. This is reflected in the Fund's Portfolio Turnover
Rate. Funds with higher turnover rates (extensive trading activity) often have
higher transaction costs which are borne by the Funds, and more short-term
capital gains on which you'll pay taxes (except that investors in tax qualified
plans, where earnings are generally tax deferred, will not pay these taxes).
The portfolio turnover rate for a Fund will vary from year to year and depending
on market conditions, turnover could be greater in periods of unusual market
movement and volatility. You can find the turnover rate for any Fund in the
"Financial Highlights" table for that Fund.(See pg. 54, "Portfolio
Transactions," for additional information on turnover rate.)
In unusual or adverse market conditions, for temporary defensive purposes, each
Fund (except the Money Market Fund) may invest all or a portion of its assets in
cash or cash equivalent short-term obligations such as obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the States; or in money market funds, repurchase and reverse
repurchase agreements, time deposits, certificates of deposit, bankers'
acceptances and commercial paper (the Growth Equity Fund and Value Equity Fund
may only invest up to 50% of total assets).
Each Fund may also:
. borrow up to 15% of total assets;
. lend its securities to brokers, dealers and other financial institutions to
earn income;
. buy securities on a when-issued, firm, or standby commitment basis -- the
market value of these securities may change prior to their delivery to the
Fund;
. invest in repurchase agreements, and enter into reverse repurchase agreements,
which can create leverage and increase a Fund's investment risk.
The Bond Fund, Indexed Bond Fund, International Bond Fund, International Equity
Fund, Multi-Asset Fund and Short-Term Bond Fund may purchase and sell interest
rate and bond index futures contracts, options on interest rate and bond index
futures contracts and options and futures on debt securities.
28
<PAGE>
The EAFE Index Fund, Growth Equity Fund, Indexed Equity Fund, International
Equity Fund, Multi-Asset Fund and Value Equity Fund may purchase and sell stock
index options, futures and options on futures.
Futures and options transactions may be used for any legally permissible
purpose, such as to protect against anticipated changes in interest rates that
could affect the value of securities which the Fund owns or plans on buying. The
use of futures, options and options on futures may involve certain costs and
risks. For example, there is no assurance that a Fund will be able to close out
a futures contract or a futures option position when the investment adviser
considers it appropriate. (See pg. 46, "Futures Contracts and Options on Futures
Contracts," for additional information.)
The EAFE Index Fund, International Bond Fund and International Equity Fund will
(and the Bond Fund, Growth Equity Fund, Multi-Asset Fund, Short-Term Bond Fund
and Value Equity Fund may), invest in foreign securities. The Indexed Equity
Fund and Indexed Bond Fund will invest in foreign securities to the extent such
securities are included in the securities that comprise Standard & Poor's 500
Composite Stock Price Index and the Salomon Brothers Broad Investment Grade Bond
Index, respectively. These securities may have additional risks not applicable
to U.S. securities.
Investments in foreign securities could be more volatile and more difficult to
sell than U.S. investments. They involve risks of currency controls by
governments, changes in currency rates and interest rates, difficulties in
receiving or interpreting financial and economic information, the imposition of
taxes and brokerage and custodian fees, and changes in political and economic
conditions. The Funds may also have difficulty invoking legal protections in
other countries. Many of these factors are worse in emerging markets.
Issuers of foreign debt, or their governments, may be unable or unwilling to
make payments, and the Funds may have limited legal recourse should there be a
default.
The Bond Fund, Indexed Bond Fund, International Bond Fund, Money Market Fund,
Multi-Asset Fund and Short-Term Bond Fund, may invest in loan participation
interests which involve certain risks, including credit and liquidity risks.
(See pg. 47; "Loan Participation Interests" for further details.)
INVESTMENTS IN ILLIQUID AND RESTRICTED SECURITIES
Each Fund will limit its investments in illiquid securities (those that can't be
easily sold) to not more than 10% of its net assets (15% in the case of the
International Bond Fund and International Equity Fund).
To the event that a Fund invests in restricted securities, it may be exposed to
additional risks. "Restricted" securities are those which have not been
registered under the Securities Act of 1933. Because they are unregistered, only
a limited number of investors are qualified to invest in them. The smaller
market, therefore, may create undesirable delays and added costs in selling
restricted securities.
INDEX FUNDS
The inclusion of a security in the MSCI EAFE Index, Standard & Poor's 500
Composite Stock Price Index or the Salomon Brothers Broad Investment Grade Bond
Index in no way implies an opinion by the index sponsors, Morgan Stanley,
Standard & Poor's or Salomon Brothers, as to the attractiveness of that security
as an investment. The MainStay Institutional Funds that are managed as index
funds (EAFE Index Fund, Indexed Equity Fund and Indexed Bond Fund) are not
sponsored by or affiliated with the sponsors of their respective indexes.
- --------------------------------------------------------------------------------
Take note: Each of the Bond Fund, Indexed Bond Fund, International Bond Fund and
Short-Term Bond Fund must normally invest at least 65% of its total assets in
"bonds". For this purpose, each of these Funds considers the various types of
debt or fixed income securities in which it invests, as specifically described
elsewhere in this prospectus, to be "bonds" as referenced in that Fund's name.
The use of this name is not meant to restrict a Fund's investments to a
narrow category of debt securities that are formally called "bonds." For
additional investment limitations, see the Funds' descriptions on pgs. 23, 24,
25, and 27.
Features of debt securities
Debt securities may have fixed, variable, or floating
(including inverse floating) rates of interest.
- --------------------------------------------------------------------------------
29
<PAGE>
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Open an Account...
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Who should read this section
If you are participating in a company savings plan, such as a 401(k), profit
sharing plan, defined benefit plan or other employee-directed plan, your
company will provide you with the information you need to open an account and
buy shares in the Funds.
If you are investing through a Group IRA or Group Account, the following
information will help you open an account and buy shares:
- --------------------------------------------------------------------------------
Who may buy Institutional Service Class Shares
If you are in a Group IRA, or Group Account and you buy shares after January 1,
1995, you will automatically become a shareholder of the Institutional Service
Class of the Fund(s) in which you invest. However, if you invested in a Group
Account or Group IRA prior to January 1, 1995, you may invest in either class of
shares of the Funds.
How to open an account
You (or your sponsor, if you are investing through a group or plan) can make an
investment by phoning NYLIFE Distributors at 1-800-695-2126 between 8:30 AM and
4:00 PM Eastern time on any day the New York Stock Exchange is open. You'll be
given an account number and wire or mail instructions for sending payment. All
calls are recorded.
NYLIFE Distributors must receive your money (and the application, if it's your
first investment) within the next 3 business days of placing your order.
Please fill out the application completely
and correctly
MainStay Institutional Funds and NYLIFE Distributors each reserves the right to
reject your application or redeem your Fund shares if significant information is
incomplete or incorrect (for example, if you leave off your Taxpayer I.D.).
Take care, be accurate
Make sure you are using the proper forms. Your order to buy is only accepted
when received by BFDS (the transfer agent) with all information, signatures,
documents and payments required to carry it out. Federal law requires you to
provide a certified tax identification number when you open an account.
If you are investing in a Group IRA, you may qualify for a No-Fee IRA available
to Institutional Service Class shareholders. (See Pg. 6, "Analyze the Costs of
Investing" for more information.) Applications and initial investments for Group
IRAs and Group Accounts should be mailed to:
MainStay Institutional Funds, Box 424, Parsippany, NJ 07054-0424.
After that, your investments should be sent to MainStay Institutional Funds,
Box 8407, Boston, MA 02266-8407.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Buy shares
You may buy shares (and fractions of shares) at market price (known as the net
asset value or NAV) on any day the New York Stock Exchange is open. Your price
per share will be the next NAV that is set after your order is received and
accepted. (All MainStay Institutional Funds are no load funds and are sold
without a sales charge at the net asset value (NAV) per share. There are ongoing
fees, however, as well as minimum investment amounts.)
The NAV -- the price of a share that is used for buying and selling -- is
determined once each day at the close of the New York Stock Exchange (4:00 p.m.
Eastern time) for each Fund except for the Money Market Fund, which is
determined at noon.
NAV is calculated by;
. taking the current market value of the Fund's total assets for that class of
shares (either Institutional Class shares or Institutional Service Class
shares) or, in the case of the Money Market Fund, using the amortized cost
method of valuation;
. subtracting the liabilities; and
. dividing the remainder by the total number of shares owned of that class. (See
the Statement of Additional Information for the full details on calculating
NAV.)
30
<PAGE>
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...and Buy Shares
- -------------------------------------------------------------------------------
YOU MUST INVEST AT LEAST THE MINIMUM AMOUNT
One of the following minimums will apply to you, depending upon how you are
investing:
For a Group IRA:
If you are investing in an IRA offered through a group:
. First investment--at least $3,500 (at least $1,000 in each Fund in which
you are investing)
. Each investment after that--at least $100.
For a Group Account:
If you are a member of a group that participates in our Group IRA program:
. First investment--at least $25,000 (at least $1,000 in each Fund in which
you are investing)
. Each investment after that--at least $1,000.
For institutional investors:
. Initial combined investment--at least $250,000, which may be spread over a
thirteen-month period after opening the account.
. Each investment after that--at least $1,000.
MainStay Institutional Funds Inc. may also accept investments of smaller
amounts at its discretion.
- -------------------------------------------------------------------------------
For your convenience and to save money, certificates for shares will usually
not be issued.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Take note:
Tax deductible contributions to an IRA are limited to $2,000 a year ($2,250 in
the case of a spousal IRA). An investor in certain qualified retirement plans
may be able to open an account with a smaller minimum investment.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Take note:
MainStay Institutional Funds and NYLIFE Distributors also have sole discretion
to reject your application or order if your application is incomplete or
incorrect (particularly if you have failed to include your Taxpayer I.D.
Information). MainStay Institutional Funds also has sole discretion to suspend
offering shares or reject purchase orders when, in the management's judgment, it
is in a Fund's best interests.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
What if you buy by check and then sell quickly? We can delay payment until we're
sure your check clears, or for up to 15 days, whichever comes first.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Not on holidays
No wires are accepted on days when the New York Stock Exchange is closed or on
Martin Luther King Day, Columbus Day or Veterans Day, because the bank that
would receive your wire is closed.
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- -------------------------------------------------------------------------------
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[Graphic of a check placed into an envelope]
[Graphic of a telephone]
SENDING A CHECK OR MONEY ORDER
First call us at 1-800-695-2126 to place your order. Make your check or money
order payable to MainStay Institutional Funds Inc. (Write your account number
and the name of the appropriate Fund or Funds on the check or money order.)
The check must be in U.S. dollars drawn on a U.S. bank. Mail it directly to:
MainStay Institutional Funds Inc., P.O. Box 8407 Boston, MA 02266-8407.
Mail the application separately to MainStay Institutional Funds Inc., P.O.
Box 461, Parsippany, NJ 07054-0461.
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[Graphic of a radio signal tower]
WIRING MONEY
You may invest by wiring the money to us. You or your registered representative
should call NYLIFE Distributors at 1-800-695-2126 for an account number and
wiring instructions. Give them to your bank, which may charge a fee for wiring.
The wire must include your name--exactly as it appears on your application--
your account number and the name of the Funds in which you want to invest.
NYLIFE Distributors must receive your money (and application, if it's your
initial investment) within 3 business days of your placing an order (See pg.
1, "Read This!," for the wire address.)
31
<PAGE>
Know How to Sell. . .
Shares may be redeemed (sold) in a number of ways. If you are participating in a
company plan, such as a 401(k), profit sharing, defined benefit or other
employee-directed plan, check with your Human Resources Department for
information on how your shares may be redeemed. For other investors, including
those in a Group IRA or Group Account, shares may also be redeemed by written
request to NYLIFE Distributors or you can redeem your shares in any of the
following ways:
OPTION 1
BY TELEPHONE OR WIRE
[Graphic of a telephone]
[Graphic of a radio signal tower]
Place an order to sell your shares by calling NYLIFE Distributors at
1-800-695-2126. Or, if you prefer, you may wire your order. These options are
not available if your shares are held in certificate form. (Please call us at
the above number for further details.)
The price of each share will be the next NAV determined after receipt of your
redemption request for the class of shares you own. There is no charge for
selling your shares. The shares you sell may be worth more or less than the
price you paid for them, depending on the market value of the investment
securities held by the particular Fund at the time of your sale.
- -------------------------------------------------------------------------------
Telephone redemption: convenient, yes. . .but not risk-free
Telephone redemption privileges are convenient, but you give up some security.
By making use of this convenience, you agree that neither MainStay Institutional
Funds nor the Administrator will be liable for following instructions via the
phone that they reasonably believe are genuine. You bear the risk of any loss,
unless MainStay Institutional Funds or the Administrator fails to use the
following (and other) established safeguards for your protection.
These safeguards are in place at MainStay Institutional Funds.
. All phone calls are tape recorded.
. Written confirmation of every transaction is sent to your address of record.
- -------------------------------------------------------------------------------
OR, OPTION 2
USE A SYSTEMATIC WITHDRAWAL PLAN
[Graphic of a calendar]
If you are a shareholder in a Group IRA or a Group Account, with at least
$10,000 (based on the NAV per share) in your account, you may use our systematic
withdrawal plan.
You may arrange to make monthly withdrawals of at least $100 from any Fund. Each
withdrawal will be mailed to you by check or wired directly to your bank
account, whichever you select on your application. These withdrawals, like any
sale, may result in a gain or loss and, therefore, may be subject to taxation.
Consult your tax adviser about possible tax consequences.
Also remember, these withdrawals are not dividends or income. If you withdraw
more than your Fund is earning for you, eventually your account will be worth
less than your original investment, and, ultimately, you will redeem all of your
shares.
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<PAGE>
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...and Exchange Shares
- ------------------------------------------------------------------------------
FOR THE MONEY MARKET FUND
If you exchange all your shares in the Money Market Fund for shares in another
Fund, any dividends that have been declared but not yet distributed will be
credited to the new Fund account. If you exchange all your shares in the Money
Market Fund for shares in more than one Fund, undistributed dividends will be
credited to each of the new Funds according to the number of exchanged shares in
each Fund.
MainStay Institutional Funds reserves the right to amend, restrict or end the
exchange privilege.
HOW YOU WILL RECEIVE YOUR MONEY
Your sales proceeds will normally be wired directly to the bank named on your
application within seven days after your redemption request is received (one
business day for the Money Market Fund).
On days when the New York Stock Exchange is closed, or during other times
specified by Federal securities law, you may not be able to redeem shares or
your payment might be delayed.
DISTRIBUTIONS IN KIND
For shares of a Fund which you sell within any 90-day period, each Fund reserves
the right to pay you a maximum of $250,000 in cash, or cash equal to 1% of the
Fund's net assets, whichever is less. To protect the remaining shareholders in
the Fund, anything you sell above this amount may not be paid to you in cash,
but could be paid to you entirely, or in part, in the same kinds of securities
held by the Fund. These securities would be valued at the same value that was
assigned to them in calculating the net asset value of the shares you're
selling.
Even though it is highly unlikely that shares would ever actually be redeemed in
kind, you would probably have to pay transaction costs to sell the securities
distributed to you, should such a distribution occur.
- -------------------------------------------------------------------------------
USE THE EXCHANGE PRIVILEGE
Once you open an account, you may exchange shares of the same class
(Institutional Class or Institutional Service Class) between MainStay
Institutional Funds. An order to exchange shares is treated as a sale of the old
shares followed by a purchase of the new shares.
You may request an exchange by calling NYLIFE Distributors at
1-800-695-2126, unless you've invested through a Group IRA or Group Account. In
that case, you should call us at 1-800-695-4451 (for information about the
exchange privilege).
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Take note: Your shares could be sold involuntarily
To reduce expenses, we may redeem shares in any account valued at less than
$10,000 ($1,000 for Group IRAs and Group Accounts), provided that the value is
not based on fluctuations in market prices. We'll give you at least 30 days
notice to give you time to add to your account and avoid the sale. We may also
redeem your shares if you haven't given us the proper tax information.
- -------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
Decide How to Receive Your Earnings
- --------------------------------------------------------------------------------
TWO KINDS OF EARNINGS
DIVIDENDS AND INTEREST
Most Funds earn either dividends from stocks, interest from bonds and other
securities, or both. A mutual fund, however, always pays this income to you as
"dividends."
When they pay
The Money Market Fund declares dividends daily; you're paid monthly. Each of the
other Funds declares and pays you dividends at least once a year.
In the Money Market Fund, you begin earning dividends the business day after the
transfer agent receives your investment in U.S. dollars by 4:00 p.m.Eastern
time.
CAPITAL GAINS
The Funds will distribute all, or almost all, of their net capital gains at
least once a year.
- --------------------------------------------------------------------------------
. Take Note:
Due to the service fee, dividends for Institutional Service Class shares will be
lower than for Institutional Class shares.
- --------------------------------------------------------------------------------
HOW TO TAKE YOUR EARNINGS
Your earnings will automatically be reinvested in the same Class of shares of
the same Fund, unless you choose one of the following options:
REINVEST IN ANOTHER FUND
On the day your Fund pays the dividend, reinvest everything in another Fund of
your choice.
TAKE CASH
Take your earnings in cash.
If you choose to receive your earnings in cash...
a check will be mailed to the address you have given us. If the check is not
accepted and is returned to us, we will reinvest it in your account in the same
Fund at the next net asset value computed after the transfer agent receives the
check. Any additional distributions will automatically be reinvested at net
asset value as of the ex-dividend date.
34
<PAGE>
- --------------------------------------------------------------------------------
Understand the Tax Consequences
- --------------------------------------------------------------------------------
As a regulated investment company under Federal tax law, a Fund generally will
not pay Federal income tax on the income and gains it pays as dividends to
its shareholders. To avoid paying a 4% federal excise tax, each MainStay
Institutional Fund intends to distribute almost all of its net income and
capital gains to shareholders.
Your Dividends And Capital Gains May Be Taxable
If you are a tax-exempt shareholder, you won't pay Federal income tax on
distributions unless applicable tax laws say otherwise. If your're not
tax-exempt, you will have to pay taxes on dividends whether you receive them in
cash or reinvest them in more shares. Redemptions also may be taxable.
Dividends, other than from capital gains, are ordinary income. Capital gain
distributions are taxable as long-term capital gain, except to the extent
provided by an applicable tax exemption. Some distributions may be a return of
capital or, in some cases, capital gain. The Fund will advise you each year
about the amount and nature of dividends paid to you. If you are not a tax-
exempt investor, purchasing shares shortly before the record date for dividend
declarations can result in a taxable return to you of a portion of the price you
paid for the shares.
A Fund may pay you in January for dividends declared in October, November, or
December of the previous year. If you're not tax-exempt, you will be taxed on
these dividends as if you had been paid on December 31 of the previous
year.
Taxes On Foreign Investment Income
A portion of income earned by a Fund from foreign securities may be withheld by
those countries as income taxes. Under certain circumstances, the Fund may elect
to pass along credits to you for foreign income taxes paid, although there are
no assurances that the Fund will be able to do so.
- --------------------------------------------------------------------------------
. Don't forget...
This page only tells you about Federal income tax. Other tax laws may be
different. For additional information about the tax aspects of investing and
particular tax laws that may apply to the different classes of shares, please
see the Statement of Additional Information. Consult your tax adviser on any
additional questions you may have about the tax aspects of investing.
- --------------------------------------------------------------------------------
35
<PAGE>
- -------------------------------------------------------------------------------
Know Who You're Investing With
- -------------------------------------------------------------------------------
Who works to protect your interests?
The Board of Directors oversees the management of the Company and meets several
times during the year to review contracts, Fund activities and the quality of
services. Other than serving as Directors, most of the Board members have no
affiliation with the Company or its service providers. Information relating to
the Directors and officers appears under the heading "Management of the Company"
in the Statement of Additional Information.
- -------------------------------------------------------------------------------
Who Manages Your Money?
- -------------------------------------------------------------------------------
Under the supervision of the Company's Directors and in accordance with each
Fund's investment objective and investment policies, the investment advisers are
responsible for making the specific decisions about buying, selling and holding
securities, selecting brokers and brokerage firms to trade for them; maintaining
accurate records; and if possible, negotiating favorable commissions and fees
with the brokers and brokerage firms. (See pg. 52, "The Advisers" for an
explanation of the fees paid by each Fund.)
- -------------------------------------------------------------------------------
Mackay-Shields Financial Corporation
9 West 57th Street
New York, New York 10019
MacKay-Shields manages the Bond Fund, Growth Equity Fund, International Bond
Fund, International Equity Fund, Short-Term Bond Fund and Value Equity Fund.
MacKay-Shields, formed in 1938, is an indirect wholly-owned, but autonomously
managed subsidiary of New York Life Insurance Company. As of December 31, 1995,
MacKay-Shields managed over $18.3 billion in assets.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
New York Life Insurance Company manages the Money Market Fund. The company is a
mutual life insurance company organized under the laws of the State of New York.
Authorized to conduct business as a life insurance company since 1845, it offers
a complete line of life insurance policies and annuity contracts, as well as
financial and retirement contracts. As of December 31, 1995, New York Life had
total assets of approximately $74.3 billion and managed approximately $24
billion in assets for qualified retirement plans.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Monitor Capital Advisors, Inc.
504 Carnegie Center
Princeton New Jersey 08540
Monitor Capital manages the EAFE Index Fund, Indexed Bond Fund, Indexed Equity
Fund and the Multi-Asset Fund. Monitor Capital, formed in 1988, is a
wholly-owned subsidiary of NYLIFE Inc. and an indirect wholly-owned subsidiary
of New York Life Insurance Company. As of December 31, 1995, Monitor managed
approximately $1.2 billion in assets.
- -------------------------------------------------------------------------------
36
<PAGE>
WHO DISTRIBUTES MAINSTAY INSTITUTIONAL FUNDS?
NYLIFE Distributors Inc.,
260 Cherry Hill Road
Parsippany, NJ 07054
NYLIFE Distributors Inc. is a corporation organized under New York laws and is
an indirect wholly owned subsidiary of New York Life Insurance Company. NYLIFE
Distributors acts as the principal underwriter and distributor of the Funds'
shares. They pay the costs of printing and mailing prospectuses and sales
literature to potential investors and any advertising expenses connected with
distributing Fund shares.
New York Life Insurance Company may pay, out of its own resources, additional
compensation to third parties who provide services or through its broker-dealer
subsidiaries to certain of its agents or employees who sell shares of the
Funds.
WHO PROVIDES CUSTOMER SERVICE AND MAINTAINS FINANCIAL RECORDS?
Boston Financial Data Services Inc. (BFDS) is the Funds' transfer and dividend
disbursing agent. BFDS is responsible for statements, confirmations and sending
checks and keeps certain financial and accounting records. BFDS is at 2
Heritage Drive, North Quincy, MA 02171.
New York Life Insurance Company also provides customer service and client
statements.
The Bank of New York (BONY) is custodian of the Funds' investments and has
subcustodial agreements for holding the Funds' foreign investments. BONY is at
90 Washington Street, New York, New York 10286.
WHO RUNS MAINSTAY INSTITUTIONAL FUNDS' DAY-TO-DAY BUSINESS?
New York Life Insurance Company is the administrator for the Funds. With the
assistance of its subsidiary companies, it manages the Company's business
affairs.
New York Life, among other things, provides offices, conducts the clerical,
recordkeeping and bookkeeping services, and keeps most of the financial and
accounting records required for each Fund. New York Life may consult with or use
the services of its subsidiary companies to help carry out responsibilities to
the Company. New York Life also pays the salaries and expenses of all personnel
affiliated with the Company, and all the operational expenses that are not the
responsibility of the Funds. For its services the Funds pay the Administrator a
monthly fee. (See pg. 52, "The Administrator," for full details.)
37
<PAGE>
- --------------------------------------------------------------------------------
Know Your Rights as a Shareholder
- --------------------------------------------------------------------------------
YOU HAVE THE RIGHT TO ASK ANY QUESTIONS.
If you have a question about your account, you should:
.call 1-800 695-2126 ext. 2055 (between 9:00 a.m. and 5:00 p.m. Eastern time),
or
. write to:
MainStay Institutional Funds Inc.
Box 461
Parsippany, NJ 07054-0461
If you invest through a Group IRA or Group Account you should:
. call 1-800-695-4451 (between (9:00 a.m. and 5:00 p.m. Eastern Time), or
. write to:
MainStay Institutional Funds Inc.
Box 424
Parsippany, NJ 07054-0424
THE RIGHT TO RECEIVE INFORMATION ABOUT YOUR INVESTMENT
You will receive periodic statements covering the Funds you own, including the
number and value of shares, dividends declared or paid and other information.
Confirmations.
Every time you buy, sell or exchange shares between Funds, you'll receive a
confirmation in the mail shortly thereafter. It summarizes all the key
information: what you bought and sold, what it cost and other important
information.
Financial reports.
You will receive an annual financial statement for your Fund, audited by the
Funds' independent accountants. You will also receive semiannual statements
which are unaudited.
Each financial report shows:
. the investments owned by the Fund,
. the market value of each investment, and
. other financial information.
- --------------------------------------------------------------------------------
Take note:
Keep your statements. You may need them for tax reporting purposes.
Be alert: Mistakes can happen. Always review your confirmations and statements
immediately.
- --------------------------------------------------------------------------------
THE RIGHT TO HAVE ONE SHARE, ONE VOTE
Every share issued by the Funds carries equal ownership rights. By owning
shares, you're entitled to vote on certain issues and policies regarding the
Fund or class of shares you own. You have one vote per share you own.
You also have a right to approve any changes in fundamental investment
restrictions or objectives of your Funds and you have the right to approve the
adoption of any new investment advisory agreement or plan of distribution
relating to your Funds.
THE RIGHT TO ATTEND MEETINGS
MainStay Institutional Funds Inc. doesn't intend to hold annual meetings for
electing Directors unless most of the Directors holding office have not been
elected by the shareholders. You do have a right, however, to call a special
meeting of shareholders for the purpose of voting on removing a Director (or
Directors) of the Company. At least 10% of the shareholders must request the
meeting in writing.
38
<PAGE>
- --------------------------------------------------------------------------------
Tell Me The Details
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company
- --------------------------------------------------------------------------------
The Company was incorporated in Maryland on September 21, 1990, and the
responsibilities of the Board of Directors of the Company are derived from the
laws of the State of Maryland and the Investment Company Act of 1940, as amended
("1940 Act"). The Company is registered with the SEC as an open-end management
investment company under the 1940 Act. Registration involves no supervision of
management of the Company by the SEC. The Company currently has eleven Funds.
Each Fund is a diversified investment company under the 1940 Act (other than the
International Bond Fund) and has a different investment objective which it
pursues through separate investment policies. Certain types of investments and
investment techniques common to one or more Funds are described in greater
detail in this Prospectus under "Description of Investments and Investment
Practices" and in the Statement of Additional Information.
The Company's authorized capital consists of twenty-two billion shares of $.001
par value per share. Twelve billion shares are classified as Money Market Fund
shares, of which six billion shares are further classified as Institutional
Class shares and six billion shares are classified as Institutional Service
Class shares. The remaining Funds: the Bond Fund, EAFE Index Fund, Growth Equity
Fund, Indexed Bond Fund, Indexed Equity Fund, International Bond Fund,
International Equity Fund, Multi-Asset Fund, Short-Term Bond Fund and Value
Equity Fund, each have one billion shares classified as shares of that Fund.
These shares are further classified for each Fund as 500 million Institutional
Class shares, and 500 million Institutional Service Class shares.
The Board of Directors may, at its discretion, classify and allocate shares to
additional Funds or classify and allocate additional shares to the existing
Funds without further action by the shareholders.
As of March 31, 1996, Trustees of the New York Life Insurance Company Retirement
Plan and Pension Plan owned a controlling interest (as that term
is defined under the 1940 Act) of the Indexed Equity Fund, Value Equity Fund,
Bond Fund, and International Bond Fund; Trustees of the New York Life Insurance
Company Retirement Plan Trust owned a controlling interest of the Indexed Equity
Fund; New York Life owned a controlling interest of the EAFE Index Fund, Multi-
Asset Fund and Indexed Bond Fund; and NYLIFE Inc. owned a controlling interest
of the Short-Term Bond Fund.
- --------------------------------------------------------------------------------
Other Information about the Funds
- --------------------------------------------------------------------------------
This section provides more information about how the Funds are managed. There is
no additional information about the Money Market Fund in this section.
- --------------------------------------------------------------------------------
EAFE Index Fund
- --------------------------------------------------------------------------------
The countries in the EAFE Index include Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, The
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the
United Kingdom. Not all EAFE Index companies within a country will be
represented in the Fund's portfolio of securities at the same time. The Fund may
not invest in certain stocks (numbering approximately 50) included in the EAFE
Index because corporate charters have provisions prohibiting ownership by
foreign investors.
The Fund is expected to invest in approximately 350 stocks so that the results
fall within the targeted tracking error. Stocks are selected for inclusion in
the Fund based on country of origin, market capitalization, yield, volatility
and industry sector. Monitor, the Fund's investment adviser, will manage the
Fund using advanced statistical techniques to determine which stocks are to be
purchased or sold to replicate the EAFE Index to the extent feasible. From time
to time, adjustments may be made in the Fund's portfolio because of changes in
the composition of the EAFE Index, but such changes should be infrequent.
The Fund believes the indexing approach described above is an effective method
of duplicating percentage changes in the EAFE Index. It is a reasonable
expectation that there will be a close correlation between the Fund's
performance and that of the EAFE Index in both rising and falling markets. The
correlation between the EAFE Index Fund and the EAFE Index is expected to be
at least 0.95. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the net asset value of the Fund,
including the value of its dividend and capital gains distributions, increases
or decreases in exact proportion to changes in the EAFE Index.
- --------------------------------------------------------------------------------
Growth Equity Fund
- --------------------------------------------------------------------------------
Although it is not the Fund's policy generally to invest or trade for short-term
profits, portfolio securities may be disposed of without regard to the length of
time held whenever MacKay-Shields is of the opinion that a security no longer
has an appropriate appreciation potential or has reached its
39
<PAGE>
anticipated level of performance, or when another security appears to offer
relatively greater appreciation potential or a relatively greater anticipated
level of performance. However, certain requirements that must be satisfied in
order for the Fund to qualify as a regulated investment company for Federal
income tax purposes may limit the extent to which the Fund can sell securities
and other assets held for less than three months. (See "Tax Information" in the
Statement of Additional Information.)
- --------------------------------------------------------------------------------
Indexed Equity Fund
- --------------------------------------------------------------------------------
Because of the market-value weighting, the 20 largest companies in the S&P 500
currently account for approximately 28% of the Index. As of December 31, 1995,
the five largest companies in the S&P 500 were: General Electric Company (2.6%);
American Telephone & Telegraph Company (2.2%); Exxon Corporation (2.2%); Coca
Cola Co. (2.0%); and Merck & Company (1.8%).
The Fund will be managed using advanced statistical techniques to determine
which stocks are to be purchased or sold to replicate the S&P 500 to the extent
feasible. From time to time, adjustments may be made in the Fund's portfolio
because of changes in the composition of the S&P 500, but such changes should be
infrequent. The correlation between the performance of the Indexed Equity Fund
and the S&P 500 is expected to be at least 0.95. A correlation of 1.00 would
indicate perfect correlation, which would be achieved when the net asset value
of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500.
