<PAGE>
As filed with the Securities and Exchange Commission on November 21, 1997
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
SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 17 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 19 [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 III, 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 immediately upon
filing pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933.
<PAGE>
MAINSTAY INSTITUTIONAL FUNDS INC.
CROSS REFERENCE SHEET
This Registration Statement contains a separate Prospectus for each of the
Institutional Class and the Institutional Service Class of the Registrant's
shares. Both classes are included in a joint Statement of Additional
Information. The cross-references listed below are applicable to the
Prospectuses of both the Institutional Class and the Institutional Service Class
of shares.
Items Required by Form N-1A
---------------------------
<TABLE>
<CAPTION>
Item Number in Part A Prospectus Caption
--------------------- ------------------
<S> <C> <C>
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; Manager and
Sub-Advisers
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
7. Purchase of Securities Tell Me The Key Facts -
Being Offered Open an Account and Buy Shares
8. Redemption or Repurchase Tell Me The Key Facts -Know How to
Sell and Exchange Shares
9. Pending Legal Proceedings Not Applicable
<CAPTION>
Statement of Additional
Item Number in Part B Information Caption
--------------------- -----------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Management of the Company
History
13. Investment Objectives and Investment Objectives and
Policies Policies; Investment Restrictions;
Additional Restrictions
14. Management of the Fund Management of the Company
15. Control Persons and Principal Management of the
Holders of Securities Company; Other Information
16. Investment Advisory and Management of the Company
Other Services
17. Brokerage Allocation and Portfolio Transactions
Other Practices and Brokerage
18. Capital Stock and Other Other Information
Securities
19. Purchase, Redemption and Purchases and Redemptions
Pricing of Securities Being
Offered
20. Tax Status Tax Information
21. Underwriters Management of the Company
22. Calculations of Performance Performance Information
Data
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
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MainStay Institutional Funds Inc. Prospectus November 21, 1997
- --------------------------------------------------------------------------------
Institutional Class
================================================================================
Read This!
================================================================================
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.
- --------------------------------------------------------------------------------
Please read this Prospectus carefully before you invest, and keep it for future
reference. It includes information you should know before investing. We hope you
will easily find and understand the information you need; but if you have any
questions, please call 1-800-695-2126 ext.
2055, write to us at:
MainStay Institutional Funds Inc.
Box 461
Parsippany, NJ 07054-0461
or visit our website at:
http://www.mainstayfunds.com
For even more details, write to NYLIFE Distributors Inc., 300 Interpace Parkway,
Parsippany, NJ 07054 or call the above number for a free copy of the Statement
of Additional Information (SAI) dated November 21, 1997 (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 (SEC). The SEC maintains
a website (http://www.sec.gov) that contains the SAI, material incorporated by
reference and other information regarding registrants that file electronically
with the SEC.
- --------------------------------------------------------------------------------
MainStay Institutional Funds offers 11 no-load mutual funds with a broad range
of investment choices.
<TABLE>
<CAPTION>
================================================================================
Equity Page
================================================================================
<S> <C>
EAFE Index Fund .......................................................... 19
Growth Equity Fund ....................................................... 20
Indexed Equity Fund ...................................................... 21
International Equity Fund ................................................ 22
Multi-Asset Fund ......................................................... 23
Value Equity Fund ........................................................ 24
<CAPTION>
================================================================================
Fixed Income
================================================================================
<S> <C>
Bond Fund ................................................................ 25
Indexed Bond Fund ........................................................ 26
International Bond Fund .................................................. 27
Money Market Fund ........................................................ 28
Short-Term Bond Fund ..................................................... 29
</TABLE>
[LOGO]
MAINSTAY
INSTITUTIONAL
FUNDS INC.
<PAGE>
This page intentionally left blank.
2
<PAGE>
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What's Inside?
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<TABLE>
<CAPTION>
================================================================================
Tell Me Quickly Page
================================================================================
<S> <C>
The Funds; The Number to Call for Help .................................. 1
A Quick Overview: Understanding MainStay Institutional Funds ............ 4-5
<CAPTION>
================================================================================
Tell Me The Key Facts
================================================================================
<S> <C>
Analyze the Costs of Investing: Ongoing Fees ............................ 6
If You Invest $1,000 You Might Pay ...................................... 6
Financial Highlights .................................................... 11-16
Historical Performance .................................................. 17-18
Descriptions of Each Fund ............................................... 19-29
General Investment Considerations ....................................... 30-31
Open an Account and Buy Shares .......................................... 32-33
Know How to Sell and Exchange Shares .................................... 34-35
Decide How to Receive Your Earnings ..................................... 36
Understand the Tax Consequences ......................................... 36
Know Who You're Investing With .......................................... 37-38
Know Your Rights as a Shareholder ....................................... 39
<CAPTION>
================================================================================
Tell Me The Details
================================================================================
<S> <C>
The Company ............................................................. 40
Other Information About the Funds ....................................... 40
Description of Investments and Investment Practices ..................... 43
Investment Restrictions ................................................. 47
Manager and Sub-Advisers ................................................ 48
Portfolio Transactions .................................................. 49
Appendix A: Description of Securities Ratings .......................... 49
</TABLE>
3
<PAGE>
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A Quick Overview ...
- --------------------------------------------------------------------------------
- -----
1
- -----
================================================================================
Set your investment priorities
================================================================================
Decide if they are:
o protecting what you have
o receiving income from dividends
o participating in the potential for greater investment returns
o diversifying your current investment portfolio
o 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
- -----
================================================================================
Study the Funds' objectives,
policies and risks
================================================================================
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 pgs. 19-29.
(For more detailed information, see "Tell Me The Details" in this Prospectus and
the Statement of Additional Information (SAI).)
- --------------------------------------------------------------------------------
- -----
3
- -----
================================================================================
Evaluate each Fund's track record,
fees and expenses
================================================================================
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 "Analyze the Costs of Investing: Ongoing Fees"; "If You Invest $1000 You
Might Pay ..."; and the Examples beginning on pg. 7 for your Fund's ongoing fees
and the impact of those costs on a $1,000 investment.)
- --------------------------------------------------------------------------------
- -----
7
- -----
================================================================================
Ongoing fees
================================================================================
Every mutual fund pays fees for services. These may include distribution,
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. 48, "Manager and Sub-Advisers.")
- --------------------------------------------------------------------------------
- -----
8
- -----
================================================================================
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. 36, "Decide How To Receive Your Earnings.")
- --------------------------------------------------------------------------------
- -----
9
- -----
================================================================================
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 send 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 and
exchange plan may be available for Group IRA or Group Account investors.
(To learn more, see pgs. 34-35, "Know How to Sell and Exchange Shares.")
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
...Understanding MainStay Institutional Funds
- --------------------------------------------------------------------------------
- -----
4
- -----
================================================================================
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. There are also minimum requirements for
subsequent investments.
(See pgs. 32-33, "Open an Account and Buy Shares," for the amounts.)
- --------------------------------------------------------------------------------
- -----
5
- -----
================================================================================
Open an account/Buy shares
================================================================================
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. 32-33, "Open an Account and Buy
Shares.")
- --------------------------------------------------------------------------------
- -----
6
- -----
================================================================================
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. 32-33, "Open an Account and Buy Shares.")
- --------------------------------------------------------------------------------
- -----
10
- -----
================================================================================
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 a 401(k) or IRA. Distributions from tax-exempt plans may be taxable.
Consult your tax adviser.
Be aware that your Fund may earn 1997 income that will be paid to you in
January 1998, but will apply to your 1997 tax return.
(See pg. 36, "Understand the Tax Consequences," for an explanation.)
- --------------------------------------------------------------------------------
- -----
11
- -----
================================================================================
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 you are invested through a
Group Plan, call us at 1-800-695-4451.
(See pg. 39, "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 the Institutional
Class of 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 manager, 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. 48,
"Manager and Sub-Advisers," for further details.)
Expenses have been capped
The Funds' manager has voluntarily agreed to limit total expenses on all Funds
(except the Growth Equity Fund, Multi-Asset Fund, and Value Equity Fund). (See
pg. 48, "Voluntary Expense Limitation," for full details.) Where these limits
apply, they have the effect of lowering a Fund's total operating expenses and
increasing its earnings.
The manager may end or revise the voluntary expense limitations at any time
after December 31, 1997 (after December 31, 1998 for the Indexed Equity Fund).
If this occurs, the Funds' expenses may increase and their earnings may be
reduced, depending on each Fund's total assets. (See pg. 48, "Voluntary Expense
Limitation," for more on the limitation for each Fund.)
The No-Fee IRA feature
If you bought shares in any MainStay Institutional Fund IRA before January 1,
1995, all custodial fees will be waived under the No-Fee IRA feature for Group
IRAs 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 since they may 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 the Institutional Class of 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.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] Take note:
- --------------------------------------------------------------------------------
We have also assumed that total Fund operating expenses remain the same each
year, and that the 1997 voluntary expense limitation would apply for all
periods. Without the limitation, your expenses would generally be higher. The
Funds' manager may end or revise these limitations at any time after December
31, 1997 (December 31, 1998 for the Indexed Equity Fund).
================================================================================
6
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
EAFE INDEX FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 10
After 3 years $ 30
After 5 years $ 52(a)
Annual Fund Operating Expenses After 10 years $116
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .66%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .28 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses* .94% $33.00 management fees
=== 19.00 others
---------------------------
$52.00 total fund operating
expenses
<CAPTION>
====================================================================================================================================
GROWTH EQUITY FUNDS
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 9
After 3 years $ 29
After 5 years $ 51
Annual Fund Operating Expenses After 10 years $114
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees .85%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .07 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses .92% $42.50 management fees
=== 8.50 others
---------------------------
$51.00 total fund operating
expenses
<CAPTION>
====================================================================================================================================
INDEXED EQUITY FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 3
After 3 years $10
After 5 years $17(a)
Annual Fund Operating Expenses After 10 years $38
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .21%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .09 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses* .30% $10.50 management fees
=== 6.50 others
---------------------------
$17.00 total fund operating
expenses
</TABLE>
7
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
INTERNATIONAL EQUITY FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 10
After 3 years $ 32
After 5 years $ 55(a)
Annual Fund Operating Expenses After 10 years $123
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .78%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .22 PIE CHART IN THE PRINTED MATERIAL.]
----
Total Fund Operating Expenses* 1.00% $39.00 management fees
==== 16.00 others
---------------------------
$55.00 total fund operating
expenses
<CAPTION>
====================================================================================================================================
MULTI-ASSET FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 8
After 3 years $24
After 5 years $42
Annual Fund Operating Expenses After 10 years $93
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees .65%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .10 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses .75% $32.50 management fees
=== 9.50 others
---------------------------
$42.00 total fund operating
expenses
<CAPTION>
====================================================================================================================================
VALUE EQUITY FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 9
After 3 years $ 29
After 5 years $ 51
Annual Fund Operating Expenses After 10 years $114
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
[THE FOLLOWING DATA WAS REPRESENTED BY A
Management Fees .85%+ PIE CHART IN THE PRINTED MATERIAL.]
Other Expenses .07
--- $42.50 management fees
Total Fund Operating Expenses .92% 8.50 others
=== ---------------------------
$51.00 total fund operating
expenses
</TABLE>
8
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 8
After 3 years $24
After 5 years $42(a)
Annual Fund Operating Expenses After 10 years $93
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .64%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .11 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses* .75% $32.00 management fees
=== 10.00 others
---------------------------
$42.00 total fund operating
expenses
<CAPTION>
====================================================================================================================================
INDEXED BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 5
After 3 years $16
After 5 years $28(a)
Annual Fund Operating Expenses After 10 years $63
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .35%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .15 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses* .50% $17.50 management fees
=== 10.50 others
---------------------------
$28.00 total fund operating
expenses
<CAPTION>
====================================================================================================================================
INTERNATIONAL BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 10
After 3 years $ 30
After 5 years $ 53(a)
Annual Fund Operating Expenses After 10 years $117
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .67%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .28 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses* .95% $33.50 management fees
=== 19.50 others
---------------------------
$53.00 total fund operating
expenses
</TABLE>
9
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
MONEY MARKET FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 5
After 3 years $16
After 5 years $28(a)
Annual Fund Operating Expenses After 10 years $63
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .33%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .17 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses* .50% $16.50 management fees
=== 11.50 others
---------------------------
$28.00 total fund operating
expenses
====================================================================================================================================
SHORT-TERM BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 6
After 3 years $19
After 5 years $34(a)
Annual Fund Operating Expenses After 10 years $75
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .41%+ [THE FOLLOWING DATA WAS REPRESENTED BY A
Other Expenses .19 PIE CHART IN THE PRINTED MATERIAL.]
---
Total Fund Operating Expenses* .60% $20.50 management fees
=== 13.50 others
---------------------------
$34.00 total fund operating
expenses
</TABLE>
* MainStay Management, Inc., as the Funds' manager, has voluntarily agreed for
the remainder of 1997 to waive a portion of the fees otherwise payable to it
under the terms of the Funds' Management Agreements (up to the amount of such
fees) to the extent necessary to limit the total operating expenses for the
Institutional Class of the Funds, other than the Growth Equity Fund, Multi-Asset
Fund and Value Equity Fund, to the amounts shown above. These expenses are
described under "Tell Me The Details--Manager and Sub-Advisers." Absent
voluntary expense limitations, estimated total Fund operating expenses for the
Institutional Class would have been as follows: EAFE Index Fund--1.23%;
International Equity Fund--1.07%; Bond Fund--.86%; Indexed Bond Fund--.65%;
International Bond Fund--1.08%; Money Market Fund--.67%; and Short-Term Bond
Fund--.79%. Absent voluntary expense limitations, Fund management fees would
have been as follows: EAFE Index Fund--.95%; International Equity Fund--.85%;
Bond Fund--.75%; Indexed Bond Fund--.50%; International Bond Fund--.80%; Money
Market Fund--.50%; and Short-Term Bond Fund--.60%. With respect to the Indexed
Equity Fund, MainStay Management, Inc. has voluntarily agreed for the remainder
of 1997 and 1998 to waive a portion of the fees otherwise payable to it under
the Fund's Management Agreement (up to the amount of such fees) to the extent
necessary to limit the total operating expenses for the Institutional Class of
the Indexed Equity Fund to .30%. These expenses are described under "Tell Me the
Details--Manager and Sub-Advisers." Absent these voluntary expense limitations,
total operating expenses for the Institutional Class of the Indexed Equity Fund
would have been .59%; management fees for the Indexed Equity Fund would have
been .50%.
(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; Bond Fund--$48; Indexed Bond Fund--$36;
International Bond Fund--$60; Money Market Fund--$37; and Short-Term Bond
Fund--$44.
+ Includes investment advisory and administrative fees for the fiscal year ended
December 31, 1996. Prior to November 17, 1997, the Funds paid separate fees for
investment advisory and administrative services.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Here are the financial highlights for the Institutional Class of shares of each
of the eleven MainStay Institutional Funds.
The information for each of the six years in the period ended December 31, 1996
has been audited by Price Waterhouse LLP, independent accountants to the Funds.
The information for the six months ended June 30, 1997 has not been audited. You
should read the related financial statements and notes and, in the case of the
Annual Report, the unqualified report on the financial statements of each Fund
contained in the Company's 1996 Annual Report and June 30, 1997 Semi-Annual
Report, which are incorporated by reference in the SAI.
Additional performance information is included in the Funds' Annual and
Semi-Annual Reports to Shareholders.
For a free copy of the SAI, the Annual Report or the Semi-Annual Report, call us
at 1-800-695-2126 ext. 2055 or write to: NYLIFE Distributors Inc., 300 Interpace
Parkway, Parsippany, NJ 07054.
EAFE INDEX FUND
<TABLE>
<CAPTION>
Six Months Year Ended December 31 January 2, 1991(a)
Ended ---------------------------------------------------- through
June 30, 1997* 1996 1995 1994 1993 1992 December 31, 1991
------------- ------ ------ ------ ----- ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ....... $14.00 $13.56 $12.63 $12.03 $ 9.60 $11.01 $10.00
------ ------ ------ ------ ----- ------ ------
Net investment income ........................ 0.11 0.16 0.13 0.10 0.06 0.08 0.08
Net realized and unrealized gain (loss) on
investments ................................ 1.43 0.71 1.11 0.70 2.71 (1.41) 0.93
Net realized and unrealized gain (loss)
on foreign currency transactions ........... 0.00(b) (0.00)(b) (0.10) 0.03 (0.01) (0.01) --
------ ------ ------ ------ ------ ------ ------
Total from investment operations ............. 1.54 0.87 1.14 0.83 2.76 (1.34) 1.01
------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income ................... -- (0.16) (0.04) (0.09) (0.14) (0.07) --
From net realized gain on investments and
foreign currency transactions .............. -- (0.25) (0.14) (0.14) (0.19) -- --
In excess of net investment income ........... -- (0.02) (0.03) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions ............ -- (0.43) (0.21) (0.23) (0.33) (0.07) --
------ ------ ------ ------ ------ ------ ------
Net asset value at end of period ............. $15.54 $14.00 $13.56 $12.63 $12.03 $ 9.60 $11.01
====== ====== ====== ====== ====== ====== ======
Total investment return(d) ................... 11.00% 6.45% 9.03% 6.83% 28.97% (12.22%) 10.10%
Ratios (to average net assets)/
Supplemental Data:
Net investment income .................... 1.55%+ 1.11% 1.01% 0.57% 0.53% 0.76% 0.71%
Net expenses ............................. 0.94%+ 0.94% 1.03% 1.26% 1.27% 1.32% 1.40%
Expenses (before reimbursement) .......... 1.21%+ 1.23% 1.24% 1.26% 1.27% 1.32% 1.40%
Portfolio turnover rate ...................... 1% 4% 6% 7% 16% 1% 1%
Average commission rate paid ................. $0.0062 $0.0097 (c) (c) (c) (c) (c)
Net assets at end of period (in 000's) ....... $98,724 $89,029 $80,087 $72,265 $53,714 $40,531 $45,160
</TABLE>
- ---------
* Unaudited.
+ Annualized
(a) Commencement of operations.
(b) Less than one cent per share.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(d) Total return is not annualized.
11
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
<TABLE>
<CAPTION>
Six Months Year Ended December 31 January 2, 1991(a)
Ended ---------------------------------------------------- through
June 30, 1997* 1996 1995 1994 1993 1992 December 31, 1991
------------- ------ ------ ------ ----- ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ....... $21.99 $18.84 $13.68 $14.40 $14.71 $16.70 $10.00
------ ------ ------ ------ ------ ------ ------
Net investment income (loss) ................. (0.03) (0.06) 0.02 0.01 (0.01) (0.03) 0.01
Net realized and unrealized gain
(loss) on investments ...................... 2.95 4.14 5.16 (0.33) 1.41 0.80 6.69
------ ------ ------ ------ ------ ------ ------
Total from investment operations ............. 2.92 4.08 5.18 (0.32) 1.40 0.77 6.70
------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income ................... -- -- (0.02) (0.01) -- (0.02) --
From net realized gain on investments ........ -- (0.93) -- (0.39) (1.68) (2.74) --
In excess of net investment income ........... -- -- (0.00)(b) -- -- -- --
In excess of net realized gain
on investments ............................. -- -- (0.00)(b) (0.00)(b) (0.03) -- --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions ............ -- (0.93) (0.02) (0.40) (1.71) (2.76) --
------ ------ ------ ------ ------ ------ ------
Net asset value at end of period ............. $24.91 $21.99 $18.84 $13.68 $14.40 $14.71 $16.70
====== ====== ====== ====== ====== ====== ======
Total investment return(d) ................... 13.28% 21.62% 37.88% (2.23%) 9.59% 5.63% 67.00%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss) ............. (0.26%)+ (0.27%) 0.12% 0.04% (0.07%) (0.19%) 0.13%
Net expenses ............................. 0.92%+ 0.92% 0.93% 0.92% 0.90% 0.90% 0.90%
Expenses (before reimbursement) .......... 0.92%+ 0.92% 0.93% 0.92% 0.93% 0.95% 0.99%
Portfolio turnover rate ...................... 15% 22% 33% 37% 81% 121% 225%
Average commission rate paid ................. $0.0592 $0.0604 (c) (c) (c) (c) (c)
Net assets at end of period (in 000's) ....... $630,540 $541,212 $412,129 $284,388 $258,751 $212,619 $191,495
</TABLE>
- ----------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Less than one cent per share.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(d) Total return is not annualized.
INDEXED EQUITY FUND
<TABLE>
<CAPTION>
Six Months Year Ended December 31 January 2, 1991(a)
Ended ---------------------------------------------------- through
June 30, 1997* 1996 1995 1994 1993 1992 December 31, 1991
------------- ------ ------ ------ ----- ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ...... $21.05 $17.82 $13.53 $13.86 $13.50 $12.98 $10.00
------ ------ ------ ------ ------ ------ ------
Net investment income ....................... 0.16 0.34 0.35 0.33 0.30 0.30 0.32
Net realized and unrealized gain (loss) on
investments ............................... 4.15 3.69 4.64 (0.20) 0.93 0.61 2.66
Total from investment operations ............ 4.31 4.03 4.99 0.13 1.23 0.91 2.98
------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income .................. -- (0.34) (0.34) (0.33) (0.61) (0.32) --
From net realized gain on investments ....... -- (0.46) (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 ........... -- (0.80) (0.70) (0.46) (0.87) (0.39) --
------ ------ ------ ------ ------ ------ ------
Net asset value at end of period ............ $25.36 $21.05 $17.82 $13.53 $13.86 $13.50 $12.98
====== ====== ====== ====== ====== ====== ======
Total investment return(d) .................. 20.48% 22.57% 36.88% 0.90% 9.41% 7.19% 29.80%
Ratios (to average net assets)/
Supplemental Data:
Net investment income ..................... 1.69%+ 1.96% 2.21% 2.43% 2.39% 2.52% 2.78%
Net expenses .............................. 0.30%+ 0.44% 0.50% 0.50% 0.45% 0.45% 0.45%
Expenses (before reimbursement) ........... 0.56%+ 0.59% 0.59% 0.58% 0.60% 0.62% 0.68%
Portfolio turnover rate ..................... 2% 8% 4% 5% 5% 4% 4%
Average commission rate paid ................ $0.0499 $0.0498 (c) (c) (c) (c) (c)
Net assets at end of period (in 000's) ...... $832,391 $617,716 $354,420 $244,685 $219,351 $164,858 $144,055
</TABLE>
- ----------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Less than one cent per share.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(d) Total return is not annualized.
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Six Months January 1, 1995(a)
Ended Year Ended through
June 30, 1997* December 31, 1996 December 31, 1995
------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value at beginning of period ...................... $10.63 $10.35 $10.00
------ ------ ------
Net investment income ....................................... 0.09 0.64 0.36
Net realized and unrealized gain on investments ............. 0.85 0.09 0.17
Net realized and unrealized gain on foreign currency
transactions .............................................. 0.34 0.51 0.18
------ ------ ------
Total from investment operations ............................ 1.28 1.24 0.71
------ ------ ------
Less dividends and distributions:
From net investment income .................................. -- (0.84) (0.10)
From net realized gain on investments and foreign currency
transactions .............................................. -- (0.12) (0.26)
In excess of net investment income .......................... -- -- (0.00)(b)
------ ------ ------
Total dividends and distributions ........................... -- (0.96) (0.36)
Net asset value at end of period ............................ $11.91 $10.63 $10.35
====== ====== ======
Total investment return(d) .................................. 12.04% 12.09% 7.17%
Ratios (to average net assets)/Supplemental Data:
Net investment income ..................................... 1.62%+ 0.83% 1.05%
Net expenses .............................................. 1.00%+ 1.00% 1.00%
Expenses (before reimbursement) ........................... 1.03%+ 1.07% 1.07%
Portfolio turnover rate ..................................... 15% 23% 26%
Average commission rate paid ................................ $0.0340 $0.0349 (c)
Net assets at end of period (in 000's) ...................... $140,316 $126,280 $96,714
</TABLE>
- ----------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Less than one cent per share.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(d) Total return is not annualized.
MULTI-ASSET FUND
<TABLE>
<CAPTION>
January 2,
1991(a)
Six Months Year Ended December 31 through
Ended ----------------------------------------------------- December 31,
June 30, 1997* 1996 1995 1994 1993 1992 1991
-------------- ---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ...... $13.19 $11.79 $10.67 $11.67 $12.02 $11.79 $10.00
------ ------ ------ ------ ------ ------ ------
Net investment income ....................... 0.17 0.38 0.48 0.45 0.39 0.50 0.51
Net realized and unrealized gain (loss) on
investments ............................... 2.04 1.53 2.39 (0.55) 0.59 0.29 1.28
Net realized and unrealized loss on foreign
currency transactions ..................... -- (0.00)(b) (0.01) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total from investment operations ............ 2.21 1.91 2.86 (0.10) 0.98 0.79 1.79
------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income .................. -- (0.38) (0.48) (0.45) (0.88) (0.51) --
From net realized gain on investments ....... -- (0.13) (1.18) (0.42) (0.44) (0.05) --
In excess of net realized gain on investments -- -- (0.08) (0.03) (0.01) -- --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions ........... -- (0.51) (1.74) (0.90) (1.33) (0.56) --
------ ------ ------ ------ ------ ------ ------
Net asset value at end of period ............ $15.40 $13.19 $11.79 $10.67 $11.67 $12.02 $11.79
====== ====== ====== ====== ====== ====== ======
Total investment return(d) .................. 16.76% 16.16% 26.81% (0.86%) 8.79% 7.09% 17.90%
Ratios (to average net assets)/
Supplemental Data:
Net investment income ................... 2.44%+ 2.99% 4.03% 3.63% 3.55% 4.65% 5.87%
Net expenses ............................ 0.75%+ 0.70% 0.70% 0.70% 0.60% 0.60% 0.60%
Expenses (before reimbursement) ......... 0.75%+ 0.75% 0.77% 0.75% 0.75% 0.79% 0.88%
Portfolio turnover rate ..................... 1% 103% 261% 128% 101% 89% 22%
Average commission rate paid ................ $0.0497 $0.0498 (c) (c) (c) (c) (c)
Net assets at end of period (in 000's) ...... $384,919 $323,790 $273,351 $229,079 $258,345 $190,899 $139,449
</TABLE>
- --------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Less than one cent per share.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(d) Total return is not annualized.
13
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
<TABLE>
<CAPTION>
Six Months Year Ended December 31 January 2, 1991(a)
Ended -------------------------------------------------------- through
June 30, 1997* 1996 1995 1994 1993 1992 December 31, 1991
-------------- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ... $15.87 $14.43 $11.58 $12.40 $14.16 $13.66 $10.00
------ ------ ------ ------ ------ ------ ------
Net investment income .................... 0.11 0.25 0.21 0.17 0.16 0.21 0.28
Net realized and unrealized gain (loss) on
investments ............................ 1.65 2.98 3.20 (0.02) 1.63 2.22 3.38
------ ------ ------ ------ ------ ------ ------
Total from investment operations ......... 1.76 3.23 3.41 0.15 1.79 2.43 3.66
------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income ............... -- (0.25) (0.21) (0.17) (0.37) (0.28) --
From net realized gain on investments .... -- (1.54) (0.35) (0.80) (3.18) (1.65) --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions ........ -- (1.79) (0.56) (0.97) (3.55) (1.93) --
------ ------ ------ ------ ------ ------ ------
Net asset value at end of period ......... $17.63 $15.87 $14.43 $11.58 $12.40 $14.16 $13.66
====== ====== ====== ====== ====== ====== ======
Total investment return(c) ............... 11.09% 22.41% 29.42% 1.22% 14.90% 20.71% 36.60%
Ratios (to average net assets)/
Supplemental Data:
Net investment income ................ 1.32%+ 1.70% 1.64% 1.50% 1.38% 1.67% 2.33%
Net expenses ......................... 0.91%+ 0.92% 0.93% 0.92% 0.90% 0.90% 0.90%
Expenses (before reimbursement) ...... 0.91%+ 0.92% 0.93% 0.92% 0.93% 0.95% 0.99%
Portfolio turnover rate .................. 39% 50% 51% 43% 83% 133% 142%
Average commission rate paid ............. $0.0593 $0.0594 (b) (b) (b) (b) (b)
Net assets at end of period (in 000's) ... $886,636 $821,725 $603,749 $396,537 $305,060 $230,836 $182,627
</TABLE>
- ---------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(c) Total return is not annualized.
BOND FUND
<TABLE>
<CAPTION>
Six Months Year Ended December 31 January 2, 1991(a)
Ended ---------------------------------------------------- through
June 30, 1997* 1996 1995 1994 1993 1992 December 31, 1991
-------------- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ...... $9.51 $9.85 $8.93 $9.98 $11.08 $11.40 $10.00
----- ----- ----- ----- ----- ------ ------
Net investment income ....................... 0.30 0.62 0.68 0.72 0.74 0.61 0.70
Net realized and unrealized gain (loss)
on investments ............................ (0.03) (0.34) 0.92 (1.05) 0.26 0.05 0.70
----- ----- ----- ----- ----- ------ ------
Total from investment operations ............ 0.27 0.28 1.60 (0.33) 1.00 0.66 1.40
----- ----- ----- ----- ----- ------ ------
Less dividends and distributions:
From net investment income .................. -- (0.62) (0.68) (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 ........... -- (0.62) (0.68) (0.72) (2.10) (0.98) --
----- ----- ----- ----- ----- ------ ------
Net asset value at end of period ............ $9.78 $9.51 $9.85 $8.93 $9.98 $11.08 $11.40
===== ===== ===== ===== ===== ====== ======
Total investment return (b) ................. $2.84% 2.80% 17.88% (3.31%) 9.74% 6.39% 14.00%
Ratios (to average net assets)/
Supplemental Data:
Net investment income ................... 6.34%+ 6.10% 6.62% 7.13% 6.86% 6.02% 7.05%
Net expenses ............................ 0.75%+ 0.75% 0.75% 0.75% 0.70% 0.70% 0.70%
Expenses (before reimbursement) ......... 0.85%+ 0.86% 0.86% 0.82% 0.84% 0.85% 0.90%
Portfolio turnover rate ..................... 146% 398% 470% 478% 567% 609% 301%
Net assets at end of period (in 000's) ...... $178,063 $177,009 $193,518 $202,970 $219,834 $203,531 $186,253
</TABLE>
- ----------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Total return is not annualized.
14
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
INDEXED BOND FUND
<TABLE>
<CAPTION>
January 2,
1991(a)
Six Months Year Ended December 31 through
Ended -------------------------------------------------------- December 31,
June 30, 1997* 1996 1995 1994 1993 1992 1991
-------------- ---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ....... $10.52 $10.99 $10.06 $11.08 $11.65 $11.47 $10.00
------ ------ ------ ------ ------ ------ ------
Net investment income ........................ 0.35 0.76 0.82 0.65 0.67 0.79 0.56
Net realized and unrealized gain (loss) on
investments ................................ (0.06) (0.48) 1.00 (1.03) 0.38 (0.02) 0.91
------ ------ ------ ------ ------ ------ ------
Total from investment operations ............. 0.29 0.28 1.82 (0.38) 1.05 0.77 1.47
------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income ................... -- (0.75) (0.82) (0.64) (1.46) (0.56) --
From net realized gain on investments ........ -- -- (0.07) -- (0.15) (0.03) --
In excess of net realized gain on investments -- -- -- -- (0.01) -- --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions ............ -- (0.75) (0.89) (0.64) (1.62) (0.59) --
------ ------ ------ ------ ------ ------ ------
Net asset value at end of period ............. $10.81 $10.52 $10.99 $10.06 $11.08 $11.65 $11.47
====== ====== ====== ====== ====== ====== ======
Total investment return(b) ................... 2.76% 2.55% 18.07% (3.44%) 9.64% 7.09% 14.70%
Ratios (to average net assets)/
Supplemental Data:
Net investment income .................... 6.23%+ 6.21% 6.38% 6.13% 6.19% 7.30% 7.80
Net expenses ............................. 0.50%+ 0.50% 0.50% 0.50% 0.45% 0.45% 0.45%
Expenses (before reimbursement) .......... 0.66%+ 0.65% 0.63% 0.61% 0.61% 0.61% 0.73%
Portfolio turnover rate ...................... 12% 312% 284% 274% 213% 78% 34%
Net assets at end of period (in 000's) ....... $115,809 $109,482 $163,219 $169,404 $159,792 $125,003 $109,744
</TABLE>
- ---------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Total return is not annualized.
INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
Six Months January 1, 1995(a)
Ended Year Ended through
June 30, 1997* December 31, 1996 December 31, 1995
-------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value at beginning of period ............. $11.10 $11.16 $10.00
------ ------ ------
Net investment income .............................. 0.31 1.21 0.70
Net realized and unrealized gain on investments .... (0.54) 0.11 1.12
Net realized and unrealized gain on foreign currency
transactions ..................................... 0.31 0.27 0.02
------ ------ ------
Total from investment operations ................... 0.08 1.59 1.84
------ ------ ------
Less dividends and distributions:
From net investment income and net realized gain on
foreign currency transactions .................... -- (1.37) (0.55)
From net realized gain on investments .............. -- (0.28) (0.13)
------ ------ ------
Total dividends and distributions .................. -- (1.65) (0.68)
------ ------ ------
Net asset value at end of period ................... $11.18 $11.10 $11.16
====== ====== ======
Total investment return(b) ......................... 0.72% 14.32% 18.46%
Ratios (to average net assets)/Supplemental Data:
Net investment income ............................ 5.79%+ 6.02% 6.61%
Net expenses ..................................... 0.95%+ 0.95% 0.95%
Expenses (before reimbursement) .................. 1.06%+ 1.08% 1.03%
Portfolio turnover rate ............................ 98% 57% 92%
Net assets at end of period (in 000's) ............. $52,515 $51,980 $44,388
</TABLE>
- ----------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Total return is not annualized.
15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
Six Months Year Ended December 31 January 2, 1991(a)
Ended -------------------------------------------------- through
June 30, 1997* 1996 1995 1994 1993 1992 December 31, 1991
------------- -------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- -----
Net investment income .......................... 0.03 0.05 0.05 0.04 0.03 0.03 0.06
----- ----- ----- ----- ----- ----- -----
Less dividends from net investment income ...... (0.03) (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 $1.00
===== ===== ===== ===== ===== ===== =====
Total investment return(b) ..................... 2.54% 5.11% 5.63% 3.88% 2.89% 3.66% 5.95%
Ratios (to average net assets)/
Supplemental Data:
Net investment income ........................ 5.10%+ 5.00% 5.48% 3.89% 2.85% 3.64% 5.84%
Net expenses ................................. 0.50%+ 0.50% 0.50% 0.50% 0.45% 0.45% 0.45%
Expenses (before reimbursement) .............. 0.62%+ 0.67% 0.73% 0.68% 0.67% 0.65% 0.65%
Net assets at end of period (in 000's) ......... $178,146 $110,760 $67,869 $65,106 $75,832 $71,573 $126,690
</TABLE>
- ----------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Total return is not annualized.