The Fund believes the indexing approach described above is an effective method
of duplicating percentage changes in the S&P 500. It is a reasonable expectation
that there will be a close correlation between the Fund's performance and that
of the S&P 500 in both rising and falling markets.
- --------------------------------------------------------------------------------
International Equity Fund
- --------------------------------------------------------------------------------
The Fund is actively managed and invests primarily in international (non-U.S.)
stocks, but the Fund may acquire other securities including cash equivalents.
Eligible investments for the Fund include any equity or equity-related
investment, domestic or foreign, whether denominated in foreign currencies or
U.S. dollars.
The investment adviser considers factors such as prospects for currency exchange
and interest rates, and inflation in each country, relative economic growth,
government policies influencing exchange rates and business conditions; and
quality of individual issuers. The investment adviser will also determine, using
good faith judgment, (1) country allocation among the international equity
markets, (2) currency exposure (asset allocation across currencies), and (3)
diversified security holdings within each market.
The Fund may use futures and options contracts (1) in an effort to manage cash
flow and remain fully invested in the stock and currency markets, instead of or
in addition to buying and selling stocks and currencies, or (2) in an effort to
hedge against a decline in the value of securities or currencies owned by it or
an increase in the price of securities which it plans to purchase.
The investment adviser also believes that active currency management can enhance
portfolio returns through opportunities arising from interest rate differentials
between instruments denominated in different currencies and/or changes in value
between currencies. Moreover, MacKay-Shields believes active currency management
can be employed as an overall portfolio risk management tool. For example, in
its view, foreign currency management can provide overall portfolio risk
diversification when combined with a portfolio of foreign securities, and the
market risks of investing in specific foreign markets can at times be reduced by
currency strategies which may not involve the currency in which the foreign
security is denominated.
- --------------------------------------------------------------------------------
Multi-Asset Fund
- --------------------------------------------------------------------------------
To determine the best investment levels, the investment adviser estimates risk,
return and correlation for the three asset groups based on a rigorous,
disciplined valuation methodology. Even if this method occasionally indicates
that the Fund should be fully invested in only one asset group, the investment
adviser will still follow the constraints on the amount of assets which may be
allocated to each of the three asset groups.
Common stocks are evaluated using a proprietary mathematical model developed by
the investment adviser to estimate expected returns on domestic and foreign
stock markets. The expected return on fixed income securities is the current
yield to maturity of bonds as measured by the Salomon Brothers Broad Investment
Grade Bond Index. The expected return for money market instruments is the
current yield on three-month U.S. Treasury bills.
The Fund's allocation among the three asset groups is then structured to take
advantage of perceived imbalances in rela-
40
<PAGE>
tive pricing. The investment adviser believes that short-term imbalances occur
periodically but tend to be corrected fairly quickly.
The Fund may buy common stocks that the EAFE Index Fund and Indexed Equity Fund
may buy, fixed income securities that the Indexed Bond Fund may buy and money
market instruments that the Money Market Fund may buy.
- --------------------------------------------------------------------------------
Value Equity Fund
- --------------------------------------------------------------------------------
In analyzing different securities to assess their relative attractiveness,
MacKay-Shields' value investment process emphasizes such factors as low price to
earnings and price to cash flow ratios, financial strength and earnings
predictability. The Fund intends to purchase those securities which it believes
to be undervalued in the market relative to comparable securities based on the
foregoing analysis.
In assessing whether a stock is undervalued, the investment adviser considers,
among other factors, a company's financial strength and earnings predictability.
The Fund may provide some protection on the downside through its investment in
companies whose current stock prices reflect, in the investment adviser's
opinion, either unwarranted pessimism or unrecognized value.
- --------------------------------------------------------------------------------
Bond Fund
- --------------------------------------------------------------------------------
MacKay-Shields manages the Fund by allocating the Fund's investments among
different types of debt securities. MacKay-Shields conducts a continuing review
of yields and other information derived from a data base which it maintains in
managing fixed-income portfolios. Fundamental economic cycle analysis, credit
quality and interest rate trends are the principal factors considered by MacKay-
Shields in determining whether to increase or decrease the emphasis placed upon
a particular type of security or industry sector within the Fund's investment
portfolio.
Maturity shifts are based on a set of investment decisions that take into
account a broad range of fundamental and technical indicators. More
particularly, MacKay-Shields will alter the average maturity of the portfolio in
accordance with the research and other methods described above.
- --------------------------------------------------------------------------------
Indexed Bond Fund
- --------------------------------------------------------------------------------
The correlation between the performance of the Indexed Bond Fund and the Salomon
Brothers Broad Investment Grade Bond Index (the "Index") is expected to be at
least 0.95. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the net asset value of the Fund, including the value of
its dividend and capital gains distributions, increases or decreases in exact
proportion to changes in the Index. The Fund is expected to invest in
approximately 50 or more securities so that results fall within the targeted
tracking error. Bonds are selected for inclusion in the Fund based on credit
quality, sector, maturity, coupon, current yield, yield to maturity, duration,
and convexity. From time to time, adjustments may be made in the Fund's
portfolio because of changes in the composition of the Index, but such changes
should be infrequent.
The investment adviser believes the indexing approach described above is an
effective method of simulating percentage changes in the Index. It is a
reasonable expectation that there will be a close correlation between the Fund's
performance and that of the Index in both rising and falling markets. The
investment adviser employs a stratified sampling method to track index
performance. Using this method, the Fund invests in fixed income securities
which in aggregate are expected to mirror the performance of the Index. The Fund
invests primarily in a representative sample of the securities in the Index.
The investment adviser may effect certain portfolio transactions involving when-
issued, delayed delivery and other types of securities that may have the effect
of increasing nominal portfolio turnover. (For further discussion of the effect
of portfolio turnover on the Fund, See pg. 54, "Portfolio Transactions.") For
further information about the Fund's transactions in when-issued securities and
related portfolio practices, see the Statement of Additional Information.
- --------------------------------------------------------------------------------
International Bond Fund
- --------------------------------------------------------------------------------
The investment adviser considers factors such as prospects for currency exchange
and interest rates, and inflation in each country, relative economic growth,
government policies influencing exchange rates and business conditions; and
quality of individual issuers. The investment adviser will also determine, using
good faith judgment, (1) country allocation, (2) currency exposure (asset
allocation across currencies), and (3) diversified security holdings within each
market.
41
<PAGE>
Securities acquired by the Fund may be denominated in multinational currency
units such as the European Currency Unit ("ECU"). Securities of issuers within a
given country may be denominated in the currency of another country.
The investment adviser believes that active currency management can enhance
portfolio returns through opportunities arising from interest rate differentials
between securities denominated in different currencies and/or changes in value
between currencies. Moreover, the investment adviser believes active currency
management can be employed as an overall portfolio risk management tool. For
example, in its view, foreign currency management can provide overall portfolio
risk diversification when combined with a portfolio of foreign securities and
the market risks of investing in specific foreign markets can at times be
reduced by currency strategies which may not involve the currency in which the
foreign security is denominated.
Generally, the Fund's average maturity will be shorter when interest rates
worldwide or in a particular country are expected to rise, and longer when
interest rates are expected to fall. The Fund may use various techniques to
shorten or lengthen the dollar-weighted average maturity of its portfolio,
including transactions in futures and options on futures, interest rate swaps,
caps, floors and short sales.
- --------------------------------------------------------------------------------
Short-Term Bond Fund
- --------------------------------------------------------------------------------
The Fund's investment adviser manages the Fund by allocating the Fund's
investments among different types of debt securities. MacKay-Shields conducts a
continuing review of yields and other information derived from data bases which
it maintains in managing fixed-income portfolios. Fundamental economic cycle
analysis, credit quality and interest rate trends are the principal factors
considered by the investment adviser in determining whether to increase or
decrease the emphasis placed upon a particular type of security or industry
sector within the Fund's investment portfolio. In seeking to achieve capital
appreciation, as an integral component of total return, the Fund may use, among
other research methods, historical yield spread analysis, economic analysis,
fundamental credit analysis and technical (supply/demand) analysis.
The Fund may, to the extent permitted by law, invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). Certain inverse floaters
may be deemed to be illiquid securities for purposes of the Fund's 10%
limitation on investments in such securities.(See pg. 44, "Floating and Variable
Rate Securities," for details.)
42
<PAGE>
- --------------------------------------------------------------------------------
Description of Investments and
Investment Practices
- --------------------------------------------------------------------------------
For more information about the investments described in this section, please see
the Statement of Additional Information.
- --------------------------------------------------------------------------------
American Depositary Receipts ("ADRs")
- --------------------------------------------------------------------------------
ADRs (sponsored or unsponsored) are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying foreign securities. Most
ADRs are traded on a U.S. stock exchange. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, there may not be a correlation between such information and the
market value of the unsponsored ADR. EDRs and IDRs are receipts typically issued
by a European bank or trust company evidencing ownership of the underlying
foreign securities. GDRs are receipts issued by either a U.S. or non-U.S.
banking institution evidencing ownership of the underlying foreign
securities.
- --------------------------------------------------------------------------------
Arbitrage
- --------------------------------------------------------------------------------
Each Fund may sell in one market a security which it owns and simultaneously
purchase the same security in another market, or it may buy a security in one
market and simultaneously sell it in another market, in order to take advantage
of differences in the price of the security in the different markets. The Funds
do not actively engage in arbitrage. Such transactions may be entered into only
with respect to debt securities and will occur only in a dealer's market where
the buying and selling dealers involved confirm their prices to the Fund at the
time of the transaction, thus eliminating any risk to the assets of a Fund.
- --------------------------------------------------------------------------------
Banking Industry and Savings and Loan Obligations
- --------------------------------------------------------------------------------
Each Fund may invest in certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks
and, with the exception of the Money Market Fund, in certificates of deposit,
time deposits, and other short-term obligations issued by savings and loan
associations ("S&Ls"). Certificates of deposit are receipts from a bank or an
S&L for funds deposited for a specified period of time at a specified rate of
return. Time deposits in banks or S&Ls are generally similar to certificates of
deposit, but are uncertificated. Bankers' acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with international
commercial transactions. Each Fund may not invest in time deposits maturing in
more than seven days which are subject to withdrawal penalties. Each Fund will
limit its investment in time deposits for which there is a penalty for early
withdrawal to 10% of its net assets.
- --------------------------------------------------------------------------------
Borrowing
- --------------------------------------------------------------------------------
Each Fund may borrow from a bank up to a limit of 15% of its total assets, but
only for temporary or emergency purposes. Borrowing may exaggerate the effect on
a Fund's net asset value of any increase or decrease in the value of the Fund's
portfolio securities. Money borrowed will be subject to interest costs (which
may include commitment fees and/or the cost of maintaining minimum average
balances). A Fund will repay any money borrowed from a bank in excess of 5% of
its total assets prior to purchasing additional securities. In addition, each
Fund may invest up to one-third of its total assets in reverse repurchase
agreements subject to the limitations set forth under "Repurchase Agreements
and Reverse Repurchase Agreements" on pg. 50.
- --------------------------------------------------------------------------------
Brady Bonds
- --------------------------------------------------------------------------------
The International Bond Fund may invest a portion of its assets in Brady Bonds,
which are securities created through the exchange of existing commercial bank
loans to sovereign entities for new obligations in connection with debt
restructuring under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady. Brady Bonds have been issued only
recently, and for that reason do not have a long payment history. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the dollar) and are actively traded in the over-the-counter secondary
market. Brady Bonds are not considered U.S. Government securities. In light of
the residual risk of Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
There can be no assurance that Brady Bonds acquired by the Fund will not be
subject to restructuring arrangements or to requests for new credit, which may
cause the Fund to suffer a loss of interest or principal on any of its holdings.
(For further information see "Brady Bonds," in the Statement of Additional
Information.)
43
<PAGE>
- --------------------------------------------------------------------------------
Commercial Paper
- --------------------------------------------------------------------------------
Each Fund may invest in commercial paper. Each Fund will invest in commercial
paper only if rated at the time of investment Prime-1 by Moody's or A-1 by S&P,
or, if not rated by Moody's or S&P, if the Fund's investment adviser determines
that the commercial paper is of comparable quality. Commercial paper represents
short-term unsecured promissory notes issued by banks or bank holding companies,
corporations and finance companies. (See "Appendix A--Description of Securities
Ratings.")
- --------------------------------------------------------------------------------
Corporate Debt Securities
- --------------------------------------------------------------------------------
A Fund's investments in U.S. dollar- or foreign currency-denominated corporate
debt securities of domestic or foreign issuers are limited to corporate debt
securities (corporate bonds, debentures, notes and other similar corporate debt
instruments) which meet the credit quality and maturity criteria set forth for
the particular Fund. The rate of return or return of principal on some debt
obligations may be linked to indexes or stock prices or indexed to the level of
exchange rates between the U.S. dollar and foreign currency or currencies.
Corporate debt securities with a rating lower than BBB by S&P, and corporate
debt securities rated Baa or lower by Moody's, have speculative characteristics
and changes in economic conditions or individual corporate developments are more
likely to lead to a weakened capacity to make principal and interest payments
than in the case of high grade bonds. Should any individual bond held by a Fund,
other than the International Bond Fund or International Equity Fund, fall below
a rating of BBB by S&P or Baa by Moody's, the Fund's investment adviser will
dispose of such bond as soon as reasonably practicable in light of then-existing
market and tax considerations. (See "Appendix A--Description of Securities
Ratings.") The International Bond Fund may invest up to 25%, and the
International Equity Fund may invest up to 5%, of its net assets in debt
securities which are rated below investment grade. (See pg. 47, "High Yield
Securities ("Junk Bonds").")
- --------------------------------------------------------------------------------
Firm and Standby Commitment Agreements and
When-Issued Securities
- --------------------------------------------------------------------------------
New issues of certain debt securities are often offered on a when-issued basis.
That is, the payment obligation and the interest rate are fixed at the time the
Buyer enters into the commitment, but delivery and payment for the securities
normally take place after the date of the commitment to purchase. Firm and
standby commitment agreements call for the purchase of securities at an agreed-
upon price on a specified future date. The transactions are entered into in
order to secure what is considered to be an advantageous price and yield to a
Fund and not for purposes of leveraging the Fund's assets. However, a Fund will
not accrue any income on these securities prior to delivery. The value of when-
issued securities and firm and standby commitment agreements may vary prior to
and after delivery depending on market conditions and changes in interest rate
levels. There is a risk that a party with whom a Fund has entered into such
transactions will not perform its commitment, which could result in a gain or
loss to the Fund.
- --------------------------------------------------------------------------------
Floating and Variable Rate Securities and
Inverse Floaters
- --------------------------------------------------------------------------------
Variable and floating rate securities provide for a periodic adjustment in the
interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
Each Fund, other than the EAFE Index Fund, Growth Equity Fund, Indexed Equity
Fund and Value Equity Fund may, to the extent permitted by law, invest in
floating rate debt instruments ("floaters"). The interest rate on a floater is a
variable rate which is tied to another interest rate, such as a money market
index or Treasury bill rate.
The Bond Fund, International Bond Fund, International Equity Fund and Short-Term
Bond Fund may, to the extent permitted by law, invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities.
44
<PAGE>
- --------------------------------------------------------------------------------
Foreign Currency Transactions
- --------------------------------------------------------------------------------
Forward foreign currency exchange contracts ("forward contracts") are intended
to minimize the risk of loss to a Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. A forward contract may be used, for example, when a
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency in order to "lock in" the U.S. dollar price of the
security.
Such contracts do not eliminate fluctuations in the underlying prices of
securities held by the Funds. Although such contracts tend to minimize the risk
of loss due to a decline in the value of a currency that has been sold forward,
and the risk of loss due to an increase in the value of a currency that has been
purchased forward, at the same time they tend to limit any potential gain that
might be realized should the value of such currency increase.
Successful use of forward contracts depends on the investment adviser's skill in
analyzing and predicting relative currency values. Forward contracts alter a
Fund's exposure to currency exchange rate activity and could result in losses to
the Fund if currencies do not perform as the investment adviser anticipates. A
Fund may also incur significant costs when converting assets from one currency
to another.
- --------------------------------------------------------------------------------
Foreign Index-Linked Instruments
- --------------------------------------------------------------------------------
As part of its investment program, and to maintain greater flexibility, the
International Bond Fund and International Equity Fund may invest in instruments
which have the investment characteristics of particular securities, securities
indexes, futures contracts or currencies. Such instruments may take a variety of
forms, such as debt instruments with interest or principal payments determined
by reference to the value of a currency or commodity at a future point in time.
A foreign index may be based upon the exchange rate of a particular currency or
currencies or the differential between two currencies, or the level of interest
rates in a particular country or countries or the differential in interest rates
between particular countries. The risks of such investments would reflect the
risks of investing in the index or other instrument, the performance of which
determines the return for the instrument. Tax considerations may limit the
Funds' ability to invest in foreign index-linked instruments.
- --------------------------------------------------------------------------------
Foreign Securities
- --------------------------------------------------------------------------------
All Funds may invest in foreign securities, although the Money Market Fund
purchases only dollar-denominated securities. Except for the Growth Equity Fund,
Indexed Bond Fund, International Bond Fund, International Equity Fund, Multi-
Asset Fund and Value Equity Fund, the Funds' investment advisers place the
Funds' investments only in developed countries. The Indexed Equity Fund and
Indexed Bond Fund will invest in foreign securities to the extent such
securities are included in the securities that comprise the Standard & Poor's
500 Composite Stock Price Index, and the Salomon Brothers Broad Investment Grade
Bond Index, respectively.
Many of the foreign securities in which the Funds invest will be denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
securities denominated or quoted in foreign currencies. Exchange rate movements
can be large and can endure for extended periods of time, affecting either
favorably or unfavorably the value of the Funds' assets. A Fund may, however,
engage in foreign currency transactions (see "Foreign Currency Transactions") to
protect itself against fluctuations in currency exchange rates in relation to
the U.S. dollar. Such foreign currency transactions may include forward foreign
currency contracts, currency exchange transactions on a spot (i.e., cash) basis,
put and call options on foreign currencies, and foreign exchange futures
contracts. The Funds cannot assure that these techniques will necessarily be
successful.
Foreign investing involves the possibility of expropriation, nationalization or
confiscatory taxation, foreign taxation of income earned in the foreign nation
(including withholding taxes on interest and dividends) or other foreign taxes
imposed with respect to investments in the foreign nation, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations. In addition, in many countries there is
less publicly available information about issuers than is available in reports
about companies in the United States. Foreign companies are not generally
subject to uniform accounting and auditing and financial reporting standards,
and auditing practices and requirements may not be comparable to those
applicable to U.S. companies. In many foreign countries, there is less
government supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the United States. Foreign
securities transactions may be subject to
45
<PAGE>
higher brokerage and custodial costs than domestic securities transactions. In
addition, the foreign securities markets of many of the countries in which the
Funds may invest may also be smaller, less liquid and subject to greater price
volatility than those in the United States.
The Growth Equity Fund, Indexed Bond Fund, International Bond Fund,
International Equity Fund, Multi-Asset Fund and Value Equity Fund may invest in
emerging market countries, which presents risks in greater degree than, and in
addition to, those presented by investment in foreign issuers in general. A
number of emerging market countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years and devaluation may occur subsequent to investments in
these currencies by the Funds. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries.
Many of the emerging securities markets are relatively small, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in emerging market countries that
a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies any of which may have a
detrimental effect on the Funds' investments.
To different degrees, the Bond Fund, Indexed Bond Fund, International Bond Fund,
International Equity Fund and Short-Term Bond Fund are permitted to invest in
debt securities or obligations of foreign governments, agencies, and
supranational organizations ("Sovereign Debt"). Investments in Sovereign Debt
can involve greater risks than investing in U.S. Government Securities. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and a Fund may have limited legal
recourse in the event of default.
The occurrence of political, social or diplomatic changes in one or more of the
countries issuing Sovereign Debt could adversely affect a Fund's investments.
Political changes or a deterioration of a country's domestic economy or balance
of trade may affect the willingness of countries to service their Sovereign
Debt. While the investment advisers intend to manage the Funds' portfolios in a
manner that will minimize the exposure to such risks, there can be no assurance
that adverse political changes will not cause a Fund to suffer a loss of
interest or principal on any of its holdings.
- --------------------------------------------------------------------------------
Futures Contracts and Options on Futures
Contracts
- --------------------------------------------------------------------------------
With the exception of the Money Market Fund, all Funds may enter into futures
contracts and related options. An interest rate or stock index futures contract
is an agreement to take or make delivery of an amount of cash based on the
difference between the value of the index at the beginning and at the end of the
contract period. A futures contract on a foreign currency is an agreement to buy
or sell a specified amount of a currency for a set price on a future date. There
are several risks associated with the use of futures and related options for
hedging purposes. There can be no assurance that a liquid market will exist at a
time when a Fund seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these instruments
are relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent the Fund from
liquidating an unfavorable position and the Fund would remain obligated to meet
margin requirements until the position is closed. There can be no guarantee that
there will be a correlation between price movements in the hedging vehicle and
in the securities or currencies being hedged. An incorrect correlation could
result in a loss on both the hedged securities or currencies and the hedging
vehicle so that the portfolio return might have been better had hedging not been
attempted. Successful use of options on securities, options on stock or bond
indices and warrants is subject to similar risk considerations.
- --------------------------------------------------------------------------------
Government Securities
- --------------------------------------------------------------------------------
Government securities are obligations of, or guaranteed by, the U.S. government
or its agencies or instrumentalities. Some U.S. government securities, such as
Treasury bills, notes and bonds, are supported by the full faith and credit of
the United States; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to bor-
46
<PAGE>
row from the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. government
to purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the
instrumentality.
- --------------------------------------------------------------------------------
High Yield Securities ("Junk Bonds")
- --------------------------------------------------------------------------------
Securities rated below BBB or Baa (sometimes called "junk bonds") are not
considered "investment grade". There is more price volatility, more risk of
losing your principal and interest, a greater possibility of the issuer going
bankrupt, plus additional risks. These securities are considered speculative.
The International Bond Fund may invest up to 25% of its net assets in debt
securities, including short-term instruments, which are rated below investment
grade (i.e., below BBB by S&P or Baa by Moody's) or, if not rated, deemed to be
of equivalent quality by the investment adviser. The International Equity Fund
may invest up to 5% of its net assets in short-term instruments rated below
BBB by S&P or Baa by Moody's or, if not rated, deemed to be of equivalent
quality by the investment adviser. The lower the ratings of such securities, the
greater their risks render them like equity securities. Moody's considers bonds
it rates Baa to have speculative elements as well as investment grade
characteristics. The Funds may invest in securities which are rated D by S&P or,
if unrated, are of equivalent quality. Securities rated D may be in default with
respect to payment of principal or interest. (See "Appendix A--Description of
Securities Ratings.")
Investors should be willing to accept the risks associated with investment in
high yield/high risk securities. Investors should consider the following risks
associated with high yield/high risk bonds before investing. Investment in high
yield/high risk bonds involves special risks in addition to the risks associated
with investments in higher rated debt securities. High yield/high risk bonds may
be regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.
Analysis of the creditworthiness of issuers of high yield/high risk bonds may be
more complex than for issuers of higher quality debt securities, and the ability
of the Fund to achieve its investment objective may, to the extent of its
investment in high yield/high risk bonds, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality bonds.
High yield/high risk bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade bonds. The prices
of high yield/high risk bonds have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. If the issuer of high
yield/high risk bonds defaults, the Fund may incur additional expenses to seek
recovery. In the case of high yield/high risk bonds structured as zero coupon or
payment-in-kind securities, the market prices of such securities are affected to
a greater extent by interest rate changes and, therefore, tend to be more
volatile than securities which pay interest periodically and in cash.
The secondary market on which high yield/high risk bonds are traded may be less
liquid than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which the Fund could sell a
high yield/high risk bond, and could adversely affect and cause large
fluctuations in the daily net asset value of the Fund's shares.
The use of credit ratings as the sole method for evaluating high yield/high risk
bonds also involves certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield/high risk bonds. Also, credit rating agencies may fail to change credit
ratings on a timely basis to reflect subsequent events.
- --------------------------------------------------------------------------------
Lending of Portfolio Securities
- --------------------------------------------------------------------------------
A Fund may lend its investment securities to brokers, dealers and financial
institutions for the purpose of realizing additional income. The total market
value of securities loaned will not at any time exceed one-third of the total
assets of a Fund. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible loss of rights in the collateral
should the borrower fail financially. In determining whether to lend securities,
a Fund's investment adviser will consider all relevant facts and circumstances,
including the creditworthiness of the borrower.
- --------------------------------------------------------------------------------
Loan Participation Interests
- --------------------------------------------------------------------------------
In a typical corporate loan syndication, a number of institutional lenders lend
a corporate borrower a specified sum pursuant to the terms and conditions of a
loan agreement. One of the co-lenders usually agrees to act as the agent bank
with respect to the loan. The loan agreement among the corpo-
47
<PAGE>
rate borrower and the co-lenders identifies the agent bank as well as sets forth
the rights and duties of the parties. The agreement often (but not always)
provides for the collateralization of the corporate borrower's obligations
thereunder and includes various types of restrictive covenants which must be met
by the borrower.
The principal credit risk associated with acquiring participation interests from
a co-lender or another participant is the credit risk associated with the
underlying corporate borrower. A Fund may incur additional credit risk, however,
when it is in the position of participant rather than a co-lender because the
Fund must assume the risk of insolvency of the co-lender from which the
participation interest was acquired and that of any person interpositioned
between the Fund and the co-lender.
- --------------------------------------------------------------------------------
Mortgage-Related and Other Asset-Backed
Securities
- --------------------------------------------------------------------------------
The value of some mortgage-related or asset-backed securities in which the Funds
invest may be particularly sensitive to changes in prevailing interest rates,
and, like the other investments of the Funds, the ability of a Fund to
successfully utilize these instruments may depend in part upon the ability of an
investment adviser to forecast interest rates and other economic factors
correctly. While principal and interest payments on some mortgage-related
securities may be guaranteed by the U.S. government, government agencies or
other guarantors, the market value of such securities is not guaranteed.
Mortgage Pass-Through Securities
Mortgage pass-through securities are securities representing interest in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a Fund to a
lower rate of return upon reinvestment of principal. Also, if a security subject
to repayment has been purchased at a premium, in the event of prepayment the
value of the premium would be lost.
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs")
CMOs are hybrid instruments with characteristics of both mortgage-backed bonds
and mortgage pass-through securities. Similar to a bond, interest and pre-paid
principal on a CMO are paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by Government National
Mortgage Association ("GNMA"), Federal Home Loan Mortgage Corporation ("FHLMC")
or Federal National Mortgage Association ("FNMA"). CMOs are structured into
multiple classes, with each class bearing a different stated maturity. Monthly
payments of principal, including prepayments, are first returned to investors
holding the shortest maturity class; investors holding the longer maturity
classes receive principal only after the first class has been retired. REMICs
are similar to CMOs and are fixed pools of mortgages with multiple classes of
interests held by investors. The cash flow generated by the mortgage assets
underlying a series of CMOs is applied first to make required payments of
principal and interest on the CMOs and second to pay the related administrative
expenses of the issuer. The residual interest in a CMO structure generally
represents the interest in any excess cash flow remaining after making the
foregoing payments. Each of the Funds limits its investment in CMO residuals to
less than 5% of its net assets.
Other Mortgage-Related Securities
The Funds' investment advisers expect that governmental, government-related or
private entities may create mortgage loan pools and other mortgage-related
securities offering mortgage pass-through and mortgage-collateralized
investments in addition to those described above. As new types of mortgage-
related securities are developed and offered to investors, a Fund's investment
adviser will, consistent with the Fund's investment objective, policies and
quality standards, consider making investments in such new types of mortgage-
related securities.
Other Asset-Backed Securities
Other asset-backed securities (unrelated to mortgage loans) have been offered to
investors, such as "CARs\\sm\\" ("Certificates for Automobile
Receivables\\sm\\"). CARs\\sm\\ represent undivided fractional interests in a
trust whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARs\\sm\\ are "passed-through" monthly to
certificate holders, and are
48
<PAGE>
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. Underlying sales contracts are subject to prepayment,
which may reduce the overall return to certificate holders. If the letter of
credit is exhausted, certificate holders may also experience delays in payment
or losses on CARs\\sm\\, if the full amounts due on underlying sales contracts
are not realized by the trust because of unanticipated legal or administrative
costs of enforcing the contracts, or because of depreciation, damage or loss of
the vehicles securing the contracts, or other factors. If consistent with its
investment objective and policies, a Fund may invest in CARs\\sm\\ and in other
asset-backed securities that may be developed in the future.
A Fund will invest only in mortgage-related (or other asset-backed) securities
either (i) issued by U.S. government-sponsored corporations (currently GNMA,
FHLMC and FNMA), or (ii) rated Baa or better by Moody's or BBB by S&P or, if not
rated, of comparable investment quality as determined by the Fund's investment
adviser. In addition, if any such security is determined to be illiquid, a Fund
will limit its investments in these and other illiquid instruments to not more
than 10% of its net assets (15% in the case of the International Bond Fund and
International Equity Fund).
- --------------------------------------------------------------------------------
Municipal Bonds
- --------------------------------------------------------------------------------
The Bond Fund and Short-Term Bond Fund may purchase municipal bonds which are
debt obligations of state and local governments, agencies and authorities.
Municipal bonds are issued to obtain funds for various public purposes. The
other Funds may purchase municipal bonds for temporary defensive purposes.
- --------------------------------------------------------------------------------
Options on Foreign Currencies
- --------------------------------------------------------------------------------
A Fund may purchase and write put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. A fund may also use foreign currency options to protect against
potential losses in positions denominated in one foreign currency against
another foreign currency in which the Fund's assets are or may be invested. As
with other kinds of option transactions, however, the writing of an option on
foreign currency will constitute only a partial hedge up to the amount of the
premium received and a Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations, although, in the event of rate movements
adverse to a Fund's position, a Fund may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by a Fund will be traded on U.S. and foreign exchanges or
over-the-counter.
- --------------------------------------------------------------------------------
Options on Securities and Options on Stock or
Bond Indices
- --------------------------------------------------------------------------------
A put option is a short-term contract which gives the purchaser of the put
option, in return for a premium, the right to sell the underlying security to
the seller of the option at a specified price during the term of the option. A
call option is a short-term contract which gives the purchaser the right to buy
from the seller of the option the underlying security at a specified price
during the term of the option. A call option on a stock or bond index gives the
purchaser of the option, in return for the premium paid, the right to receive
from the seller cash equal to the difference between the closing price of the
index and the exercise price of the option. A Fund will only write "covered"
call options and "secured" put options. A "covered" call option means generally
that so long as a Fund is obligated as the writer of a call option, the Fund
will either own the underlying securities subject to the call, or hold a call at
the same exercise price, for the same exercise period, and on the same
securities as the call written. A "secured" put option means generally that so
long as a Fund is obligated as the writer of the put option, the Fund will
maintain liquid assets with a value equal to the exercise price in a segregated
account, or hold a put on the same underlying security at an equal or greater
exercise price. Options in which the Funds may invest may be traded on exchanges
and in the over-the-counter market.
Each Fund has undertaken to a state securities commission that it will not
purchase a put, call, straddle or spread if, as a result, the amount of premiums
paid for such positions would exceed 5% of the value of the Fund's net assets.
The value of the underlying securities on which put options may be written by a
Fund, except the International Bond and International Equity Fund, at any one
time will not exceed 50% of the total assets of the Fund.