SHORT-TERM BOND FUND
<TABLE>
<CAPTION>
Six Months Year Ended December 31 January 2, 1991(a)
Ended -------------------------------------------------- through
June 30, 1997* 1996 1995 1994 1993 1992 December 31, 1991
-------------- ------- ------- ------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period .......... $9.48 $9.68 $9.37 $10.33 $11.23 $11.13 $10.00
----- ----- ----- ----- ------ ------ ------
Net investment income ........................... 0.31 0.66 0.65 0.97 0.72 0.66 0.48
Net realized and unrealized gain (loss) on
investments ................................... (0.05) (0.20) 0.31 (0.96) (0.12) (0.03) 0.65
----- ----- ----- ----- ------ ------ ------
Total from investment operations ................ 0.26 0.46 0.96 0.01 0.60 0.63 1.13
----- ----- ----- ----- ------ ------ ------
Less dividends and distributions:
From net investment income ...................... -- (0.66) (0.65) (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 ............... -- (0.66) (0.65) (0.97) (1.50) (0.53) --
Net asset value at end of period ................ $9.74 $9.48 $9.68 $9.37 $10.33 $11.23 $11.13
===== ===== ===== ===== ====== ====== ======
Total investment return(b) ...................... 2.74% 4.81% 10.27% 0.11% 5.67% 5.94% 11.30%
Ratios (to average net assets)/
Supplemental Data:
Net investment income ......................... 6.24%+ 5.85% 6.38% 5.90% 6.32% 6.64% 7.33%
Net expenses .................................. 0.60%+ 0.60% 0.60% 0.60% 0.55% 0.55% 0.55%
Expenses (before reimbursement) ............... 0.80%+ 0.79% 0.82% 0.72% 0.68% 0.72% 0.81%
Portfolio turnover rate ......................... 77% 195% 171% 269% 232% 270% 151%
Net assets at end of period (in 000's) .......... $51,128 $57,805 $50,902 $62,340 $148,846 $161,499 $130,141
</TABLE>
- ----------
* Unaudited.
+ Annualized.
(a) Commencement of operations.
(b) Total return is not annualized.
16
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
EQUITY FUNDS
<TABLE>
<CAPTION>
Institutional Class
Average Annual Total Returns for Periods Ended June 30, 1997(1)
---------------------------------------------------------------
One Three Five Since
Year Years Years Inception(2)
---- ----- ----- ------------
<S> <C> <C> <C> <C>
EAFE Index Fund ........................................ 12.51% 8.20% 11.70% 8.65%
Growth Equity Fund ..................................... 24.07% 26.50% 20.43% 21.73%
Indexed Equity Fund .................................... 34.32% 28.41% 19.25% 19.03%
International Equity Fund(3) ........................... 15.74% 10.69% N/A 11.73%
Multi-Asset Fund ....................................... 25.41% 20.79% 14.48% 13.99%
Value Equity Fund ...................................... 26.27% 20.96% 18.18% 20.57%
</TABLE>
- ----------
(1) Past performance is no guarantee of future results. The performance results
shown above reflect performance as of June 30, 1997. Performance results
change over time. For performance results as of more current dates, call
1-800-695-2126 ext. 2055.
(2) January 2, 1991 for each of the Funds other than the International Equity
Fund (July 31, 1992 for the International Equity Fund's predecessor
separate account ("Separate Account")).
(3) Performance figures include the historical performance of the Separate
Account for the period prior to the International Equity Fund's
commencement of operations on January 1, 1995. MacKay-Shields Financial
Corporation, the International Equity Fund's sub-adviser, served as
investment adviser to the Separate Account, and the investment objective,
policies, restrictions, guidelines and management style of the Separate
Account were materially equivalent to those of the International Equity
Fund. Performance figures for the period prior to January 1, 1995 have been
calculated by measuring the change in value of a unit in the Separate
Account from the time period specified to January 1, 1995, using the
Separate Account's expense structure, which generally was higher than the
expense structure of the International Equity Fund. The Separate Account
was not registered under the Investment Company Act of 1940 ("1940 Act")
and therefore was not subject to certain investment restrictions imposed
under the 1940 Act. If the Separate Account had been registered under the
1940 Act, the Separate Account's performance may have been adversely
affected.
17
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
Institutional Class
Average Annual Total Returns for Periods Ended June 30, 1997(1)
-----------------------------------------------------------------
One Three Five Since
Year Years Years Inception(2)
---- ----- ----- ------------
<S> <C> <C> <C> <C>
Bond Fund ........................................... 7.69% 7.87% 6.61% 7.54%
Indexed Bond Fund ................................... 7.33% 7.82% 6.59% 7.68%
International Bond Fund(3) .......................... 9.64% 11.67% 10.53% 10.11%
Money Market Fund ................................... 5.13% 5.20% 4.34% 4.56%
Short-Term Bond Fund ................................ 6.25% 6.17% 5.27% 6.23%
</TABLE>
- ----------
(1) Past performance is no guarantee of future results. The performance results
shown above reflect performance as of June 30, 1997. Performance results
change over time. For performance results as of more current dates, call
1-800-695-2126 ext. 2055.
(2) January 2, 1991 for each of the Funds other than the International Bond
Fund (January 31, 1990 for the International Bond Fund's predecessor
separate account ("Separate Account")).
(3) Performance figures include the historical performance of the Separate
Account for the period prior to the International Bond Fund's commencement
of operations on January 1, 1995. MacKay-Shields Financial Corporation, the
International Bond Fund's sub-adviser, served as investment adviser to the
Separate Account, and the investment objective, policies, restrictions,
guidelines and management style of the Separate Account were materially
equivalent to those of the International Bond Fund. Performance figures for
the period prior to January 1, 1995 have been calculated by measuring the
change in value of a unit in the Separate Account from the time period
specified to January 1, 1995, using the Separate Account's expense
structure, which generally was higher than the expense structure of the
International Bond Fund. The Separate Account was not registered under the
Investment Company Act of 1940 ("1940 Act") and therefore was not subject
to certain investment restrictions imposed under the 1940 Act. If the
Separate Account had been registered under the 1940 Act, the Separate
Account's performance may have been adversely affected.
18
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Capital. He
joined Monitor Capital 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.
================================================================================
The Fund invests in:
================================================================================
... a statistically selected sample of approximately 350 securities included in
the EAFE Index.
... at least 80% of total assets, under normal market conditions, in stocks in
the EAFE Index.
... 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. 46, "Risk
Management Techniques.")
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. 30-31, "General Investment Considerations"; and pg. 43,
"Description of Investments and Investment Practices.")
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. 44, "Description of Investments and
Investment Practices"--"Foreign Securities.")
Some options on foreign currencies could force the sub-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 sub-adviser from closing out a futures
contract or a futures option position when it wants 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.
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
Growth Eequity 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.
- --------------------------------------------------------------------------------
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.
================================================================================
The Fund invests in:
================================================================================
... a variety of companies and securities. The sub-adviser selects investments
according to the economic environment and the attractiveness of particular
markets.
... securities of companies with these characteristics:
o participation in expanding markets
o increasing return on investment
o increasing unit sales volume, and
o 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
sub-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 sub-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.
... 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. 46, "Risk Management Techniques.")
... other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
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.
- --------------------------------------------------------------------------------
20
<PAGE>
================================================================================
Indexed Equity Fund
the Funds 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 S&P 500 Composite Stock Price Index.
- --------------------------------------------------------------------------------
The S&P 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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Capital. He
joined Monitor Capital 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.
================================================================================
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.
... 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. 46.)
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.30-31, "General Investment Considerations," for details; and pg.
43, "Description of Investments and Investment Practices.")
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.
- --------------------------------------------------------------------------------
21
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
SHIGEMI TAKAGI OF MACKAY-SHIELDS FINANCIAL CORPORATION.
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.
================================================================================
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 sub-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.
... 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.")
... 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. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
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. 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. 44, "Description of Investments and
Investment Practices" "Foreign Securities.")
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
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.
41, "Multi-Asset Fund.")
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Capital. He
joined Monitor Capital 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.
================================================================================
The Fund invests in:
================================================================================
... three asset classes, limited by the following constraints:
... 30% to 80% of net assets in common stocks selected to parallel the
performance of the S&P 500 Composite Stock Price Index for the domestic common
stock portion of the Fund.
... 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 securities 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 or alter its portfolio composition and
risk profile and to diversify the Fund's holdings where futures
transactions are more efficient than direct investment transactions. (See
pg. 46, "Risk Management Techniques.")
... 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. 46,
"Risk Management Techniques.")
... in other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 30-31, "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 sub-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 sub-adviser will move cash or reallocate assets
within seven days.
Risks? The Fund's performance depends on the sub-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. 44, "Description of Investments and
Investment Practices"--"Foreign Securities.")
- --------------------------------------------------------------------------------
23
<PAGE>
================================================================================
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 sub-adviser, undervalued at the time of
purchase. If, in the sub-adviser's opinion, a stock has reached its full value,
it will usually be sold and replaced by securities considered to be undervalued.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
DENIS P. LAPLAIGE AND JEFFREY A. SIMON OF MACKAY-SHIELDS FINANCIAL CORPORATION.
Mr. Laplaige is President, Senior Managing Director and Chief Investment Officer
of MacKay-Shields. He joined the firm in 1982 as a research analyst, became a
Director in 1988, Managing Director in 1991, a member of its Board of Directors
in 1993, Senior Managing Director, and Chief Investment Officer in 1996. 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. Simon is a Director of MacKay-Shields and specializes in equity securities.
He joined MacKay-Shields in 1993 after working as a senior equity research
analyst and portfolio manager at National Securities and Research Corporation
(1991-1992) and Neuberger & Berman (1987-1991).
================================================================================
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 sub-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.
... 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.46, "Risk Management Techniques.")
... other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
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
sub-adviser's decisions will not produce the growth you anticipate.
- --------------------------------------------------------------------------------
24
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
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 five 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.
================================================================================
The Fund invests in:
================================================================================
... normally at least 70% of total assets in:
o obligations issued or guaranteed by the U.S. or foreign governments, their
agencies or instrumentalities; obligations of international or
supranational entities;
o debt securities issued by domestic or foreign corporate entities, zero
coupon bonds, and municipal bonds;
o mortgage-related and other asset-backed securities; and
o 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 sub-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:
o long-term U.S. Treasuries (i.e., ten to thirty years); and
o 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, determined by the
sub-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, determined by the sub-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. 46, "Risk
Management Techniques.")
... 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. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
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.
- --------------------------------------------------------------------------------
25
<PAGE>
================================================================================
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 5500 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, 1997, the approximate weighting in the Index of these classes
was as follows: U.S. Treasury and agency securities 50%, corporate debt
securities 20%, mortgage-backed securities 30%.
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Capital. He
joined Monitor Capital 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.
================================================================================
The Fund invests in:
================================================================================
... at least 80% of total assets, under normal market conditions, in fixed
income securities in the Index.
... 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.
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. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
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.
- --------------------------------------------------------------------------------
26
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JOSEPH PORTERA OF MACKAY-SHIELDS FINANCIAL CORPORATION.
Mr. Portera is a Director of MacKay-Shields specializing in international bonds.
He returned to MacKay-Shields in December 1996 after working at Fiduciary Trust
Company International as a portfolio manager in international bonds. Mr. Portera
joined MacKay-Shields in 1991 and was portfolio manager of the International
Bond Fund from its inception in January 1995 to August 1995. Previously, Mr.
Portera was a portfolio manager specializing in international debt securities at
ABN-AMRO Bank, N.V. (from 1988-1991).
================================================================================
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 sub-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. 30-31, "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.
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. 44, "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. 44, "Description of Investments and
Investment Practices"--"Foreign Securities.")
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 SAI.)
- --------------------------------------------------------------------------------
27
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
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 Asset Management Group of New York Life in 1990.
================================================================================
The Fund invests in:
================================================================================
... high quality, short-term securities (that mature within 397 days)
denominated in U.S. dollars, 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 and securities
subject to certain puts) except, up to 25% of total assets may be invested in
securities of a single issuer for up to 3 days if they're rated in the highest
category ("First Tier") by at least two major rating agencies.
... 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"); or, if unrated, determined to
be of comparable quality by the sub-adviser.
... up to 5% of total assets in securities that were "Second Tier" when
acquired.
... unrated securities determined to be 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.)
Risks? Any investment the Fund makes must present minimal credit risk in the
opinion of the sub-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).
- --------------------------------------------------------------------------------
28
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
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 and the Bond Fund since its inception in 1991.
================================================================================
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 or savings and loan associations and denominated in
U.S. dollars or foreign currencies.
... 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, determined by the
sub-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, determined by the sub-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 sub-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. 46,
"Risk Management Techniques.")
... 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. 30-31, "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.
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.
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
General Investment Considerations
- --------------------------------------------------------------------------------
================================================================================
SOME IMPORTANT POINTS TO UNDERSTAND ABOUT INVESTING IN
MAINSTAY INSTITUTIONAL FUNDS.
================================================================================
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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
- --------------------------------------------------------------------------------
The value of the securities in a Fund and the share price (NAV) of that Fund
(other than the Money Market Fund) will fluctuate in response to factors such
as:
o conditions in the securities markets;
o business success of the companies that issued the securities;
o creditworthiness of the companies that issued the securities;
o interest rates;
o average maturity of a Fund's non-equity or debt investments;
o foreign currency exchange rates (where applicable); and
o other factors.
================================================================================
THE EFFECTS OF TRADING COSTS ON YOUR TOTAL RETURN
Each Fund's sub-adviser places orders to purchase and sell portfolio investments
for the Fund. This is reflected in the Fund's portfolio turnover rate. Funds
with high turnover rates (over 100%) often have higher transaction costs which
are paid by the Funds and may generate 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).
You can find the turnover rate for any Fund in the "Financial Highlights" table
for that Fund.
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). In addition, the International
Equity Fund may invest up to 5% of its assets in debt instruments rated below
investment grade.
Each Fund may also:
o borrow up to 15% of total assets;
o lend its securities to brokers, dealers and other financial institutions to
earn income;
o 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;
o invest in high quality commercial paper; and
o 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.
30
<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.
With the exception of the Money Market Fund, all Funds may enter into futures
contracts and related options. 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 sub-adviser considers it appropriate. (See pg. 46, "Risk Management
Techniques" 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 securities that comprise the 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. 45, "Loan Participation Interests" for further details.)
INVESTMENTS IN ILLIQUID 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).
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.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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. 25, 26, 27, and 29.)
Features of debt securities
Debt securities may have fixed, variable, or floating (including inverse
floating) rates of interest.
================================================================================
31
<PAGE>
- --------------------------------------------------------------------------------
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 buy shares:
- --------------------------------------------------------------------------------
WHO MAY BUY INSTITUTIONAL CLASS SHARES
You are eligible to buy Institutional Class shares if you are:
o an institutional investor investing as an employer, association or other
group retirement plan, employee benefit trust, financial institution,
endowment, foundation or corporation; or
o in a Group IRA or Group Account and you bought shares before January 1,
1995.
HOW TO OPEN AN ACCOUNT
A plan sponsor can open an account, and you (or your sponsor, if you are
investing through a group or plan) can make an investment by calling 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. (See pg.
6, "Analyze the Costs of Investing" for more information.) Your investments
should be sent to MainStay Institutional Funds Inc., 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 in
proper form. (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:
o taking the current market value of the Fund's total assets for the
Institutional Class of shares or, in the case of the Money Market Fund,
using the amortized cost method of valuation;
o subtracting the liabilities; and
o dividing the remainder by the total number of Institutional Class shares of
the Fund. (See the SAI for the full details on calculating NAV.)
32
<PAGE>
- --------------------------------------------------------------------------------
...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 institutional investors:
o Initial combined investment--at least $250,000, which may be spread over a
thirteen-month period after opening the account.
o Each investment after that--at least $1,000.
For a Group IRA:
If you are invested in an IRA offered through a group:
o Each additional investment--at least $100.
For a Group Account:
If you are a member of a group that participates in our Group IRA program:
o Each additional investment--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.
- --------------------------------------------------------------------------------
================================================================================
- --------------------------------------------------------------------------------
[ARROW] Take note:
- --------------------------------------------------------------------------------
Tax deductible contributions to a regular IRA generally are limited to $2,000 a
year ($4,000 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.
================================================================================
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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.
- --------------------------------------------------------------------------------
================================================================================
[GRAPHIC]
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.
[GRAPHIC]
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 Fund or 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.
33
<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 be redeemed by written request
to NYLIFE Distributors or you can redeem your shares in any of the following
ways:
OPTION 1 [GRAPHIC]
BY TELEPHONE OR WIRE
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.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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 manager 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 manager fails to use established safeguards
for your protection.
These safeguards are among those currently in place at MainStay Institutional
Funds:
o All phone calls are tape recorded.
o Written confirmation of every transaction is sent to your address of
record.
================================================================================
OR, OPTION 2 [GRAPHIC]
USE A SYSTEMATIC WITHDRAWAL PLAN
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.
MainStay Institutional Funds may end this plan at any time after 30 days'
written notice to you.
34
<PAGE>
- --------------------------------------------------------------------------------
...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 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. Exchanges will be
based upon each Fund's NAV per share next computed following receipt of a
properly executed exchange request. 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.
SET UP A SYSTEMATIC EXCHANGE PLAN
If you've invested through a Group IRA or Group Account, you may establish a
Systematic Exchange Program to have a minimum of $100 exchanged periodically
from any MainStay Institutional Fund to another MainStay Institutional Fund
within the same Class of shares. The Fund from which exchanges are made must
have an account value of at least $10,000 at the time the Systematic Exchange
Program is established. For additional information, call 1-800-695-4451.