49
<PAGE>
- --------------------------------------------------------------------------------
Repurchase Agreements and
Reverse Repurchase Agreements
- --------------------------------------------------------------------------------
Each Fund may enter into repurchase agreements, which entail the purchase of a
portfolio eligible security from a bank or broker-dealer that agrees to
repurchase the security at the Fund's cost plus interest within a specified time
(normally one day). If the party agreeing to repurchase should default, as a
result of bankruptcy or otherwise, the Fund will seek to sell the securities
which it holds, which action could involve costs or delays in addition to a loss
on the securities if their value should fall below their repurchase price. No
Fund will invest more than 10% of its net assets (taken at current market value)
in repurchase agreements maturing in more than seven days.
Each Fund may enter into reverse repurchase agreements with banks or broker-
dealers, which involves the sale of a security by a Fund and its agreement to
repurchase the instrument at a specified time and price. The Fund will maintain
a segregated account consisting of cash, U.S. government securities, foreign
government securities provided they are of high liquidity and quality, or other
high-grade debt obligations, maturing not later than the expiration of the
reverse repurchase agreement, to cover its obligations under reverse repurchase
agreements. Each Fund will limit its investments in reverse repurchase
agreements and other borrowing to no more than one-third of its total assets.
The use of reverse repurchase agreements by a Fund creates leverage which
increases a Fund's investment risk. If the income and gains on securities
purchased with the proceeds of reverse repurchase agreements exceed the cost of
the agreements, the Fund's earnings or net asset value will increase faster than
otherwise would be the case; conversely, if the income and gains fail to exceed
the costs, earnings or net asset value would decline faster than otherwise would
be the case.
- --------------------------------------------------------------------------------
Restricted Securities
- --------------------------------------------------------------------------------
To the extent that they invest in restricted securities, the Funds may be
exposed to additional risks. "Restricted" securities are those securities which
have not been registered under the Securities Act of 1933. Because they are
unregistered, only a limited number of investors are qualified to invest in such
securities, which imposes the risk that a Fund investing in restricted
securities may not be able to easily dispose of them. A Fund attempting to
dispose of restricted securities may incur additional transaction costs in
finding a buyer or, in an extreme case, the cost of registering the security.
- --------------------------------------------------------------------------------
Swap Agreements
- --------------------------------------------------------------------------------
The International Bond Fund, International Equity Fund and Multi-Asset Fund may
enter into interest rate, index and currency exchange rate swap agreements for
purposes of attempting to obtain a particular desired return at a lower cost to
the Fund than if the Fund had invested directly in an instrument that yielded
that desired return. The Indexed Bond Fund may enter into index and interest
rate swap agreements, the EAFE Index Fund may enter into index and currency
exchange rate swap agreements, and the Indexed Equity Fund may enter into index
swap agreements. Swap agreements are two-party contracts entered into primarily
by institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or in
a "basket" of securities representing a particular index. Commonly used swap
agreements include interest rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap"; interest rate floors, under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the investment adviser's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. Because they are two-party contracts and because
they may have terms of greater than seven days, swap agreements may be
considered to be illiquid.
Moreover, a Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. An investment adviser will cause a Fund to enter into
swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Funds' repurchase
agreement guidelines. Certain restrictions imposed on the Funds by the Internal
50
<PAGE>
Revenue Code may limit the Funds' ability to use swap agreements. The swaps
market is a relatively new market and is largely unregulated. It is possible
that developments in the swap market and the laws relating to swaps, including
potential government regulation, could adversely affect a Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements, or to enter into swap agreements or could have tax
consequences. (See "Tax Information" in the Statement of Additional Information
for information regarding the tax considerations relating to swap agreements.)
- --------------------------------------------------------------------------------
Zero Coupon Bonds
- --------------------------------------------------------------------------------
Zero coupon bonds are debt obligations issued without any requirement for the
periodic payment of interest. Zero coupon bonds are issued at a significant
discount from the face value. The discount approximates the total amount of
interest the bonds would accrue and compound over the period until maturity at a
rate of interest reflecting the market rate at the time of issuance. Cash to
pay dividends representing unpaid, accrued interest may be obtained from sales
proceeds of portfolio securities and Fund shares and from loan proceeds. Because
interest on zero coupon obligations is not paid to the Fund on a current basis
but is in effect compounded, the value of the securities of this type is subject
to greater fluctuations in response to changing interest rates than the value of
debt obligations which distribute income regularly. Zero coupon bonds tend to be
subject to greater market risk than interest paying securities of similar
maturities. The discount represents income a portion of which a Fund must accrue
and distribute every year even though the Fund receives no payment on the
investment in that year.
- --------------------------------------------------------------------------------
Investment Restrictions
- --------------------------------------------------------------------------------
The following restrictions, as well as the restrictions in the "Investment
Restrictions" section in the Statement of Additional Information govern each
Fund's investments. These investment restrictions may not be changed without the
approval of a majority of the outstanding voting shares (as defined in the 1940
Act) of that Fund. (See the "Investment Restrictions" section of the Statement
of Additional Information for additional information on restrictions.)
Under these restrictions, a Fund may not:
1. invest in a security if, as a result of such investment, more than 25% of
its total assets would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
(or repurchase agreements with respect thereto);
2. invest in a security if, with respect to 75% of its total assets, more than
5% of its total assets would be invested in the securities of any one issuer,
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities (this restriction is
not applicable to the International Bond Fund);
3. invest in a security if, with respect to 75% of its assets, it would hold
more than 10% of the outstanding voting securities of any one issuer, except
that this restriction does not apply to U.S. Government securities (this
restriction is not applicable to the International Bond Fund);
4. (except for the International Bond Fund and International Equity Fund)
purchase securities on margin, except for use of short-term credit necessary for
the clearance of purchases and sales of portfolio securities, but it may make
margin deposits in connection with transactions in options, futures and options
on futures;
5. borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that a Fund may (i) borrow from banks or enter into reverse
repurchase agreements, but only if immediately after each borrowing there is
asset coverage of 300%, and (ii) enter into transactions in options, forward
currency contracts, futures and options on futures as described in this
Prospectus and in the Statement of Additional Information (the deposit of assets
in escrow in connection with the writing of secured put and covered call options
and the purchase of securities on a when-issued or delayed delivery basis and
collateral arrangements with
51
<PAGE>
respect to initial or variation margin deposits for future contracts and related
options contracts will not be deemed to be pledges of a Fund's assets;
6. lend any funds or other assets, except that a Fund may, consistent with its
investment objectives and policies: (i) invest in debt obligations including
bonds, debentures or other debt securities, bankers' acceptances and commercial
paper, even though the purchase of such obligations may be deemed to be the
making of loans; (ii) enter into repurchase agreements; and (iii) lend its
portfolio securities in accordance with applicable guidelines established by the
Securities and Exchange Commission and any guidelines established by the
Company's Directors;
7. (except for the International Bond Fund and International Equity Fund)
maintain a short position, or purchase, write or sell puts, calls, straddles,
spreads or combinations thereof, except as set forth in this Prospectus and in
the Statement of Additional Information for transactions in options, futures and
options on futures; or
8. (except for the International Bond Fund and International Equity Fund)
make short sales of securities, except short sales against the box.
- --------------------------------------------------------------------------------
Investment Advisers and Administrator
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Advisers
- --------------------------------------------------------------------------------
As compensation for services, each Fund has agreed to pay its investment adviser
a monthly fee calculated on the basis of the Fund's average daily net assets
during the preceding month at an annual rate according to the following
schedule.
<TABLE>
<S> <C>
EAFE Index Fund.......................................................... 0.15%
Growth Equity Fund....................................................... 0.25%
Indexed Equity Fund...................................................... 0.10%
International Equity Fund................................................ 0.35%
Multi-Asset Fund......................................................... 0.15%
Value Equity Fund........................................................ 0.25%
Bond Fund................................................................ 0.20%
Indexed Bond Fund........................................................ 0.10%
International Bond Fund.................................................. 0.30%
Money Market Fund........................................................ 0.10%
Short-Term Bond Fund..................................................... 0.15%
</TABLE>
- --------------------------------------------------------------------------------
The Administrator
- --------------------------------------------------------------------------------
New York Life serves as the Funds' administrator (the "Administrator") pursuant
to an Administration Agreement, dated December 28, 1990, between the Company and
New York Life. Under the Administration Agreement, the Administrator is
responsible for the Company's business affairs, subject to the supervision of
the Company's Directors. The Administrator, among other things, furnishes the
Funds with office facilities and is responsible for certain clerical,
recordkeeping and bookkeeping services and for the financial and accounting
records required to be maintained by the Funds, excluding those maintained by
the Funds' custodians and transfer agent, dividend disbursing agent and
shareholder servicing agent, except those as to which the Administrator has
supervisory responsibilities, and other than those maintained by a Fund's
investment adviser. Under the Administration Agreement, the Administrator may
consult with or utilize the services of its subsidiary companies to assist the
Administrator in carrying out its responsibilities to the Company.
In connection with its administration of the business affairs of the Funds, the
Administrator bears the following expenses:
1. the salaries and expenses of all personnel of the Company and the
Administrator, except the fees and expenses of
52
<PAGE>
Directors not affiliated with the Administrator or the Funds' investment
advisers; and
2. all expenses incurred by the Administrator in connection with administering
the ordinary course of a Fund's business, other than those assumed by the
Company.
As compensation for these services, each Fund has agreed to pay the
Administrator a monthly fee calculated on the basis of the Fund's average daily
net assets during the preceding month at an annual rate according to the
following schedule:
<TABLE>
<S> <C>
EAFE Index Fund............................................................ 0.80%
Growth Equity Fund......................................................... 0.60%
Indexed Equity Fund........................................................ 0.40%
International Equity Fund.................................................. 0.50%
Multi-Asset Fund........................................................... 0.50%
Value Equity Fund.......................................................... 0.60%
Bond Fund.................................................................. 0.55%
Indexed Bond Fund.......................................................... 0.40%
International Bond Fund.................................................... 0.50%
Money Market Fund.......................................................... 0.40%
Short-Term Bond Fund....................................................... 0.45%
</TABLE>
- --------------------------------------------------------------------------------
Shareholder Services Plan
- --------------------------------------------------------------------------------
The Company has adopted a Shareholder Services Plan with respect to the
Institutional Service Class of each Fund. Under the terms of the Plan, each Fund
is authorized to pay to New York Life, as compensation for service activities
rendered by New York Life, its affiliates or independent third-party service
providers, to the shareholders of the Institutional Service Class of a Fund, a
shareholder services fee at the rate of 0.25% on an annualized basis of the
average daily net asset value of the Institutional Service Class of the Fund.
Service activities provided by New York Life, its affiliates or independent
third-party service providers to shareholders of the Institutional Service Class
of a Fund may include receiving, aggregating and processing shareholder or
beneficial owner (collectively "shareholder") orders; furnishing shareholder
subaccounting; providing and maintaining elective shareholder services such as
check writing and wire transfer services; providing and maintaining pre-
authorized investment plans; communicating periodically with shareholders;
maintaining account records for shareholders; answering questions and handling
correspondence from shareholders about their accounts; issuing various
shareholder reports and confirmations for transactions by shareholders; and
performing similar account and administrative services. (For a more complete
description of the Plan and its terms, see the Statement of Additional
Information.)
- --------------------------------------------------------------------------------
Voluntary Expense Limitation
- --------------------------------------------------------------------------------
The Administrator has voluntarily agreed to limit the total expenses (excluding
interest, taxes, brokerage commissions, litigation and indemnification expenses,
and other extraordinary expenses and any expenses allocable to a specific class)
of certain Funds to an annual rate, as set forth in the schedule below, of each
Fund's average daily net assets until December 31, 1996 (December 31, 1997 for
the EAFE Index Fund). The Funds listed below are subject to the following
voluntary expense limitations:
<TABLE>
<S> <C>
EAFE Index Fund........................................................... 0.94%*
Indexed Equity Fund....................................................... 0.50%*
International Equity Fund................................................. 1.00%*
Multi-Asset Fund.......................................................... 0.70%*
Bond Fund................................................................. 0.75%*
Indexed Bond Fund......................................................... 0.50%*
International Bond Fund................................................... 0.95%*
Money Market Fund......................................................... 0.50%*
Short-Term Bond Fund...................................................... 0.60%*
</TABLE>
* Before allocable class-specific expenses. Accordingly, the expense limitation
for the Institutional Service Class of shares will be higher by the amount of
the service fee (0.25%).
" Class-specific" expenses include service fees payable with respect to the
shares of the Institutional Service Class of a Fund and may include certain
other expenses as permitted under applicable SEC and tax requirements and
subject to review by the Company's Board of Directors.
As long as these temporary expense limitations continue, they may lower the
Funds' expenses and increase their respective yields. After December 31, 1996,
(or December 31, 1997 for the EAFE Index Fund) the voluntary expense limitation
may be terminated or revised at any time, at which time the Funds' expenses may
increase and their respective yields may be reduced, depending on the total
assets of each of the Funds. Thereafter, the Administrator will comply with any
applicable state regulations which may require the Administrator to make
reimbursements to a Fund in the event that the Fund's aggregate operating
expenses, including the advisory fee and administrative fee, but generally
excluding interest, taxes, brokerage commissions and extraordinary expenses, are
in excess of specific applicable limitations.
53
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Transactions
- --------------------------------------------------------------------------------
Pursuant to each Fund's investment advisory agreement, a Fund's investment
adviser places 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 investment adviser will seek the best price and execution of the
Fund's orders. In doing so, the Fund may pay higher commission rates than the
lowest available when the Fund's investment 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.
Some securities considered for investment by the Funds may also be appropriate
for other clients served by the Funds' investment advisers. If a purchase or
sale of securities consistent with the investment policies of a Fund and one or
more of the clients served by the Fund's investment adviser is considered at or
about the same time, transactions in such securities may be executed together
and will, to the extent practicable, be allocated among the Fund and clients in
a manner deemed equitable to the Funds and the clients by the Fund's investment
adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by a Fund's investment
adviser, and the results of such allocations, are subject to periodic review by
the Company's Directors.
A Fund's portfolio turnover rate is calculated by dividing the lesser of sales
or purchases of portfolio securities by the average monthly value of the Fund's
portfolio securities. For purposes of this calculation, portfolio securities
will exclude purchases and sales of debt securities having a maturity at the
date of purchase of one year or less. (See pgs. 11-16, "Financial Highlights"
for the portfolio turnover rates of the Funds.)
The turnover rate for a Fund will vary from year-to-year and, depending on
market conditions, turnover could be greater in periods of unusual market
movement and volatility. A higher turnover rate generally would result in
greater brokerage commissions or other transactional expenses which must be
borne, directly or indirectly, by the Fund and, ultimately, by the Fund's
shareholders. High portfolio turnover may result in the realization of a
substantial increase in net short-term capital gains by the Fund which, when
distributed to non-tax-exempt shareholders, will be treated as dividends
(ordinary income).
Moreover, certain requirements that must be satisfied in order for the Fund to
qualify as a regulated investment company for Federal income tax purposes may
limit the extent to which the Fund can sell securities held for less than three
months. (See "Tax Information" in the Statement of Additional Information.)
54
<PAGE>
- --------------------------------------------------------------------------------
Performance and Yield Information
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------
The Company may, from time to time, include the yield and effective yield of the
Money Market Fund, the yield of the other Funds or Classes, and the total return
of all Funds or Classes in advertisements, sales literature or reports to
shareholders or prospective investors. Due to the deduction of the shareholder
service fee, performance of the Institutional Service Class of each Fund will be
lower than the performance of the Institutional Class of the Fund.
Quotations of average annual total return for any Fund or Class will be
expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund or Class over a period of one year (or if
less, up to the life of the Fund), will reflect the deduction of a proportional
share of Fund or Class expenses (on an annual basis), and will assume that all
dividends and distributions are reinvested when paid. Quotations of total return
may also be shown for other periods.
Each of the Funds began offering Institutional Service Class shares on January
1, 1995. Thus, the performance figures for Institutional Service Class shares
prior to that date have been calculated based on the historical performance of
the Funds' Institutional Class shares from inception through December 31, 1994.
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
Current yield for the Money Market Fund will be based on income received by a
hypothetical investment over a given seven-day period (less expenses accrued
during the period), and then "annualized" (i.e., assuming that the seven-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on investment). "Effective yield" for the Money Market Fund is calculated
in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings on reinvested dividends.
- --------------------------------------------------------------------------------
Other Funds
- --------------------------------------------------------------------------------
For the remaining Funds, any quotations of yield will be based on all investment
income per share earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period (net investment income),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period.
- --------------------------------------------------------------------------------
Appendix A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description of Securities Ratings
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
- --------------------------------------------------------------------------------
Corporate and Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
55
<PAGE>
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classified from Aa through B in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Designations Applicable to Municipal Bond Ratings
In its municipal bond rating system, Moody's designates those bonds within the
Aa, A, Baa, Ba and B categories that it believes possess the strongest credit
attributes with the symbols Aa1, A1, Baa1, Ba1 and B1.
Advance refunded issues that are secured by escrowed funds held in cash, held in
trust, reinvested in direct non-callable United States government obligations or
non-callable obligations unconditionally guaranteed by the U.S. government are
identified with a hatchmark (#) symbol, i.e., #Aaa.
Moody's assigns conditional ratings to bonds for which the security depends upon
the completion of some act or the fulfillment of some condition. These are bonds
secured by: (a) earnings of projects under construction; (b) earnings of
projects unseasoned in operating experience; (c) rentals that begin when
facilities are completed; or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition, e.g.,
Con.(Baa).
Issues that are subject to a periodic reoffer and resale in the secondary market
in a "dutch auction" are assigned a long-term rating based only on Moody's
assessment of the ability and willingness of the issuer to make timely principal
and interest payments. Moody's expresses no opinion as to the ability of the
holder to sell the security in a secondary market "dutch auction." Such issues
are identified by the insertion of the words "dutch auction" into the name of
the issue.
Municipal Short-Term Loan Ratings
Issues or the features associated with MIG, VMIG or SQ ratings are identified by
date of issue, date of maturity or maturities or rating expiration date and
description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issue's specific structural or
credit features.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
SQ: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year. Obligations relying upon support mechanisms such as letters-of-credit
and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of
56
<PAGE>
return on funds employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal cash generation; and well-
established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
- --------------------------------------------------------------------------------
Standard & Poor's
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate and Municipal Debt Ratings
- --------------------------------------------------------------------------------
Investment grade
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
57
<PAGE>
CCC: Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Note Rating Definitions
SP-1: Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
Commercial Paper Rating Definitions
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security in as much as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on occasion
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information.
58
<PAGE>
No dealer, salesperson or any other person has been authorized to give
any information or to make any representation other than those contained
in this Prospectus and in the related Statement of Additional
Information, in connection with the offer contained in this Prospectus,
and, if given or made, such other information or representations must
not be relied upon as having been authorized by the Company or the
Distributor. This Prospectus and the related Statement of Additional
Information do not constitute an offer by the Company or by the
Distributor to sell or a solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it
is unlawful to make such offer in such jurisdiction.
[LOGO OF MAINSTAY INSTITUTIONAL FUNDS INC. APPEARS HERE]
<PAGE>
MAINSTAY INSTITUTIONAL FUNDS INC.
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 1996
MainStay Institutional Funds Inc. (the "Company") is an open-end management
investment company currently consisting of eleven separate investment
portfolios: EAFE Index Fund, Growth Equity Fund, Indexed Equity Fund,
International Equity Fund, Multi-Asset Fund, Value Equity Fund, Bond Fund,
Indexed Bond Fund, International Bond Fund, Money Market Fund, and Short-Term
Bond Fund (individually or collectively referred to as a "Fund" or the "Funds").
This Statement of Additional Information supplements the information
contained in the Company's Prospectus dated May 1, 1996, and should be read in
conjunction with the Prospectus. The Prospectus is available without charge by
writing to MainStay Institutional Funds Inc., P.O. Box 461, Parsippany, New
Jersey 07054-0461, or by calling 1-800-695-2126. This Statement of Additional
Information, although not in itself a prospectus, is incorporated in its
entirety by reference in and is made a part of the Prospectus.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the related Prospectus, in connection
with the offer contained herein, and, if given or made, such other information
or representations must not be relied upon as having been authorized by the
Funds or the Distributor. This Statement of Additional Information and the
related Prospectus do not constitute an offer by the Company or by the
Distributor to sell or a solicitation of any offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.......................... 1
Arbitrage 1
Borrowing 1
Repurchase Agreements.................................. 2
Lending of Portfolio Securities........................ 2
Municipal Bonds........................................ 3
Banking Industry and Savings and Loan Industry
Obligations.......................................... 3
Floating and Variable Rate Securities.................. 4
Foreign Securities..................................... 5
When-Issued and Firm or Standby Commitment Agreements.. 5
Mortgage-Related and Other Asset-Backed Securities..... 6
Brady Bonds............................................ 13
Loan Participation Interests........................... 14
Options on Securities.................................. 16
Options on Foreign Currencies.......................... 20
Futures Transactions................................... 21
Swap Agreements........................................ 31
Forward Foreign Currency Contracts..................... 33
Foreign Index-Linked Instruments....................... 36
Warrants 37
Short Sales Against the Box............................ 37
High Yield/High Risk Securities........................ 38
INVESTMENT RESTRICTIONS..................................... 38
MANAGEMENT OF THE COMPANY................................... 42
Directors and Officers................................. 42
Compensation Table..................................... 45
Investment Advisers.................................... 45
The Administrator...................................... 47
Distributor............................................ 49
Service Fees........................................... 50
PURCHASES AND REDEMPTIONS................................... 51
PORTFOLIO TRANSACTIONS AND BROKERAGE........................ 51
NET ASSET VALUE............................................. 55
TAX INFORMATION............................................. 57
PERFORMANCE INFORMATION..................................... 67
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OTHER INFORMATION........................................... 71
Capitalization......................................... 71
Effective Maturity..................................... 71
Beneficial Ownership of the Funds...................... 71
Code of Ethics......................................... 74
Independent Accountants................................ 74
Legal Counsel.......................................... 74
Financial Statements................................... 74
Registration Statement................................. 75
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus discusses the investment objectives of the Funds and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain of the securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies the Funds may utilize, and certain risks involved with those
investments, policies and strategies.
ARBITRAGE
Each Fund may sell in one market a security which it owns and
simultaneously purchase the same security in another market, or it may buy a
security in one market and simultaneously sell it in another market, in order to
take advantage of differences in the price of the security in the different
markets. The Funds do not actively engage in arbitrage. Such transactions may
be entered into only with respect to debt securities and will occur only in a
dealer's market where the buying and selling dealers involved confirm their
prices to the Fund at the time of the transaction, thus eliminating any risk to
the assets of a Fund. Such transactions, which involve costs to a Fund, may be
limited by the requirements imposed on each Fund to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund has undertaken to a state securities commission that it will
not engage in any arbitrage transactions, if as a result thereof, the aggregate
amount invested in such transactions would exceed 5% of the Fund's net assets.
BORROWING
A Fund may borrow from a bank up to a limit of 15% of its total assets, but
only for temporary or emergency purposes. This borrowing may be unsecured. The
Investment Company Act of 1940, as amended (the "1940 Act") requires a Fund to
maintain continuous asset coverage (that is, total assets including borrowings,
less liabilities exclusive of borrowings) of 300% of the amount borrowed. If
the 300% asset coverage should decline as a result of market fluctuations or
other reasons, a Fund may be required to sell some of its portfolio holdings
within three days to reduce the debt and restore the 300% asset coverage, even
though it may be disadvantageous from an investment standpoint to sell
securities at that time and could cause the Fund to be unable to meet certain
requirements for qualification as a regulated investment company for Federal tax
purposes. To avoid the potential leveraging effects of a Fund's borrowings, a
Fund will repay any money borrowed in excess of 5% of its total assets prior to
purchasing additional securities. Borrowing may exaggerate the effect on a
Fund's net asset value of any increase or decrease in the market value of the
Fund's portfolio securities. Money borrowed will be subject to interest costs
which may or may not be recovered by appreciation of the securities purchased.
A Fund also may be required to maintain minimum average balances in connection
with
<PAGE>
such borrowing or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.
REPURCHASE AGREEMENTS
The Funds may enter into domestic or foreign repurchase agreements with
certain sellers deemed to be creditworthy pursuant to guidelines adopted by the
Directors. A repurchase agreement, which provides a means for a Fund to earn
income on uninvested cash for periods as short as overnight, is an arrangement
under which the purchaser (i.e., the Fund) purchases securities (the
"Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. A repurchase agreement with foreign
banks may be available with respect to government securities of the particular
foreign jurisdiction. The custody of the Obligation will be maintained by the
Fund's Custodian. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund together with
the repurchase price upon repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. The Advisers seek to minimize the risk of
loss from repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security. However, if the market value of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including accrued interest), the Fund will direct the seller of the Obligation
to deliver additional securities so that the market value of all securities
subject to the repurchase agreement equals or exceeds the repurchase price.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions, such
as broker-dealers, and would be required to be secured continuously by
collateral in cash, letters of credit, cash equivalents or U.S. Government
securities maintained
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<PAGE>
on a current basis at an amount at least equal to 100% of the current market
value of the securities loaned. The Fund would have the right to call a loan
and obtain the securities loaned at any time on five days' notice. For the
duration of a loan, the Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would also
receive compensation from the investment of the collateral. The Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but the Fund would call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery of, or even
loss of rights in, the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by an
Adviser to be of good standing, and when, in the judgment of an Adviser, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If an Adviser determines to make securities
loans, it is intended that the value of the securities loaned would not exceed
one-third of the value of the total assets of the lending Fund.
MUNICIPAL BONDS
Municipal bond are debt obligations of state and local governments,
agencies and authorities, which are issued to obtain funds for various public
purposes. Two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities, or, in some cases,
from the proceeds of a special excise or specific revenue source. Industrial
development bonds or private activity bonds are issued by or on behalf of public
authorities to obtain funds for privately operated facilities and are, in most
cases, revenue bonds which do not generally carry the pledge of the full faith
and credit of the issuer of such bonds, but depend for payment on the ability of
the industrial user to meet its obligations (or any property pledged as
security).
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS
Certificates of deposit are receipts from a bank or savings and loan
association ("S&L"), for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally similar
to certificates of deposit, but are uncertificated. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
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<PAGE>
international commercial transactions. Each Fund may not invest in time deposit
maturing in more than seven days which are subject to withdrawal penalties.
Each Fund will limit it investment in time deposits for which there is a penalty
for early withdrawal to 10% of its net assets.
Each Fund will not invest in any obligation of a domestic or foreign bank
unless (i) the bank has capital, surplus, and individual profits (as of the date
of the most recently published financial statements) in excess of $100 million,
or the equivalent in other currencies, and (ii) in the case of a U.S. bank, its
deposits are insured by the Federal Deposit Insurance Corporation. These
limitations do not prohibit investments in the securities issued by foreign
branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.
FLOATING AND VARIABLE RATE SECURITIES
Floating and variable rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
The interest rate on a floating rate debt instrument ("floater") is a
variable rate which is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater resets
periodically, typically every six months. While, because of the interest rate
reset feature, floaters provide a Fund with a certain degree of protection
against rises in interest rates, a Fund will participate in any declines in
interest rates as well.
The interest rate on a leveraged inverse floating rate debt instrument
("inverse floater") resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of a
Fund's limitation on investments in such securities.
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<PAGE>
FOREIGN SECURITIES
The EAFE Index Fund, International Bond Fund and International Equity Fund
will, and the Bond Fund, Growth Equity Fund, Multi-Asset Fund, Short-Term Bond
Fund and Value Equity Fund may, invest in securities of foreign issuers. The
Money Market Fund may purchase U.S. dollar-denominated securities of foreign
issuers. The Indexed Equity Fund and Indexed Bond Fund will invest in foreign
securities to the extent such securities are included in the securities that
comprise the Standard & Poor's 500 Composite Stock Price Index and the Salomon
Brothers Broad Investment Grade Bond Index, respectively. The International
Bond Fund and International Equity Fund may invest, without limit, subject to
the other investment policies applicable to the Fund, in U.S. dollar-denominated
and non-dollar denominated foreign debt securities and in certificates of
deposit issued by foreign banks and foreign branches of United States banks, to
any extent deemed appropriate by MacKay-Shields.
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and lower
liquidity, the possible imposition of withholding, confiscatory and other taxes,
the possible adoption of foreign governmental restrictions affecting the payment
of principal and interest, changes in currency exchange rates and currency
exchange control regulations, expropriation, or other adverse political or
economic developments. In addition, it may be more difficult to obtain and
enforce a judgment against a foreign issuer or a foreign branch of a domestic
bank. Further, to the extent investments in foreign securities are denominated
in currencies of foreign countries, a Fund may be affected favorably or
unfavorably by changes in currency exchange rates and in exchange control
regulations and may incur costs in connection with conversion between
currencies. See "Tell Me The Details -- Foreign Securities" in the Prospectus
for additional information.
WHEN-ISSUED AND FIRM OR STANDBY COMMITMENT AGREEMENTS
Each Fund, as specified for the Fund in the Prospectus, may from time to
time purchase securities on a "when-issued" or "firm commitment" or "standby
commitment" basis. Debt securities are often issued in this manner. The price
of such securities, which may be expressed in yield terms, is fixed at the time
a commitment to purchase is made, but delivery of and payment for the when-
issued, or firm or standby commitment securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase. During
the period between purchase and settlement, no payment is made by the Fund and
no interest accrues to the Fund. To the extent that assets of a Fund are held
in cash
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<PAGE>
pending the settlement of a purchase of securities, that Fund would earn no
income; however, it is the Company's intention that each Fund will be fully
invested to the extent practicable and subject to the policies stated herein.
Although when-issued, or firm or standby commitment securities may be sold prior
to the settlement date, the Company intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons.
At the time the Company makes the commitment on behalf of a Fund to
purchase a security on a when-issued, or firm or standby commitment basis, it
will record the transaction and reflect the amount due and the value of the
security in determining the Fund's net asset value. The market value of the
when-issued, or firm or standby commitment securities may be more or less than
the purchase price payable at the settlement date. The Directors do not believe
that a Fund's net asset value or income will be exposed to additional risk by
the purchase of securities on a when-issued or firm commitment basis. Each
Fund will establish a segregated account in which it will maintain liquid
assets, such as cash and U.S. Government securities or other high-grade debt
obligations at least equal in value to any commitments to purchase securities on
a when-issued, firm, or standby commitment basis. Such segregated securities
either will mature or, if necessary, be sold on or before the settlement date.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
--------------------------------
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect,
these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their residential mortgage loans, net of any fees paid
to the issuer or guarantor of such securities. Additional payments are caused
by repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association) are described as "modified pass-
through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
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<PAGE>
The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of Federal Housing
Administration-insured or Veterans Administration-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
----
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
----
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, credit unions and mortgage bankers. Pass-
through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("Pcs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but Pcs are not backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However,
timely payment of interest and principal of these pools may be supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance and letters of credit. The insurance and guarantees are
issued by governmental entities,
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<PAGE>
private insurers and the mortgage poolers. Such insurance and guarantees and
the creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets a Fund's investment quality standards.
There can be no assurance that the private insurers or guarantors can meet their
obligations under the insurance policies or guarantee arrangements. Although
the market for such securities is becoming increasingly liquid, securities
issued by certain private organizations may not be readily marketable. No Fund
will purchase mortgage-related securities or any other assets which in the
opinion of the Fund's investment adviser are illiquid if, as a result, more than
10% of the value of the Fund's net assets will be illiquid (15% in the case of
the International Bond or International Equity Funds).
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a
--------------------------------------------
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
--------
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding
the longer maturity classes receive principal only after the first class has
been retired.
An investor is partially guarded against a sooner than desired return of
principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
----
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third-party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C
Bonds all bear current interest. Interest on the Series Z Bond is accrued and
added to principal and a like amount is paid as principal on the Series A, B, or
C Bond currently being paid off. When the Series A, B, and C Bonds are paid in
full, interest and principal on the Series Z Bond begins to be paid currently.
With some CMOs, the issuer serves as a conduit to allow loan originators
(primarily builders or savings and loan associations) to borrow against their
loan portfolios.
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<PAGE>
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
-----------------------------------------
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC Pcs, payments of principal and interest on the CMOs are
made semiannually, as opposed to monthly. The amount of principal payable on
each semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of Federal
Housing Administration ("FHA") prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the CMOs are allocated to the
retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool
in excess of the amount of FHLMC's minimum sinking fund obligation for any
payment date are paid to the holders of the CMOs as additional sinking fund
payments. Because of the "pass-through" nature of all principal payments
received on the collateral pool in excess of FHLMC's minimum sinking fund
requirement, the rate at which principal of the CMOs is actually repaid is
likely to be such that each class of bonds will be retired in advance of its
scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC Pcs. FHLMC has the right to substitute collateral in the
event of delinquencies and/or defaults.
Other Mortgage-Related Securities. The Funds' investment advisers expect
---------------------------------
that governmental, government-related or private entities may create mortgage
loan pools and other mortgage-related securities offering mortgage pass-through
and mortgage-collateralized investments in addition to those described above.
The mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. As new types of mortgage-related securities are developed and
offered to investors, a Fund's investment adviser will, consistent with the
Fund's investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
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<PAGE>
CMO Residuals. CMO residuals are derivative mortgage securities issued by
-------------
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets.
In particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See
"Stripped Mortgage-Backed Securities." In addition, if a series of a CMO
includes a class that bears interest at an adjustable rate, the yield to
maturity on the related CMO residual will also be extremely sensitive to changes
in the level of the index upon which interest rate adjustments are based. As
described below with respect to stripped mortgage-backed securities, in certain
circumstances a portfolio may fail to recoup fully its initial investment in a
CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may or, pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended. CMO residuals,
whether or not registered under such Act, may be subject to certain restrictions
on transferability, and may be deemed "illiquid" and subject to a portfolio's
limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
-----------------------------------
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage
- 10 -
<PAGE>
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the IO
class), while the other class will receive all of the principal (the principal-
only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Risks Associated with Mortgage-Backed Securities. Like other fixed income
------------------------------------------------
securities, when interest rates rise the value of a mortgage-related security
generally will decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed income securities. The value of some mortgage-backed securities in
which the Funds may invest may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of the Funds, the
ability of a Fund to successfully utilize these instruments may depend in part
upon the ability of an Adviser to forecast interest rates and other economic
factors correctly. If an Adviser incorrectly forecasts such factors and has
taken a position in mortgage-backed securities that is or becomes contrary to
prevailing market trends, the Funds could be exposed to the risk of a loss.
Investment in mortgage-backed securities poses several risks, including
prepayment, market, and credit risk. Prepayment risk reflects the chance that
borrowers may prepay their mortgages faster than expected, thereby affecting the
investment's average
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<PAGE>
life and perhaps its yield. Whether or not a mortgage loan is prepaid is almost
entirely controlled by the borrower. Borrowers are most likely to exercise
their prepayment options at a time when it is least advantageous to investors,
generally prepaying mortgages as interest rates fall, and slowing payments as
interest rates rise. Besides the effect of prevailing interest rates, the rate
of prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the chance that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be
particularly sensitive to prevailing interest rates, the length of time the
security is expected to be outstanding, and the liquidity of the issue. In a
period of unstable interest rates, there may be decreased demand for certain
types of mortgage-backed securities, and a Fund invested in such securities
wishing to sell them may find it difficult to find a buyer, which may in turn
decrease the price at which they may be sold.
Credit risk reflects the chance that a Fund may not receive all or part of
its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. Government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. Government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions.
Other Asset-Backed Securities. The Funds' investment advisers expect that
-----------------------------
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile
Receivables\\sm\\ ("CARS\\sm\\"). CARS\\sm\\ represent undivided fractional
interests in a trust ("trust") whose assets consist of a pool of motor vehicle
retail installment sales contracts and security interests in the vehicles
securing the contracts. Payments of principal and interest on CARS\\sm\\ are
passed-through monthly to certificate holders, and are guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARS\\sm\\ may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the trust may be prevented from realizing the full amount due on a
sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of Federal and state bankruptcy and insolvency laws, or other
factors.
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<PAGE>
As a result, certificate holders may experience delays in payments or losses if
the letter of credit is exhausted.
Consistent with a Fund's investment objective and policies, a Fund's
investment adviser also may invest in other types of asset-backed securities.
Certain asset-backed securities may present the same types of risks that may be
associated with mortgage-backed securities.
BRADY BONDS
The International Bond Fund may invest a portion of its assets in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds are
not considered U.S. Government securities. Brady Plan debt restructurings have
been implemented in a number of countries, including Argentina, Bolivia,
Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger,
Nigeria, the Philippines, Poland, Uruguay, and Venezuela (collectively, the
"Brady countries"). In addition, Brazil has concluded a Brady-like plan. It is
expected that other countries will undertake a Brady Plan in the future,
including Panama and Peru.
Brady Bonds have been issued only recently, and accordingly do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the over-the-counter secondary market. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal by U.S.
Treasury zero coupon bonds having the same maturity as the Brady Bonds.
Interest payments on these Brady Bonds generally are collateralized on a one-
year or longer rolling-forward basis by cash or securities in an amount that,
in the case of fixed rate bonds, is equal to at least one year of interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's interest payments based on the applicable interest rate at that time
and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments but generally are not collateralized.
Brady Bonds are often viewed as having three or four valuation components: (i)
the collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk").
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<PAGE>
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.
In light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds are to be
viewed as speculative. There can be no assurance that Brady Bonds in which the
Fund may invest will not be subject to restructuring arrangements or to requests
for new credit, which may cause the Fund to suffer a loss of interest or
principal on any of its holdings.
LOAN PARTICIPATION INTERESTS
A Fund's investment in loan participation interests may take the form of
participation interests in, assignments or novations of a corporate loan
("Participation Interests"). The Participation Interests may be acquired from
an agent bank, co-lenders or other holders of Participation Interests
("Participants"). In a novation, a Fund would assume all of the rights of the
lender in a corporate loan, including the right to receive payments of principal
and interest and other amounts directly from the borrower and to enforce its
rights as a lender directly against the borrower. As an alternative, a Fund may
purchase an assignment of all or a portion of a lender's interest in a corporate
loan, in which case, the Fund may be required generally to rely on the assigning
lender to demand payment and enforce its rights against the borrower, but would
otherwise be entitled to all of such lender's rights in the corporate loan. A
Fund also may purchase a Participation Interest in a portion of the rights of a
lender in a corporate loan. In such a case, the Fund will be entitled to
receive payments of principal, interest and fees, if any, but generally will
not be entitled to enforce its rights directly against the agent bank or the
borrower; rather the Fund must rely on the lending institution for that purpose.
A Fund will not act as an agent bank, a guarantor or sole negotiator or a
structure with respect to a corporate loan.
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<PAGE>
In a typical corporate loan involving the sale of Participation Interests,
the agent bank administers the terms of the corporate loan agreement and is
responsible for the collection of principal and interest and fee payments to the
credit of all lenders which are parties to the corporate loan agreement. The
agent bank in such cases will be qualified under the 1940 Act to serve as a
custodian for a registered investment company such as the Company. A Fund
generally will rely on the agent bank or an intermediate Participant to collect
its portion of the payments on the corporate loan. The agent bank monitors the
value of the collateral and, if the value of the collateral declines, may take
certain action, including accelerating the corporate loan, giving the borrower
an opportunity to provide additional collateral or seeking other protection for
the benefit of the Participants in the corporate loan, depending on the terms of
the corporate loan agreement. Furthermore, unless under the terms of a
participation agreement a Fund has direct recourse against the borrower (which
is unlikely), the Fund will rely on the agent bank to use appropriate creditor
remedies against the borrower. The agent bank also is responsible for
monitoring compliance with covenants contained in the corporate loan agreement
and for notifying holders of corporate loans of any failures of compliance.
Typically, under corporate loan agreements, the agent bank is given broad
discretion in enforcing the corporate loan agreement, and is obligated to use
only the same care it would use in the management of its own property. For
these services, the borrower compensates the agent bank. Such compensation may
include special fees paid on structuring and funding the corporate loan and
other fees paid on a continuing basis.
A financial institution's employment as an agent bank may be terminated in
the event that it fails to observe the requisite standard of care or becomes
insolvent, or has a receiver, conservator, or similar official appointed for it
by the appropriate bank regulatory authority or becomes a debtor in a bankruptcy
proceeding. A successor agent bank generally will be appointed to replace the
terminated bank, and assets held by the agent bank under the corporate loan
agreement should remain available to holders of corporate loans. If, however,
assets held by the agent bank for the benefit of a Fund were determined by an
appropriate regulatory authority or court to be subject to the claims of the
agent bank's general or secured creditors, the Fund might incur certain costs
and delays in realizing payment on a corporate loan, or suffer a loss of
principal and/or interest. In situations involving intermediate Participants
similar risks may arise.
When a Fund acts as co-lender in connection with a participation interest
or when a Fund acquires a participation interest the terms of which provide that
the Fund will be in
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<PAGE>
privity of contract with the corporate borrower, the Fund will have direct
recourse against the borrower in the event the borrower fails to pay scheduled
principal and interest. In all other cases, the Fund will look to the agent
bank to enforce appropriate credit remedies against the borrower. In acquiring
participation interests a Fund will conduct analysis and evaluation of the
financial condition of each such co-lender and participant to ensure that the
participation interest meets the Fund's qualitative standards. There is a risk
that there may not be a readily available market for loan participation
interests and, in some cases, this could result in a Fund disposing of such
securities at a substantial discount from face value or holding such security
until maturity. When a Fund is required to rely upon a lending institution to
pay the Fund principal, interest, and other amounts received by the lending
institution for the loan participation, the Fund will treat both the borrower
and the lending institution as an "issuer" of the loan participation for
purposes of certain investment restrictions pertaining to the diversification
and concentration of the Fund's portfolio. The Funds consider loan
participation interests not subject to puts to be illiquid.
OPTIONS ON SECURITIES
Writing Call Options. Each Fund, as specified for that Fund in the
--------------------
Prospectus, may sell ("write") covered call options on its portfolio securities
in an attempt to enhance investment performance. A call option sold by a Fund
is a short-term contract, having a duration of nine months or less, which gives
the purchaser of the option the right to buy, and the writer of the option--in
return for a premium received--the obligation to sell, the underlying security
at the exercise price upon the exercise of the option at any time prior to the
expiration date, regardless of the market price of the security during the
option period. A call option may be covered by, among other things, the
writer's owning the underlying security throughout the option period, or by
holding, on a share-for-share basis, a call on the same security as the call
written, where the exercise price of the call held is equal to or less than the
price of the call written, or greater than the exercise price of a call written
if the difference is maintained by the Fund in cash or high grade liquid debt
securities in a segregated account with its custodian.
A Fund will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Fund will give
up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, the Fund will retain
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<PAGE>
the risk of loss should the price of the security decline, which loss the
premium is intended to offset in whole or in part. A Fund, in writing "American
Style" call options, must assume that the call may be exercised at any time
prior to the expiration of its obligations as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing market
price. In contrast, "European Style" options may only be exercised on the
expiration date of the option. Covered call options and the securities
underlying such options will be listed on national securities exchanges, except
for certain transactions in options on debt securities and foreign securities.
A Fund may protect itself from further losses due to a decline in value of
the underlying security or from the loss of ability to profit from appreciation
by buying an identical option, in which case the purchase cost may offset the
premium. In order to do this, the Fund makes a "closing purchase transaction"--
the purchase of a call option on the same security with the same exercise price
and expiration date as the covered call option which it has previously written
on any particular security. The Fund will realize a gain or loss from a
closing purchase transaction if the amount paid to purchase a call option in a
closing transaction is less or more than the amount received from the sale of
the covered call option. Also, because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the closing out of a call option is likely to
be offset in whole or in part by unrealized appreciation of the underlying
security owned by the Fund. When a security is to be sold from the Fund's
portfolio, the Fund will first effect a closing purchase transaction so as to
close out any existing covered call option on that security.
A closing purchase transaction may be made only on a national or foreign
securities exchange (an "Exchange") which provides a secondary market for an
option with the same exercise price and expiration date. There is no assurance
that a liquid secondary market on an Exchange or otherwise will exist for any
particular option, or at any particular time, and for some options no secondary
market on an Exchange or otherwise may exist. If a Fund is unable to effect a
closing purchase transaction involving an exchange-traded option, the Fund will
not sell the underlying security until the option expires or the Fund delivers
the underlying security upon exercise. Over-the-counter options differ from
exchange-traded options in that they are two-party contracts with price and
other terms negotiated between buyer and seller, and generally do not have as
much market liquidity as exchange-traded options. Therefore, a closing purchase
transaction for an over-the-counter option may in many cases only be made with
the other party to the option.
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<PAGE>
Each Fund pays brokerage commissions and dealer spreads in connection with
writing covered call options and effecting closing purchase transactions, as
well as for purchases and sales of underlying securities. The writing of
covered call options could result in significant increases in a Fund's portfolio
turnover rate, especially during periods when market prices of the underlying
securities appreciate. Subject to the limitation that all call and put option
writing transactions be covered, the International Bond Fund and International
Equity Fund may, to the extent determined appropriate by the Adviser, engage
without limitation in the writing of options on their portfolio securities.
Writing Put Options. Each Fund, as specified for the Fund in the
-------------------
Prospectus, may also write covered put options. A put option written by the
Fund is "covered" if the Fund maintains cash or cash equivalents (high quality
liquid debt securities) with a value equal to the exercise price in a segregated
account with its custodian. A put option is also "covered" if the Fund holds on
a share-for-share basis a put on the same security as the put written, where the
exercise price of the put held is equal to or greater than the exercise price of
the put written, or less than the exercise price of the put written if the
difference is maintained by the Fund in cash or high grade liquid debt
securities in a segregated account with its custodian.
The premium which the Funds receive from writing a put option will reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security, the option period, supply and demand and
interest rates.
The Funds may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised. If a Fund is able to enter into a closing purchase transaction, the
Fund will realize a profit or loss from such transaction if the cost of such
transaction is less or more than the premium received from the writing of the
option. After writing a put option, the Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying security plus the premium received from the sale of the
option.
In addition, the Funds, as specified for the Fund in the Prospectus, may
also write straddles (combinations of covered puts and calls on the same
underlying security). The extent to which the Funds may write covered call
options and enter into so-called "straddle" transactions involving put or call
options may be limited by the requirements of the Code for qualification as a
regulated investment company and the Company's intention that each Fund qualify
as such.
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<PAGE>
Purchasing Options. Each Fund, as specified for the Fund in the
------------------
Prospectus, may purchase put or call options which are traded on an Exchange or
in the over-the-counter market. Options traded in the over-the-counter market
may not be as actively traded as those listed on an Exchange. Accordingly, it
may be more difficult to value such options and to be assured that they can be
closed out at any time. The Funds will engage in such transactions only with
firms of sufficient creditworthiness so as to minimize these risks.
The Funds may purchase put options on securities to protect their holdings
in an underlying or related security against a substantial decline in market
value. Securities are considered related if their price movements generally
correlate with one another. The purchase of put options on securities held in
the portfolio or related to such securities will enable a Fund to preserve, at
least partially, unrealized gains occurring prior to the purchase of the option
on a portfolio security without actually selling the security. In addition, the
Fund will continue to receive interest or dividend income on the security.
The Funds may also purchase call options on securities the Funds intend to
purchase to protect against substantial increases in prices of such securities
pending their ability to invest in an orderly manner in such securities. In
order to terminate an option position, the Funds may sell put or call options
identical to those previously purchased, which could result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put or call option when it
was purchased.
Special Risks Associated With Options On Securities. There can be no
---------------------------------------------------
assurance that viable markets will develop or continue in the United States or
abroad for options on securities. If a put or call option purchased by a Fund
is not sold when it has remaining value, and if the market price of the
underlying security, in the case of a put, remains equal to or greater than the
exercise price, or, in the case of a call, remains less than or equal to the
exercise price, the Fund will not be able to exercise profitably the option and
will lose its entire investment in the option. Also, the price of a put or call
option purchased to hedge against price movements in a related security may move
more or less than the price of the related security. Each Fund has undertaken
to a state securities commission that it will not purchase a put, call, straddle
or spread if, as a result, the amount of premiums paid for such positions would
exceed 5% of the value of the Fund's net assets.
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<PAGE>
OPTIONS ON FOREIGN CURRENCIES
Each Fund, as specified for the Fund in the Prospectus, may purchase and
write options on foreign currencies for hedging purposes in a manner similar to
that of the Fund's transactions in currency futures contracts or forward
contracts. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
a Fund may purchase put options on the foreign currency. If the value of the
currency does decline, that Fund will have the right to sell such currency for a
fixed amount of dollars which exceeds the market value of such currency,
resulting in a gain that may offset, in whole or in part, the negative effect of
currency depreciation on the value of the Fund's securities denominated in that
currency.
Conversely, if a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, a Fund may purchase call options on such currency. If the value of
such currency does increase, the purchase of such call options would enable the
Fund to purchase currency for a fixed amount of dollars which is less than the
market value of such currency, resulting in a gain that may offset, at least
partially, the effect of any currency-related increase in the price of
securities the Fund intends to acquire. As in the case of other types of
options transactions, however, the benefit a Fund derives from purchasing
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not move
in the direction or to the extent anticipated, a Fund could sustain losses on
transactions in foreign currency options which would deprive it of a portion or
all of the benefits of advantageous changes in such rates.
A Fund, as specified for the Fund in the Prospectus, may also write options
on foreign currencies for hedging purposes. For example, if a Fund anticipates
a decline in the dollar value of foreign currency-denominated securities due to
declining exchange rates, it could, instead of purchasing a put option, write a
call option on the relevant currency. If the expected decline occurs, the
option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received by the
Fund.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency. If rates move in the manner
projected, the put option
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<PAGE>
will expire unexercised and allow the Fund to offset such increased cost up to
the amount of the premium. As in the case of other types of options
transactions, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move in
the expected direction. If unanticipated exchange rate fluctuations occur, the
option may be exercised and a Fund would be required to purchase or sell the
underlying currency at a loss which may not be fully offset by the amount of the
premium. As a result of writing options on foreign currencies, a Fund also may
be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in currency exchange rates.
A call option written on foreign currency by a Fund is "covered" if that
Fund owns the underlying foreign currency subject to the call or securities
denominated in that currency or has an absolute and immediate right to acquire
that foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A call
option is also covered if a Fund holds a call on the same foreign currency for
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the amount of the
difference is maintained by a Fund in cash and liquid high grade debt securities
in a segregated account with its custodian.
Options on foreign currencies to be written or purchased by a Fund will be
traded on U.S. and foreign exchanges or over-the-counter. Exchange-traded
options generally settle in cash, whereas options traded over-the-counter may
settle in cash or result in delivery of the underlying currency upon exercise of
the option.
FUTURES TRANSACTIONS
Each Fund, as specified for the Fund in the Prospectus, may purchase and
sell futures contracts on securities, interest rates, foreign currency and on
indexes of securities, to hedge against anticipated changes in interest rates
and other economic factors that might otherwise have an adverse effect upon the
value of a Fund's portfolio securities. Each of such Funds may also enter into
such futures contracts in order to lengthen or shorten the average maturity or
duration of the Fund's portfolio. For example, a Fund may purchase futures
contracts as a substitute for the purchase of longer-term debt securities to
lengthen the average duration of a Fund's portfolio of fixed-income securities.
A Fund may purchase and sell stock index futures to hedge its securities
portfolio with regard to market (systematic) risk (involving the market's
assessment of overall economic prospects), as
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<PAGE>
distinguished from stock-specific risk (involving the market's evaluation of the
merits of the issuer of a particular security).
The Funds, as specified for the Fund in the Prospectus, may also purchase
and sell other futures when deemed appropriate, in order to hedge the equity or
non-equity portions of their portfolios. In addition, each Fund, as specified
for the Fund in the Prospectus, may enter into contracts for the future delivery
of foreign currencies to hedge against changes in currency exchange rates. Each
of the Funds, as specified for the Fund in the Prospectus, may also purchase and
write put and call options on futures contracts of the type into which such Fund
is authorized to enter and may engage in related closing transactions. In the
United States, all such futures on securities, debt index futures, stock index
futures, foreign currency futures and related options will be traded on
exchanges that are regulated by the Commodity Futures Trading Commission
("CFTC"). Subject to compliance with applicable CFTC rules, the Funds also may
enter into futures contracts traded on foreign futures exchanges as long as
trading on the aforesaid foreign futures exchanges does not subject a Fund to
risks that are materially greater than the risks associated with trading on U.S.
exchanges.
A futures contract is an agreement to buy or sell a security or currency
(or to deliver a final cash settlement price in the case of a contract relating
to an index or otherwise not calling for physical delivery at the end of trading
in the contracts), for a set price in a future month. In the United States,
futures contracts are traded on boards of trade which have been designated
"contract markets" by the CFTC. Futures contracts trade on these markets
through an "open outcry" auction on the exchange floor. Currently, there are
futures contracts based on a variety of instruments, indexes and currencies.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities ("initial margin") as a
partial guarantee of its performance under the contract. The margin required
for a futures contract is set by the exchange on which the contract is traded
and may be modified during the term of the contract. The initial margin is in
the nature of a performance bond or good faith deposit on the futures contract
which is returned to the Fund upon termination of the contract assuming all
contractual obligations have been satisfied. Each Fund expects to earn interest
income on its initial margin deposits. A futures contract held by a Fund is
valued daily at the official settlement price of the exchange on which it is
traded. Each day, as the value of the security, currency or index fluctuates,
the Fund pays or receives cash, called "variation margin," equal to the daily
change in value of
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<PAGE>
the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark to market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Positions taken in the futures markets are not normally held until delivery
or final cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Fund will usually be liquidated in this manner, the Fund
may instead make or take delivery of underlying securities or currencies
whenever it appears economically advantageous to the Fund to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing-out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Futures on Debt Securities. A futures contract on a debt security is a
--------------------------
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. By purchasing
futures on debt securities--assuming a "long" position--a Fund will legally
obligate itself to accept the future delivery of the underlying security and pay
the agreed-upon price. By selling futures on debt securities--assuming a
"short" position--it will legally obligate itself to make the future delivery
of the security against payment of the agreed-upon price. Open futures
positions on debt securities will be valued at the most recent settlement price,
unless such price does not appear to the Directors to reflect the fair value of
the contract, in which case the positions will be valued by or under the
direction of the Directors.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest
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rates that would adversely affect the value of the Fund's portfolio securities.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
on debt securities. This would be done, for example, when the Fund intends to
purchase particular securities and it has the necessary cash, but expects the
rate of return available in the securities markets at that time to be less
favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities will be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase. A Fund may also purchase futures contracts as a substitute for the
purchase of longer-term securities to lengthen the average duration of the
Fund's portfolio.
The Fund could accomplish similar results by selling securities with long
maturities and investing in securities with short maturities when interest rates
are expected to increase or by buying securities with long maturities and
selling securities with short maturities when interest rates are expected to
decline. However, by using futures contracts as a risk management technique,
given the greater liquidity in the futures market than in the cash market, it
may be possible to accomplish the same result more easily and more quickly.
Securities Index Futures. A securities index futures contract does not
------------------------
require the physical delivery of securities, but merely provides for profits and
losses resulting from changes in the market value of the contract to be credited
or debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes
in the specified index of equity securities on which the contract is based. A
stock index is designed to reflect overall price trends in the market for equity
securities.
Stock index futures may be used to hedge a Fund's securities portfolio with
regard to market (systematic) risk, as distinguished from stock-specific risk.
Similarly, the Funds, as specified for the Fund in the Prospectus, may enter
into futures on debt securities indexes to the extent they have debt securities
in their portfolios. By establishing an appropriate "short" position in
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securities index futures, a Fund may seek to protect the value of its portfolio
against an overall decline in the market for securities. Alternatively, in
anticipation of a generally rising market, a Fund can seek to avoid losing the
benefit of apparently low current prices by establishing a "long" position in
securities index futures and later liquidating that position as particular
securities are in fact acquired. To the extent that these hedging strategies
are successful, the Fund will be affected to a lesser degree by adverse overall
market price movements, unrelated to the merits of specific portfolio
securities, than would otherwise be the case. A Fund, as specified for the Fund
in the Prospectus, may also purchase futures on debt securities or indexes as a
substitute for the purchase of longer-term debt securities to lengthen the
average duration of the Fund's debt portfolio.
Currency Futures. A sale of a currency futures contract creates an
----------------
obligation by a Fund, as seller, to deliver the amount of currency called for in
the contract at a specified future time for a specified price. A purchase of a
currency futures contract creates an obligation by a Fund, as purchaser, to take
delivery of an amount of currency at a specified future time at a specified
price. A Fund, as specified for the Fund in the Prospectus, may sell a currency
futures contract if an Adviser anticipates that exchange rates for a particular
currency will fall, as a hedge against a decline in the value of the Fund's
securities denominated in such currency. If an Adviser anticipates that
exchange rates will rise, the Fund may purchase a currency futures contract to
protect against an increase in the price of securities denominated in a
particular currency the Fund intends to purchase. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction. To
offset a currency futures contract sold by a Fund, the Fund purchases a currency
futures contract for the same aggregate amount of currency and delivery date.
If the price in the sale exceeds the price in the offsetting purchase, the Fund
is immediately paid the difference. Similarly, to close out a currency futures
contract purchased by the Fund, the Fund sells a currency futures contract. If
the offsetting sale price exceeds the purchase price, the Fund realizes a gain,
and if the offsetting sale price is less than the purchase price, the Fund
realizes a loss.
A risk in employing currency futures contracts to protect against the price
volatility of portfolio securities denominated in a particular currency is that
changes in currency exchange rates or in the value of the futures position may
correlate imperfectly with changes in the cash prices of a Fund's securities.
The degree of correlation may be distorted by the fact that the currency futures
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market may be dominated by short-term traders seeking to profit from changes in
exchange rates. This would reduce the value of such contracts for hedging
purposes over a short-term period. Such distortions are generally minor and
would diminish as the contract approached maturity. Another risk is that an
Adviser could be incorrect in its expectation as to the direction or extent of
various exchange rate movements or the time span within which the movements take
place.
Options on Futures. For bona fide hedging and other appropriate risk
------------------
management purposes, the Funds, as specified for the Fund in the Prospectus,
also may purchase and write call and put options on futures contracts which are
traded on exchanges that are licensed and regulated by the CFTC for the purpose
of options trading, or, subject to applicable CFTC rules, on foreign exchanges.
A "call" option on a futures contract gives the purchaser the right, in return
for the premium paid, to purchase a futures contract (assume a "long" position)
at a specified exercise price at any time before the option expires. A "put"
option gives the purchaser the right, in return for the premium paid, to sell a
futures contract (assume a "short" position), for a specified exercise price at
any time before the option expires.
Upon the exercise of a "call," the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a "put,"
the writer of the option is obligated to purchase the futures contract (deliver
a "short" position to the option holder) at the option exercise price, which
will presumably be higher than the current market price of the contract in the
futures market. When an entity exercises an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," its gain will be credited to its futures margin account, while the loss
suffered by the writer of the option will be debited to its account. However,
as with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the writer or holder of an option will usually realize a gain or loss
by buying or selling an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.
Options on futures contracts can be used by a Fund to hedge substantially
the same risks and for the same duration and risk management purposes as might
be addressed or served by the direct purchase or sale of the underlying futures
contracts. If the Fund purchases an option on a futures contract, it may obtain
benefits
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similar to those that would result if it held the futures position itself.
The purchase of put options on futures contracts is a means of hedging a
Fund's portfolio against the risk of rising interest rates, declining securities
prices or declining exchange rates for a particular currency. The purchase of a
call option on a futures contract represents a means of hedging against a market
advance affecting securities prices or currency exchange rates when the Fund is
not fully invested or of lengthening the average maturity or duration of a
Fund's portfolio. Depending on the pricing of the option compared to either the
futures contract upon which it is based or upon the price of the underlying
securities or currencies, it may or may not be less risky than ownership of the
futures contract or underlying securities or currencies.
In contrast to a futures transaction, in which only transaction costs are
involved, benefits received in an option transaction will be reduced by the
amount of the premium paid as well as by transaction costs. In the event of an
adverse market movement, however, the Fund will not be subject to a risk of loss
on the option transaction beyond the price of the premium it paid plus its
transaction costs, and may consequently benefit from a favorable movement in the
value of its portfolio securities or the currencies in which such securities are
denominated that would have been more completely offset if the hedge had been
effected through the use of futures.
If a Fund writes options on futures contracts, the Fund will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by or to be acquired for the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities or the
currencies in which such securities are denominated.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the underlying securities or the currencies in
which such securities are denominated. If the futures price at expiration is
below the exercise price, the Fund will retain the full amount of the option
premium, which provides a partial hedge against any decline that may have
occurred in the Fund's holdings of securities or the currencies in which such
securities are denominated.
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<PAGE>
The writing of a put option on a futures contract is analogous to the
purchase of a futures contract. For example, if the Fund writes a put option on
a futures contract on debt securities related to securities that the Fund
expects to acquire and the market price of such securities increases, the net
cost to a Fund of the debt securities acquired by it will be reduced by the
amount of the option premium received. Of course, if market prices have
declined, the Fund's purchase price upon exercise may be greater than the price
at which the debt securities might be purchased in the securities market.
While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the same
series, a Fund's ability to establish and close out options positions at fairly
established prices will be subject to the maintenance of a liquid market. The
Funds will not purchase or write options on futures contracts unless the market
for such options has sufficient liquidity such that the risks associated with
such options transactions are not at unacceptable levels.
Limitations on Purchase and Sale of Futures Contracts and Options on
--------------------------------------------------------------------
Futures Contracts. A Fund will only enter into futures contracts or related
- -----------------
options which are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. In
general, the Funds will engage in transactions in futures contracts and related
options only for bona fide hedging and other appropriate risk management
purposes, and not for speculation. The Funds will not enter into futures
contracts for which the aggregate contract amounts exceed 100% of the Fund's net
assets. In addition, with respect to positions in futures and related options
that do not constitute bona fide hedging positions, a Fund will not enter into a
futures contract of futures option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus premiums paid
by it for open futures option positions, less the amount by which any such
options are "in-the-money," would exceed 5% of the Fund's total assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-
money" if the exercise price exceeds the value of the futures contract that is
the subject of the option.