- --------------------------------------------------------------------------------
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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.
================================================================================
35
<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 the Funds 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.
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.
- --------------------------------------------------------------------------------
Understand the Tax Consequences
- --------------------------------------------------------------------------------
Each Fund intends to be treated as a regulated investment company under
subchapter M of the Internal Revenue Code. As a regulated investment company,
each MainStay Institutional Fund is required to distribute at least 90% of its:
o net taxable income;
o net short-term capital gains; and
o net tax-exempt income.
"Net" means the amount remaining after tax deductible expenses (expenses reduce
"gross" earnings: in other words, the amount the Fund can pay to you.)
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 you'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. You will be advised 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.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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, please
see the SAI. Consult your tax adviser on any additional questions you may have
about the tax aspects of investing.
================================================================================
36
<PAGE>
- --------------------------------------------------------------------------------
Know Who You're Investing With
- --------------------------------------------------------------------------------
WHO WORKS TO PROTECT YOUR INTERESTS?
The Board of Directors oversees the Funds. The Directors have financial or other
relevant experience and meet several times during the year to review contracts,
Fund activities and the quality of services provided to the Funds. 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 SAI.
WHO RUNS THE FUNDS' DAY-TO-DAY BUSINESS?
MainStay Management, Inc., 300 Interpace Parkway, Parsippany, NJ 07054, serves
as manager for the Funds, handling business affairs for each Fund. MainStay
Management, Inc. is a corporation organized under the laws of the State of
Delaware and is an indirect wholly owned subsidiary of New York Life Insurance
Company. The manager, among other things, furnishes the Funds with office
facilities and with ordinary clerical, bookkeeping and recordkeeping services.
The manager has delegated its portfolio management responsibilities to the
sub-advisers.
The manager pays the salaries and expenses of all personnel affiliated with the
Funds and all the operational expenses that are not the responsibility of the
Funds, including the fees that are paid to the sub-advisers. (See pg. 48,
"Manager and Sub-Advisers", and the SAI for more details.)
For its services, each Fund pays the manager a monthly fee. (See pg. 48,
"Manager and Sub-Advisers".)
================================================================================
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 sub-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. 48, "Manager and
Sub-Advisers"--"The Sub-Advisers" for an explanation of the fees paid to the
sub-advisers by the manager.)
================================================================================
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 June 30, 1997,
MacKay-Shields managed approximately $26.9 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 June 30, 1997, New York Life had total
assets of approximately $86 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 June 30, 1997, Monitor Capital managed
approximately $2.2 billion in assets.
================================================================================
37
<PAGE>
WHO DISTRIBUTES MAINSTAY INSTITUTIONAL FUNDS?
NYLIFE Distributors Inc.
300 Interpace Parkway
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, NYLIFE Distributors or MainStay Management,
Inc. may pay, out of its own resources, additional compensation to third parties
who provide services or through broker-dealer subsidiaries to certain 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. New York Life or an affiliate is paid by the Funds, and in turn, may
pay unaffiliated third parties for providing shareholder services to
participants in retirement plans or other beneficial owners of the Funds whose
interests are held in an omnibus account. Such services may include receiving,
collecting and processing orders, providing and maintaining check writing and
wire transfer services, communicating with shareholders, maintaining account
records, answering account-related questions and correspondence, issuing reports
and confirming transactions and performing other accounting and recordkeeping
services.
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, NY 10286.
38
<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:
o call 1-800-695-2126 ext. 2055 (between 9:00 a.m. and 5:00 p.m. Eastern
time), or
o write to:
MainStay Institutional Funds Inc.
Box 461
Parsippany, NJ 07054-0461
If you invest through a Group IRA or Group Account you should:
o call 1-800-695-4451 (between 9:00 a.m. and 5:00 p.m. Eastern time), or
o 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:
o the investments owned by the Fund,
o the market value of each investment, and
o other financial information.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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
Although the Company doesn't intend to hold annual shareholder meetings, you
have the right to call a meeting of shareholders for the purpose of voting on
removing a Director for cause. Removing a Director requires the approval of a
majority of the outstanding shares of the Company. Generally, shareholders
meetings are only held when the Directors recommend an action which requires
shareholder approval.
39
<PAGE>
- --------------------------------------------------------------------------------
Tell Me The Details
- --------------------------------------------------------------------------------
================================================================================
THE COMPANY
================================================================================
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.
The Company offers Institutional Class and Institutional Service Class shares,
which have different expenses that may affect performance. You may obtain a free
copy of the prospectus which contains more information about the Institutional
Service Class of shares by calling NYLIFE Distributors at 1-800-695-2126.
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 October 31, 1997, 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 Value Equity, Bond, Indexed Bond and
International Bond Funds; New York Life Insurance Company owned a controlling
interest of the Multi-Asset Fund; and New York Life Trust Company owned a
controlling interest of the Money Market 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 Capital 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 anticipated level
of performance, or when another security
40
<PAGE>
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 SAI.)
================================================================================
INDEXED EQUITY FUND
================================================================================
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.
MacKay-Shields 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. MacKay-Shields 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.
MacKay-Shields 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, Monitor Capital 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, Monitor Capital will still
follow the constraints on the amount of assets which may be allocated to each of
the three asset groups.
In managing the Fund, Monitor Capital uses a proprietary model as well as a
non-proprietary model 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 relative pricing. Monitor Capital believes
that short-term imbalances occur periodically but tend to be corrected fairly
quickly. The models may from time to time cause significant shifts in the Fund's
allocation among the asset groups which may in turn result in greater portfolio
volatility.
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
41
<PAGE>
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, MacKay-Shields 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 MacKay-Shields' 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.
Monitor Capital 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. Monitor
Capital 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.
Monitor Capital 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. 30, "General Investment
Considerations--The Effects of Trading Costs on Your Total Return.") For further
information about the Fund's transactions in when-issued securities and related
portfolio practices, see the SAI.
================================================================================
INTERNATIONAL BOND FUND
================================================================================
MacKay-Shields 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. MacKay-Shields 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.
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 against the box.
================================================================================
SHORT-TERM 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 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
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. 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.
42
<PAGE>
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, "Floaters and Inverse
Floaters," for details.)
================================================================================
DESCRIPTION OF INVESTMENTS AND
INVESTMENT PRACTICES
================================================================================
For more information about the investments described in this section, please see
the SAI.
================================================================================
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.
================================================================================
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.
===============================================================================
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.
================================================================================
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.
================================================================================
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 sub-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, for temporary defensive purposes, invest up to 5%, of its net assets in
debt securities which are rated below investment grade. (See pg. 44, "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.
43
<PAGE>
================================================================================
FLOATERS AND INVERSE FLOATERS
================================================================================
Each Fund, other than the EAFE Index Fund, Growth Equity Fund, Indexed Equity
Fund and Value Equity Fund may 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 invest in leveraged inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. The leverage associated with inverse floaters may result in greater
volatility in their market values. Certain inverse floaters may be determined to
be illiquid securities.
================================================================================
FOREIGN INDEX-LINKED INSTRUMENTS
================================================================================
The EAFE Index Fund, International Equity Fund, Multi-Asset Fund and
International Bond Fund may 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. In the case of foreign index-linked instruments linking the
interest component 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.
================================================================================
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.
Foreign investments could be more difficult to sell than U.S. investments and
may involve risks different from investing in domestic securities. Investments
in foreign securities involve risks of currency controls by governments, changes
in currency rates and interest rates, difficulties in receiving or interpreting
financial and economic information, possible imposition of taxes, higher
brokerage and custodian fees, possible exchange controls or other government
restrictions, including possible seizure or nationalization of foreign deposits
or assets. In addition, foreign securities may be less liquid and more volatile
than U.S. securities. There may also be difficulty in invoking legal protections
across borders.
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 "Risk Management Techniques") 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 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. Investment in emerging market countries generally
presents risks in greater degree than those presented by investment in foreign
issuers in countries with developed securities markets and more advanced
regulatory systems.
================================================================================
GOVERNMENT SECURITIES
================================================================================
Government securities are obligations of, or guaranteed by, the U.S. government
or its agencies or instrumentalities.
================================================================================
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 addi-tional 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, determined to
be of equivalent quality by the sub-adviser. Under exceptional market conditions
abroad or when it is believed that economic or market conditions warrant, the
International Equity Fund may, for temporary defensive purposes, invest
44
<PAGE>
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, determined to be of equivalent quality by the
sub-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. 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. Moreover, such securities may under
certain circumstances be less liquid than higher rated debt instruments.
================================================================================
LENDING OF PORTFOLIO SECURITIES
================================================================================
A Fund may lend its investment securities to brokers, dealers and financial
institutions for the purpose of realizing additional income in accordance with
guidelines adopted by the Board of Directors. The total market value of
securities loaned will not at any time exceed 33% 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 sub-adviser
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower.
================================================================================
LOAN PARTICIPATION INTERESTS
================================================================================
The Funds may invest in participation interests in loans. Such participation
interests, which may take the form of interests in, or assignments of, loans,
are acquired from banks which have made loans or are members of lending
syndicates. A Fund's investments in loan participation interests will be subject
to its limitation on investments in illiquid securities and, to the extent
applicable, its limitation on investments in securities rated below investment
grade.
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 corporate 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-BACKED AND ASSET-BACKED SECURITIES
================================================================================
Mortgage-backed and asset-backed securities are securities which derive their
value from underlying pools of loans that may include interests in pools of
lower-rated debt securities, consumer loans or mortgages, or complex instruments
such as collateralized mortgage obligations and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of issuers and the
creditworthiness of the parties involved. The ability of a Fund to successfully
utilize these instruments may depend in part upon the ability of the Fund's
sub-adviser to forecast interest rates and other economic factors correctly.
Some securities may have a structure that makes their reaction to interest rate
changes and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk and if the
security has been purchased at a premium the amount of the premium would be lost
in the event of prepayment.
================================================================================
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.
================================================================================
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
45
<PAGE>
at the Fund's cost plus interest within a specified time (normally one day).
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 liquid assets 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.
The Directors have reviewed and approved certain sellers who they believe to be
creditworthy and have authorized the Funds to enter into repurchase agreements
with such sellers. If the other party to a repurchase agreement were to become
bankrupt, a Fund could experience delays in recovering its investment or losses.
================================================================================
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. The smaller market may create undesirable delays in selling
restricted securities. 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.
================================================================================
RISK MANAGEMENT TECHNIQUES
================================================================================
The Funds can use various techniques to increase or decrease their exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling futures contracts and
options on futures contracts, entering into foreign currency transactions (such
as forward foreign currency exchange contracts and options on foreign
currencies) and purchasing or writing put or call options on securities and
securities indexes.
The Funds can use these practices in an attempt to adjust the risk and return
characteristics of their portfolios of investments. When a Fund uses such
techniques in an attempt to reduce risk it is known as "hedging". If a Fund's
sub-adviser judges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investments, these techniques could result in
a loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the transaction
does not perform as promised. (For more information on risk management
techniques, see the SAI.)
================================================================================
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. To effect a
short sale against the box, the Fund borrows from a broker the securities which
are sold short in the short sale, and the broker holds the proceeds until the
borrowed securities are replaced. 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, the sub-advisers believe are creditworthy.
Short sales against the box will be limited to no more than 25% of a Fund's
assets.
================================================================================
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
46
<PAGE>
institutional investors for periods ranging from a few weeks to more than one
year.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the sub-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. A sub-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
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 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 SAI 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. Zero coupon bonds tend to be more volatile than
conventional debt securities.
================================================================================
INVESTMENT RESTRICTIONS
================================================================================
The following restrictions, as well as the restrictions in the "Investment
Restrictions" section in the SAI 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 SAI for additional information on
restrictions.)
Under these restrictions, a Fund may not:
1. invest in a security if, as a result of such investment, 25% or more 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) and at such time that the 1940 Act
is amended to permit a registered investment company to elect to be
"periodically industry concentrated," (i.e., a fund that does not concentrate
its investments in a particular industry would be permitted, but not required,
to invest 25% or more of its assets in a particular industry) the Funds elect to
be so classified and the foregoing limitation shall no longer apply with respect
to the Funds;
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. borrow money or issue senior securities, 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) issue senior
securities to the extent permitted under the 1940 Act; or
5. 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.
47
<PAGE>
================================================================================
MANAGER AND SUB-ADVISERS
================================================================================
================================================================================
THE MANAGER
================================================================================
MainStay Management, Inc. serves as the Funds' manager pursuant to a Management
Agreement dated November 21, 1997 between MainStay Management, Inc. and the
Company. Under the Management Agreement, the manager is responsible for the
Company's business affairs, subject to the supervision of the Company's
Directors. The manager, among other things, furnishes the Funds with office
facilities and with ordinary clerical, bookkeeping and recordkeeping services.
The manager may consult with or utilize the services of its subsidiary companies
to assist the manager in carrying out its responsibilities to the Company.
In connection with its administration of the business affairs of the Funds, the
manager bears the following expenses:
1. the salaries and expenses of all personnel of the Company and the manager,
except the fees and expenses of Directors not affiliated with the manager or the
Funds' sub-advisers; and
2. all expenses incurred by the manager 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 manager 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 ........................................................ 0.95%
Growth Equity Fund ..................................................... 0.85%
Indexed Equity Fund .................................................... 0.50%
International Equity Fund .............................................. 0.85%
Multi-Asset Fund ....................................................... 0.65%
Value Equity Fund ...................................................... 0.85%
Bond Fund .............................................................. 0.75%
Indexed Bond Fund ...................................................... 0.50%
International Bond Fund ................................................ 0.80%
Money Market Fund ...................................................... 0.50%
Short-Term Bond Fund ................................................... 0.60%
</TABLE>
================================================================================
THE SUB-ADVISERS
================================================================================
As compensation for services, the manager, not the Fund, pays each Fund's
respective sub-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>
================================================================================
VOLUNTARY EXPENSE LIMITATION
================================================================================
The manager has voluntarily agreed to limit the total expenses (excluding
interest, taxes, brokerage commissions, litigation and indemnification expenses,
and other extraordinary expenses and any class-specific expenses) of the
Institutional Class of shares of certain Funds to an annual rate, as set forth
in the schedule below, of average daily net assets until December 31, 1997
(December 31, 1998 for Indexed Equity Fund). The Funds listed below are subject
to the following voluntary expense limitations:
<TABLE>
<S> <C>
EAFE Index Fund ........................................................ 0.94%
Indexed Equity Fund .................................................... 0.30%
International Equity Fund .............................................. 1.00%
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>
As long as these temporary expense limitations continue, they may lower the
Funds' expenses and increase their respective yields. The voluntary expense
limitations may be terminated or revised at any time after December 31, 1997
(December 31, 1998 for the Indexed Equity Fund), 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.
48
<PAGE>
================================================================================
PORTFOLIO TRANSACTIONS
================================================================================
Pursuant to each Fund's Sub-Advisory Agreement, a Fund's sub-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 sub-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 sub-adviser believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. Consistent with the foregoing primary consideration, the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. and
such other policies as the Directors may determine, the Funds' sub-advisers may
consider sales of shares of the respective Funds as a factor in the selection of
broker-dealers to execute each Fund's portfolio transactions. NYLIFE Securities
Inc. may act as a broker for the Company in accordance with applicable
regulations.
Some securities considered for investment by the Funds may also be appropriate
for other clients served by the Funds' sub-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 sub-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 sub-adviser. Although there
is no specified formula for allocating such transactions, the various allocation
methods used by a Fund's sub-adviser, and the results of such allocations, are
subject to periodic review by the Company's Directors.
================================================================================
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.
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
49
<PAGE>
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 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.
50
<PAGE>
================================================================================
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.
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.
51
<PAGE>
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.
52
<PAGE>
- -------------------------------------------------------------------------------
MainStay Institutional Funds Inc. Prospectus November 21, 1997
- --------------------------------------------------------------------------------
Institutional Service Class
================================================================================
Read This!
================================================================================
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.
- --------------------------------------------------------------------------------
Please read this Prospectus carefully before you invest, and keep it for future
reference. It includes information you should know before investing. We hope you
will easily find and understand the information you need; but if you have any
questions, please call 1-800-695-2126 ext. 2055, write to us at:
MainStay Institutional Funds Inc.
Box 461
Parsippany, NJ 07054-0461
or visit our website at:
http://www.mainstayfunds.com
For even more details, write to NYLIFE Distributors Inc., 300 Interpace Parkway,
Parsippany, NJ 07054 or call the above number for a free copy of the Statement
of Additional Information (SAI) dated November 21, 1997 (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 (SEC). The SEC maintains
a website (http://www.sec.gov) that contains the SAI, material incorporated by
reference and other information regarding registrants that file electronically
with the SEC.
- --------------------------------------------------------------------------------
MainStay Institutional Funds offers 11 no-load mutual funds with a broad range
of investment choices.
<TABLE>
<CAPTION>
================================================================================
Equity Page
================================================================================
<S> <C>
EAFE Index Fund ....................................................... 19
Growth Equity Fund .................................................... 20
Indexed Equity Fund ................................................... 21
International Equity Fund ............................................. 22
Multi-Asset Fund ...................................................... 23
Value Equity Fund ..................................................... 24
<CAPTION>
================================================================================
Fixed Income
================================================================================
<S> <C>
Bond Fund ............................................................. 25
Indexed Bond Fund ..................................................... 26
International Bond Fund ............................................... 27
Money Market Fund ..................................................... 28
Short-Term Bond Fund .................................................. 29
</TABLE>
[LOGO]
MAINSTAY(R)
INSTITUTIONAL
FUNDS INC.