When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) cash, U.S. Government securities, or other
high quality liquid debt securities that, when added to the amounts deposited
with a futures commission merchant as margin, are equal to the market value of
the futures contract. Alternatively, the Fund may "cover" its position by
purchasing a put option on the same futures contract with a strike
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<PAGE>
price as high or higher than the price of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amount deposited with a futures commission merchant as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the
Fund may "cover" its position by owning the instruments underlying the contract
(or, in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's custodian).
When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other high quality liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, equal the total
market value of the futures contract underlying the call option. Alternatively,
the Fund may cover its position by entering into a long position in the same
futures contract at a price no higher than the strike price of the call option,
by owning the instruments underlying the futures contract, or by holding a
separate call option permitting the Fund to purchase the same futures contract
at a price not higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other high quality liquid debt securities that equal the purchase
price of the futures contract, less any margin on deposit. Alternatively, the
Fund may cover the position either by entering into a short position in the same
futures contract, or by owning a separate put option permitting it to sell the
same futures contract so long as the strike price of the purchased put option is
the same or higher than the strike price of the put option sold by the Fund.
The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures or futures options.
See "Tax Information."
Risks Associated with Futures and Futures Options. There are several risks
-------------------------------------------------
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no
guarantee that
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<PAGE>
there will be a correlation between price movements in the hedging vehicle and
in the Fund's securities being hedged. In addition, there are significant
differences between the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given hedge not to achieve
its objectives. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for futures and
futures options on securities, including technical influences in futures trading
and futures options, and differences between the financial instruments being
hedged and the instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position, and that Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Additional Risks of Options on Securities, Futures Contracts, Options on
------------------------------------------------------------------------
Futures Contracts, and Forward Currency Exchange Contracts and Options Thereon.
- ------------------------------------------------------------------------------
Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions
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<PAGE>
affecting trading in, or the prices of, foreign securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in
the United States, and (v) lesser trading volume.
SWAP AGREEMENTS
The International Bond Fund, International Equity Fund and Multi-Asset
Fund may enter into interest rate, index and currency exchange rate swap
agreements for purposes of attempting to obtain a particular desired return at a
lower cost to the Fund than if the Fund had invested directly in an instrument
that yielded that desired return or for other portfolio management purposes.
The EAFE Index Fund may enter into index and currency exchange rate swap
agreements, the Indexed Bond Fund may enter into interest rate and index swap
agreements and the Indexed Equity Fund may enter into index swap agreements.
Swap agreements are two party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
----
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. The "notional amount" of the swap
agreement is only a fictive basis on which to calculate the obligations which
the parties to a swap agreement have agreed to exchange. Most swap agreements
entered into by the Funds would calculate the obligations of the parties to the
agreement on a "net" basis. Consequently, a Fund's obligations (or rights)
under a swap agreement will generally be equal only to the net amount to be paid
or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). A Fund's obligations
under a swap agreement will be accrued daily (offset against any amounts owing
to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations, to avoid any
potential leveraging of the Fund's portfolio. The International Bond Fund and
International Equity Fund will not enter into a swap agreement with any single
party if the net amount owed or to be received under existing
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<PAGE>
contracts with that party would exceed 5% of the Fund's assets. The EAFE Index
Fund, Indexed Bond Fund, Indexed Equity Fund and Multi-Asset Fund may enter into
swap agreements only to the extent that obligations under such agreements
represent not more than 10% of the Fund's total assets.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective will depend on the Adviser's ability to correctly
predict whether certain types of investments are likely to produce greater
returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The Adviser will cause
a Fund to enter into swap agreements only with counterparties that would be
eligible for consideration as repurchase agreement counterparties under the
Fund's repurchase agreement guidelines. Certain restrictions imposed on the
Funds by the Internal Revenue Code may limit the Funds' ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the
Commodity Futures Trading Commission ("CFTC") effective February 22, 1993. To
qualify for this exemption, a swap agreement must be entered into by "eligible
participants," which includes the following, provided the participants' total
assets exceed established levels: a bank or trust company, savings association
or credit union, insurance company, investment company subject to regulation
under the Investment Company Act of 1940, commodity pool, corporation,
partnership, proprietorship, organization, trust or other entity, employee
benefit plan, governmental entity, broker-dealer, futures commission merchant,
natural person, or regulated foreign person. To be eligible, natural persons
and most other entities must have total assets exceeding $10 million; commodity
pools and employee benefit plans must have assets exceeding $5 million. In
addition, an eligible swap transaction must meet three conditions. First, the
swap agreement may not be part of a fungible class of agreements that are
standardized as to their material economic terms. Second, the creditworthiness
of parties with actual or potential obligations under the swap agreement must be
a material consideration in entering into or determining the terms of the swap
agreement, including pricing, cost or credit enhancement terms.
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<PAGE>
Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract (a "forward contract") is an obligation
to purchase or sell a specific currency for an agreed price at a future date
(usually less than a year), which is individually negotiated and privately
traded by currency traders and their customers. A forward contract generally
has no deposit requirement, and no commissions are charged at any stage for
trades. Although foreign exchange dealers do not charge a fee for commissions,
they do realize a profit based on the difference between the price at which they
are buying and selling various currencies. Although these contracts are
intended to minimize the risk of loss due to a decline in the value of the
hedged currencies, at the same time, they tend to limit any potential gain which
might result should the value of such currencies increase.
While a Fund may enter into forward contracts to reduce currency exchange
risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. Such imperfect correlation may prevent the
Fund from achieving the intended hedge or expose the Fund to the risk of
currency exchange loss.
A Fund will not enter into forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency.
A Fund will hold cash, cash items or U.S. Government securities and other
liquid assets in a segregated account with its custodian in an amount equal (on
a daily marked-to-market basis) to the amount of the commitments under these
contracts. At the
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<PAGE>
maturity of a forward contract, a Fund may either accept or make delivery of the
currency specified in the contract, or prior to maturity, enter into a closing
purchase transaction involving the purchase or sale of an offsetting contract.
Closing purchase transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract. A Fund will only enter into such a forward contract if it is expected
that there will be a liquid market in which to close out the contract. However,
there can be no assurance that a liquid market will exist in which to close a
forward contract, in which case the Fund may suffer a loss.
Normally, consideration of the prospect for currency parities will be
incorporated in a longer term investment decision made with regard to overall
diversification strategies. However, each Adviser believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interest of a Fund will be served. For example, when a Fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, a Fund will be able to insulate itself from a
possible loss resulting from a change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold and the date on which payment is made or
received, although a Fund would also forego any gain it might have realized had
rates moved in the opposite direction. This technique is sometimes referred to
as a "settlement" hedge or "transaction" hedge.
When an Adviser believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of a Fund's portfolio securities
denominated in such foreign currency. Such a hedge (sometimes referred to as a
"position hedge") will tend to offset both positive and negative currency
fluctuations, but will not offset changes in security values caused by other
factors. The Fund also may hedge the same position by using another currency
(or a basket of currencies) expected to perform in a manner substantially
similar to the hedged currency ("proxy" hedge). The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. With respect to positions that constitute "transaction" or
"position" hedges
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<PAGE>
(including "proxy" hedges), a Fund will not enter into forward contracts to sell
currency or maintain a net exposure to such contracts if the consummation of
such contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency (or the related currency, in the case of a "proxy"
hedge).
Finally, a Fund may enter into forward contracts to shift its investment
exposure from one currency into another currency that is expected to perform
inversely with respect to the hedged currency relative to the U.S. dollar.
This type of strategy, sometimes known as a "cross-currency" hedge, will tend to
reduce or eliminate exposure to the currency that is sold, and increase exposure
to the currency that is purchased, much as if the Fund had sold a security
denominated in one currency and purchased an equivalent security denominated in
another. "Cross-currency" hedges protect against losses resulting from a
decline in the hedged currency, but will cause the Fund to assume the risk of
fluctuations in the value of the currency it purchases.
At the consummation of the forward contract, a Fund may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract obligating it
to purchase at the same maturity date the same amount of such foreign currency.
If a Fund chooses to make delivery of the foreign currency, it may be required
to obtain such currency for delivery through the sale of portfolio securities
denominated in such currency or through conversion of other assets of the Fund
into such currency. If a Fund engages in an offsetting transaction, the Fund
will realize a gain or a loss to the extent that there has been a change in
forward contract prices. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
A Fund's dealing in forward contracts will be limited to the transactions
described above. Of course, a Fund is not required to enter into such
transactions with regard to its foreign currency-denominated securities and will
not do so unless deemed appropriate by an Adviser. A Fund generally will not
enter into a forward contract with a term of greater than one year.
In cases of transactions which constitute "transaction" or "settlement"
hedges or "position" hedges (including "proxy" hedges) or "cross-currency"
hedges that involve the purchase and sale of two different foreign currencies
directly through the same forward foreign currency contact, a Fund may deem its
forward currency hedge position to be covered by underlying Fund portfolio
securities or may establish a Segregated Account with its Custodian
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<PAGE>
in an amount equal to the value of the Fund's total assets committed to the
consummation of the subject hedge. The assets in the Segregated Account will
consist of cash (denominated in U.S. dollars or foreign currency), U.S.
government securities, liquid domestic or foreign debt rated in one of the top
three categories by a U.S. nationally recognized rating organization, or any
other asset which may be deemed by the Securities and Exchange Commission's
Division of Investment Management to be permissible for such purpose. In the
case of "anticipatory" hedges and "cross-currency" hedges that involve the
purchase and sale of two different foreign currencies indirectly through
separate forward currency contracts, the Fund will establish a Segregated
Account with its Custodian as described above. In the event a Fund establishes
a Segregated Account, the Fund will mark-to-market the value of the assets in
the Segregated Account. If the value of the securities placed in the separate
account declines, additional cash or securities will be placed in the account by
the Fund on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
It should be realized that this method of protecting the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. It also reduces any potential gain which may have otherwise occurred had
the currency value increased above the settlement price of the contract.
A Fund's foreign currency transactions may be limited by the requirements
of Subchapter M of the Code for qualification as a regulated investment company.
FOREIGN INDEX-LINKED INSTRUMENTS
As part of its investment program, and to maintain greater flexibility, the
EAFE Index Fund, International Equity Fund, Multi-Asset Fund and International
Bond Fund may invest in instruments which have the investment characteristics of
particular securities, securities indexes, futures contracts or currencies.
Such instruments may take a variety of forms, such as debt instruments with
interest or principal payments determined by reference to the value of a
currency or commodity at a future point in time. For example, a Fund may,
subject to compliance with its respective limitations applicable to its
investment in debt securities, invest in instruments issued by the U.S. or a
foreign government or by private issuers that return principal and/or pay
interest to investors in amounts which are linked to the level of a particular
foreign index ("foreign index-linked instruments"). A foreign index may be
based upon the exchange rate of a particular currency or currencies or the
differential between two currencies, or the
- 36 -
<PAGE>
level of interest rates in a particular country or countries or the differential
in interest rates between particular countries. In the case of foreign index-
linked instruments linking the interest components to a foreign index, the
amount of interest payable will adjust periodically in response to changes in
the level of the foreign index during the term of the foreign index-linked
instrument. The risks of such investments would reflect the risks of investing
in the index or other instrument, the performance of which determines the return
for the instrument. Tax considerations may limit the Funds' ability to invest
in foreign index-linked instruments.
WARRANTS
With the exception of the International Bond Fund and International Equity
Fund, a Fund's investments in warrants (not including those that have been
acquired in units or attached to other securities) will be limited to no more
than 5% of its net assets measured at the time of the acquisition. Included
within that amount, but not to exceed 2% of the Fund's net assets, may be
warrants not listed on the New York or American Stock Exchanges. The
International Bond Fund and International Equity Fund may not invest more than
5% of the Fund's net assets, nor exceed 2% of assets if a warrant's underlying
securities are not traded on a principal domestic or foreign exchange.
The holder of a warrant has the right to purchase a given number of shares
of a particular issuer at a specified price until expiration of the warrant.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and are
speculative investments. Warrants pay no dividends and confer no rights other
than a purchase option. If a warrant is not exercised by the date of its
expiration, the Fund will lose its entire investment in such warrant.
SHORT SALES AGAINST THE BOX
A short sale is a transaction in which a Fund sells through a broker a
security it does not own in anticipation of a decline in market price. A short
sale "against the box" is a short sale in which, at the time of the short sale,
a Fund owns or has the right to obtain securities equivalent in kind and amount.
A Fund may enter into a short sale against the box among other reasons, to hedge
against a possible market decline in the value of a security owned or to defer
recognition of a gain or loss for federal income tax purposes on the security
owned by the Fund. Short sales "against the box" will be limited to no more
than 5% of a Fund's net assets.
- 37 -
<PAGE>
If the value of a security sold short against the box increases, the Fund
would suffer a loss when it purchases or delivers to the selling broker the
security sold short. If a broker, with which the Fund has open short sales,
were to become bankrupt, a Fund could experience losses or delays in recovering
gains on short sales. The Funds will only enter into short sales against the
box with brokers they believe are creditworthy.
HIGH YIELD/HIGH RISK SECURITIES
High yield/high risk bonds may be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher grade bonds.
The prices of high yield/high risk bonds have been found to be less sensitive to
interest rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection
of an economic downturn or of a period of rising interest rates, for example,
could cause a decline in high yield/high risk bond prices because the advent of
a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of high yield/high risk bonds, especially in a thinly
traded market.
Legislation designed to limit the use of high yield/high risk bonds in
corporate transactions may have a material adverse effect on the International
Bond Fund's net asset value and investment practices. In addition, there may be
special tax considerations associated with investing in high yield/high risk
bonds structured as zero coupon or payment-in-kind securities. Interest on
these securities is recorded annually as income even though no cash interest is
received until the security's maturity or payment date. As a result, the
amounts which have accrued each year are required to be distributed to
shareholders and, such amounts will be taxable to shareholders. Therefore, the
Fund may have to sell some of its assets to distribute cash to shareholders.
These actions are likely to reduce the Fund's assets and may thereby increase
its expense ratios and decrease its rate of return.
INVESTMENT RESTRICTIONS
The Funds' investment objectives, and investment restrictions set forth in
the Prospectus under "Investment Restrictions," and below, are fundamental
policies of each Fund; i.e., they may not be changed with respect to a Fund
----
without a majority vote of the outstanding shares of that Fund. Except for
those investment policies of a Fund specifically identified as fundamental in
the Prospectus and this Statement of Additional Information, all other
- 38 -
<PAGE>
investment policies and practices described may be changed by the Board of
Directors without the approval of shareholders.
Unless otherwise indicated, all of the percentage limitations below, and in
the fundamental investment restrictions recited in the Prospectus, apply to each
Fund on an individual basis, and apply only at the time a transaction is entered
into. Accordingly, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in the percentage which results from a
relative change in values or from a change in a Fund's net assets will not be
considered a violation.
In addition to the fundamental restrictions set forth in the Prospectus,
each Fund has adopted a fundamental restriction that it may not:
(1) purchase or sell real estate, including real estate limited partnership
interests (although it may purchase securities secured by real estate or
interests therein, or securities issued by companies which invest in real
estate, or interests therein);
(2) purchase or sell commodities, commodities contracts, or oil, gas or
mineral programs or interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor those programs), except that,
subject to restrictions described in the Prospectus and elsewhere in this
Statement of Additional Information (i) a Fund may enter into futures contracts
and options on futures contracts; (ii) a Fund may enter into forward foreign
currency contracts and foreign currency options; and (iii) the International
Bond Fund and International Equity Fund may purchase or sell currencies on a
spot or forward basis and may enter into futures contracts on securities,
currencies or on indexes of such securities or currencies, or any other
financial instruments, and may purchase and sell options on such futures
contracts; or
(3) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the Federal securities laws.
ADDITIONAL RESTRICTIONS
Each Fund has adopted the following additional restrictions which are not
fundamental and which may be changed without stockholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Unless otherwise indicated, all percentage limitations apply to each Fund
on an individual basis, and apply only at the time a
- 39 -
<PAGE>
transaction is entered into. Accordingly, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in the
percentage which results from a relative change in values or from a change in a
Fund's net assets will not be considered a violation.
Under these restrictions, a Fund may not:
(1) purchase or retain securities of any issuer if, to the knowledge of
the Fund, any of the Directors or Officers of the Company, or any of the
directors or officers of any of the Funds' investment advisers, individually own
more than 1/2 of 1% of the outstanding securities of the issuer and together own
beneficially more than 5% of such issuer's securities;
(2) invest more than 5% of the value of its total assets in securities of
issuers (other than issuers of Federal agency obligations) having a record,
together with predecessors or unconditional guarantors, of less than three
years;
(3) (except for the International Bond Fund and International Equity Fund)
purchase puts, calls, straddles, spreads and any combination thereof if, as a
result, the value of its aggregate investment in such classes of securities
would exceed 5% of its total assets;
(4) purchase securities that may not be sold without first being
registered under the Securities Act of 1933, as amended ("restricted
securities") other than Rule 144A securities determined to be liquid pursuant to
guidelines adopted by the Company's Board of Directors; enter into repurchase
agreements having a duration of more than seven days; purchase loan
participation interests that are not subject to puts; purchase instruments
lacking readily available market quotations ("illiquid instruments"); or
purchase or sell over-the-counter options, if as a result of the purchase or
sale, the Fund's aggregate holdings of restricted securities, repurchase
agreements having a duration of more than seven days, loan participation
interests that are not subject to puts, illiquid instruments, and over-the-
counter options purchased by the Fund and the assets used as cover for over-the-
counter options written by the Fund exceed 10% of the Fund's net assets (15% of
net assets in the case of the International Bond Fund and International Equity
Fund);
(5) purchase securities of an investment company, except (i) in connection
with a merger, consolidation, reorganization or acquisition of assets, or (ii)
to the extent permitted by the 1940 Act and then only securities of money market
funds (where the Fund's investment adviser undertakes to forego the fees they
would otherwise receive on the assets so invested and where there is no
- 40 -
<PAGE>
commission or profit to a sponsor or dealer other than the customary broker's
commission that may result from such purchase) or securities of closed-end
investment company (where there is no commission or profit to a sponsor or
dealer other than the customary broker's commission that may result from such
purchase) as permitted under applicable state securities law; provided,
however, that foreign banks or their agencies or subsidiaries and foreign
insurance companies are not considered investment companies for the purposes of
this limitation as permitted by the 1940 Act;
(6) invest in other companies for the purpose of exercising control;
(7) the International Bond Fund and International Equity Fund may not sell
securities short, except for covered short sales or unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in options, futures and forward contracts
are deemed not to constitute short sales of securities;
(8) the International Bond Fund and International Equity Fund may not
purchase securities on margin, except that the Fund may obtain such short-term
credits as are necessary for the clearance of transactions, and provided that
margin payments in connection with futures contracts and options on futures
contracts shall not constitute the purchase of securities on margin;
(9) the International Bond Fund and International Equity Fund may not
purchase warrants, valued at the lower of cost or market, in excess of 5% of the
Fund's net assets. Included within that amount, but not to exceed 2% of net
assets, are warrants whose underlying securities are not traded on principal
domestic or foreign exchanges. Warrants acquired by a Fund in units or attached
to securities are not subject to these restrictions; or
(10) the International Bond Fund and International Equity Fund may not
acquire or retain the securities of any other investment company if, as a
result, more than 3% of such investment company's outstanding shares would be
held by the Fund, more than 5% of the value of the Fund's total assets would be
invested in shares of such investment company or more than 10% of the value of
the Fund's assets would be invested in shares of investment companies in the
aggregate, except in connection with a merger, consolidation, acquisition, or
reorganization.
A Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of shares in certain states. Should a Fund
determine that any commitment is no longer in the best interests of the Fund's
shareholders, the Fund
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<PAGE>
will revoke the commitment by terminating the sale of shares in the relevant
state.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The Directors and Officers of the Company, their addresses, ages and their
principal occupations during the past five years are as follows (unless
otherwise indicated, the address of all persons below is 51 Madison Avenue, New
York, NY 10010):
<TABLE>
<CAPTION>
Name, Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------------------- ---------------------------------- ---------------------------------------------------
<S> <C> <C>
Alice T. Kane, 48 Director and Chairperson of the Executive Vice President, New York Life Insurance
Board of Directors* Company, 1992 to present; General Counsel, New
York Life Insurance Company, 1992 to 1995; Senior
Vice President and General Counsel, New York Life
Insurance Company, 1986 to 1992; Corporate
Secretary, New York Life Insurance Company,
1989-1994; Vice President and General Counsel, New
York Life Insurance Company, 1985 to 1986; Trustee
and Chairperson, The MainStay Funds, 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; Vice President, NYLIFE
Inc., 1989 to present; and Secretary, NYLIFE Inc.,
1989 to 1994; Director, MacKay-Shields Financial
Corporation, 1994 to present; Director, NYL
Benefit Services Company, Inc., (pension
consultant and third party administrator), 1994 to
present; Director, NYLIFE Securities Inc., 1994 to
present; Director, Eagle Strategies Corp.
(broker-dealer and registered investment adviser),
1994 to present; Director, NYLIFE Distributors
Inc., 1994 to present; Director, Greystone Realty
Corporation, 1994 to present; Director, Monitor
Capital Advisors, Inc., 1994 to present; Director,
Quorum Capital Management Limited, 1995 to
present; Director, Sanus Corp. Health Systems;
1984 to November 1995; Director, NYLCare Health
Plans, Inc. (formerly Sanus Corp. Health Systems);
November 1995 to present; Director, NYL Trust
Company, (a limited purpose trust company), 1995
to present; Member, Board of Governors of the
National Association of Securities Dealers, Inc.,
1994 to present; Member, American Council of Life
Insurance Deputies Solvency Oversight Committee,
1991 to 1995; Board of Governors, Association of
Life Insurance Counsel, 1992 to present.
</TABLE>
- 42 -
<PAGE>
<TABLE>
<CAPTION>
Name, Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------------------- ---------------------------------- ---------------------------------------------------
<S> <C> <C>
Patrick G. Boyle, 42 Director* Senior Vice President, Pension Department, New
York Life Insurance Company, 1991 to present; Vice
President, Pension Department, New York Life
Insurance Company, 1988-1991; Pension Vice
President, Pension Department, New York Life
Insurance Company, 1986-1988; Assistant Vice
President, Pension Department, New York Life
Insurance Company, 1985-1986; Director, NYLIFE
Distributors Inc., 1993 to present; Director,
Monitor Capital Advisors, Inc., 1991 to present;
Director, NYL Trust Company, 1995 to present;
Director, Quorum Capital Management Limited, 1994
to present; Member, American Council of Life
Insurance Pension Committee, 1992 to present.
Lawrence Glacken, 68 Director Retired, 1987 to present; Vice President,
353 Canterbury Drive Investment Banking, The First Boston Corporation,
Ramsey, NJ 07446 1964-1987.
Robert P. Mulhearn, 49 Director Private Investor, 1987 to present; Managing
1200 East Ridgewood Ave. Director, Morgan Stanley, 1979-1987.
Ridgewood, NJ 07450
Susan B. Kerley, 44 Director President, Global Research Associates, 1990 to
P.O. 9572 present; Manager, Special Investments, Rockefeller
New Haven, CT 06535 & Co., 1988-1990; Director of Research, Rogers,
Casey and Barksdale, 1983-1988.
Linda M. Livornese, 44 President Vice President, Pension Department, New York Life
Insurance Company, 1990 to present; Pension Vice
President, Pension Department, New York Life
Insurance Company, 1988-1990; Assistant Vice
President, Pension Department, New York Life
Insurance Company, 1986-1988.
Jefferson C. Boyce, 39 Senior Vice President Senior Vice President, New York Life Insurance
Company, 1994 to present; Senior Vice President,
The MainStay Funds, 1995 to present; Director,
NYLIFE Distributors Inc., 1993 to present; Chief
Administrative Officer, Pension, Mutual Funds,
Structured Finance, Corporate Quality, Human
Resources and Employees' Health Departments, New
York Life Insurance Company, 1992 to 1994; Vice
President, Pension Department, New York Life
Insurance Company, 1989 to 1992.
Robert Fenster, 46 Vice President Vice President, Pension Department, New York Life
Insurance Company, 1988 to present; Director NYL
Trust Company, 1995 to present.
Michael J. Harrington, 46 Vice President Vice President, Pension Department, New York Life
Insurance Company, 1989 to present.
Richard Zuccaro, 46 Tax Vice President Vice President, New York Life 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 present; Tax Vice President, NYLIFE
Insurance Company of Arizona, 1990 to present; Tax
Vice President, NYLIFE Realty Inc., 1991
to
</TABLE>
- 43 -
<PAGE>
<TABLE>
<CAPTION>
Name, Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------------------- ---------------------------------- ---------------------------------------------------
<S> <C> <C>
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 Funding Inc.,
1991 to present; Tax Vice President, NYLCO, 1991
to present; Tax Vice President, NYLIFE Equity
Inc., 1991 to present; Tax Vice President, New
York Life MFA Series Fund, 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, The MainStay Funds,
1991 to present; Tax Vice President, Eagle
Strategies Corp. (broker-dealer and registered
investment adviser), 1993 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; Tax Vice President, NYL Trust Company,
1996 to present.
Anthony W. Polis, 52 Treasurer (Principal Financial Vice President, New York Life Insurance Company,
and 1988 to present; Director, Vice President and
Accounting Officer) Chief Financial Officer, NYLIFE Securities Inc.,
1988 to present; Vice President and Chief
Financial Officer, NYLIFE Distributors Inc., 1993
to present; Vice President and Chief Financial
Officer, The MainStay Funds, 1990 to present;
Treasurer, New York Life MFA Series Fund, Inc.,
1993 to present; Assistant Treasurer, New York
Life MFA Series Fund, 1992 to 1993; Vice President
and Treasurer, Eclipse Financial Asset Trust, 1992
to present; Vice President, Drexel Burnham Lambert
Incorporated, DBL Tax-Free Fund Inc., DBL Cash
Fund Inc., The Drexel Burnham Fund, Drexel Series
Trust, Fenimore International Fund Inc., BT
Investment Trust and BT Tax Free Investment Trust,
1983 to 1988; Assistant Treasurer, Drexel Bond-
Debenture Trading Fund, 1983-1988.
A. Thomas Smith III, 39 Secretary Associate General Counsel, New York Life Insurance
Company, 1994 to present; Secretary, The MainStay
Funds, New York Life MFA Series Fund, Inc., New
York Life Fund Inc., and Eclipse Financial Asset
Trust, 1994 to present; Assistant General Counsel,
Dreyfus Corporation, 1991-1993; Senior Associate,
Willkie, Farr & Gallagher, 1989-1991; Staff
Attorney, Chief Counsel's Office, U.S. Securities
and Exchange Commission, Division of Investment
Management, 1986-1988.
</TABLE>
* Mr. Boyle and Ms. Kane are Directors who are "interested persons" of the
Company as that term is defined in the 1940 Act.
- 44 -
<PAGE>
COMPENSATION TABLE
The following table sets forth information regarding compensation received
by the Directors of the Company for the year ended December 31, 1995.
<TABLE>
<CAPTION>
Aggregate Compensation
Name and Position from Company/1/
- ----------------------------------- ----------------------
<S> <C>
Lawrence Glacken $25,250
Director
Robert P. Mulhearn $25,250
Director
Susan B. Kerley $25,250
Director
</TABLE>
1 Commencing with the third quarter of 1995, compensation paid to Directors,
other than those affiliated with New York Life Insurance Company, MacKay-
Shields Financial Corporation, Monitor Capital Advisors, Inc. or New York
Life Distributors Inc. was increased so that such Directors are paid an
annual fee of $24,000 and $1,000 for each Directors meeting and Audit
Committee meeting attended plus reimbursement for travel and out-of-pocket
expenses.
INVESTMENT ADVISERS
MacKay-Shields Financial Corporation ("MacKay-Shields") serves as the
investment adviser to the Growth Equity Fund, Value Equity Fund, Bond Fund
and Short-Term Bond pursuant to a Master Investment Advisory Agreement,
dated December 28, 1990, between the Company and MacKay-Shields, and to the
International Equity Fund and International Bond Fund pursuant to a
supplement thereto dated December 6, 1994. New York Life Insurance Company
("New York Life") serves as the investment adviser to the Money Market Fund
pursuant to a Master Investment Advisory Agreement, dated December 28,
1990, between the Company and New York Life. Monitor Capital Advisors,
Inc. ("Monitor") serves as the investment adviser to the EAFE Index Fund,
Indexed Equity Fund, Multi-Asset Fund, and Indexed Bond Fund, pursuant to a
Master Investment Advisory Agreement, dated December 28, 1990, between the
Company and Monitor.
Each Master Investment Advisory Agreement was most recently approved by the
Board of Directors, including a majority of the Directors who are not
"interested persons" of the Company or the
- 45 -
<PAGE>
investment advisers, on March 5, 1996, and by the shareholders of the Company on
April 30, 1992. The services provided and the fees paid under the Master
Investment Advisory Agreements are described in the Prospectus.
Each Master Investment Advisory Agreement will continue in effect with
respect to a Fund, provided such continuance is approved annually by (i) the
holders of a majority of the outstanding voting securities of that Fund or by
the Board of Directors, and (ii) a majority of the Directors who are not parties
to such Master Investment Advisory Agreement or "interested persons" (as defined
in the 1940 Act) of any such party. Each Master Investment Advisory Agreement
may be terminated with respect to a Fund, without payment of any penalty, by a
vote of the majority of the outstanding voting securities of that Fund (as
defined in the 1940 Act) on 60 days' written notice to the investment adviser,
by the vote of a majority of the Company's Board of Directors on 60 days'
written notice to the investment adviser, or by the investment adviser on 60
days' written notice to the Company.
For the fiscal years ended December 31, 1995, 1994 and 1993, the amount of
the advisory fee paid by each Fund to New York Life, MacKay-Shields or Monitor
was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 12/31/95 12/31/94 12/31/93
---- ---------- ---------- ----------
<S> <C> <C> <C>
EAFE Index Fund $ 115,497 $106,887 $ 74,305
Growth Equity Fund 879,351 676,347 562,280
Indexed Equity Fund 295,487 238,454 192,811
International Equity Fund 290,777 N/A N/A
Multi-Asset Fund 372,064 374,026 354,246
Value Equity Fund 1,275,060 890,814 661,939
Bond Fund 378,811 427,182 427,345
Indexed Bond Fund 168,137 167,785 145,436
International Bond Fund 121,813 N/A N/A
Money Market Fund 59,918 63,676 61,137
Short-Term Bond Fund 79,193 156,983 236,667
</TABLE>
Each Master Investment Advisory Agreement provides that the investment
adviser shall not be liable to the Company for any error of judgment or for any
loss suffered by the Company except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of, or from
reckless disregard by the investment adviser of its duties and obligations
under, the Master Investment Advisory Agreement.
- 46 -
<PAGE>
THE ADMINISTRATOR
New York Life serves as the Funds' administrator (the "Administrator")
pursuant to the Master Administration Agreement, dated December 28, 1990, and a
supplement thereto for the International Equity Fund and International Bond Fund
dated December 6, 1994, between the Company and the Administrator. The Master
Administration Agreement was most recently approved by the Board of Directors,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Company or the Administrator on March 5, 1996.
The services provided and the fees paid under the agreement are more fully
described in the Prospectus.
Except for the expenses to be paid by the Funds' investment advisers
and the Administrator, each Fund is responsible under the Master Administration
Agreement for the payment of all other expenses related to its operations,
including, but not limited to: (i) the fees payable to the Fund's investment
adviser and the Administrator; (ii) the fees and expenses of Directors who are
not affiliated with the Funds' investment advisers or the Administrator; (iii)
certain fees and expenses of the Company's custodians and transfer agent, and
fees paid to pricing agents; (iv) the charges and expenses of the Company's
legal counsel and independent accountants; (v) brokers' commissions and any
issue or transfer taxes chargeable to the Fund, in connection with its
securities transactions; (vi) the fees of any trade association of which the
Fund or the Company is a member; (vii) the cost of share certificates, if any,
representing shares of the Fund; (viii) reimbursement of the organization
expenses of the Fund and the fees and expenses involved in registering and
maintaining registration of the Company and of the Fund's shares with the SEC,
registering the Company as a broker or dealer, and qualifying its shares under
state securities laws, including the preparation and printing of the Company's
registration statements and prospectuses for such purposes; (ix) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Directors' meetings and preparing, printing and mailing
prospectuses and reports to shareholders; (x) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Company's business; (xi) any expenses assumed by the Fund pursuant to a plan
of distribution adopted in conformity with Rule 12b-1 under the 1940 Act; and
(xii) all taxes and business fees payable by the Fund to Federal, state or other
governmental agencies. Fees and expenses of legal counsel, registering shares,
holding meetings and communicating with shareholders include an allocable
portion of the cost of maintaining an internal legal and compliance department.
- 47 -
<PAGE>
For the fiscal years ended December 31, 1995, 1994 and 1993, the
amount of the administration fee paid by each Fund to New York Life was as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 12/31/95 12/31/94 12/31/93
- -------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
EAFE Index Fund $ 615,986 $ 570,064 $ 396,293
Growth Equity Fund 2,110,442 1,623,233 1,349,471
Indexed Equity Fund 1,181,947 953,814 771,241
International Equity Fund 415,395 N/A N/A
Multi-Asset Fund 1,240,213 1,246,753 1,180,819
Value Equity Fund 3,060,145 2,137,952 1,588,655
Bond Fund 1,041,729 1,174,749 1,175,199
Indexed Bond Fund 672,553 671,140 581,746
International Bond Fund 203,021 N/A N/A
Money Market Fund 239,673 254,704 244,548
Short-Term Bond Fund 237,578 470,949 710,000
</TABLE>
In connection with the voluntary expense limitation, the Administrator
assumed the following expenses for the Funds for the fiscal years ended December
31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 12/31/95 12/31/94 12/31/93
- -------------------------------- --------- --------- ---------
<S> <C> <C> <C>
EAFE Index Fund $ 165,321(1) $ N/A(2) $ 0(3)
Growth Equity Fund N/A(2) N/A(2) 70,601
Indexed Equity Fund 272,396 194,838 283,397
International Equity Fund 60,652 N/A N/A
Multi-Asset Fund 167,833 130,798 365,589
Value Equity Fund N/A(2) N/A(2) 75,533
Bond Fund 198,399 148,020 301,850
Indexed Bond Fund 225,553 177,755 228,649
International Bond Fund 31,528 N/A N/A
Money Market Fund 136,576 116,556 137,422
Short-Term Bond Fund 114,433 121,241 201,842
</TABLE>
1 Fund expense limitation resumed April 1, 1995.
2 Fund had no expense limitation during period.
3 Fund did not exceed expense limitation during period.
As long as the temporary expense limitation continues, it may lower the
Funds' expenses and increase their respective yields. After December 31, 1996,
(December 31, 1997 for the EAFE Index Fund) the voluntary expense limitations
may be terminated or revised at any time, at which time the Funds' expenses may
increase and their respective yields may be reduced, depending on the total
assets of each of the Funds. Thereafter, the Administrator will comply with any
applicable state regulations which may require the Administrator to make
reimbursements to a Fund in the event that the Fund's aggregate operating
expenses, including the advisory fee and administrative fee, but generally
excluding interest, taxes, brokerage commissions and extraordinary expenses, are
in excess of specific applicable limitations. The strictest rule currently
applicable to a Fund is 2.5% of the first $30,000,000 of average
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<PAGE>
net assets, 2.0% of the next $70,000,000 of average net assets, and 1.5% of the
remainder.
The Master Administration Agreement will continue in effect with respect to
a Fund, provided such continuance is approved annually by (i) the holders of a
majority of the outstanding voting securities of that Fund or by the Board of
Directors, and (ii) a majority of the Directors who are not parties to such
agreements or "interested persons" (as defined in the 1940 Act) of any such
party. The agreement may be terminated with respect to a Fund, without payment
of any penalty, by a vote of the majority of the outstanding voting securities
of that Fund (as defined in the 1940 Act) on 60 days' written notice to the
Administrator, by the vote of a majority of the Company's Board of Directors on
60 days' written notice to the Administrator, or by the Administrator on 60
days' written notice to the Company.
The Master Administration Agreement provides that the Administrator shall
not be liable to the Company for any error of judgment or for any loss suffered
by the Company except a loss resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of, or from reckless disregard
by the Administrator of its duties and obligations under, the agreement.
DISTRIBUTOR
NYLIFE Distributors Inc. serves as the Company's distributor and principal
underwriter (the "Distributor") pursuant to a Distribution Agreement, dated
January 1, 1994. Prior to that time, NYLIFE Securities Inc. ("NYLIFE
Securities") an affiliated company, had acted as principal underwriter. NYLIFE
Securities sells shares of the Funds pursuant to a dealer agreement with the
Distributor. The Distributor is not obligated to sell any specific amount of
the Company's shares, and receives no compensation from the Company pursuant to
the Distribution Agreement. The Company anticipates making a continuous
offering of its shares, although it reserves the right to suspend or terminate
such offering at any time. The Distribution Agreement was most recently
approved by the Board of Directors, including a majority of the Directors who
are not "interested persons" (as defined in the 1940 Act) of the Company or the
Distributor, on March 5, 1996. After an initial two-year period, the
Distribution Agreement is subject to annual approval by the Board of Directors.
The Distribution Agreement is terminable with respect to a Fund at any time,
without payment of a penalty, by vote of a majority of the Company's Directors
who are not "interested persons" (as defined in the 1940 Act) of the Company,
upon 60 days' written notice to the Distributor, by vote of a majority of the
outstanding voting securities of that Fund, upon 60 days' written notice to the
Distributor, or by the Distributor,
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<PAGE>
upon 60 days' written notice to the Company. The Distribution Agreement will
terminate in the event of its assignment.
SERVICE FEES
The Company has adopted a Shareholder Services Plan with respect to the
Institutional Service Class of each Fund. Under the terms of the Plan, the
Company is permitted to pay, out of the Institutional Service Class assets of
each Fund, in the amount of 0.25% on an annual basis of the average daily net
assets attributable to that class, New York Life Insurance Company, its
affiliates or independent third party service providers, for providing services
in connection with the administration of plans or programs that use Fund shares
as their funding medium.
Under the terms of the Shareholder Services Plan, the services may include,
but are not limited to, the following functions: receiving, aggregating and
processing shareholder orders; furnishing shareholder sub-accounting; providing
and maintaining elective shareholder services such as check writing and wire
transfer services; providing and maintaining pre-authorized investment plans;
communicating periodically with shareholders; acting as the sole shareholder of
record and nominee for shareholders; maintaining accounting records for
shareholders; answering questions and handling correspondence from shareholders
about their accounts; and performing similar account administrative services.
The Plan provides that it may not be amended to materially increase the
costs which holders of Institutional Service Class of a Fund may bear under the
Plan without the approval of a majority of both (i) the Directors of the Company
and (ii) those Directors who are not "interested persons" of the Company (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Plan or any agreements related to it (the "Plan
Directors"), cast in person at a meeting called for the purpose of voting on the
Plan and any related amendments.
The Plan provides that it may not take effect until approved by vote of a
majority of both (i) the Directors of the Company and (ii) the Plan Directors.
The Plan was approved by the Directors, including the Plan Directors, at a
meeting held on September 13, 1994.
The Plan provides that it shall continue in effect so long as such
continuance is specifically approved at least annually by the Directors and the
Plan Directors. The Plan provides that New York Life shall provide to the
Directors, and the Board shall review at least quarterly, a written report of
the amounts expended in
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<PAGE>
connection with the performance of service activities, and the purposes for
which such expenditures were made.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus under the
headings "Tell Me The Key Facts -- Open an Account and Buy Shares", and "Know
How to Sell and Exchange Shares", and that information is incorporated herein by
reference.
Certain clients of the Company's investment advisers may purchase shares of
a Fund with liquid assets with a value which is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on a bona
fide domestic or foreign exchange and which would be eligible for purchase by
the Fund (consistent with such Fund's investment policies and restrictions).
These transactions will be effected only if the Fund's investment adviser
intends to retain the security in the Fund as an investment. Assets so
purchased by a Fund will be valued in generally the same manner as they would be
valued for purposes of pricing the Fund's shares, if such assets were included
in the Fund's assets at the time of the purchase. The Fund reserves the right
to amend or terminate this practice at any time.
The Company determines the net asset value per share of each Fund on each
day the New York Stock Exchange is open for trading, which currently excludes
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Company reserves the right to suspend or postpone redemptions during
any period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the Company not
reasonably practicable.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchases and sales of securities on a securities exchange are effected by
brokers, and the Funds pay a brokerage commission for this service. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are fixed.
In the over-the-counter markets, securities (i.e., municipal bonds and other
----
debt securities) are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a
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<PAGE>
profit to the dealer. Transactions in certain over-the-counter securities also
may be effected on an agency basis when the total price paid (including
commission) is equal to or better than the best total prices available from
other sources. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which
case no commissions or discounts are paid.
In effecting purchases and sales of portfolio securities for the account of
a Fund, the Fund's investment adviser will seek the best execution of the Fund's
orders. The investment adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Fund and its
other clients on the basis of the broker-dealers' professional capability, the
value and quality of their brokerage services and the level of their brokerage
commissions.
NYLIFE Securities (the "Affiliated Broker") may act as broker for the
Funds. In order for the Affiliated Broker to effect any portfolio transactions
for the Funds, the commissions, fees or other remuneration received by the
Affiliated Broker must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an exchange
during a comparable period of time. This standard would allow the Affiliated
Broker to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arms-length transaction.
The Funds will not deal with the Affiliated Broker in any portfolio transaction
in which the Affiliated Broker acts as principal.
Some securities considered for investment by the Funds may also be
appropriate for other clients served by the Funds' investment advisers. If a
purchase or sale of securities consistent with the investment policies of a Fund
and one or more of the clients served by the Fund's investment adviser is
considered at or about the same time, transactions in such securities will, to
the extent practicable, be allocated among the Fund and clients in a manner
deemed equitable to the Fund and the clients by the Fund's investment adviser.
Although there is no specified formula for allocating such transactions, the
various allocation methods used by a Fund's investment adviser, and the results
of such allocations, are subject to periodic review by the Company's Directors.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from
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<PAGE>
broker-dealers which execute portfolio transactions for the clients of such
advisers. Consistent with this practice, the investment adviser for a Fund may
receive research services from many broker-dealers with which the investment
adviser places the Fund's portfolio transactions. These services, which in some
cases may also be purchased for cash, include such matters as general economic
and security market reviews, industry and company reviews, evaluations of
securities and recommendations as to the purchase and sale of securities. Some
of these services may be of value to the investment adviser in advising its
various clients (including the Fund), although not all of these services are
necessarily useful and of value in managing a Fund. The management fee paid by
the Fund is not reduced because the investment adviser and its affiliates
receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, an
investment adviser may cause a Fund to pay a broker-dealer which provides
"brokerage and research services" (as defined in that Act) to the investment
adviser an amount of disclosed commission for effecting a securities transaction
for the Fund in excess of the commission which another broker-dealer would have
charged for effecting that transaction.
For the years ended December 31, 1995, 1994 and 1993 each of the following
Funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Brokerage Total Brokerage Commissions
Commissions Paid Paid to Affiliated Persons
---------------- ---------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
12/31/95 12/31/94 12/31/93 12/31/95 12/31/94 12/31/93
--------- --------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
EAFE Index Fund............. $ 44,798 $ 79,676 $ 62,872 0(0%)(1) 0(0%)(1) 0(0%)(1)
Growth Equity Fund.......... 306,776 254,728 380,943 0(0%)(1) 1,490(0%)(1)* 1,260(0%)(1)*
Indexed Equity Fund......... 25,484 45,597 64,108 0(0%)(1) 0(0%)(1) 0(0%)(1)
International Equity Fund... 330,914 N/A N/A 0(0%)(1) N/A N/A
Multi-Asset Fund............ 12,451 87,112 75,897 0(0%)(1) 0(0%)(1) 0(0%)(1)
Value Equity Fund........... 945,310 588,653 902,165 0(0%)(1) 720(0%)(1)* 9,409(1%)(1)
Bond Fund................... 15,608 13,436 5,925 0(0%)(1) 0(0%)(1) 0(0%)(1)
Short-Term Bond Fund........ 523 1,939 2,975 0(0%)(1) 0(0%)(1) 0(0%)(1)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Total Brokerage
Commissions Paid
Total Amount of Transaction to Brokers that
Where Commissions Paid Provided
---------------------------- Research
Year ended Year ended Year ended Year ended
12/31/95 12/31/94 12/31/93 12/31/95
--------- -------------------- ---------- ----------------
<S> <C> <C> <C> <C>
EAFE Index Fund............. $ 10,362,714(0%)(2) 56,509,039 (0%)(2) $ 18,123,100 (0%)(2) $ 6,580
Growth Equity Fund.......... 173,585,053(0%)(2) 134,977,896 (2%)(2) 189,566,043 (0%)(2)* 70,426
Indexed Equity Fund......... 20,707,836(0%)(2) 339,976,251 (0%)(2) 53,680,888 (0%)(2) 23,175
International Equity Fund. 79,632,317(0%)(2) N/A N/A 331,067
Multi-Asset Fund............ 9,523,672(0%)(2) 72,654,644 (0%)(2) 64,895,513 (0%)(2) 11,526
Value Equity Fund........... 490,519,118(0%)(2) 306,971,001 (0%)(2)* 395,195,006 (1%)(2) 235,537
Bond Fund................... 200,756,257(0%)(2) 179,145,860 (0%)(2) 91,470,565 (0%)(2) 949
Short Term Bond Fund........ 7,828,808(0%)(2) 25,030,765 (0%)(2) 34,240,077 (0%)(2) 126
</TABLE>
(1) Percent of total commissions paid.
(2) Percent of total transactions involving the payment of commissions effected
through affiliated persons.
* Less than one percent
The Indexed Bond Fund, International Bond Fund and Money Market Fund paid
no brokerage commissions during the years ended December 31, 1995, 1994 and
1993.
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<PAGE>
As of December 31, 1995, the following Funds held securities in issuers
with whose broker-dealer subsidiaries or affiliates of the Funds regularly
conduct business:
<TABLE>
<CAPTION>
Fund Broker-Dealer Market Value
- --------------------- ------------------------------------ ---------------
<S> <C> <C>
Growth Equity Fund American Express Credit Corp. $1,279,000(1)
Smith Barney Inc. 4,311,000(1)
Schwab (Charles) Corp. 8,150,625(2)
Indexed Equity Fund Alexander & Alexander Services, Inc. 61,978(2)
American Express Company 1,501,250(2)
Dean Witter Discover & Company 598,122(2)
Marsh & McLennan Companies, Inc. 485,463(2)
Merrill Lynch & Co., Inc. 662,490(2)
Morgan Stanley Group, Inc. 451,500(2)
Salomon Inc. 280,308(2)
Multi-Asset Fund Alexander & Alexander Services, Inc. 28,519(2)
American Express Company 686,328(2)
Dean Witter Discover & Company 272,882(2)
Marsh & McLennan Companies, Inc. 225,514(2)
Merrill Lynch & Co., Inc. 303,144(2)
Morgan Stanley Group, Inc. 209,625(2)
Salomon Inc. 130,711(2)
Dean Witter Discover & Company 508,125(3)
PaineWebber Group, Inc. 421,000(3)
Value Equity Fund Prudential Funding Corp. 9,751,000(1)
Bond Fund Smith Barney Holdings Inc. 1,216,958(3)
Money Market Fund Morgan Stanley Group, Inc. 2,958,292(1)
</TABLE>
(1) Represents investment in commercial paper.
(2) Represents investment in common stock.
(3) Represents investment in corporate bond.
NET ASSET VALUE
The Company determines the net asset value per share of each class of
each Fund on each day the New York Stock Exchange is open for trading. Net
asset value per share is calculated as of the close of the first session of the
New York Stock Exchange (currently 4:00 p.m., New York City time) for each class
of shares of each Fund (except the Money Market Fund, which is determined at
noon), by dividing the current market value (amortized cost, in the case of the
Money Market Fund) of the total assets attributable to a class, less liabilities
attributable to that class, by the total number of outstanding shares of that
class.
Portfolio securities of the Money Market Fund are valued at their
amortized cost, which does not take into account unrealized securities gains or
losses. This method involves initially valuing
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<PAGE>
an instrument at its cost and thereafter assuming a constant amortization to
maturity of any premium paid or discount received. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During such periods, the yield to an
investor in a Fund may differ somewhat than that obtained in a similar
investment company which uses available market quotations to value all of its
portfolio securities.
Portfolio securities of each of the other Funds are valued (a) by
appraising common and preferred stocks which are traded on the New York Stock
Exchange at the last sale price of the first session on that day or, if no sale
occurs, the stock is valued at the mean between the closing bid price and asked
price; (b) by appraising other common and preferred stocks as nearly as possible
in the manner described in clause (a) if traded on any other exchange, including
the National Association of Securities Dealers National Market System and
foreign securities exchanges; (c) by appraising over-the-counter common and
preferred stocks quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system; (d) by appraising over-the-counter common and preferred
stocks not quoted on the NASDAQ system and securities listed or traded on
certain foreign exchanges whose operations are similar to the U.S. over-the-
counter market at prices supplied by a pricing agent selected by a Fund's
investment adviser if the prices are deemed to be representative of market
values at the close of the first session of the New York Stock Exchange; (e) by
appraising debt securities at prices supplied by a pricing agent or, determined
using pricing procedures selected by a Fund's investment adviser, which prices
reflect broker/dealer-supplied valuations or electronic data processing
techniques and/or matrix pricing if those prices are deemed by a Fund's
investment adviser to be representative of market values at the close of the
first session of the New York Stock Exchange; (f) by appraising options and
futures contracts at the last sale price on the market where any such option or
futures contract is principally traded, and (g) by appraising all other
securities and other assets, including over-the-counter common and preferred
stocks not quoted on the NASDAQ system, securities not listed or traded on
foreign exchanges whose operations are similar to the U.S. over-the-counter
market and debt securities for which prices are supplied by a pricing agent but
are not deemed by a Fund's investment adviser to be representative of market
values, but excluding money market instruments with a remaining maturity of
sixty days or less and including restricted securities and securities for which
no market quotation is available, at fair value in accordance with procedures
approved by and determined in good faith by the Directors, although the actual
calculations may be done by others. Money Market
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<PAGE>
instruments held by the Funds with a remaining maturity of sixty days or less
are valued by the amortized cost method unless such method does not represent
fair value.
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined on the close of the
exchange representing the principal market for such securities. The value of
all assets and liabilities expressed in foreign currencies will be converted
into U.S. dollar values, using the W.M. Company exchange rates that have been
adopted as the standard for exchange rate valuations by major indices. If such
quotations are not available, the rate of exchange will be determined in
accordance with policies established by the Company's Directors. For financial
accounting purposes, the Company recognizes dividend income and other
distributions on the ex-dividend date, except certain dividends from foreign
securities are recognized as soon as the Company is informed on or after the ex-
dividend date.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the New York
Stock Exchange is open for trading). In addition, European or Far Eastern
securities trading in a particular country or countries may not take place on
all business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which are
not business days in New York and on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the portfolio securities used in such
calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the New York Stock
Exchange will not be reflected in the Fund's calculation of net asset values
unless a Fund's investment adviser determines that the particular event may
materially affect net asset value, in which case an adjustment will be made.
To the extent that any newly organized fund or class of shares
receives, on or before December 31, any seed capital, the net asset value of
such fund(s) or class(es) will be calculated as of December 31.
TAX INFORMATION
While it is anticipated that many shareholders of the Funds will be
tax-exempt institutions, the following discussion may be of general interest to
these shareholders as well as for those
- 57 -
<PAGE>
shareholders of the Funds who do not have tax-exempt status. Although the
discussion below refers in certain instances to distributions and other
transactions as being taxable to a shareholder, tax-exempt shareholders will, of
course, not be taxed to the extent provided by applicable tax exemptions. The
discussion herein relating to taxes is presented for general informational
purposes only. Since the tax laws are complex and tax results can vary
depending upon specific circumstances, investors should consult tax advisers
regarding investment in a Fund.
Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). If a Fund so qualifies and elects, it generally
will not be subject to Federal income tax on its investment company taxable
income (which includes, among other items, dividends, interest, and the excess,
if any, of net short-term capital gains over net long-term capital losses) and
its net capital gains (net long-term capital gains in excess of net short-term
capital losses) that it distributes to its shareholders.
Each Fund intends to distribute, at least annually, to its
shareholders substantially all of its investment company taxable income and its
net capital gains. In determining amounts of capital gains to be distributed,
any capital loss carryovers from prior years will be applied against capital
gains.
To qualify for treatment as a regulated investment company, a Fund
generally must, among other things: (a) derive in each taxable year at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of securities or
foreign currencies, and other income (including gains from certain options,
futures, and forward contracts) derived with respect to its business of
investing in securities or foreign currencies; (b) derive in each taxable year
less than 30% of its gross income from gains from the sale or other disposition
of certain assets held less than three months, namely: (i) stock or securities,
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including futures, forwards, and
options on such currencies) not directly related to a Fund's principal business
of investing in securities (or options and futures with respect to securities);
(c) diversify its holdings so that at the end of each quarter of the taxable
year, (i) at least 50% of the market value of a Fund's assets is represented by
cash, cash items, U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the
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<PAGE>
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies), or of two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses or related trades or businesses; and (d) distribute in each taxable
year at least 90% of the sum of its investment company taxable income and its
net tax-exempt interest income. If a Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation and its distributions
(to the extent of available earnings and profits) will be taxed to shareholders
as ordinary income (except to the extent a shareholder is exempt from tax).
The Treasury Department is authorized to issue regulations to provide
that foreign currency gains that are not directly related to a Fund's principal
business of investing in securities (or options and futures with respect to
securities) may be excluded from the income which qualifies for purposes of the
90% gross income requirement described above. To date, however, no such
regulations have been issued.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, a Fund must distribute for the
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
taxable income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
of such year, and (3) all ordinary taxable income and capital gain net income
(adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by a Fund in October,
November or December of that year to shareholders on a record date in such a
month and paid by the Fund during January of the following calendar year. Such
a distribution will be includable in the gross income of shareholders in the
calendar year in which it is declared, rather than the calendar year in which it
is received. To prevent application of the excise tax, the Funds intend to make
distributions in accordance with the calendar year distribution requirement.
A Fund's deduction for interest expense may be restricted where the
Fund invests in obligations the interest on which is exempt in whole or in part
from Federal income tax.
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<PAGE>
Distributions of investment company taxable income generally are
characterized as ordinary income. If a Fund's income consists in whole or in
part of dividends paid by U.S. corporations, a portion of the dividends paid by
a Fund may be eligible for the corporate dividends-received deduction. The
dividends-received deduction is reduced to the extent shares of a Fund or the
underlying company paying dividends to a Fund are treated as debt-financed under
the Code and is eliminated if shares are deemed to have been held for less than
46 days. In addition, dividends (including the deducted portion) are includable
in the corporate shareholder's alternative minimum taxable income. A portion of
the dividends paid by the Growth Equity Fund, Indexed Equity Fund, Multi-Asset
Fund, and Value Equity Fund, may qualify for the dividends-received deduction
available to corporations. The dividends paid by the other Funds are not
expected to so qualify. The alternative minimum tax and environmental tax
applicable to corporations may reduce the value of the dividends-received
deduction.
Distributions of net capital gains, if any, designated by a Fund as
capital gain dividends, are taxable to shareholders as long-term capital gain,
regardless of the length of time the Fund's shares have been held by a
shareholder and are not eligible for the dividends-received deduction. All
distributions are includable in the gross income of a shareholder whether
reinvested in additional shares or received in cash. Shareholders will be
notified annually as to the Federal tax status of distributions.
A Fund's distributions with respect to a given taxable year may exceed
its current and accumulated earnings and profits available for distribution. In
that event, distributions in excess of such earnings and profits would be
characterized as a return of capital to shareholders for Federal income tax
purposes, thus reducing each shareholder's cost basis in his Fund shares.
Distributions in excess of a shareholder's cost basis in his shares would be
treated as a gain realized from a sale of such shares.
Distributions by a Fund reduce the net asset value of the Fund's
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution, nevertheless, would be taxable to the shareholder
as ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
will nevertheless generally be taxable to them.
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<PAGE>
Upon the taxable disposition (including a sale or redemption) of
shares of a Fund, a shareholder may realize a gain or loss depending generally
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of shares of a Fund with respect to which capital gain dividends
have been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of a Fund on the reinvestment date.
Under the Code, gains or losses attributable to fluctuations in
foreign currency exchange rates which occur between the time a Fund accrues
income or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time a Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders
as ordinary income. For example, fluctuations in exchange rates may increase
the amount of income that a Fund must distribute in order to qualify for
treatment as a regulated investment company and to prevent application of an
excise tax on undistributed income. Alternatively, fluctuations in exchange
rates may decrease or eliminate income available for distribution. If section
988 losses exceed other investment company taxable income during a taxable year,
a Fund generally would not be able to make ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as
return of capital to shareholders for Federal income tax purposes, rather than
as an ordinary dividend, reducing each shareholder's basis in his Fund shares.
- 61 -
<PAGE>
Foreign investing involves the possibility of confiscatory taxation,
foreign taxation of income earned in the foreign nation (including withholding
taxes on interest and dividends) or other foreign taxes imposed with respect to
investments in the foreign nation.
Income received by a Fund from sources within a foreign country may be
subject to withholding and other income or similar taxes imposed by that
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to the
Funds' current investment policies and practices, only the EAFE Index Fund and
the International Equity Fund are expected to invest in foreign securities
sufficient in amount to be eligible to permit this election to be made.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
--- ----
of the foreign income and similar taxes paid by a Fund, and will be entitled
either to claim a deduction (as an itemized deduction) for his pro rata share of
--- ----
such foreign taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. Federal income taxes, subject to limitations. Foreign
taxes may not be deducted by a shareholder that is an individual in computing
the alternative minimum tax. Each shareholder will be notified within 60 days
after the close of a Fund's taxable year whether the foreign taxes paid by the
Fund will "pass-through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion of the dividend which represents income derived from
sources within each such country.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his total
foreign source taxable income. For this purpose, if a Fund makes the election
described in the preceding paragraph, the source of a Fund's income flows
through to its shareholders. With respect to the Funds, gains from the sale of
securities generally will be treated as derived from U.S. sources and section
988 gains generally will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the foreign tax
credit), including foreign source passive income received from a Fund. In
addition, the foreign tax credit may offset only 90% of the alternative minimum
tax imposed on corporations and individuals. If a Fund is not eligible to make
the election described above, the foreign income and similar taxes it pays
generally will reduce investment company
- 62 -
<PAGE>
taxable income and distributions by a Fund will be treated as United States
source income.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
A Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs").
Pursuant to the Funds' current investment policies and practices, the EAFE Index
Fund, Growth Equity Fund, International Equity Fund, Multi-Asset Fund and Value
Equity Fund are expected to invest in shares of foreign corporations. In
general, a foreign corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. If a Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself may be subject
to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which a Fund held the PFIC shares. A Fund itself
will be subject to tax on the portion, if any, of an excess distribution that is
so allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election may be available
that would involve marking to market a Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains would be treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Funds could, in limited circumstances, incur
nondeductible interest charges. Each Fund's
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<PAGE>
intention to qualify annually as a regulated investment company may limit its
elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject a Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
A Fund may invest in municipal bonds or obligations issued or
guaranteed by a state, the interest on which may be exempt from Federal income
tax. It is expected that shareholders will be subject to tax on dividends
distributed by a Fund that are derived from tax-exempt interest income.
Some of the debt securities that may be acquired by a Fund may be
treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Funds, original issue
discount on a taxable debt security earned in a given year generally is treated
for Federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by a Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any debt security acquired after April
30, 1993 or any taxable debt security acquired prior to May 1, 1993 having
market discount will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
If a Fund holds zero coupons bonds in its portfolio it will recognize
income currently for Federal tax purposes in the amount of the unpaid, accrued
interest (determined under tax rules) and generally will be required to
distribute dividends representing such income to shareholders currently, even
through funds representing such income have not been received by the Fund.
- 64 -
<PAGE>
Certain of the options, futures contracts, and forward contracts in
which the Funds may invest may be "section 1256 contracts." With certain
exceptions, gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses ("60/40"). Also,
section 1256 contracts held by a Fund at the end of each taxable year are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss generally is treated
as 60/40 gain or loss. These contracts also may be marked-to-market at other
times during the year under rules prescribed pursuant to the Code.
The transactions undertaken by the Funds involving options, futures
and forward contracts may result in "straddles" for Federal income tax purposes.
The straddle rules may affect the character of gains (or losses) realized by a
Fund. In addition, losses realized by a Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the tax consequences to the Funds of transactions
involving options, futures and forward contracts are not entirely clear. These
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
The Funds may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Fund that did not engage in such transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Funds eligible to enter into swap agreements intend to account for such
transactions in a manner deemed to be appropriate, the Internal Revenue Service
("IRS") might not accept such treatment. If it did not, the status of a Fund as
a regulated
- 65 -
<PAGE>
investment company might be affected. It is possible that developments in the
swap market and the laws relating to swaps, including potential government
regulation, could have tax consequences. The Funds intend to monitor
developments in this area.
Certain requirements that must be met under the Code in order for a
Fund to qualify as a regulated investment company may limit the extent to which
a Fund will be able to engage in transactions in options, futures, forward
contracts, and swaps.
If a Fund sells short "against the box," it may realize a capital gain
or loss upon the closing of the sale. Such gain or loss generally will be long-
or short-term depending upon the length of time the Fund held the security which
it sold short. In some circumstances, short sales may have the effect of
reducing an otherwise applicable holding period of a security in the portfolio.
Were that to occur, the affected security would again have to be held for the
requisite period before its disposition to avoid treating that security as
having been sold within the first three months of its holding period.
Each Fund is required to report to the IRS all distributions except in
the case of certain exempt shareholders. All such distribution and redemption
proceeds generally are subject to withholding of Federal income tax at a rate of
31% ("backup withholding") in the case of non-exempt shareholders if (1) the
shareholder fails to furnish the Fund with and to certify the shareholder's
correct taxpayer identification number, (2) the IRS notifies the Fund or
shareholder that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect, or (3)
when required to do so, the shareholder fails to certify that he is not subject
to backup withholding. If the withholding provisions are applicable, any such
distributions, whether reinvested in additional shares or taken in cash, will be
reduced by the amounts required to be withheld. Backup withholding is not an
additional tax and any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability. Investors may wish to consult
their tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
----
corporations, partnerships, trusts and estates). Distributions by the Funds
also may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisers with respect to particular
questions of Federal, state and local taxation.