<PAGE>
This page intentionally left blank.
2
<PAGE>
- --------------------------------------------------------------------------------
What's Inside?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
Tell Me Quickly Page
================================================================================
<S> <C>
The Funds; The Number to Call for Help ............................... 1
A Quick Overview: Understanding MainStay Institutional Funds ......... 4-5
<CAPTION>
================================================================================
Tell Me The Key Facts
================================================================================
<S> <C>
Analyze the Costs of Investing: Ongoing Fees ......................... 6
If You Invest $1,000 You Might Pay ................................... 6
Financial Highlights ................................................. 11-16
Historical Performance ............................................... 17-18
Descriptions of Each Fund ............................................ 19-29
General Investment Considerations .................................... 30-31
Open an Account and Buy Shares ....................................... 32-33
Know How to Sell and Exchange Shares ................................. 34-35
Decide How to Receive Your Earnings .................................. 36
Understand the Tax Consequences ...................................... 36
Know Who You're Investing With ....................................... 37-38
Know Your Rights as a Shareholder .................................... 39
<CAPTION>
================================================================================
Tell Me The Details
================================================================================
<S> <C>
The Company .......................................................... 40
Other Information About the Funds .................................... 40
Description of Investments and Investment Practices .................. 43
Investment Restrictions .............................................. 47
Manager and Sub-Advisers ............................................. 48
Portfolio Transactions ............................................... 49
Appendix A: Description of Securities Ratings ....................... 49
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
A Quick Overview ...
- --------------------------------------------------------------------------------
- -----
1
- -----
================================================================================
Set your investment priorities
================================================================================
Decide if they are:
o protecting what you have
o receiving income from dividends
o participating in the potential for greater investment returns o
diversifying your current investment portfolio
o 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
- -----
================================================================================
Study the Funds' objectives, policies and risks
================================================================================
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 pgs. 19-29.
(For more detailed information, see "Tell Me The Details" in this Prospectus and
the Statement of Additional Information (SAI).)
- --------------------------------------------------------------------------------
- -----
3
- -----
================================================================================
Evaluate each Fund's track record,
fees and expenses
================================================================================
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 "Analyze the Costs of Investing: Ongoing Fees"; "If you invest $1000 You
Might Pay ..."; and the Examples beginning on pg. 7 for your Fund's ongoing fees
and the impact of those costs on a $1,000 investment.)
- --------------------------------------------------------------------------------
- -----
7
- -----
================================================================================
Ongoing fees
================================================================================
Every mutual fund pays fees for services. These may include distribution,
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. 48, "Manager and Sub-Advisers.")
- --------------------------------------------------------------------------------
- -----
8
- -----
================================================================================
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. 36, "Decide How To Receive Your Earnings.")
- --------------------------------------------------------------------------------
- -----
9
- -----
================================================================================
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 send 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 and
exchange plan may be available for Group IRA or Group Account investors.
(To learn more, see pgs. 34-35, "Know How to Sell and Exchange Shares.")
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
...Understanding MainStay Institutional Funds
- --------------------------------------------------------------------------------
- -----
4
- -----
================================================================================
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. 32-33, "Open an Account and Buy Shares," for the amounts.)
- --------------------------------------------------------------------------------
- -----
5
- -----
================================================================================
Open an account/Buy shares
================================================================================
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. 32-33, "Open an Account and Buy
Shares.")
- --------------------------------------------------------------------------------
- -----
6
- -----
================================================================================
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. 32-33, "Open an Account and Buy Shares.")
- --------------------------------------------------------------------------------
- -----
10
- -----
================================================================================
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 a 401(k) or IRA. Distributions from tax-exempt plans may be taxable.
Consult your tax adviser.
Be aware that your Fund may earn 1997 income that will be paid to you in January
1998, but will apply to your 1997 tax return.
(See pg. 36, "Understand the Tax Consequences," for an explanation.)
- --------------------------------------------------------------------------------
- -----
11
- -----
================================================================================
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. 39, "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 the Institutional
Service Class of 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 manager, custodian, shareholder
service agents 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. 48, "Manager and Sub-Advisers," for further details.)
Expenses have been capped
The Funds' manager has voluntarily agreed to limit total expenses on all Funds
(except the Growth Equity Fund, Multi-Asset Fund, and Value Equity Fund). (See
pg. 49, "Voluntary Expense Limitation," for full details.) Where these limits
apply, they have the effect of lowering a Fund's total operating expenses and
increasing its earnings.
The manager may end or revise the voluntary expense limitations at any time
after December 31, 1997 (after December 31, 1998 for the Indexed Equity Fund).
If this occurs, the Funds' expenses may increase and their earnings may be
reduced, depending on each Fund's total assets. (See pg. 49, "Voluntary Expense
Limitation," for more on the limitation for each Fund.)
The No-Fee IRA feature
All custodial fees will be waived under the No-Fee IRA feature for Group IRAs 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 since they may 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 the Institutional Service Class
of 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.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] Take note:
- --------------------------------------------------------------------------------
We have also assumed that total Fund operating expenses remain the same each
year, and that the 1997 voluntary expense limitation would apply for all
periods. Without the limitation, your expenses would generally be higher. The
Funds' manager may end or revise these limitations at any time after December
31, 1997 (December 31, 1998 for the Indexed Equity Fund).
================================================================================
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
EAFE INDEX FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 12
After 3 years $ 38
After 5 years $ 66(a)
Annual Fund Operating Expenses After 10 years $145
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .66%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .28 $34.50 management fees
---- 12.50 shareholder service fee
Total Other Expenses .53 8.50 other
---- ---------------------------
Total Fund Operating Expenses* 1.19% $66.00 total fund operating
==== expenses
<CAPTION>
====================================================================================================================================
GROWTH EQUITY FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 12
After 3 years $ 37
After 5 years $ 65
Annual Fund Operating Expenses After 10 years $143
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees .85%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .07 $44.00 management fees
--- 12.50 shareholder service fee
Total Other Expenses .32 8.50 other
--- ---------------------------
Total Fund Operating Expenses 1.17% $65.00 total fund operating
==== expenses
<CAPTION>
====================================================================================================================================
INDEXED EQUITY FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 6
After 3 years $18
After 5 years $31(a)
Annual Fund Operating Expenses After 10 years $69
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .21%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .09 $12.00 management fees
--- 12.50 shareholder service fee
Total Other Expenses .34 6.50 other
--- ---------------------------
Total Fund Operating Expenses* .55% $31.00 total fund operating
=== expenses
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
INTERNATIONAL EQUITY FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 13
After 3 years $ 40
After 5 years $ 69(a)
Annual Fund Operating Expenses After 10 years $152
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .78%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .22 $40.50 management fees
---- 12.50 shareholder service fee
Total Other Expenses .47 16.00 other
---- ---------------------------
Total Fund Operating Expenses* 1.25% $69.00 total fund operating
==== expenses
<CAPTION>
====================================================================================================================================
MULTI-ASSET FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 10
After 3 years $ 32
After 5 years $ 55
Annual Fund Operating Expenses After 10 years $123
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees .65%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .10 $34.00 management fees
---- 12.50 shareholder service fee
Total Other Expenses .35 8.50 other
---- ---------------------------
Total Fund Operating Expenses 1.00% $55.00 total fund operating
==== expenses
<CAPTION>
====================================================================================================================================
VALUE EQUITY FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 12
After 3 years $ 37
After 5 years $ 65
Annual Fund Operating Expenses After 10 years $143
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees .85%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .07 $44.00 management fees
---- 12.50 shareholder service fee
Total Other Expenses .32 8.50 other
---- ---------------------------
Total Fund Operating Expenses 1.17% $65.00 total fund operating
==== expenses
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 10
After 3 years $ 32
After 5 years $ 55(a)
Annual Fund Operating Expenses After 10 years $123
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .64%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .11 $32.50 management fees
---- 12.50 shareholder service fee
Total Other Expenses .36 10.00 other
---- ---------------------------
Total Fund Operating Expenses* 1.00% $55.00 total fund operating
==== expenses
<CAPTION>
====================================================================================================================================
INDEXED BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 8
After 3 years $24
After 5 years $42(a)
Annual Fund Operating Expenses After 10 years $93
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .35%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .15 $19.00 management fees
--- 12.50 shareholder service fee
Total Other Expenses .40 10.50 other
--- ---------------------------
Total Fund Operating Expenses* .75% $42.00 total fund operating
=== expenses
<CAPTION>
====================================================================================================================================
INTERNATIONAL BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 12
After 3 years $ 38
After 5 years $ 66(a)
Annual Fund Operating Expenses After 10 years $146
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .67%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .28 $34.00 management fees
---- 12.50 shareholder service fee
Total Other Expenses .53 19.50 other
---- ---------------------------
Total Fund Operating Expenses* 1.20% $66.00 total fund operating
==== expenses
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
MONEY MARKET FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 8
After 3 years $24
After 5 years $42(a)
Annual Fund Operating Expenses After 10 years $93
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .33%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .17 $18.00 management fees
--- 12.50 shareholder service fee
Total Other Expenses .42 11.50 other
--- ---------------------------
Total Fund Operating Expenses* .75% $42.00 total fund operating
=== expenses
<CAPTION>
====================================================================================================================================
SHORT-TERM BOND FUND
====================================================================================================================================
<S> <C> <C> <C>
Shareholder Transaction Expenses None After 1 year $ 9
After 3 years $ 27
After 5 years $ 47(a)
Annual Fund Operating Expenses After 10 years $105
(as a percentage of average daily net assets)
If you invest $1,000 today, 5 years from now you would have paid:
Management Fees
(reflecting expense limitations) .41%+ [THE FOLLOWING TABLE WAS REPRESENTED BY A
Other Expenses PIE CHART IN THE PRINTED MATERIAL]
Shareholder Service Fees .25
Other .19 $21.00 management fees
--- 12.50 shareholder service fee
Total Other Expenses .44 13.50 other
--- ---------------------------
Total Fund Operating Expenses* .85% $47.00 total fund operating
=== expenses
</TABLE>
* MainStay Management, Inc., as the Funds' manager, has voluntarily agreed for
the remainder of 1997 to waive a portion of the fees otherwise payable to it
under the terms of the Funds' Management Agreements (up to the amount of such
fees) to the extent necessary to limit the total operating expenses for the
Institutional Service Class of the Funds, other than the Growth Equity Fund,
Multi-Asset Fund and Value Equity Fund, to the amounts shown above. These
expenses are described under "Tell Me The Details--Manager and Sub-Adviser."
Absent voluntary expense limitations, estimated total Fund operating expenses
for the Institutional Service Class would have been as follows: EAFE Index
Fund--1.48%; International Equity Fund--1.32%; Bond Fund--1.11%; Indexed Bond
Fund--.90%; International Bond Fund--1.33%; Money Market Fund--.92%; and
Short-Term Bond Fund--1.04%. Absent voluntary expense limitations, Fund
management fees would have been as follows: EAFE Index Fund--.95%; International
Equity Fund--.85%; Bond Fund--.75%; Indexed Bond Fund--.50%; International Bond
Fund--.80%; Money Market Fund--.50%; and Short-Term Bond Fund--.60%. With
respect to the Indexed Equity Fund, MainStay Management, Inc. has voluntarily
agreed for the remainder of 1997 and 1998 to waive a portion of the fees
otherwise payable to it under the Fund's Management Agreement (up to the amount
of such fees) to the extent necessary to limit the total operating expenses for
the Institutional Service Class of the Indexed Equity Fund to .55%. These
expenses are described under "Tell Me the Details--Manager and Sub-Advisers."
Absent these voluntary expense limitations, total operating expenses for the
Institutional Service Class of the Indexed Equity Fund would have been .84%;
management fees for the Indexed Equity Fund would have been .50%.
(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--$81; Indexed Equity Fund--$47;
International Equity Fund--$73; Bond Fund--$61; Indexed Bond Fund--$50;
International Bond Fund--$73; Money Market Fund--$51; and Short-Term Bond
Fund--$58.
+ Includes investment advisory and administrative fees for the fiscal year ended
December 31, 1996. Prior to November 17, 1997, the Funds paid separate fees for
investment advisory and administrative services.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Here are the financial highlights for the Institutional Service Class of shares
of each of the eleven MainStay Institutional Funds. The Institutional Service
Class was not offered before January 1, 1995.
The information for each of the two years in the period ended December 31, 1996
has been audited by Price Waterhouse LLP, independent accountants to the Funds.
The information for the six months ended June 30, 1997 has not been audited. You
should read the related financial statements and notes and, in the case of the
Annual Report, the unqualified report on the financial statements of each Fund
contained in the Company's 1996 Annual Report and June 30, 1997 Semi-Annual
Report, which are incorporated by reference in the SAI.
Additional performance information is included in the Funds' Annual and
Semi-Annual Reports to Shareholders.
For a free copy of the SAI or the Annual Report or the Semi-Annual Report, call
us at 1-800-695-2126 ext. 2055 or write to: NYLIFE Distributors Inc., 300
Interpace Parkway, Parsippany, NJ 07054.
EAFE INDEX FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended -------------------------
June 30, 1997* 1996 1995
-------------- --------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period ............................................... $13.97 $13.51 $12.63
------ ------ ------
Net investment income ................................................................ 0.09 0.12 0.14
Net realized and unrealized gain (loss) on investments ............................... 1.42 0.73 1.05
Net realized and unrealized gain (loss) on foreign currency transactions ............. (0.00)(a) (0.00)(a) (0.10)
------ ------ ------
Total from investment operations ..................................................... 1.51 0.85 1.09
------ ------ ------
Less dividends and distributions:
From net investment income ........................................................... -- (0.12) (0.04)
From net realized gain on investments and foreign currency transactions .............. -- (0.25) (0.14)
In excess of net investment income ................................................... -- (0.02) (0.03)
------ ------ ------
Total dividends and distributions .................................................... -- (0.39) (0.21)
------ ------ ------
Net asset value at end of period ..................................................... $15.48 $13.97 $13.51
====== ====== ======
Total investment return(c) ........................................................... 10.81% 6.37% 8.63%
Ratios (to average net assets)/Supplemental Data:
Net investment income ............................................................. 1.30%+ 0.86% 0.76%
Net expenses ...................................................................... 1.19%+ 1.19% 1.28%
Expenses (before reimbursement) ................................................... 1.46%+ 1.48% 1.49%
Portfolio turnover rate .............................................................. 1% 4% 6%
Average commission rate paid ......................................................... $0.0062 $0.0097 (b)
Net assets at end of period (in 000's) ............................................... $465 $396 $257
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(c) Total return is not annualized.
11
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended ---------------------------
June 30, 1997* 1996 1995
-------------- ------ ------
<S> <C> <C> <C>
Net asset value at beginning of period ............................. $21.88 $18.80 $13.68
------ ------ ------
Net investment income (loss) ....................................... (0.06) (0.11) (0.01)
Net realized and unrealized gain (loss) on investments ............. 2.93 4.12 5.14
------ ------ ------
Total from investment operations ................................... 2.87 4.01 5.13
------ ------ ------
Less dividends and distributions:
From net investment income ......................................... -- -- (0.01)
From net realized gain on investments .............................. -- (0.93) --
In excess of net investment income ................................. -- -- (0.00)(a)
In excess of net realized gain on investments ...................... -- -- (0.00)(a)
------ ------ ------
Total dividends and distributions .................................. -- (0.93) (0.01)
------ ------ ------
Net asset value at end of period ................................... $24.75 $21.88 $18.80
====== ====== ======
Total investment return(c) ......................................... 13.12% 21.29% 37.50%
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) .................................... (0.51%)+ (0.52%) (0.13%)
Net expenses .................................................... 1.17%+ 1.17% 1.18%
Expenses (before reimbursement) ................................. 1.17%+ 1.17% 1.18%
Portfolio turnover rate ............................................ 15% 22% 33%
Average commission rate paid ....................................... $0.0592 $0.0604 (b)
Net assets at end of period (in 000's) ............................. $8,935 $6,842 $2,729
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(c) Total return is not annualized.
INDEXED EQUITY FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended ----------------------------
June 30, 1997* 1996 1995
-------------- ------ ------
<S> <C> <C> <C>
Net asset value at beginning of period ............................. $21.01 $17.81 $13.53
------ ------ ------
Net investment income .............................................. 0.13 0.31 0.33
Net realized and unrealized gain (loss) on investments ............. 4.14 3.66 4.64
------ ------ ------
Total from investment operations ................................... 4.27 3.97 4.97
------ ------ ------
Less dividends and distributions:
From net investment income ......................................... -- (0.31) (0.33)
From net realized gain on investments .............................. -- (0.46) (0.36)
In excess of net realized gain on investments ...................... -- -- --
------ ------ ------
Total dividends and distributions .................................. -- (0.77) (0.69)
------ ------ ------
Net asset value at end of period ................................... $25.28 $21.01 $17.81
====== ====== ======
Total investment return(b) ......................................... 20.32% 22.21% 36.70%
Ratios (to average net assets)/Supplemental Data:
Net investment income ........................................... 1.44%+ 1.71% 1.96%
Net expenses .................................................... 0.55%+ 0.69% 0.75%
Expenses (before reimbursement) ................................. 0.81%+ 0.84% 0.84%
Portfolio turnover rate ............................................ 2% 8% 4%
Average commission rate paid ....................................... $0.0499 $0.0498 (a)
Net assets at end of period (in 000's) ............................. $10,228 $5,865 $969
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(b) Total return is not annualized.
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended -----------------------
June 30, 1997* 1996 1995
-------------- ------ ------
<S> <C> <C> <C>
Net asset value at beginning of period ......................................... $10.58 $10.33 $10.00
------ ------ ------
Net investment income .......................................................... 0.08 0.62 0.35
Net realized and unrealized gain on investments ................................ 0.85 0.09 0.16
Net realized and unrealized gain on foreign currency transactions .............. 0.34 0.48 0.17
------ ------ ------
Total from investment operations ............................................... 1.27 1.19 0.68
------ ------ ------
Less dividends and distributions:
From net investment income ..................................................... -- (0.82) (0.09)
From net realized gain on investments and foreign currency transactions ........ -- (0.12) (0.26)
In excess of net investment income ............................................. -- -- (0.00)(a)
------ ------ ------
Total dividends and distributions .............................................. -- (0.94) (0.35)
------ ------ ------
Net asset value at end of period ............................................... $11.85 $10.58 $10.33
====== ====== ======
Total investment return(c) ..................................................... 12.00% 11.59% 6.86%
Ratios (to average net assets)/Supplemental Data:
Net investment income ....................................................... 1.37%+ 0.58% 0.80%
Net expenses ................................................................ 1.25%+ 1.25% 1.25%
Expenses (before reimbursement) ............................................. 1.28%+ 1.32% 1.32%
Portfolio turnover rate ........................................................ 15% 23% 26%
Average commission rate paid ................................................... $0.0340 $0.0349 (b)
Net assets at end of period (in 000's) ......................................... $791 $725 $213
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(c) Total return is not annualized.
MULTI-ASSET FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended ---------------------------
June 30, 1997* 1996 1995
-------------- ------ ------
<S> <C> <C> <C>
Net asset value at beginning of period .................................... $13.19 $11.79 $10.67
------ ------ ------
Net investment income ..................................................... 0.15 0.34 0.47
Net realized and unrealized gain (loss) on investments .................... 2.04 1.53 2.39
Net realized and unrealized loss on foreign currency transactions ......... -- (0.00)(a) (0.01)
------ ------ ------
Total from investment operations .......................................... 2.19 1.87 2.85
------ ------ ------
Less dividends and distributions:
From net investment income ................................................ -- (0.34) (0.47)
From net realized gain on investments ..................................... -- (0.13) (1.18)
In excess of net realized gain on investments ............................. -- -- (0.08)
------ ------ ------
Total dividends and distributions ......................................... -- (0.47) (1.73)
------ ------ ------
Net asset value at end of period .......................................... $15.38 $13.19 $11.79
====== ====== ======
Total investment return(c) ................................................ 16.60% 15.89% 26.70%
Ratios (to average net assets)/Supplemental Data:
Net investment income .................................................. 2.44%+ 2.74% 3.78%
Net expenses ........................................................... 1.00%+ 0.95% 0.95%
Expenses (before reimbursement) ........................................ 1.00%+ 1.00% 1.02%
Portfolio turnover rate ................................................... 1% 103% 261%
Average commission rate paid .............................................. $0.0497 $0.0498 (b)
Net assets at end of period (in 000's) .................................... $6,872 $5,508 $3,536
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(c) Total return is not annualized.
13
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended ---------------------------
June 30, 1997* 1996 1995
-------------- ------ ------
<S> <C> <C> <C>
Net asset value at beginning of period .............................. $15.85 $14.43 $11.58
------ ------ ------
Net investment income ............................................... 0.09 0.23 0.20
Net realized and unrealized gain (loss) on investments .............. 1.64 2.96 3.20
------ ------ ------
Total from investment operations .................................... 1.73 3.19 3.40
------ ------ ------
Less dividends and distributions:
From net investment income .......................................... -- (0.23) (0.20)
From net realized gain on investments ............................... -- (1.54) (0.35)
------ ------ ------
Total dividends and distributions ................................... -- (1.77) (0.55)
------ ------ ------
Net asset value at end of period .................................... $17.58 $15.85 $14.43
====== ====== ======
Total investment return(b) .......................................... 10.91% 22.10% 29.32%
Ratios (to average net assets)/Supplemental Data:
Net investment income ............................................ 1.07%+ 1.45% 1.39%
Net expenses ..................................................... 1.16%+ 1.17% 1.18%
Expenses (before reimbursement) .................................. 1.16%+ 1.17% 1.18%
Portfolio turnover rate ............................................. 39% 50% 51%
Average commission rate paid ........................................ $0.0593 $0.0594 (a)
Net assets at end of period (in 000's) .............................. $17,372 $14,752 $3,213
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
(b) Total return is not annualized.
BOND FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended --------------------------
June 30, 1997* 1996 1995
-------------- ----- -----
<S> <C> <C> <C>
Net asset value at beginning of period .................................. $9.49 $9.83 $8.93
----- ----- -----
Net investment income ................................................... 0.28 0.60 0.67
Net realized and unrealized gain (loss) on investments .................. (0.03) (0.34) 0.90
----- ----- -----
Total from investment operations ........................................ 0.25 0.26 1.57
----- ----- -----
Less dividends and distributions:
From net investment income .............................................. -- (0.60) (0.67)
From net realized gain on investments ................................... -- -- --
In excess of net realized gain on investments ........................... -- -- --
----- ----- -----
Total dividends and distributions ....................................... -- (0.60) (0.67)
----- ----- -----
Net asset value at end of period ........................................ $9.74 $9.49 $9.83
===== ===== =====
Total investment return(a) .............................................. 2.63% 2.62% 17.55%
Ratios (to average net assets)/Supplemental Data:
Net investment income ................................................ 6.09%+ 5.85% 6.37%
Net expenses ......................................................... 1.00%+ 1.00% 1.00%
Expenses (before reimbursement) ...................................... 1.10%+ 1.11% 1.11%
Portfolio turnover rate ................................................. 146% 398% 470%
Net assets at end of period (in 000's) .................................. $1,456 $1,597 $749
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Total return is not annualized.
14
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
INDEXED BOND FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended --------------------------
June 30, 1997* 1996 1995
-------------- ------ ------
<S> <C> <C> <C>
Net asset value at beginning of period .................................. $10.52 $10.99 $10.06
------ ------ ------
Net investment income ................................................... 0.34 0.74 0.81
Net realized and unrealized gain (loss) on investments .................. (0.06) (0.48) 1.00
------ ------ ------
Total from investment operations ........................................ 0.28 0.26 1.81
------ ------ ------
Less dividends and distributions:
From net investment income .............................................. -- (0.73) (0.81)
From net realized gain on investments ................................... -- -- (0.07)
In excess of net realized gain on investments ........................... -- -- --
------ ------ ------
Total dividends and distributions ....................................... -- (0.73) (0.88)
------ ------ ------
Net asset value at end of period ........................................ $10.80 $10.52 $10.99
====== ====== ======
Total investment return(a) .............................................. 2.66% 2.34% 17.97%
Ratios (to average net assets)/Supplemental Data:
Net investment income ................................................ 5.98%+ 5.96% 6.13%
Net expenses ......................................................... 0.75%+ 0.75% 0.75%
Expenses (before reimbursement) ...................................... 0.91%+ 0.90% 0.88%
Portfolio turnover rate ................................................. 12% 312% 284%
Net assets at end of period (in 000's) .................................. $2,910 $2,764 $471
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Total return is not annualized.
INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended --------------------
June 30, 1997* 1996 1995
-------------- ------ ------
<S> <C> <C> <C>
Net asset value at beginning of period ................................................... $11.07 $11.14 $10.00
------ ------ ------
Net investment income .................................................................... 0.30 1.19 0.70
Net realized and unrealized gain on investments .......................................... (0.57) 0.11 1.10
Net realized and unrealized gain on foreign currency transactions ........................ 0.33 0.26 0.02
------ ------ ------
Total from investment operations ......................................................... 0.06 1.56 1.82
------ ------ ------
Less dividends and distributions:
From net investment income and net realized gain on foreign currency transactions ........ -- (1.35) (0.55)
From net realized gain on investments .................................................... -- (0.28) (0.13)
------ ------ ------
Total dividends and distributions ........................................................ -- (1.63) (0.68)
------ ------ ------
Net asset value at end of period ......................................................... $11.13 $11.07 $11.14
====== ====== ======
Total investment return (b) .............................................................. 0.54% 14.08% 18.26%
Ratios (to average net assets)/Supplemental Data:
Net investment income ................................................................. 5.54%+ 5.77% 6.36%
Net expenses .......................................................................... 1.20%+ 1.20% 1.20%
Expenses (before reimbursement) ....................................................... 1.31%+ 1.33% 1.28%
Portfolio turnover rate .................................................................. 98% 57% 92%
Net assets at end of period (in 000's) ................................................... $260 $225 $6
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Commencement of operations.
(b) Total return is not annualized.
15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended ----------------------------
June 30, 1997* 1996 1995
-------------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period .............................. $1.00 $1.00 $1.00
----- ----- -----
Net investment income ............................................... 0.02 0.05 0.05
----- ----- -----
Less dividends from net investment income ........................... (0.02) (0.05) (0.05)
----- ----- -----
Net asset value at end of period .................................... $1.00 $1.00 1.00
===== ===== =====
Total investment return(a) .......................................... 2.41% 4.85% 5.46%
Ratios (to average net assets)/Supplemental Data:
Net investment income ............................................ 4.85%+ 4.75% 5.23%
Net expenses ..................................................... 0.75%+ 0.75% 0.75%
Expenses (before reimbursement) .................................. 0.87%+ 0.92% 0.98%
Net assets at end of period (in 000's) .............................. $52,648 $34,664 $2,784
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Total return is not annualized.
SHORT-TERM BOND FUND
<TABLE>
<CAPTION>
Year Ended
Six Months December 31
Ended ----------------------------
June 30, 1997* 1996 1995
-------------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period ................................ $9.46 $9.67 $9.37
----- ----- -----
Net investment income ................................................. 0.30 0.64 0.64
Net realized and unrealized gain (loss) on investments ................ (0.05) (0.21) 0.30
----- ----- -----
Total from investment operations ...................................... 0.25 0.43 0.94
----- ----- -----
Less dividends and distributions:
From net investment income ............................................ -- (0.64) (0.64)
From net realized gain on investments ................................. -- -- --
In excess of net investment income .................................... -- -- --
In excess of net realized gain on investments ......................... -- -- --
----- ----- -----
Total dividends and distributions ..................................... -- (0.64) (0.64)
----- ----- -----
Net asset value at end of period ...................................... $9.71 $9.46 $9.67
===== ===== =====
Total investment return(a) ............................................ 2.64% 4.46% 10.07%
Ratios (to average net assets)/Supplemental Data:
Net investment income .............................................. 5.99%+ 5.60% 6.13%
Net expenses ....................................................... 0.85%+ 0.85% 0.85%
Expenses (before reimbursement) .................................... 1.05%+ 1.04% 1.07%
Portfolio turnover rate ............................................... 77% 195% 171%
Net assets at end of period (in 000's) ................................ $1,349 $1,316 $1,128
</TABLE>
- ----------
* Unaudited
+ Annualized
(a) Total return is not annualized.
16
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
EQUITY FUNDS
<TABLE>
<CAPTION>
Institutional Service Class(1)
Average Annual Total Returns for Periods Ended June 30, 1997(2)
---------------------------------------------------------------
One Three Five Since
Year Years Years Inception(3)
---- ----- ----- ------------
<S> <C> <C> <C> <C>
EAFE Index Fund ............................................ 12.29% 7.98% 11.56% 8.55%
Growth Equity Fund ......................................... 23.77% 26.21% 20.26% 21.60%
Indexed Equity Fund ........................................ 33.96% 28.17% 19.12% 18.93%
International Equity Fund(4) ............................... 15.49% 10.40% N/A 11.56%
Multi-Asset Fund ........................................... 25.15% 20.61% 14.37% 13.91%
Value Equity Fund .......................................... 25.91% 20.77% 18.07% 20.48%
</TABLE>
- ----------
(1) Performance figures of the Institutional Service Class, first offered to
the public on January 1, 1995, include the historical performance of the
Institutional Class from each Fund's inception (January 2, 1991) up to
December 31, 1994. Performance figures for the two Classes after this date
will vary based on differences in their expense structures. The
Institutional Service Class has a Shareholder Services Plan and therefore
incurs the related expenses of the Plan. (See "Manager and
Sub-Advisers"--"Shareholder Services Plan" for more information.)
(2) Past performance is no guarantee of future results. The performance results
shown above reflect performance as of June 30, 1997. Performance results
change over time. For performance results as of more current dates, call
1-800-695-2126 ext. 2055.
(3) January 2, 1991 for each of the Funds other than the International Equity
Fund (July 31, 1992 for the International Equity Fund's predecessor
separate account ("Separate Account")).
(4) Performance figures include the historical performance of the Separate
Account for the period prior to the International Equity Fund's
commencement of operations on January 1, 1995. MacKay-Shields Financial
Corporation, the International Equity Fund's sub-adviser, served as
investment adviser to the Separate Account, and the investment objective,
policies, restrictions, guidelines and management style of the Separate
Account were materially equivalent to those of the International Equity
Fund. Performance figures for the period prior to January 1, 1995 have been
calculated by measuring the change in value of a unit of the Separate
Account from the time period specified to January 1, 1995, using the
Separate Account's expense structure, which generally was higher than the
expense structure of the International Equity Fund. The Separate Account
was not registered under the Investment Company Act of 1940 ("1940 Act")
and therefore was not subject to certain investment restrictions imposed
under the 1940 Act. If the Separate Account had been registered under the
1940 Act, the Separate Account's performance may have been adversely
affected.
17
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
Institutional Service Class(1)
Average Annual Total Returns for Periods Ended June 30, 1997(2)
---------------------------------------------------------------
One Three Five Since
Year Years Years Inception(3)
---- ----- ----- ------------
<S> <C> <C> <C> <C>
Bond Fund ..................................................... 7.40% 7.64% 6.47% 7.43%
Indexed Bond Fund ............................................. 7.11% 7.68% 6.51% 7.62%
International Bond Fund(4) .................................... 9.39% 11.46% 10.41% 10.03%
Money Market Fund ............................................. 4.87% 5.01% 4.22% 4.47%
Short-Term Bond Fund .......................................... 6.01% 5.95% 5.14% 6.13%
</TABLE>
- ----------
(1) Performance figures of the Institutional Service Class, first offered to
the public on January 1, 1995, include the historical performance of the
Institutional Class from each Fund's inception (January 2, 1991) up to
December 31, 1994. Performance figures for the two Classes after this date
will vary based on differences in their expense structures. The
Institutional Service Class has a Shareholder Services Plan and therefore
incurs the related expenses of the Plan. (See "Manager and
Sub-Advisers"--"Shareholder Services Plan" for more information.)
(2) Past performance is no guarantee of future results. The performance results
shown above reflect performance as of June 30, 1997. Performance results
change over time. For performance results as of more current dates, call
1-800-695-2126 ext. 2055.
(3) January 2, 1991 for each of the Funds other than the International Bond
Fund (January 31, 1990 for the International Bond Fund's predecessor
separate account ("Separate Account")).
(4) Performance figures include the historical performance of the Separate
Account for the period prior to the International Bond Fund's commencement
of operations on January 1, 1995. MacKay-Shields Financial Corporation, the
International Bond Fund's sub-adviser, served as investment adviser to the
Separate Account, and the investment objective, policies, restrictions,
guidelines and management style of the Separate Account were materially
equivalent to those of the International Bond Fund. Performance figures for
the period prior to January 1, 1995 have been calculated by measuring the
change in value of a unit of the Separate Account from the time period
specified to January 1, 1995, using the Separate Account's expense
structure, which generally was higher than the expense structure of the
International Bond Fund. The Separate Account was not registered under the
Investment Company Act of 1940 ("1940 Act") and therefore was not subject
to certain investment restrictions imposed under the 1940 Act. If the
Separate Account had been registered under the 1940 Act, the Separate
Account's performance may have been adversely affected.
18
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Capital. He
joined Monitor Capital 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.
================================================================================
The Fund invests in:
================================================================================
... a statistically selected sample of approximately 350 securities included in
the EAFE Index.
... at least 80% of total assets, under normal market conditions, in stocks in
the EAFE Index.
... 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. 46, "Risk
Management Techniques.")
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. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 44, "Description of Investments and
Investment Practices"--"Foreign Securities.")
Some options on foreign currencies could force the sub-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 sub-adviser from closing out a futures
contract or a futures option position when it wants 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.
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
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.
================================================================================
The Fund invests in:
================================================================================
... a variety of companies and securities. The sub-adviser selects investments
according to the economic environment and the attractiveness of particular
markets.
... securities of companies with these characteristics:
o participation in expanding markets
o increasing return on investment
o increasing unit sales volume, and
o 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
sub-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 sub-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.
... 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. 46, "Risk Management Techniques.")
... other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
20
<PAGE>
================================================================================
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 S&P 500 Composite Stock Price Index.
- --------------------------------------------------------------------------------
The S&P 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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Capital. He
joined Monitor Capital 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.
================================================================================
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.
... 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. 46.)
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. 30-31, "General Investment Considerations," for details; and pg. 43,
"Description of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
21
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
SHIGEMI TAKAGI OF MACKAY-SHIELDS FINANCIAL CORPORATION.
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.
================================================================================
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 sub-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.
... 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.")
... 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. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 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. 44, "Description of Investments and
Investment Practices" -- "Foreign Securities.")
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
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.
41, "Multi-Asset Fund.")
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Capital. He
joined Monitor Capital 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.
================================================================================
The Fund invests in:
================================================================================
... three asset classes, limited by the following constraints:
... 30% to 80% of net assets in common stock selected to parallel the
performance of the S&P 500 Composite Stock Price Index for the domestic common
stock portion of the Fund.