- 66 -
<PAGE>
Shareholders who are not U.S. persons should consult their tax advisers
regarding U.S. and foreign tax consequences of ownership of shares of the Funds
including the likelihood that distributions to them would be subject to
withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
PERFORMANCE INFORMATION
The Company may, from time to time, include the yield and effective
yield of its Money Market Fund, the yield of the other Funds, and the total
return of all Funds in advertisements, sales literature, or reports to
shareholders or prospective investors.
Current yield for the Money Market Fund will be based on the change in
the value of a hypothetical investment (exclusive of capital charges) over a
particular seven-day period, less a pro rata share of Fund expenses accrued
--- -----
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
"Effective yield" for the Money Market Fund assumes that all dividends received
during an annual period have been reinvested. Calculation of "effective yield"
begins with the same "base period return" used in the calculation of yield,
which is then annualized to reflect weekly compounding pursuant to the following
formula:
Effective Yield = [(Base Period Return + 1)to the 365/7th power] - 1
The current and effective seven-day average yields as of December 27,
1995 for the Money Market Fund were 5.34% and 5.48%, respectively, for the
Institutional Class, and were 5.08% and 5.21%, respectively, for the
Institutional Service Class. Had certain expenses not been assumed by the
Administrator, these yields would have been 5.21% and 5.34%, respectively, for
the Institutional Class, and 4.95% and 5.08%, respectively, for the
Institutional Service Class.
Quotations of yield for the other Funds will be based on all
investment income per share earned during a particular 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per
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<PAGE>
share on the last day of the period, according to the following formula:
2[(a - b + 1) to the 6th power - 1]
-----
cd
where a = dividends and interest earned during the
period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of shares outstanding
during the period that were entitled to
receive dividends, and
d = the maximum offering price per share on the
last day of the period.
For the 30-day period ended December 31, 1995, the yield for the Short-Term
Bond Fund was 5.46% for the Institutional Class, and was 5.59% for the
Institutional Service Class.
Quotations of average annual total return for a Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over certain periods that will include a period of one
year (or, if less, up to the life of the Fund), calculated pursuant to the
following formula: P(1 + T)/n/ = ERV (where P = a hypothetical initial payment
of $1,000, T = the total return for the period, n = the number of periods, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). Quotations of total return may also be shown for
other periods. All total return figures reflect the deduction of a proportional
share of Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid.
- 68 -
<PAGE>
The average annual total return of the following Funds for the one-year and
five-year periods ended December 31, 1995 and the period from inception to
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Five Years Average Annual
Year Ended Ended Total Return
Fund 12/31/95 12/31/95 Since Inception
- -------------------------------------- ---------- ---------- ---------------
<S> <C> <C> <C>
EAFE Index Fund
Institutional Class (1).......... 9.03% 7.74% 7.74%
Institutional Service Class(2). 8.63% 7.66% 7.66%
Growth Equity Fund
Institutional Class (1).......... 37.88% 21.12% 21.12%
Institutional Service Class(2). 37.50% 21.05% 21.05%
Indexed Equity Fund
Institutional Class (1).......... 36.88% 16.02% 16.02%
Institutional Service Class(2). 36.70% 15.99% 15.99%
International Equity Fund
Institutional Class (3).......... 7.17% N/A 7.17%
Institutional Service Class(3). 6.86% N/A 6.86%
Multi-Asset Fund
Institutional Class (1).......... 26.81% 11.55% 11.55%
Institutional Service Class(2). 26.70% 11.53% 11.53%
Value Equity Fund
Institutional Class (1).......... 29.42% 19.94% 19.94%
Institutional Service Class(2). 29.32% 19.92% 19.92%
Bond Fund
Institutional Class (1).......... 17.88% 8.69% 8.69%
Institutional Service Class(2). 17.55% 8.63% 8.63%
Indexed Bond Fund
Institutional Class (1).......... 18.07% 8.95% 8.95%
Institutional Service Class(3). 17.97% 8.94% 8.94%
International Bond Fund
Institutional Class (3).......... 18.46% N/A 18.46%
Institutional Service Class(3). 18.26% N/A 18.26%
Short Term Bond Fund
Institutional Class (1).......... 10.27% 6.58% 6.58%
Institutional Service Class(2). 10.07% 6.54% 6.54%
</TABLE>
(1) The inception date of these Institutional Class shares is 1/2/91.
(2) Performance figures for the Institutional Service Class, first offered to
the public on 1/1/95, include the historical performance of the Institutional
Class from the Funds' inception (1/2/91) up to 12/31/94.
(3) The inception date of the International Equity Fund and International Bond
Fund shares is 1/1/95.
Performance information for a Fund may be compared, in advertisements,
sales literature, and reports to shareholders to: (i) the S&P 500, the Salomon
Brothers Broad Investment Grade Bond Index, the Dow Jones Industrial Average,
for the Money Market Series, Donoghue Money Market Institutional Averages, for
the Short-Term Bond Fund, the Salomon Brothers 1-3 Year Treasury Index,
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<PAGE>
for those Funds with investments in fixed-income securities, the Shearson Lehman
Brothers Government Corporate Index, for the EAFE Index Fund and the
International Equity Fund, the Morgan Stanley Capital International's EAFE
Index, for the International Bond Fund, the Salomon Brothers After Tax Non-U.S.
Government Bond Index, or other unmanaged indices, so that investors may compare
a Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank mutual funds on
overall performance or other criteria; (iii) the Consumer Price Index (measure
for inflation) to assess the real rate of return from an investment in the
Funds; and (iv) such other measurers as may be devised by New York Life or its
affiliates as permitted by applicable law or regulation. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses. The Salomon Brothers After
Tax Non-U.S. Government Bond Index takes into account the deduction of foreign
withholding taxes in calculating performance, as does the International Bond
Fund.
Investment vehicles and products sponsored or offered by New York Life,
such as New York Life's International Equity Account, New York Life's
Convertible Securities Account, New York Life's Large Cap Convertible Securities
Account and various types of Guaranteed Investment Contracts, may be described
in advertisements for the Funds.
From time to time, advertisements for the Funds may include general
information about the services and products offered by the Funds, The MainStay
Funds, and New York Life and its subsidiaries. For example, such advertisements
may include statistical information about those entities, including but not
limited to, the number of current shareholder accounts, assets under management,
sales information, the distribution channels through which the entities'
products are available, marketing efforts, and statements about this information
by the entities' officers, directors and employees.
- 70 -
<PAGE>
OTHER INFORMATION
CAPITALIZATION
The Funds are separate portfolios of the Company, an open-end
management investment company, incorporated under the laws of Maryland on
September 21, 1990. The Company was formerly known as New York Life
Institutional Funds Inc. On January 3, 1995 the name of the Company was changed
to its present form. The Board of Directors may establish additional portfolios
(with different investment objectives and fundamental policies) at any time in
the future. Establishment and offering of additional portfolios will not alter
the rights of the Company's shareholders. When issued, shares are fully paid,
non-assessable, redeemable, and freely transferable.
EFFECTIVE MATURITY
Certain Funds may use an effective maturity for determining the
maturity of their portfolio. Effective maturity means the average expected
repayment date of the portfolio taking into account prospective calls, puts and
mortgage prepayments, in addition to the maturity dates of the securities in the
portfolio.
BENEFICIAL OWNERSHIP OF THE FUNDS
The following table sets forth the information concerning beneficial
ownership, as of March 31, 1996, of the Funds' shares by each person who
beneficially owned more than 5% of the voting securities of any Fund:
<TABLE>
<CAPTION>
Shares Percentage of
Name and Address Beneficially Outstanding
of Shareholder Fund Owned/1/ Shares Owned/2/
- ---------------------------------------------- -------------------- ------------ ----------------
<S> <C> <C> <C>
Trustees of the New York Life Insurance Bond 5,855,499 32.0%
Company Retirement Plan and Pension Growth Equity 4,631,161 21.2%
Plan Indexed Bond 3,830,942 30.0%
51 Madison Avenue Indexed Equity 5,923,931 25.5%
New York, NY 10010 International Bond 3,114,083 78.0%
International Equity 1,168,438 12.2%
Value Equity 15,364,650 34.9%
Trustees of the New York Life Insurance Bond 1,821,659 10.0%
Company Retirement Plan Trust Growth Equity 3,161,302 14.5%
51 Madison Avenue Indexed Bond 1,313,982 10.2%
New York, NY 10010 Indexed Equity 5,870,055 25.3%
International Bond 778,520 19.5%
International Equity 2,141,991 22.4%
Value Equity 9,462,752 21.5%
</TABLE>
- 71 -
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Name and Address Beneficially Outstanding
of Shareholder Fund Owned/1/ Shares Owned/2/
- ---------------------------------------------- -------------------- ------------ ----------------
<S> <C> <C> <C>
New York Life Insurance Company/3/ EAFE Index 3,438,888 58.3%
51 Madison Avenue Indexed Bond 3,330,728 25.8%
New York, NY 10010 Multi-Asset 7,323,719 30.6%
Indexed Equity 1,862,553 8.0%
The Pension Board of the United Food Bond 1,762,959 9.6%
and Commercial Workers International
Union Retirement Plan for Employees
as Amended From Time to Time
1775 K Street, N.W.
Washington, D.C. 20006
Banker's Trust Company as Trustee of Money Market 5,421,052 6.0%
The Lockwood Greene Engineer's Inc. Short-Term Bond 757,344 9.5%
Retirement Trust
1500 International Drive
Spartanburg, NY 29304
Trustee of Heavy & General Laborers Money Market 6,924,818 7.7%
Pension Fund Local 472 & 172
700 Raymond Blvd.
Newark, NJ 07105
Trustees of the Lone Star Hourly Money Market 4,537,896 5.0%
Retirement Plan, Day & Zimmermann, Inc.
1818 Market Street
Philadelphia, PA 19103
Trustees of Clay Electric Cooperative, Inc. Short-Term Bond 556,086 7.0%
P. O. Box 308
Keystone Heights, FL 32656
New York Life Insurance Company Money Market 7,271,947 8.1%
Separate Account #20
51 Madison Avenue
New York, NY 10010
Trustees of the New York Life Insurance Growth Equity 4,934,858 22.6%
Co. Employee Progress Sharing Investment Indexed Equity 1,516,504 6.5%
Plan Trust Multi-Asset 1,510,182 6.3%
51 Madison Avenue
New York, NY 10010
</TABLE>
- 72 -
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Name and Address Beneficially Outstanding
of Shareholder Fund Owned/1/ Shares Owned/2/
- ---------------------------------------------- -------------------- ------------ ----------------
<S> <C> <C> <C>
Trustees of the New York Life Insurance Growth Equity 2,627,699 12.0%
Company Agents Progress Sharing
Investment Plan Trust
51 Madison Avenue
New York, NY 10010
New York Life Ins. Co. Employees' Health EAFE Index 323,645 5.5%
and Life Benefit Trust - (Health Benefits)
51 Madison Avenue
New York, NY 10010
New York Life Ins. Co. Agents' Health EAFE Index 330,627 5.6%
and Life Benefit Trust - (Health Benefits)
51 Madison Avenue
New York, NY 10010
Plastics Engineering Company EAFE Index 528,273 8.9%
P. O. Box 758
Sheboygan, WI 53082-0758
NYL Trust Company - Client Accounts Growth Equity 1,760,612 8.1%
51 Madison Avenue Money Market 12,012,410 13.4%
New York, NY 10010 Multi-Asset 1,562,320 6.5%
Value Equity 2,407,975 5.5%
NYLIFE Inc. Short-Term Bond 2,401,963 30.2%
51 Madison Avenue
New York, NY 10010
BHC Securities Inc. Money Market 8,201,867 9.1%
2005 Market Street
One Commerce Square
Philadelphia, PA 19103
</TABLE>
____________________________
(1) This information, not being within the knowledge of the Company,
has been furnished by each of the above persons. Beneficial ownership is as
defined under Section 13(d) of the Securities Exchange Act of 1934. Fractional
shares have been omitted.
(2) Only the ownership of at least one-tenth of one percent is
listed.
- 73 -
<PAGE>
(3) Jean Hoysradt has the power to vote all of the shares shown in the
above table owned by New York Life. Ms. Hoysradt disclaims beneficial ownership
of such shares.
Consequently, Trustees of the New York Life Insurance Company
Retirement Plan and Pension Plan may be presumed to "control" the Bond Fund, the
Indexed Bond Fund, the Indexed Equity Fund, the International Bond Fund and the
Value Equity Fund, as that term is defined in the 1940 Act. Similarly, the
Trustees of the New York Life Insurance Company Retirement Plan Trust may be
presumed to "control" the Indexed Equity Fund. New York Life may be presumed to
"control" the EAFE Index Fund, the Indexed Bond Fund, and the Multi-Asset Fund.
NYLIFE Inc. may be presumed to control the Short-Term Bond Fund.
As of March 31, 1996, the Directors and officers of the Company as a
group owned less than 1% of the shares of any Fund.
CODE OF ETHICS
The Company has adopted a Code of Ethics governing personal trading
activities of all Directors, officers of the Company and persons who, in
connection with their regular functions, play a role in the recommendation of
any purchase or sale of a security by the Company or obtain information
pertaining to such purchase or sale or who have the power to influence the
management or policies of the Company or an Investment Adviser unless such power
is the result of their position with the Company or Investment Adviser. Such
persons are generally required to preclear all security transactions with the
Company's Compliance Officer or his designee and to report all transactions on a
regular basis. The Company has developed procedures for administration of the
Code.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as independent accountants of the Company.
LEGAL COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares offered by the
Company, and also acts as counsel to the Company.
FINANCIAL STATEMENTS
The Company's financial statements for the Funds, including the
Statements of Assets and Liabilities, the Portfolios of
- 74 -
<PAGE>
Investments and the Statements of Operations for the year ended December 31,
1995, and the Statements of Changes in Net Assets for the years ended December
31, 1995 and December 31, 1994, the notes to the Financial Statements, and the
Report of the Independent Accountants, all of which are included in the 1995
Annual Report to Shareholders, are hereby incorporated by reference into this
Statement of Additional Information.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Company's registration statement
filed with the SEC under the Securities Act of 1933 with respect to the
securities offered hereby, certain portions of which have been omitted pursuant
to the rules and regulations of the SEC. The registration statement, including
the exhibits filed therewith, may be examined at the offices of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents
of any contract or other documents referred to are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
- 75 -
<PAGE>
MAINSTAY INSTITUTIONAL FUNDS INC.
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements:
Included in Part A of this Registration Statement:
Financial Highlights for the period January 2, 1991 (commencement of
operations) through December 31, 1991, for the years ended December
31, 1992, 1993, 1994, and 1995.
Incorporated by reference in Part B of this Registration Statement:
Statement of Assets and Liabilities at December 31, 1995.
Statement of Operations for the year ended December 31, 1995.
Statement of Changes in Net Assets for the years ended December 31,
1994 and 1995.
Notes to Financial Statements
Portfolio of Investments at December 31, 1995
All other financial statements and schedules are not required, not
applicable or the required information is shown in financial
statements or the notes thereto.
b. Exhibits:
1. (a) Articles of Incorporation/1/
(b) Articles Supplementary/2/
(c) Articles of Amendment/5/
(d) Form of Articles Supplementary/7/
(e) Articles of Amendment/8/
2. By-laws/1/
3. Inapplicable
4. Specimen Certificates for Common Stock/3/
5. Form of Master Investment Advisory Agreement/2/
<PAGE>
(a) Form of Supplements to Investment Advisory Agreement for the
International Bond Fund and the International Equity Fund/7/
6. Distribution Agreement/6/
7. Inapplicable
8. Form of Custodian Contract/7/
9. (a) Form of Transfer Agency and Service Agreement/2/
(b) Form of Master Administrative Agreement/2/
(c) Form of License Agreement/2/
(d) Form of Supplements to Administrative Services Agreement for the
International Bond Fund and the International Equity Fund/7/
(e) Master Subadministration Agreement/10/
(f) Subadministration Agreement Supplements/10/
10. Opinion and consent of counsel/4/
11. Consent of Independent Accountants
12. Inapplicable
13. Initial Subscription Agreement/3/
14. Inapplicable
15. (a) Form of Account Application/3/
(b) Form of Shareholder Services Plan/7/
(c) Shareholder Services Plan/10/
16. Inapplicable
17. Financial Data Schedules
(a) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Money Market Fund -- Institutional Class
(b) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Money Market Fund -- Institutional Service Class
(c) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Short-Term Bond Fund -- Institutional Class
(d) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Short-Term Bond Fund -- Institutional Service Class
(e) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Bond Fund --Institutional Class
C-2
<PAGE>
(f) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Bond Fund --Institutional Service Class
(g) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Indexed Bond Fund -- Institutional Class
(h) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Indexed Bond Fund -- Institutional Service Class
(i) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Multi-Asset Fund -- Institutional Class
(j) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Multi-Asset Fund -- Institutional Service Class
(k) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Value Equity Fund -- Institutional Class
(l) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Value Equity Fund -- Institutional Service Class
(m) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Growth Equity Fund -- Institutional Class
(n) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Growth Equity Fund -- Institutional Service Class
(o) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Indexed Equity Fund -- Institutional Class
(p) Financial Data Schedule for the fiscal year ended December 31,
1995 -- Indexed Equity Fund -- Institutional Service Class
(q) Financial Data Schedule for the fiscal year ended December 31,
1995 -- EAFE Index Fund -- Institutional Class
(r) Financial Data Schedule for the fiscal year ended December 31,
1995 -- EAFE Index Fund --Institutional Service Class
(s) Financial Data Schedule for the fiscal year ended December 31,
1995 -- International Bond Fund -- Institutional Class
(t) Financial Data Schedule for the fiscal year ended December 31,
1995 -- International Bond Fund -- Institutional Service Class
(u) Financial Data Schedule for the fiscal year ended December 31,
1995 -- International Equity Fund -- Institutional Class
(v) Financial Data Schedule for the fiscal year ended December 31,
1995 -- International Equity Fund -- Institutional Service
Class
C-3
<PAGE>
18. Form of Multiple Class Plan/9/
- ---------------------
1. Filed with Registration Statement No. 33-36962 on September 21, 1990.
2. Filed with Pre-Effective Amendment No. 1 to Registration Statement No. 33-
36962 on November 19, 1990.
3. Filed with Pre-Effective Amendment No. 2 to Registration Statement No. 33-
36962 on December 26, 1990.
4. Previously filed with Rule 24f-2 Notice.
5. Filed with Post-Effective Amendment No. 4 to Registration Statement No.
33-36962 on November 2, 1992.
6. Filed with Post-Effective Amendment No. 6 to Registration Statement No.
33-36962 on April 29, 1994.
7. Filed with Post-Effective Amendment No. 7 to Registration Statement No.
33-36962 on October 14, 1994.
8. Filed with Post-Effective Amendment No. 8 to Registration Statement No.
33-36962 on December 29, 1994.
9. Filed with Post-Effective Amendment No. 10 to Registration Statement No.
33-36962 on April 28, 1995.
10. Filed with Post-Effective Amendment No. 12 to Registration Statement No.
33-36962 on February 28, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.
The following chart indicates the persons controlled by New York Life:
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
- ---------------------------------------------- --------------- ------------------
<S> <C> <C>
Aegis Technologies, Inc., which owns 100% of Delaware 94.15%
the shares of:
PFA Financial Centers, Inc.
Eagle Strategies Corporation Arizona 100%
Greystone Realty Corporation which owns 100% Delaware 100%
of the shares of:
Greystone Realty Advisors, Inc.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
_____ --------------- ----------------
<S> <C> <C>
Greystone Realty Finance, Inc.
Greystone Realty Management, Inc.
Greystone Realty Partners, Inc.
Greystone Realty Investors, Inc.
NYLIFE Administration Corp. Texas 100%
(doing business as NYLACOR)
MacKay-Shields Financial Corporation Delaware 100%
MSC Holding, Inc. (formerly Magnus Software Georgia 83.8%
Corporation, Inc.)
The MainStay Funds Massachusetts ***
Monitor Capital Advisors, Inc. Delaware 100%
NAFCO Inc. Delaware 100%
which owns 83.33% of NYLIFE
Structured Asset Management Company Ltd.
New York Life Capital Corporation New York 100%
New York Life Fund, Inc. New York *
New York Life Insurance and Annuity Delaware 100%
Corporation
New York Life International Investment Inc. Delaware 100%
which owns 100% of the shares of:
Monetary Research Ltd. Bermuda
and 100% of the shares of:
Quorum Capital Management Limited which United Kingdom
owns 33.345% of the shares of:
Japan Gamma Asset Management Limited Japan
New York Life MFA Series Fund, Inc. Maryland *
New York Life Settlement Corporation Delaware 100%
New York Life Worldwide Holding, Inc., Delaware 100%
which owns 100% of the shares of:
New York Life Worldwide Capital, Inc.
New York Life Worldwide Development,
Inc.
New York Life Worldwide (Bermuda) Ltd. Bermuda
New York Life Insurance Worldwide Ltd.
and owns 99.97% of the shares of
New York Life (U.K.) Ltd., which owns United Kingdom
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
- ---------------------------------------------- --------------- ------------------
<S> <C> <C>
100% of the shares of:
Windsor Insurance Services Limited
Life Assurance Management
Corporation
Windsor Broking Services Limited
Windsor Pension Trust Managers
Limited
Windsor Home Loans Limited
Windsor Trust Managers Limited
Windsor Investment Management Limited,
which owns 100% of the shares of
WIM (Nominees) Limited
Windsor Estate Agency Limited
Windsor Starter Homes Limited
Windsor Commercial Loans Limited
Windsor Life Limited
Gresham Unit Trust Managers Limited
Gresham Mortgage Limited
Gresham Trustees Limited
Gresham Financial Services Limited;
Windsor (U.K.) Holding Co., Ltd., which
owns 100% of the shares of:
Windsor Financial Management
International Ltd.
Windsor Unit Trust Nominees, Ltd.
Windsor Unit Trust, Ltd.
Windsor Investment Management,
Ltd.
Windsor Life Insurance Co., Ltd.,
which owns 100% of the shares of:
Aetna Pension Trustees, Ltd.
and owns 51% of the shares of:
KOHAP New York Life South Korea
Insurance Ltd. and owns 50.2%
of the shares of:
P.T. Asuransi Jiwa Sewu-New Indonesia
York Life and owns 35% of the
shares of:
GEO New York Life, S.A. and Mexico
owns 31.25% of the shares of:
Life Assurance Holding United Kingdom
Corporation Limited, which
owns 100% of the shares of:
Windsor Life Assurance
Company Limited
Gresham Life Assurance Society
Limited
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
- ---------------------------------------------- --------------- ------------------
<S> <C> <C>
NYLCO, Inc. New York 100%
NYLIFE Depositary Corporation which owns Delaware 100%
16.67% of NYLIFE Structured Asset Texas
Management Company Ltd.
NYL Benefit Services Company, Inc. which owns Massachusetts 100%
100% of ADQ Insurance Agency Inc.
NYL Trust Company Massachusetts 100%
NYLICO, Inc. New York 100%
(formerly New York Life Capital Corp.)
NYLIFE Distributors Inc. Delaware 100%
NYLIFE Equity Inc. Delaware 100%
NYLIFE Funding Inc. Delaware 100%
NYLIFE Healthcare Management Inc., which Delaware
owns 71.4% of total combined stock and 96.1%
of the voting rights of:
Express Scripts, Inc., which owns 100% of
the shares of:
Great Plains Reinsurance Company Arizona
Practice Patterns Science, Inc. Delaware
ESI Canada Holdings, Inc., which owns Canada
100% of the shares of:
ESI Canada, Inc.
IVTx of Houston Texas
IVTx of Dallas
NYLCare Health Plans, Inc. Delaware
(formerly Sanus Corp. Health Systems),
which owns 100% of the shares of:
New York Life and Health Insurance Company
Avanti Health Systems, Inc., which owns Texas
100% of the shares of:
Avanti of the District, Inc. Maryland
Avanti of Illinois, Inc. Illinois
Avanti of New York, Inc. New York
Avanti of New Jersey, Inc. New Jersey
and owns 80% of the shares of:
NYLCare Health Plans of the Mid- Maryland
Atlantic, Inc., which owns 100% of the
shares of:
Physicians Health Services
Foundation, Inc.
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
- ---------------------------------------------- --------------- ------------------
<S> <C> <C>
HealthPlus-D.C., Inc. District of Columbia
Lonestar Holding Co., which owns 100% Delaware
of the shares of:
Lone Star Health Plan, Inc., which Texas
owns 100% of the shares of:
NYLCare Health Plans of the
Gulf Coast, Inc.
Prime Provider Corp., which owns 100% New York
of the shares of:
Prime Provider Corp. of Texas Texas
Sanus of Connecticut, Inc. Connecticut
Sanus Dental Plan of New Jersey, Inc. New Jersey
Sanus Dental Plan of Texas, Inc. Texas
NYLCare Health Plans of New York, New York
Inc.
NYLCare Health Plans of Connecticut, Inc. Connecticut
NYLCare Health Plans of the Midwest, Inc. Illinois
NYLCare Health Plans of New Jersey, Inc. New Jersey
Sanus of Texas, Inc., which owns 100% Texas
of the shares of:
Sanus Preferred Physicians, Inc.
Sanus Preferred Providers West, Inc. California
Sanus Preferred Services, Inc. Maryland
Sanus Preferred Services of Illinois, Inc. Illinois
NYLCare Health Plans of the Southwest, Texas
Inc.
Sanus Reinsurance Company Arizona
Sanus - New England, Inc. Delaware
and owns 99.98% of the shares of:
NYLCare Health Plans of Louisiana, Inc. Louisiana
Sanus of Maine, Inc. Delaware
Sanus - Northeast, Inc.
NYLCare Health Plans of Maine, Inc. Maine
WellPath of Carolina, Inc. Delaware
WellPath Community Health Plans, Inc. North Carolina
Sanus of New York and New Jersey, Inc. New York
The ETHIX Corporation, which owns Delaware
100% of the shares of:
ETHIX Assist, Inc. Oregon
ETHIX Great Lakes, Inc. Michigan
ETHIX Mid-Atlantic, Inc., which Pennsylvania
owns 100% of the shares of:
PriMed, Inc. New Jersey
ETHIX Midlands, Inc. Delaware
ETHIX Mid-Rivers, Inc. Missouri
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
- ---------------------------------------------- --------------- ------------------
<S> <C> <C>
ETHIX National, Inc. Oregon
ETHIX Northwest Public Services, Washington
Inc.
NYLCare Health Plans of the
Northwest, Inc., which owns 100%
of the shares of:
NYLCare Plus, Inc.
ETHIX Pacific, Inc. Oregon
ETHIX Risk Management, Inc.
ETHIX Southeast, Inc. and owns North Carolina
80% of the shares of:
ETHIX Southwest, Inc. Texas
NYLCare NC Holdings, Inc., which owns Delaware
50% of the shares of:
Wellpath Community Health Plans North Carolina
Holdings, LLC
NYLCare of Maine, L.P. Maine
NYLIFE Inc. New York 100%
NYLIFE Insurance Company of Arizona Arizona 100%
NYLIFE Realty Inc. which owns 100% of the Delaware 100%
shares of: CNP Realty Investments, Inc. Delaware
NYLIFE Refinery, Inc. Delaware 100%
NYLIFE Resources Inc. Delaware 100%
NYLIFE Securities Inc. New York 100%
NYLTEMPS Inc. Delaware 100%
</TABLE>
_____________________
+ By including the indicated corporations in this list, New York Life is not
stating or admitting that said corporations are under its actual control;
rather, these corporations are listed here to ensure full compliance with
the requirements of this Form N-1A.
* New York Life serves as investment adviser to these entities, the shares of
which are held of record by separate accounts of New York Life (for the New
York Life Fund, Inc.) and NYLIAC (for the New York Life MFA Series Fund,
Inc.). New York Life disclaims any beneficial ownership and control of
these entities.
** New York Life Foundation does not issue voting securities.
*** MacKay-Shields Financial Corporation and Monitor Capital Advisors, Inc.
serve as investment advisers to this entity.
C-9
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1996, the number of record holders of each class of
securities of the Registrant were as follows:
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- --------------
Shares of Common Stock:
Bond Fund
Institutional Class 148
Institutional Service Class 4
EAFE Index Fund
Institutional Class 125
Institutional Service Class 2
Growth Equity Fund
Institutional Class 245
Institutional Service Class 9
Indexed Bond Fund
Institutional Class 67
Institutional Service Class 3
Indexed Equity Fund
Institutional Class 147
Institutional Service Class 5
International Bond Fund
Institutional Class 8
Institutional Service Class 2
International Equity Fund
Institutional Class 19
Institutional Service Class 6
Money Market Fund
Institutional Class 216
Institutional Service Class 7
Multi-Asset Fund
Institutional Class 260
Institutional Service Class 7
Short-Term Bond Fund
Institutional Class 145
Institutional Service Class 4
Value Equity Fund
Institutional Class 348
Institutional Service Class 8
C-10
<PAGE>
ITEM 27. INDEMNIFICATION
Reference is made to Article VI of the Registrant's By-Laws (Exhibit 2),
and Article VII, Section 2 of the Registrant's Articles of Incorporation
(Exhibit 1), which are incorporated by reference herein.
ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISERS
The business of MacKay-Shields Financial Corporation is summarized under
"Management of the Funds -- Investment Advisers" in the Prospectus constituting
Part A of this Registration Statement, which summary is incorporated herein by
reference.
The business or other connections of each director and officer of MacKay-
Shields Financial Corporation is currently listed in the investment adviser
registration on Form ADV for MacKay-Shields Financial Corporation (File No. 801-
5594) and is hereby incorporated herein by reference thereto.
The business of Monitor Capital Advisors, Inc. is summarized under
"Management of the Funds -- Investment Advisers" in the Prospectus constituting
Part A of this Registration Statement, which summary is incorporated herein by
reference.
The business or other connections of each director and officer of Monitor
Capital Advisors, Inc. is currently listed in the investment adviser
registration on Form ADV for Monitor Capital Advisors, Inc. (File No. 801-34412)
and is hereby incorporated herein by reference thereto.
The business of New York Life Insurance Company is summarized under
"Management of the Funds -- Investment Advisers" in the Prospectus constituting
Part A of this Registration Statement, which summary is incorporated herein by
reference.
The business or other connections of each director and officer of New York
Life Insurance Company is currently listed in the investment adviser
registration on Form ADV for New York Life Insurance Company (File No. 801-
19525) and is hereby incorporated herein by reference thereto.
C-11
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
a. NYLIFE Distributors Inc. also acts as the principal underwriter for The
MainStay Funds (File No. 33-2610) and NYLIAC Variable Universal Life
Separate Accounts I and II.