... 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 securities 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 or alter its portfolio composition and
risk profile and to diversify the Fund's holdings where futures
transactions are more efficient than direct investment transactions. (See
pg. 46, "Risk Management Techniques.")
... 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. 46,
"Risk Management Techniques.")
... in other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 30-31, "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 sub-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 sub-adviser will move cash or reallocate assets
within seven days.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Risks? The Fund's performance depends on the sub-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. 44, "Description of Investments and
Investment Practices"--"Foreign Securities.")
- --------------------------------------------------------------------------------
23
<PAGE>
================================================================================
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 sub-adviser, undervalued at the time of
purchase. If, in the sub-adviser's opinion, a stock has reached its full value,
it will usually be sold and replaced by securities considered to be undervalued.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
DENIS P. LAPLAIGE AND JEFFREY A. SIMON OF MACKAY-SHIELDS FINANCIAL CORPORATION.
Mr. Laplaige is President, Senior Managing Director and Chief Investment Officer
of MacKay-Shields. He joined the firm in 1982 as a research analyst, became a
Director in 1988, Managing Director in 1991, a member of its Board of Directors
in 1993, Senior Managing Director and Chief Investment Officer in 1996. 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. Simon is a Director of MacKay-Shields and specializes in equity securities.
He joined MacKay-Shields in 1993 after working as a senior equity research
analyst and portfolio manager at National Securities and Research Corporation
(1991-1992) and Neuberger & Berman (1987-1991).
================================================================================
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 sub-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.
... 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. 46, "Risk Management Techniques.")
... other investments suitable for most or all MainStay Institutional Funds.
(See pgs. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
sub-adviser's decisions will not produce the growth you anticipate.
- --------------------------------------------------------------------------------
24
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
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 five 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.
================================================================================
The Fund invests in:
================================================================================
... normally at least 70% of total assets in:
o obligations issued or guaranteed by the U.S. or foreign governments, their
agencies or instrumentalities; obligations of international or
supranational entities;
o debt securities issued by domestic or foreign corporate entities, zero
coupon bonds, and municipal bonds;
o mortgage-related and other asset-backed securities; and
o 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 sub-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:
o long-term U.S. Treasuries (i.e., ten to thirty years); and
o 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, determined by the
sub-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, determined by the sub-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. 46, "Risk
Management Techniques.")
... 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. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
25
<PAGE>
================================================================================
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 5500 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, 1997, the approximate weighting in the Index of these classes
was as follows: U.S. Treasury and agency securities 50%, corporate debt
securities 20%, mortgage-backed securities 30%.
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.
Mr. Mehling is President and Chief Investment Officer of Monitor Captial. He
joined Monitor Capital 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.
================================================================================
The Fund invests in:
================================================================================
... at least 80% of total assets, under normal market conditions, in fixed
income securities in the Index.
... 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.
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. 30-31, "General Investment Considerations"; and pg. 43, "Description
of Investments and Investment Practices.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
26
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
WHO'S MANAGING YOUR MONEY?
JOSEPH PORTERA OF MACKAY-SHIELDS FINANCIAL CORPORATION.
Mr. Portera is a Director of MacKay-Shields specializing in international bonds.
He returned to MacKay-Shields in December 1996 after working at Fiduciary Trust
Company International as a portfolio manager in international bonds. Mr. Portera
joined MacKay-Shields in 1991 and was portfolio manager of the International
Bond Fund from its inception in January 1995 to August 1995. Previously, Mr.
Portera was a portfolio manager specializing in international debt securities at
ABN-AMRO Bank, N.V. (from 1988-1991).
================================================================================
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 sub-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. 30-31, "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.
- --------------------------------------------------------------------------------
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. 44, "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. 44, "Description of Investments and
Investment Practices"-- "Foreign Securities.")
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 SAI.)
- --------------------------------------------------------------------------------
27
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
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 Asset Management Group of New York Life in 1990.
================================================================================
The Fund invests in:
================================================================================
... high quality, short-term securities (that mature within 397 days)
denominated in U.S. dollars, 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 and securities
subject to certain puts) except, up to 25% of total assets may be invested in
securities of a single issuer for up to 3 days if they're rated in the highest
category ("First Tier") by at least two major rating agencies.
... 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"); or, if unrated, determined to
be of comparable quality by the sub-adviser.
... up to 5% of total assets in securities that were "Second Tier" when
acquired.
... unrated securities determined to be 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.)
- --------------------------------------------------------------------------------
Risks? Any investment the Fund makes must present minimal credit risk in the
opinion of the sub-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).
- --------------------------------------------------------------------------------
28
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
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 and the Bond Fund since its inception in 1991.
================================================================================
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 or savings and loan associations and denominated in
U.S. dollars or foreign currencies.
... 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, determined by the
sub-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, determined by the sub-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 sub-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. 46,
"Risk Management Techniques.")
... 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. 30-31, "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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
General Investment Considerations
- --------------------------------------------------------------------------------
================================================================================
SOME IMPORTANT POINTS TO UNDERSTAND ABOUT INVESTING
IN MAINSTAY INSTITUTIONAL FUNDS.
================================================================================
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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
- --------------------------------------------------------------------------------
The value of the securities in a Fund and the share price (NAV) of that Fund
(other than the Money Market Fund) will fluctuate in response to factors such
as:
o conditions in the securities markets;
o business success of the companies that issued the securities;
o creditworthiness of the companies that issued the securities;
o interest rates;
o average maturity of a Fund's non-equity or debt investments;
o foreign currency exchange rates (where applicable); and
o other factors.
================================================================================
THE EFFECTS OF TRADING COSTS ON YOUR
TOTAL RETURN
Each Fund's sub-adviser places orders to purchase and sell portfolio investments
for the Fund. This is reflected in the Fund's portfolio turnover rate. Funds
with high turnover rates (over 100%) often have higher transaction costs which
are paid by the Funds and may generate 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).
You can find the turnover rate for any Fund in the "Financial Highlights" table
for that Fund.
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). In addition, the International
Equity Fund may invest up to 5% of its assets in debt instruments rated below
investment grade.
Each Fund may also:
o borrow up to 15% of total assets;
o lend its securities to brokers, dealers and other financial institutions to
earn income;
o 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;
o invest in high quality commercial paper; and
o 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.
30
<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.
With the exception of the Money Market Fund, all Funds may enter into futures
contracts and related options. 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 sub-adviser considers it appropriate. (See pg. 46, "Risk Management
Techniques" 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 securities that comprise the 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. 45, "Loan Participation Interests" for further details.)
INVESTMENTS IN ILLIQUID 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).
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.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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. 25, 26, 27, and 29.)
Features of debt securities
Debt securities may have fixed, variable, or floating (including inverse
floating) rates of interest.
================================================================================
31
<PAGE>
- --------------------------------------------------------------------------------
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
You are eligible to buy Institutional Service Class shares if you are in a Group
Account or Group IRA or you are a plan sponsor.
HOW TO OPEN AN ACCOUNT
You (or your sponsor, if you are investing through a group or plan) can open an
account or make an investment by calling 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. (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 Inc., Box 424, Parsippany, NJ 07054-0424.
After that, your investments should be sent to MainStay Institutional Funds
Inc., 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 in
proper form. (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:
o taking the current market value of the Fund's total assets for the
Institutional Service Class of shares) or, in the case of the Money Market
Fund, using the amortized cost method of valuation;
o subtracting the liabilities; and
o dividing the remainder by the total number of Institutional Service Class
shares of the Fund. (See the SAI for the full details on calculating NAV.)
32
<PAGE>
- --------------------------------------------------------------------------------
...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:
o First investment--at least $3,500 (at least $1,000 in each Fund in which
you are investing)
o 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:
o First investment--at least $25,000 (at least $1,000 in each Fund in which
you are investing)
o Each investment after that--at least $1,000.
For institutional investors:
o Initial combined investment--at least $250,000, which may be spread over a
thirteen-month period after opening the account.
o 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.
- --------------------------------------------------------------------------------
================================================================================
- --------------------------------------------------------------------------------
[ARROW] Take note:
- --------------------------------------------------------------------------------
Tax deductible contributions to a regular IRA generally are limited to $2,000 a
year ($4,000 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.
================================================================================
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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.
- --------------------------------------------------------------------------------
================================================================================
[GRAPHIC] 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.
[GRAPHIC] 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 Fund or 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.
33
<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 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]
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.
OR, OPTION 2
USE A SYSTEMATIC WITHDRAWAL PLAN [GRAPHIC]
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.
MainStay Institutional Funds may end this plan at any time after 30 days'
written notice to you.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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 manager 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 manager fails to use established safeguards
for your protection.
These safeguards are among those currently in place at MainStay Institutional
Funds:
o All phone calls are tape recorded.
o Written confirmation of every transaction is sent to your address of
record.
================================================================================
34
<PAGE>
- --------------------------------------------------------------------------------
...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 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. Exchanges will be
based upon each Fund's NAV per share next computed following receipt of a
properly executed exchange request. 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.
SET UP A SYSTEMATIC EXCHANGE PLAN
If you've invested through a Group IRA or Group Account, you may establish a
Systematic Exchange Program to have a minimum of $100 exchanged periodically
from any MainStay Institutional Fund to another MainStay Institutional Fund
within the same Class of shares. The Fund from which exchanges are made must
have an account value of at least $10,000 at the time the Systematic Exchange
Program is established. For additional information, call 1-800-695-4451.
- --------------------------------------------------------------------------------
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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.
================================================================================
35
<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 the Funds 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.
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.
- --------------------------------------------------------------------------------
Understand the Tax Consequences
- --------------------------------------------------------------------------------
Each Fund intends to be treated as a regulated investment company under
subchapter M of the Internal Revenue Code. As a regulated investment company,
each MainStay Institutional Fund is required to distribute at least 90% of its:
o net taxable income;
o net short-term capital gains; and
o net tax-exempt income.
"Net" means the amount remaining after tax deductible expenses (expenses reduce
"gross" earnings; in other words, the amount the Fund can pay to you.)
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 you'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. You will be advised 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.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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, please
see the SAI. Consult your tax adviser on any additional questions you may have
about the tax aspects of investing.
================================================================================
36
<PAGE>
- --------------------------------------------------------------------------------
Know Who You're Investing With
- --------------------------------------------------------------------------------
WHO WORKS TO PROTECT YOUR INTERESTS?
The Board of Directors oversees the Funds. The Directors have financial or other
relevant experience and meet several times during the year to review contracts,
Fund activities and the quality of services provided to the Funds. 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 SAI.
WHO RUNS THE FUND'S DAY-TO-DAY BUSINESS?
MainStay Management, Inc., 300 Interpace Parkway, Parsippany, NJ 07054, serves
as manager for the Funds, handling business affairs for each Fund. ManiStay
Management, Inc, is a corporation organized under the laws of the State of
Delaware and is an indirect wholly owned subsidiary of New York Life Insurance
Company. The manager, among other things, furnishes the Funds with office
facilities and with ordinary clerical, bookkeeping and recordkeeping services.
The manager has delegated its portfolio management responsibilities to the sub-
advisers.
The manager pays the salaries and expenses of all personnel affiliated
with the Funds and all the operational expenses that are not the responsibility
of the Funds, including the fees that are paid to the sub-advisers. (See pg. 48,
"Manager and Sub-Advisers", and the SAI for more details.)
For its services, each Fund pays the manager a monthly fee. (See pg. 48,
"Manager and Sub-Advisers".)
================================================================================
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 sub-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. 48, "Manager and
Sub-Advisers"--"The Sub-Advisers" for an explanation of the fees paid to the
sub-advisers by the manager.)
================================================================================
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 June 30, 1997,
MacKay-Shields managed approximately $26.9 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 June 30, 1997, New York Life had total
assets of approximately $86 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 June 30, 1997, Monitor Capital managed
approximately $2.2 billion in assets.
================================================================================
37
<PAGE>
WHO DISTRIBUTES MAINSTAY INSTITUTIONAL FUNDS?
NYLIFE Distributors Inc.
300 Interpace Parkway
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, NYLIFE Distributors or MainStay Management,
Inc. may pay, out of its own resources, additional compensation to third parties
who provide services or through broker-dealer subsidiaries to certain 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. New York Life or an affiliate is paid by the Funds, and in turn, may
pay unaffiliated third parties for providing shareholder services to
participants in retirement plans or other beneficial owners of the Funds whose
interests are held in an omnibus account. Such services may include receiving,
collecting and processing orders, providing and maintaining check writing and
wire transfer services, communicating with shareholders, maintaining account
records, answering account-related questions and correspondence, issuing reports
and confirming transactions and performing other accounting and recordkeeping
services.
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, NY 10286.
38
<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:
o call 1-800-695-2126 ext. 2055 (between 9:00 a.m. and 5:00 p.m. Eastern
time), or
o write to:
MainStay Institutional Funds Inc.
Box 461
Parsippany, NJ 07054-0461
If you invest through a Group IRA or Group Account you should:
o call 1-800-695-4451 (between 9:00 a.m. and 5:00 p.m. Eastern time), or
o 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:
o the investments owned by the Fund,
o the market value of each investment, and
o other financial information.
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
Although the Company doesn't intend to hold annual shareholder meetings, you
have the right to call a meeting of shareholders for the purpose of voting on
removing a Director for cause. Removing a Director requires the approval of a
majority of the outstanding shares of the Company. Generally, shareholder
meetings are only held when the Directors recommend an action which requires
shareholder approval.
================================================================================
- --------------------------------------------------------------------------------
[ARROW] 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.
================================================================================
39
<PAGE>
- --------------------------------------------------------------------------------
Tell Me The Details
- --------------------------------------------------------------------------------
================================================================================
THE COMPANY
================================================================================
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.
The Company offers Institutional Class and Institutional Service Class shares,
which have different expenses that may affect performance. You may obtain a free
copy of the prospectus which contains more information about the Institutional
Class of shares by calling NYLIFE Distributors at 1-800-695-2126. (See pg. 48,
"Manager and Sub-Advisers"--"Shareholder Services Plan" for more information.)
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 October 31, 1997, 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 Value Equity, Bond, Indexed Bond and
International Bond Funds; New York Life Insurance Company owned a controlling
interest of the Multi-Asset Fund; and New York Life Trust Company owned a
controlling interest of the Money Market 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 Capital 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 anticipated level
of performance, or when another security
40
<PAGE>
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 SAI.)
================================================================================
INDEXED EQUITY FUND
================================================================================
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.
MacKay-Shields 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. MacKay-Shields 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.
MacKay-Shields 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, Monitor Capital 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, Monitor Capital will still
follow the constraints on the amount of assets which may be allocated to each of
the three asset groups.
In managing the Fund, Monitor Capital uses a proprietary model as well as a
non-proprietary model 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 relative pricing. Monitor Capital believes
that short-term imbalances occur periodically but tend to be corrected fairly
quickly. The models may from time to time cause significant shifts in the Fund's
allocation among the asset groups which may in turn result in greater portfolio
volatility.
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
41
<PAGE>
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, MacKay-Shields 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 MacKay-Shields' 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.
Monitor Capital 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. Monitor
Capital 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.
Monitor Capital 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. 30, "General Investment
Considerations--The Effects of Trading Costs on Your Total Return.") For further
information about the Fund's transactions in when-issued securities and related
portfolio practices, see the SAI.
================================================================================
INTERNATIONAL BOND FUND
================================================================================
MacKay-Shields 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. MacKay-Shields 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.
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 against the box.
================================================================================
SHORT-TERM 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 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
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. 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.
42
<PAGE>
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, "Floaters and Inverse
Floaters," for details.)
================================================================================
DESCRIPTION OF INVESTMENTS AND
INVESTMENT PRACTICES
================================================================================
For more information about the investments described in this section, please see
the SAI.
================================================================================
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.
================================================================================
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.
================================================================================
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.
================================================================================
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.
================================================================================
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 sub-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, for temporary defensive purposes, invest up to 5%, of its net assets in
debt securities which are rated below investment grade. (See pg. 44, "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.
43
<PAGE>
================================================================================
FLOATERS AND INVERSE FLOATERS
================================================================================
Each Fund, other than the EAFE Index Fund, Growth Equity Fund, Indexed Equity
Fund and Value Equity Fund may 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 invest in leveraged inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. The leverage associated with inverse floaters may result in greater
volatility in their market values. Certain inverse floaters may be determined to
be illiquid securities.
================================================================================
FOREIGN INDEX-LINKED INSTRUMENTS
================================================================================
The EAFE Index Fund, International Equity Fund, Multi-Asset Fund and
International Bond Fund may 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. In the case of foreign index-linked instruments linking the
interest component 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.
================================================================================
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.
Foreign investments could be more difficult to sell than U.S. investments and
may involve risks different from investing in domestic securities. Investments
in foreign securities involve risks of currency controls by governments, changes
in currency rates and interest rates, difficulties in receiving or interpreting
financial and economic information, possible imposition of taxes, higher
brokerage and custodian fees, possible exchange controls or other government
restrictions, including possible seizure or nationalization of foreign deposits
or assets. In addition, foreign securities may be less liquid and more volatile
than U.S. securities. There may also be difficulty in invoking legal protections
across borders.
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 "Risk Management Techniques") 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 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. Investment in emerging market countries generally
presents risks in greater degree than those presented by investment in foreign
issuers in countries with developed securities markets and more advanced
regulatory systems.
================================================================================
GOVERNMENT SECURITIES
================================================================================
Government securities are obligations of, or guaranteed by, the U.S. government
or its agencies or instrumentalities.