<TABLE>
<CAPTION>
b. (3)
(1) (2) Position(s) and
Name and principal Position(s) and office(s) office(s) with
business address with NYLIFE Distributors Inc. registrant
- ------------------------------ ---------------------------------- ---------------------
<S> <C> <C>
Boyce, Jefferson C. Director Senior Vice President
51 Madison Avenue
New York, NY 10010
Adasse, Louis H. Corporate Vice President None
51 Madison Avenue,
New York, NY 10010
Boyle, Patrick G. Director Director
260 Cherry Hill Road
Parsippany, NJ 07054
Kane, Alice T. Director Chairperson and
51 Madison Avenue Director
New York, NY 10010
Wecker, Richard A. Director None
51 Madison Avenue
New York, NY 10010
Polis, Anthony W. Vice President and Chief Treasurer, Chief
Morris Corporate Financial Officer Financial and
Center I, Building A Accounting Officer
300 Interpace Parkway
Parsippany, NJ 07054
Calhoun, Jay S. Vice President and Treasurer None
51 Madison Avenue
New York, NY 10010
Ubl, Walter W. Director and Senior Vice President None
260 Cherry Hill Road
Parsippany, NJ 07054
Warga, Thomas J. Senior Vice President and General None
51 Madison Avenue Auditor
New York, NY 10010
Livornese, Linda M. Vice President President
51 Madison Avenue
New York, NY 10010
Zuccaro, Richard W. Tax Vice President Tax Vice President
51 Madison Avenue
New York, NY 10010
Brady, Robert E. Vice President None
260 Cherry Hill Road
Parsippany, NJ 07054
</TABLE>
C-12
<PAGE>
<TABLE>
(3)
(1) (2) Position(s) and
Name and principal Position(s) and office(s) office(s) with
business address with NYLIFE Distributors Inc. registrant
- ------------------------------ ---------------------------------- ---------------------
<S> <C> <C>
Mistero, Frank Vice President None
260 Cherry Hill Road
Parsippany, NJ 07054
Miller, Paul C. Corporate Vice President None
260 Cherry Hill Road
Parsippany, NJ 07054
O'Byrne, John H. Vice President and Chief None
51 Madison Avenue Compliance Officer
New York, NY 10010
Daoust, George R. Assistant Vice President None
Morris Corporate
Center I, Building A
300 Interpace Parkway
Parsippany, NJ 07054
Arizmendi, Arphiela Assistant Vice President Assistant Treasurer
Morris Corporation
Center I, Building A
300 Interpace Parkway
Parsippany, NJ 07054
Cirillo, Antoinette B. Assistant Vice President Assistant Treasurer
Morris Corporate
Center I, Building A
300 Interpace Parkway
Parsippany, NJ 07054
Lorito, Geraldine Assistant Vice President Assistant Treasurer
Morris Corporate
Center I, Building A
300 Interpace Parkway
Parsippany, NJ 07054
Kearney, Sheila J. Assistant Secretary None
51 Madison Avenue
New York, NY 10010
Brenner, Nancy Secretary Assistant Secretary
51 Madison Avenue
New York, NY 10010
c. Inapplicable.
</TABLE>
C-13
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant, and New York Life
Insurance Company, 51 Madison Avenue, New York, NY 10010, at the offices of
NYLIFE Distributors Inc. Morris Corporate Center I, Building A, 300 Interpace
Parkway, Parsippany NJ 07054, at the offices of Monitor Capital Advisors, Inc.,
504 Carnegie Center, Princeton, NJ 08540-6242, and at the offices of MacKay-
Shields Financial Corporation, 9 West 57th Street, New York, NY 10019. Records
relating to the duties of the custodian for the Funds are maintained by The Bank
of New York, 90 Washington Street, New York, NY 10286. Records relating to the
duties of the Registrant's transfer agent are maintained by Boston Financial
Data Services, 2 Heritage Drive, North Quincy, MA 02171.
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
ITEM 32. UNDERTAKINGS.
c. The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 13 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington
in the District of Columbia, on the 29th day of April, 1996.
MAINSTAY INSTITUTIONAL FUNDS INC.
By: _________________________________
Linda M. Livornese*
President
*By: /s/ Jeffrey L. Steele
-----------------------------
Jeffrey L. Steele
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 13 to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
____________________ Director April 29, 1996
Alice T. Kane*
____________________ Director April 29, 1996
Patrick G. Boyle*
____________________ Director April 29, 1996
Lawrence Glacken*
____________________ Director April 29, 1996
Robert P. Mulhearn*
<PAGE>
Signature Title Date
- --------- ----- ----
____________________ Director April 29, 1996
Susan B. Kerley*
____________________ President April 29, 1996
Linda M. Livornese* (Principal
Executive
Officer)
____________________ Treasurer April 29, 1996
Anthony W. Polis* (Principal
Financial
and Accounting
Officer)
*By: /s/ Jeffrey L. Steele
-------------------------------
Jeffrey L. Steele
as Attorney-in-Fact
* Powers of Attorney filed with the initial Registration Statement No. 33-
36962 on September 21, 1990, with Pre-Effective Amendment No. 2 to the
Registration Statement on December 26, 1990, and with Post-Effective
Amendment No. 7 to the Registration Statement on October 14, 1994,
incorporated by reference within.
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT ITEM NO.
------- -------
Consent of Independent Accounts 11
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Money Market Fund -- Institutional Class 17(a)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Money Market Fund -- Institutional Service Class 17(b)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Short-Term Bond Fund -- Institutional Class 17(c)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Short-Term Bond Fund -- Institutional Service Class 17(d)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Bond Fund -- Institutional Class 17(e)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Bond Fund -- Institutional Service Class 17(f)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Indexed Bond Fund -- Institutional Class 17(g)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Indexed Bond Fund -- Institutional Service Class 17(h)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Multi-Asset Fund -- Institutional Class 17(i)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Multi-Asset Fund -- Institutional Service Class 17(j)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Value Equity Fund -- Institutional Class 17(k)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Value Equity Fund -- Institutional Service Class 17(l)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Growth Equity Fund -- Institutional Class 17(m)
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT ITEM NO.
------- -------
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Growth Equity Fund -- Institutional Service Class 17(n)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Indexed Equity Fund -- Institutional Class 17(o)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- Indexed Equity Fund -- Institutional Service Class 17(p)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- EAFE Index Fund -- Institutional Class 17(q)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- EAFE Index Fund -- Institutional Service Class 17(r)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- International Bond Fund -- Institutional Class 17(s)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- International Bond Fund -- Institutional Service Class 17(t)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- International Equity Fund -- Institutional Class 17(u)
Financial Data Schedule for the fiscal year ended December 31, 1995
- -- International Equity Fund -- Institutional Service Class 17(v)
ii
<PAGE>
EX-99.11
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 13 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 20, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 Annual
Report to Shareholders of MainStay Institutional Funds Inc., which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Other Information -- Independent Accountants" in the
Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MAINSTAY INSTITUTIONAL MONEY MARKET FUND - CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 70,336,523
<INVESTMENTS-AT-VALUE> 70,336,523
<RECEIVABLES> 368,804
<ASSETS-OTHER> 299,848
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,005,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,456
<TOTAL-LIABILITIES> 352,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,652,590
<SHARES-COMMON-STOCK> 67,868,488
<SHARES-COMMON-PRIOR> 65,103,607
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 129
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 70,652,719
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,585,195
<OTHER-INCOME> 0
<EXPENSES-NET> (301,678)
<NET-INVESTMENT-INCOME> 3,283,517
<REALIZED-GAINS-CURRENT> 129
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,283,646
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,234,067)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 193,425,248
<NUMBER-OF-SHARES-REDEEMED> (193,810,740)
<SHARES-REINVESTED> 3,150,373
<NET-CHANGE-IN-ASSETS> 2,814,460
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 60,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 438,000
<AVERAGE-NET-ASSETS> 59,918,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (0.050)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.500
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> MAINSTAY INSTITUTIONAL MONEY MARKET FUND - CLASS S
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 70,336,523
<INVESTMENTS-AT-VALUE> 70,336,523
<RECEIVABLES> 368,804
<ASSETS-OTHER> 299,848
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,005,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,456
<TOTAL-LIABILITIES> 352,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,652,590
<SHARES-COMMON-STOCK> 2,784,102
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 129
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 70,652,719
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,585,195
<OTHER-INCOME> 0
<EXPENSES-NET> (301,678)
<NET-INVESTMENT-INCOME> 3,283,517
<REALIZED-GAINS-CURRENT> 129
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,283,646
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (51,376)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,420,373
<NUMBER-OF-SHARES-REDEEMED> (1,677,059)
<SHARES-REINVESTED> 40,688
<NET-CHANGE-IN-ASSETS> 6,016,272
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,926
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 60,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 438,000
<AVERAGE-NET-ASSETS> 59,918,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (0.050)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.750
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> MAINSTAY INSTITUTIONAL SHORT-TERM BOND FUND - CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 51,110,228
<INVESTMENTS-AT-VALUE> 51,774,228
<RECEIVABLES> 795,453
<ASSETS-OTHER> 13,197
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,582,878
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 552,574
<TOTAL-LIABILITIES> 552,574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,754,282
<SHARES-COMMON-STOCK> 5,255,934
<SHARES-COMMON-PRIOR> 6,653,957
<ACCUMULATED-NII-CURRENT> 26,086
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,413,697)
<ACCUM-APPREC-OR-DEPREC> 663,633
<NET-ASSETS> 52,030,304
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,682,732
<OTHER-INCOME> 0
<EXPENSES-NET> (317,814)
<NET-INVESTMENT-INCOME> 3,364,918
<REALIZED-GAINS-CURRENT> (33,269)
<APPREC-INCREASE-CURRENT> 1,869,072
<NET-CHANGE-FROM-OPS> 5,200,721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,241,928)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,616,777
<NUMBER-OF-SHARES-REDEEMED> (4,347,028)
<SHARES-REINVESTED> 332,228
<NET-CHANGE-IN-ASSETS> (11,404,144)
<ACCUMULATED-NII-PRIOR> 21,336
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6,704,933)
<GROSS-ADVISORY-FEES> 79,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 432,000
<AVERAGE-NET-ASSETS> 52,795,000
<PER-SHARE-NAV-BEGIN> 9.370
<PER-SHARE-NII> 0.650
<PER-SHARE-GAIN-APPREC> 0.310
<PER-SHARE-DIVIDEND> (0.650)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.680
<EXPENSE-RATIO> 0.600
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> MAINSTAY INSTITUTIONAL SHORT-TERM BOND FUND - CLASS S
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 51,110,595
<INVESTMENTS-AT-VALUE> 51,774,228
<RECEIVABLES> 795,453
<ASSETS-OTHER> 13,197
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,582,878
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 552,574
<TOTAL-LIABILITIES> 552,574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,754,282
<SHARES-COMMON-STOCK> 116,664
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 26,086
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,413,697)
<ACCUM-APPREC-OR-DEPREC> 663,633
<NET-ASSETS> 52,030,304
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,682,732
<OTHER-INCOME> 0
<EXPENSES-NET> (317,814)
<NET-INVESTMENT-INCOME> 3,364,918
<REALIZED-GAINS-CURRENT> (33,269)
<APPREC-INCREASE-CURRENT> 1,869,072
<NET-CHANGE-FROM-OPS> 5,200,721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (70,366)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 139,844
<NUMBER-OF-SHARES-REDEEMED> (30,427)
<SHARES-REINVESTED> 7,247
<NET-CHANGE-IN-ASSETS> 6,295,037
<ACCUMULATED-NII-PRIOR> 21,336
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6,704,933)
<GROSS-ADVISORY-FEES> 79,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 432,000
<AVERAGE-NET-ASSETS> 52,795,000
<PER-SHARE-NAV-BEGIN> 9.370
<PER-SHARE-NII> 0.640
<PER-SHARE-GAIN-APPREC> 0.300
<PER-SHARE-DIVIDEND> (0.640)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.670
<EXPENSE-RATIO> 0.850
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> MAINSTAY INSTITUTIONAL BOND FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 194,412,483
<INVESTMENTS-AT-VALUE> 200,056,951
<RECEIVABLES> 3,628,365
<ASSETS-OTHER> 3,367
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 203,688,683
<PAYABLE-FOR-SECURITIES> 9,144,281
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 277,034
<TOTAL-LIABILITIES> 9,421,315
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 201,674,432
<SHARES-COMMON-STOCK> 19,647,695
<SHARES-COMMON-PRIOR> 22,739,731
<ACCUMULATED-NII-CURRENT> 1,039
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (13,052,571)
<ACCUM-APPREC-OR-DEPREC> 5,644,468
<NET-ASSETS> 194,267,368
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,970,001
<OTHER-INCOME> 0
<EXPENSES-NET> (1,422,641)
<NET-INVESTMENT-INCOME> 12,547,360
<REALIZED-GAINS-CURRENT> 9,840,727
<APPREC-INCREASE-CURRENT> 8,872,585
<NET-CHANGE-FROM-OPS> 31,260,672
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,434,009)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,325,653
<NUMBER-OF-SHARES-REDEEMED> (5,680,025)
<SHARES-REINVESTED> 1,262,336
<NET-CHANGE-IN-ASSETS> (9,414,967)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (208)
<OVERDIST-NET-GAINS-PRIOR> (23,194,339)
<GROSS-ADVISORY-FEES> 379,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,621,000
<AVERAGE-NET-ASSETS> 189,406,000
<PER-SHARE-NAV-BEGIN> 8.930
<PER-SHARE-NII> 0.680
<PER-SHARE-GAIN-APPREC> 0.920
<PER-SHARE-DIVIDEND> (0.680)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.850
<EXPENSE-RATIO> 0.750
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> MAINSTAY INSTITUTIONAL BOND FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 194,412,483
<INVESTMENTS-AT-VALUE> 200,056,951
<RECEIVABLES> 3,628,365
<ASSETS-OTHER> 3,367
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 203,688,683
<PAYABLE-FOR-SECURITIES> 9,144,281
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 277,034
<TOTAL-LIABILITIES> 9,421,315
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 201,674,432
<SHARES-COMMON-STOCK> 76,181
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,039
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (13,052,571)
<ACCUM-APPREC-OR-DEPREC> 5,644,468
<NET-ASSETS> 194,267,368
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,970,001
<OTHER-INCOME> 0
<EXPENSES-NET> (1,422,641)
<NET-INVESTMENT-INCOME> 12,547,360
<REALIZED-GAINS-CURRENT> 9,840,727
<APPREC-INCREASE-CURRENT> 8,872,585
<NET-CHANGE-FROM-OPS> 31,260,672
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,550)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 77,813
<NUMBER-OF-SHARES-REDEEMED> (6,456)
<SHARES-REINVESTED> 4,824
<NET-CHANGE-IN-ASSETS> 31,972,862
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (208)
<OVERDIST-NET-GAINS-PRIOR> (23,194,339)
<GROSS-ADVISORY-FEES> 379,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,621,000
<AVERAGE-NET-ASSETS> 189,406,000
<PER-SHARE-NAV-BEGIN> 8.930
<PER-SHARE-NII> 0.670
<PER-SHARE-GAIN-APPREC> 0.900
<PER-SHARE-DIVIDEND> (0.670)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.830
<EXPENSE-RATIO> 1.000
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> MAINSTAY INSTITUTIONAL INDEXED BOND FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 191,998,257
<INVESTMENTS-AT-VALUE> 199,067,089
<RECEIVABLES> 2,356,756
<ASSETS-OTHER> 1,408
<OTHER-ITEMS-ASSETS> 19,875
<TOTAL-ASSETS> 201,445,128
<PAYABLE-FOR-SECURITIES> 37,540,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 215,187
<TOTAL-LIABILITIES> 37,755,187
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,894,196
<SHARES-COMMON-STOCK> 14,856,900
<SHARES-COMMON-PRIOR> 16,837,598
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (63,855)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,266,529)
<ACCUM-APPREC-OR-DEPREC> 7,126,129
<NET-ASSETS> 163,689,941
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,561,262
<OTHER-INCOME> 0
<EXPENSES-NET> (839,205)
<NET-INVESTMENT-INCOME> 10,722,057
<REALIZED-GAINS-CURRENT> 4,130,729
<APPREC-INCREASE-CURRENT> 13,058,011
<NET-CHANGE-FROM-OPS> 27,910,797
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,220,560)
<DISTRIBUTIONS-OF-GAINS> (973,373)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,875,648
<NUMBER-OF-SHARES-REDEEMED> (4,959,417)
<SHARES-REINVESTED> 1,103,071
<NET-CHANGE-IN-ASSETS> (6,163,919)
<ACCUMULATED-NII-PRIOR> 3,783
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,961,885)
<GROSS-ADVISORY-FEES> 168,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,065,000
<AVERAGE-NET-ASSETS> 168,138,000
<PER-SHARE-NAV-BEGIN> 10.060
<PER-SHARE-NII> 0.820
<PER-SHARE-GAIN-APPREC> 1.000
<PER-SHARE-DIVIDEND> (0.820)
<PER-SHARE-DISTRIBUTIONS> (0.070)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.990
<EXPENSE-RATIO> 0.500
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> MAINSTAY INSTITUTIONAL INDEXED BOND FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 191,998,257
<INVESTMENTS-AT-VALUE> 199,067,089
<RECEIVABLES> 2,356,756
<ASSETS-OTHER> 1,408
<OTHER-ITEMS-ASSETS> 19,875
<TOTAL-ASSETS> 201,445,128
<PAYABLE-FOR-SECURITIES> 37,540,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 215,187
<TOTAL-LIABILITIES> 37,755,187
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,894,196
<SHARES-COMMON-STOCK> 42,839
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (63,855)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,266,529)
<ACCUM-APPREC-OR-DEPREC> 7,126,129
<NET-ASSETS> 163,689,941
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,561,262
<OTHER-INCOME> 0
<EXPENSES-NET> (839,205)
<NET-INVESTMENT-INCOME> 10,722,057
<REALIZED-GAINS-CURRENT> 4,130,729
<APPREC-INCREASE-CURRENT> 13,058,011
<NET-CHANGE-FROM-OPS> 27,910,797
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,621)
<DISTRIBUTIONS-OF-GAINS> (2,514)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 40,169
<NUMBER-OF-SHARES-REDEEMED> (163)
<SHARES-REINVESTED> 2,833
<NET-CHANGE-IN-ASSETS> 28,360,206
<ACCUMULATED-NII-PRIOR> 3,783
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,961,885)
<GROSS-ADVISORY-FEES> 168,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,065,000
<AVERAGE-NET-ASSETS> 168,138,000
<PER-SHARE-NAV-BEGIN> 10.060
<PER-SHARE-NII> 0.810
<PER-SHARE-GAIN-APPREC> 1.000
<PER-SHARE-DIVIDEND> (0.810)
<PER-SHARE-DISTRIBUTIONS> (0.070)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.990
<EXPENSE-RATIO> 0.750
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> MAINSTAY INSTITUTIONAL MULTI ASSET FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 273,578,011
<INVESTMENTS-AT-VALUE> 293,661,166
<RECEIVABLES> 1,300,265
<ASSETS-OTHER> 1,433
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 294,962,864
<PAYABLE-FOR-SECURITIES> 17,718,712
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 356,789
<TOTAL-LIABILITIES> 18,075,501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 256,100,658
<SHARES-COMMON-STOCK> 23,184,113
<SHARES-COMMON-PRIOR> 21,466,348
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,641)
<OVERDISTRIBUTION-GAINS> (1,693,725)
<ACCUM-APPREC-OR-DEPREC> 22,481,771
<NET-ASSETS> 273,351,317
<DIVIDEND-INCOME> 2,709,007
<INTEREST-INCOME> 9,014,086
<OTHER-INCOME> 0
<EXPENSES-NET> (1,739,525)
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<NUMBER-OF-SHARES-SOLD> 3,332,757
<NUMBER-OF-SHARES-REDEEMED> (4,595,406)
<SHARES-REINVESTED> 2,980,414
<NET-CHANGE-IN-ASSETS> 47,808,745
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (23,814)
<OVERDIST-NET-GAINS-PRIOR> (523,396)
<GROSS-ADVISORY-FEES> 372,064
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,907,358
<AVERAGE-NET-ASSETS> 246,749,551
<PER-SHARE-NAV-BEGIN> 10.67
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 2.38
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> (1.26)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.79
<EXPENSE-RATIO> 0.70
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> MAINSTAY INSTITUTIONL MULTI ASSET FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 273,578,011
<INVESTMENTS-AT-VALUE> 293,661,166
<RECEIVABLES> 1,300,265
<ASSETS-OTHER> 1,433
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 294,962,864
<PAYABLE-FOR-SECURITIES> 17,718,712
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<OTHER-ITEMS-LIABILITIES> 356,789
<TOTAL-LIABILITIES> 18,075,501
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<PAID-IN-CAPITAL-COMMON> 256,071,774
<SHARES-COMMON-STOCK> 300,012
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,641)
<OVERDISTRIBUTION-GAINS> (1,693,725)
<ACCUM-APPREC-OR-DEPREC> 22,481,771
<NET-ASSETS> 3,536,046
<DIVIDEND-INCOME> 2,709,007
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<EXPENSES-NET> (1,739,525)
<NET-INVESTMENT-INCOME> 9,983,568
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<DISTRIBUTIONS-OF-INCOME> (122,295)
<DISTRIBUTIONS-OF-GAINS> (329,993)
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<NUMBER-OF-SHARES-SOLD> 262,121
<NUMBER-OF-SHARES-REDEEMED> (471)
<SHARES-REINVESTED> 38,362
<NET-CHANGE-IN-ASSETS> 47,808,745
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> (23,814)
<OVERDIST-NET-GAINS-PRIOR> (523,396)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,907,358
<AVERAGE-NET-ASSETS> 1,293,032
<PER-SHARE-NAV-BEGIN> 10.67
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 2.38
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> (1.26)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.79
<EXPENSE-RATIO> 0.95
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> INSTITUTIONAL VALUE EQUITY FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 501,286,785
<INVESTMENTS-AT-VALUE> 607,066,201
<RECEIVABLES> 6,571,692
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 613,638,029
<PAYABLE-FOR-SECURITIES> 5,930,617
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<OTHER-ITEMS-LIABILITIES> 745,501
<TOTAL-LIABILITIES> 6,676,118
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 495,118,540
<SHARES-COMMON-STOCK> 41,828,853
<SHARES-COMMON-PRIOR> 34,255,875
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,994,694
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105,829,416
<NET-ASSETS> 606,961,911
<DIVIDEND-INCOME> 10,698,719
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<REALIZED-GAINS-CURRENT> 20,263,540
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<NUMBER-OF-SHARES-SOLD> 10,840,458
<NUMBER-OF-SHARES-REDEEMED> (4,818,076)
<SHARES-REINVESTED> 1,550,596
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (113,050)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,727,442
<AVERAGE-NET-ASSETS> 510,024,124
<PER-SHARE-NAV-BEGIN> 11.58
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 3.20
<PER-SHARE-DIVIDEND> (0.21)
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<PER-SHARE-NAV-END> 14.43
<EXPENSE-RATIO> 0.93
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> INSTITUTIONAL VALUE EQUITY FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 501,236,785
<INVESTMENTS-AT-VALUE> 607,066,201
<RECEIVABLES> 6,571,692
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 613,638,029
<PAYABLE-FOR-SECURITIES> 5,930,617
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<OTHER-ITEMS-LIABILITIES> 745,501
<TOTAL-LIABILITIES> 6,676,118
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<PAID-IN-CAPITAL-COMMON> 495,095,749
<SHARES-COMMON-STOCK> 41,828,853
<SHARES-COMMON-PRIOR> 34,255,875
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,994,694
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105,829,416
<NET-ASSETS> 606,961,911
<DIVIDEND-INCOME> 10,698,719
<INTEREST-INCOME> 2,406,282
<OTHER-INCOME> 0
<EXPENSES-NET> (4,727,442)
<NET-INVESTMENT-INCOME> 8,377,559
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<NET-CHANGE-FROM-OPS> 130,060,127
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<DISTRIBUTIONS-OF-INCOME> (41,210)
<DISTRIBUTIONS-OF-GAINS> (73,769)
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<NUMBER-OF-SHARES-SOLD> 218,538
<NUMBER-OF-SHARES-REDEEMED> (3,906)
<SHARES-REINVESTED> 7,968
<NET-CHANGE-IN-ASSETS> 133,042,999
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (113,050)
<GROSS-ADVISORY-FEES> 1,275,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,727,442
<AVERAGE-NET-ASSETS> 510,024,124
<PER-SHARE-NAV-BEGIN> 11.58
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 3.20
<PER-SHARE-DIVIDEND> (0.20)
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<PER-SHARE-NAV-END> 14.43
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> MAINSTAY INSTITUTIONAL GROWTH EQUITY FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 266,582,602
<INVESTMENTS-AT-VALUE> 413,784,917
<RECEIVABLES> 3,901,032
<ASSETS-OTHER> 964
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 417,686,913
<PAYABLE-FOR-SECURITIES> 165,300
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,663,947
<TOTAL-LIABILITIES> 2,829,247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 267,929,276
<SHARES-COMMON-STOCK> 22,022,721
<SHARES-COMMON-PRIOR> 20,787,170
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,542)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (271,383)
<ACCUM-APPREC-OR-DEPREC> 147,202,315
<NET-ASSETS> 414,857,666
<DIVIDEND-INCOME> 2,375,015
<INTEREST-INCOME> 1,319,237
<OTHER-INCOME> 0
<EXPENSES-NET> (3,281,759)
<NET-INVESTMENT-INCOME> 412,493
<REALIZED-GAINS-CURRENT> (174,620)
<APPREC-INCREASE-CURRENT> 110,020,858
<NET-CHANGE-FROM-OPS> 110,258,731
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (414,537)
<DISTRIBUTIONS-OF-GAINS> (81,153)
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<NUMBER-OF-SHARES-SOLD> 9,697,927
<NUMBER-OF-SHARES-REDEEMED> (8,639,452)
<SHARES-REINVESTED> 31,914
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<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (95,309)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,281,759
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<PER-SHARE-NAV-BEGIN> 13.68
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 5.16
<PER-SHARE-DIVIDEND> (0.02)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> MAINSTAY INSTITUTIONAL GROWTH EQUITY FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<TOTAL-LIABILITIES> 2,829,247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 267,929,276
<SHARES-COMMON-STOCK> 22,022,721
<SHARES-COMMON-PRIOR> 20,787,170
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,542)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (271,383)
<ACCUM-APPREC-OR-DEPREC> 147,202,315
<NET-ASSETS> 414,857,666
<DIVIDEND-INCOME> 2,375,015
<INTEREST-INCOME> 1,319,237
<OTHER-INCOME> 0
<EXPENSES-NET> (3,281,759)
<NET-INVESTMENT-INCOME> 412,493
<REALIZED-GAINS-CURRENT> (174,620)
<APPREC-INCREASE-CURRENT> 110,020,858
<NET-CHANGE-FROM-OPS> 110,258,731
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (967)
<DISTRIBUTIONS-OF-GAINS> (526)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 146,196
<NUMBER-OF-SHARES-REDEEMED> (1,113)
<SHARES-REINVESTED> 79
<NET-CHANGE-IN-ASSETS> 112,850,330
<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (95,309)
<GROSS-ADVISORY-FEES> 879,351
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,281,759
<AVERAGE-NET-ASSETS> 351,740,301
<PER-SHARE-NAV-BEGIN> 13.68
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 5.12
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.80
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> INDEXED EQUITY FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 239,500,639
<INVESTMENTS-AT-VALUE> 354,803,371
<RECEIVABLES> 1,957,463
<ASSETS-OTHER> 58,176
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 356,819,010
<PAYABLE-FOR-SECURITIES> 546,975
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<OTHER-ITEMS-LIABILITIES> 883,153
<TOTAL-LIABILITIES> 1,430,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239,314,021
<SHARES-COMMON-STOCK> 19,885,343
<SHARES-COMMON-PRIOR> 18,084,365
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 753,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 115,321,514
<NET-ASSETS> 354,420,235
<DIVIDEND-INCOME> 7,078,134
<INTEREST-INCOME> 942,803
<OTHER-INCOME> 0
<EXPENSES-NET> 1,478,177
<NET-INVESTMENT-INCOME> 6,542,760
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<DISTRIBUTIONS-OF-INCOME> (6,591,393)
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<NUMBER-OF-SHARES-SOLD> 4,814,438
<NUMBER-OF-SHARES-REDEEMED> (3,763,063)
<SHARES-REINVESTED> 749,603
<NET-CHANGE-IN-ASSETS> 110,704,109
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (44,265)
<OVERDIST-NET-GAINS-PRIOR> (439,103)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,750,573
<AVERAGE-NET-ASSETS> 295,486,691
<PER-SHARE-NAV-BEGIN> 13.53
<PER-SHARE-NII> 0.33
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<PER-SHARE-DIVIDEND> (0.34)
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<EXPENSE-RATIO> 0.50
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> INDEXED EQUITY FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 239,500,639
<INVESTMENTS-AT-VALUE> 354,803,371
<RECEIVABLES> 1,957,463
<ASSETS-OTHER> 58,176
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<TOTAL-ASSETS> 356,819,010
<PAYABLE-FOR-SECURITIES> 546,975
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<OTHER-ITEMS-LIABILITIES> 883,153
<TOTAL-LIABILITIES> 1,430,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239,294,190
<SHARES-COMMON-STOCK> 54,393
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 753,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 115,321,514
<NET-ASSETS> 968,647
<DIVIDEND-INCOME> 7,078,134
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<EXPENSES-NET> 1,478,177
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<NUMBER-OF-SHARES-SOLD> 52,957
<NUMBER-OF-SHARES-REDEEMED> (475)
<SHARES-REINVESTED> 1,911
<NET-CHANGE-IN-ASSETS> 110,704,109
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (44,265)
<OVERDIST-NET-GAINS-PRIOR> (439,103)
<GROSS-ADVISORY-FEES> 295,487
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,750,573
<AVERAGE-NET-ASSETS> 295,486,691
<PER-SHARE-NAV-BEGIN> 13.53
<PER-SHARE-NII> 0.31
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<PER-SHARE-DIVIDEND> (0.33)
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<PER-SHARE-NAV-END> 17.81
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME> MAINSTAY INSTITUTIONAL EAFE INDEX FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 63,804,655
<INVESTMENTS-AT-VALUE> 79,984,342
<RECEIVABLES> 394,145
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,669,950
<PAYABLE-FOR-SECURITIES> 244,798
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,708
<TOTAL-LIABILITIES> 325,506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,377,549
<SHARES-COMMON-STOCK> 5,907,913
<SHARES-COMMON-PRIOR> 5,723,929
<ACCUMULATED-NII-CURRENT> (182,088)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 954,599
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,194,384
<NET-ASSETS> 80,344,444
<DIVIDEND-INCOME> 1,403,364
<INTEREST-INCOME> 170,273
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<EXPENSES-NET> (793,791)
<NET-INVESTMENT-INCOME> 779,846
<REALIZED-GAINS-CURRENT> 1,132,976
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<DISTRIBUTIONS-OF-INCOME> (410,747)
<DISTRIBUTIONS-OF-GAINS> (812,185)
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<NUMBER-OF-SHARES-SOLD> 1,843,269
<NUMBER-OF-SHARES-REDEEMED> (1,749,460)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 092
<NAME> MAINSTAY INSTITUTIONAL EAFE INDEX FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<NET-CHANGE-IN-ASSETS> 7,046,288
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> INSTITUTIONAL INTERNATIONAL BOND FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<EXPENSES-NET> (386,389)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> INSTITUTIONAL INTERNATIONAL BOND FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<SHARES-COMMON-PRIOR> 0
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<EXPENSES-NET> (386,389)
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<NUMBER-OF-SHARES-SOLD> 516
<NUMBER-OF-SHARES-REDEEMED> (3)
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> 6,826,620
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 111
<NAME> INSTITUTIONAL INTERNATIONAL EQUITY FUND - CLASS D
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<INTEREST-INCOME> 469,659
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<PER-SHARE-NAV-BEGIN> 10.000
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 112
<NAME> INSTITUTIONAL INTERNATIONAL EQUITY FUND - CLASS S
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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</TABLE>