================================================================================
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, determined to
be of equivalent quality by the sub-adviser. Under exceptional market conditions
abroad or when it is believed that economic or market conditions warrant, the
International Equity Fund may, for temporary defensive purposes, invest
44
<PAGE>
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, determined to be of equivalent quality by the
sub-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. 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. Moreover, such securities may under
certain circumstances be less liquid than higher rated debt instruments.
================================================================================
LENDING OF PORTFOLIO SECURITIES
================================================================================
A Fund may lend its investment securities to brokers, dealers and financial
institutions for the purpose of realizing additional income in accordance with
guidelines adopted by the Board of Directors. The total market value of
securities loaned will not at any time exceed 33% 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 sub-adviser
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower.
================================================================================
LOAN PARTICIPATION INTERESTS
================================================================================
The Funds may invest in participation interests in loans. Such participation
interests, which may take the form of interests in, or assignments of, loans,
are acquired from banks which have made loans or are members of lending
syndicates. A Fund's investments in loan participation interests will be subject
to its limitation on investments in illiquid securities and, to the extent
applicable, its limitation on investments in securities rated below investment
grade.
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 corporate 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-BACKED AND ASSET-BACKED SECURITIES
================================================================================
Mortgage-backed and asset-backed securities are securities which derive their
value from underlying pools of loans that may include interests in pools of
lower-rated debt securities, consumer loans or mortgages, or complex instruments
such as collateralized mortgage obligations and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of issuers and the
creditworthiness of the parties involved. The ability of a Fund to successfully
utilize these instruments may depend in part upon the ability of the Fund's
sub-adviser to forecast interest rates and other economic factors correctly.
Some securities may have a structure that makes their reaction to interest rate
changes and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk and if the
security has been purchased at a premium the amount of the premium would be lost
in the event of prepayment.
================================================================================
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.
================================================================================
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
45
<PAGE>
at the Fund's cost plus interest within a specified time (normally one day).
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 liquid assets 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.
The Directors have reviewed and approved certain sellers who they believe to be
creditworthy and have authorized the Funds to enter into repurchase agreements
with such sellers. If the other party to a repurchase agreement were to become
bankrupt, a Fund could experience delays in recovering its investment or losses.
================================================================================
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. The smaller market may create undesirable delays in selling
restricted securities. 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.
================================================================================
RISK MANAGEMENT TECHNIQUES
================================================================================
The Funds can use various techniques to increase or decrease their exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling futures contracts and
options on futures contracts, entering into foreign currency transactions (such
as forward foreign currency exchange contracts and options on foreign
currencies) and purchasing or writing put or call options on securities and
securities indexes.
The Funds can use these practices in an attempt to adjust the risk and return
characteristics of their portfolios of investments. When a Fund uses such
techniques in an attempt to reduce risk it is known as "hedging". If a Fund's
sub-adviser judges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investments, these techniques could result in
a loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the transaction
does not perform as promised. (For more information on risk management
techniques, see the SAI.)
================================================================================
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. To effect a
short sale against the box, the Fund borrows from a broker the securities which
are sold short in the short sale, and the broker holds the proceeds until the
borrowed securities are replaced. 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 the investment advisers believe are
creditworthy. Short sales against the box will be limited to no more than 25% of
a Fund's assets.
================================================================================
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
46
<PAGE>
institutional investors for periods ranging from a few weeks to more than one
year.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the sub-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. A sub-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
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 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 SAI 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. Zero coupon bonds tend to be more volatile than
conventional debt securities.
================================================================================
INVESTMENT RESTRICTIONS
================================================================================
The following restrictions, as well as the restrictions in the "Investment
Restrictions" section in the SAI 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 SAI for additional information on
restrictions.)
Under these restrictions, a Fund may not:
1. invest in a security if, as a result of such investment, 25% or more 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) and at such time that the 1940 Act
is amended to permit a registered investment company to elect to be
"periodically industry concentrated," (i.e., a fund that does not concentrate
its investments in a particular industry would be permitted, but not required,
to invest 25% or more of its assets in a particular industry) the Funds elect to
be so classified and the foregoing limitation shall no longer apply with respect
to the Funds;
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. borrow money or issue senior securities, 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) issue senior
securities to the extent permitted under the 1940 Act; or
5. 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.
47
<PAGE>
================================================================================
MANAGER AND SUB-ADVISERS
================================================================================
================================================================================
THE MANAGER
================================================================================
MainStay Management, Inc. serves as the Funds' manager pursuant to a Management
Agreement dated November 21, 1997 between MainStay Management, Inc. and the
Company. Under the Management Agreement, the manager is responsible for the
Company's business affairs, subject to the supervision of the Company's
Directors. The manager, among other things, furnishes the Funds with office
facilities and with ordinary clerical, bookkeeping and recordkeeping services.
The manager may consult with or utilize the services of its subsidiary companies
to assist the manager in carrying out its responsibilities to the Company.
In connection with its administration of the business affairs of the Funds, the
manager bears the following expenses:
1. the salaries and expenses of all personnel of the Company and the manager,
except the fees and expenses of Directors not affiliated with the manager or the
Funds' sub-advisers; and
2. all expenses incurred by the manager 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 manager 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 ....................................................... 0.95%
Growth Equity Fund .................................................... 0.85%
Indexed Equity Fund ................................................... 0.50%
International Equity Fund ............................................. 0.85%
Multi-Asset Fund ...................................................... 0.65%
Value Equity Fund ..................................................... 0.85%
Bond Fund ............................................................. 0.75%
Indexed Bond Fund ..................................................... 0.50%
International Bond Fund ............................................... 0.80%
Money Market Fund ..................................................... 0.50%
Short-Term Bond Fund .................................................. 0.60%
</TABLE>
================================================================================
THE SUB-ADVISERS
================================================================================
As compensation for services, the manager, not the Fund, pays each Fund's
respective sub-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>
================================================================================
SHAREHOLDER SERVICES PLAN
================================================================================
The Company has adopted a Shareholder Services Plan with respect to the
Institutional Service Class of shares 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.
Each Fund may pay to service agents "service fees" as that term is defined in
the rules of the National Association of Securities Dealers, Inc. (the "NASD")
for services provided to shareholders of the Institutional Service Class of the
Fund. These fees are for personal services, including assistance in establishing
and maintaining shareholder accounts and assisting shareholders that have
questions or other needs relating to their accounts. (For a more complete
description of the Plan and its terms, see the SAI.)
================================================================================
VOLUNTARY EXPENSE LIMITATION
================================================================================
The manager has voluntarily agreed to limit the total expenses (excluding
interest, taxes, brokerage commissions, litigation and indemnification expenses,
and other extraordinary expenses and any class-specific expenses) of the
Institutional Service Class of shares of certain Funds to an annual rate, as set
forth in the schedule below, of average daily net assets
48
<PAGE>
until December 31, 1997 (December 31, 1998 for Indexed Equity Fund). The Funds
listed below are subject to the following voluntary expense limitations:
<TABLE>
<S> <C>
EAFE Index Fund ..................................................... 1.19%
Indexed Equity Fund ................................................. 0.55%
International Equity Fund ........................................... 1.25%
Bond Fund ........................................................... 1.00%
Indexed Bond Fund ................................................... 0.75%
International Bond Fund ............................................. 1.20%
Money Market Fund ................................................... 0.75%
Short-Term Bond Fund ................................................ 0.85%
</TABLE>
As long as these temporary expense limitations continue, they may lower the
Funds' expenses and increase their respective yields. The voluntary expense
limitations may be terminated or revised at any time after December 31, 1997
(December 31, 1998 for the Indexed Equity Fund), 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.
================================================================================
PORTFOLIO TRANSACTIONS
================================================================================
Pursuant to each Fund's Sub-Advisory Agreement, a Fund's sub-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 sub-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 sub-adviser believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. Consistent with the foregoing primary consideration, the Rules
of Fair Practice of the NASD and such other policies as the Directors may
determine, the Funds' sub-advisers may consider sales of shares of the
respective Funds as a factor in the selection of broker-dealers to execute each
Fund's portfolio transactions. NYLIFE Securities Inc. may act as a broker for
the Company in accordance with applicable regulation.
Some securities considered for investment by the Funds may also be appropriate
for other clients served by the Funds' sub-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 sub-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 sub-adviser. Although there
is no specified formula for allocating such transactions, the various allocation
methods used by a Fund's sub-adviser, and the results of such allocations, are
subject to periodic review by the Company's Directors.
================================================================================
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
49
<PAGE>
be very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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 return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protec-
50
<PAGE>
tion; 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.
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
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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.
52
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MAINSTAY INSTITUTIONAL FUNDS INC.
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
STATEMENT OF ADDITIONAL INFORMATION
DATE: NOVEMBER 21, 1997
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 Institutional Class and Institutional Service Class
Prospectuses dated November 21, 1997 (collectively, the "Prospectus"), 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 each Class' Prospectuses.
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 Prospectuses, 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 Prospectuses 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
ADDITIONAL INVESTMENT POLICIES OF THE MONEY MARKET FUND.............. 1
INVESTMENT OBJECTIVES AND POLICIES................................... 3
Arbitrage...................................................... 3
Borrowing...................................................... 4
Commercial Paper............................................... 4
Repurchase Agreements.......................................... 4
Government Securities.......................................... 5
Lending of Portfolio Securities................................ 6
Municipal Bonds................................................ 7
Banking Industry and Savings and Loan Industry
Obligations.................................................... 7
Floating and Variable Rate Securities.......................... 8
Foreign Securities............................................. 8
American Depositary Receipts ("ADRs").......................... 10
When-Issued and Firm or Standby Commitment Agreements.......... 10
Mortgage-Related and Other Asset-Backed Securities............. 11
Brady Bonds.................................................... 18
Loan Participation Interests................................... 19
Options on Securities.......................................... 21
Options on Foreign Currencies.................................. 25
Futures Transactions........................................... 27
Swap Agreements................................................ 36
Forward Foreign Currency Contracts............................. 39
Foreign Index-Linked Instruments............................... 43
Warrants....................................................... 43
Short Sales Against the Box.................................... 44
High Yield/High Risk Securities................................ 44
Zero Coupon Bonds.............................................. 45
INVESTMENT RESTRICTIONS.............................................. 46
MANAGEMENT OF THE COMPANY............................................ 48
Directors and Officers......................................... 48
Compensation Table............................................. 51
Management Agreement........................................... 52
Sub-Advisory Agreements........................................ 53
Distributor.................................................... 55
Service Fees................................................... 56
PURCHASES AND REDEMPTIONS............................................ 57
PORTFOLIO TRANSACTIONS AND BROKERAGE................................. 57
NET ASSET VALUE...................................................... 61
TAX INFORMATION...................................................... 64
PERFORMANCE INFORMATION.............................................. 73
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OTHER INFORMATION.................................................... 77
Capitalization................................................. 77
Effective Maturity............................................. 77
Beneficial Ownership of the Funds.............................. 77
Code of Ethics................................................. 80
Independent Accountants........................................ 80
Legal Counsel.................................................. 80
Financial Statements........................................... 80
Registration Statement......................................... 81
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ADDITIONAL INVESTMENT POLICIES OF THE MONEY MARKET FUND
Each Fund has a separate investment objective or objectives which it
pursues through separate investment policies, as described in the Prospectus.
The following discussion elaborates on the presentation of the Money Market
Fund's investment policies contained in the Prospectus.
The Fund may invest its assets in U.S. dollar-denominated securities of
U.S. or foreign issuers and in securities of foreign branches of U.S. banks,
such as negotiable certificates of deposit (Eurodollars). Since the portfolio of
the Fund may contain such securities, an investment therein involves investment
risks that are different in some respects from an investment in a fund which
invests only in debt obligations of U.S. domestic issuers. Such risks may
include future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities held in
the portfolio, possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of the
principal of and interest on securities in the portfolio.
All of the assets of the Fund generally will be invested in obligations
which mature in 397 days or less and substantially all of these investments will
be held to maturity; however, securities collateralizing repurchase agreements
may have maturities in excess of 397 days. The Fund will, to the extent
feasible, make portfolio investments primarily in anticipation of or in response
to changing economic and money market conditions and trends. The dollar-weighted
average maturity of the Fund's portfolio may not exceed 90 days. Consistent with
the provisions of a rule of the Securities and Exchange Commission ("SEC"), the
Fund invests only in U.S. dollar-denominated money market instruments that
present minimal credit risk and, with respect to 95% of its total assets,
measured at the time of investment, that are of the highest quality. The
Sub-Adviser shall determine whether a security presents minimal credit risk
under procedures adopted by the Fund's Board of Directors. A money market
instrument will be considered to be of the highest quality (1) if rated in the
highest rating category (i.e., Aaa or Prime-1 by Moody's, AAA or A-1 by S&P's)
by (i) any two nationally recognized statistical rating organizations ("NRSROs")
or, (ii) if rated by only one NRSRO, by that NRSRO; (2) if issued by an issuer
that has short-term debt obligations of comparable maturity, priority, and
security, and that are rated in the highest rating category by (i) any two
NRSRO's or, (ii) if rated by only one NRSRO, by that NRSRO; or (3) an unrated
security that is of comparable quality to a security in the highest rating
category as determined by the Sub-Adviser. With respect to 5% of its total
assets, measured at the time of investment, the Fund may also invest in money
market instruments that are in the second-highest rating category for short-term
debt obligations (i.e., rated Aa or Prime-2 by Moody's or AA or A-2 by S&P).
<PAGE>
The Fund may not invest more than 5% of its total assets, measured at the
time of investment, in securities of any one issuer that are of the highest
quality, except that the Fund may exceed this 5% limitation with respect to 25%
of its total assets for up to three business days after the purchase of a
security of any one issuer and except that this limitation shall not apply to
U.S. government securities or securities subject to certain puts. The Fund may
not invest more than the greater of 1% of its total assets or one million
dollars, measured at the time of investment, in securities of any one issuer
that are in the second-highest rating category, except that this limitation
shall not apply to U.S. government securities or securities subject to certain
puts. In the event that an instrument acquired by the Fund is downgraded or
otherwise ceases to be of the quality that is eligible for the Fund, the
Sub-Adviser, under procedures approved by the Board (or the Board itself if the
Sub-Adviser becomes aware an unrated security is downgraded below high quality
and the Sub-Adviser does not dispose of the security within five business days)
shall promptly reassess whether such security presents minimal credit risk and
determine whether or not to retain the instrument.
Pursuant to the rule, the Fund uses the amortized cost method of valuing
its investments, which facilitates the maintenance of the Fund's per share net
asset value at $1.00. The amortized cost method, which is normally used to value
all of the Fund's portfolio securities, involves initially valuing a security at
its cost and thereafter amortizing to maturity any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument.
The Directors have also established procedures designed to stabilize, to
the extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of the
Fund's portfolio by the Directors, at such intervals as they deem appropriate,
to determine whether the Fund's net asset value calculated by using available
market quotations or market equivalents (the determination of value by reference
to interest rate levels, quotations of comparable securities and other factors)
deviates from $1.00 per share based on amortized cost.
The extent of deviation between the Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be periodically examined by the Directors. If such deviation
exceeds 1/2 of 1%, the Directors will promptly consider what action, if any,
will be initiated. In the event the Directors determine that a deviation exists
which may result in material dilution or other unfair results to investors or
existing shareholders, they will take such corrective action as they regard to
be necessary and appropriate,
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including the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding part or
all of dividends or payment of distributions from capital or capital gains;
redemptions of shares in kind; or establishing a net asset value per share by
using available market quotations or equivalents. In addition, in order to
stabilize the net asset value per share at $1.00, the Directors have the
authority (1) to reduce or increase the number of shares outstanding on a pro
rata basis, and (2) to offset each shareholder's pro rata portion of the
deviation between the net asset value per share and $1.00 from the shareholder's
accrued dividend account or from future dividends.
The Fund may hold cash for the purpose of stabilizing its net asset value
per share. Holdings of cash, on which no return is earned, would tend to lower
the yield on the Fund's shares.
The Fund may also, consistent with the provisions of the rule, invest in
securities with a face maturity of more than 397 days, provided that the
security is a variable or floating rate security that meets the guidelines of
Rule 2a-7 with respect to maturity.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectuses 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
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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 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.
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 Sub-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" in the Prospectus).
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
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<PAGE>
"Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. Repurchase agreements 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 Sub-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. No
Fund will invest more than 10% of its net assets (taken at current market value)
(15% in the case of the International Equity and International Bond Funds) in
repurchase agreements maturing in more than seven days.
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 Bank, are supported by the right of the issuer to borrow 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.
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STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
The Indexed Equity Fund and the Multi-Asset Fund are managed in part to
replicate the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500").
Because of the market-value weighing, the 20 largest companies in the S&P 500
currently account for approximately 28% of the Index. As of December 31, 1996,
the five largest weightings in the S&P 500 as a percentage of net assets were:
General Electric Company (2.9%); Coca Cola Co. (2.3%); Exxon Corporation (2.2%);
Intel Corporation (1.9%) and Microsoft Corporation (1.7%).
LENDING OF PORTFOLIO SECURITIES
In accordance with guidelines adopted by the Board of Directors, 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 or U.S. Government securities maintained 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 generally on less than 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. The Company, on behalf of certain
of the Funds, has entered into an agency agreement with Merrill Lynch Portfolio
Services, Inc. which acts as the Fund's agent in making loans of portfolio
securities and short-term money market investments of the cash collateral
received, subject to the supervision and control of the Funds' Sub- Advisers.
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 a Sub-Adviser to be creditworthy and approved by the Board, and when,
in the judgment of a Sub-Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk. If a
Sub-Adviser determines to make securities loans, it is intended that the value
of the securities loaned would not exceed 33% of the value of the total assets
of the lending Fund. Under the guidelines adopted by the Board of Directors, a
Fund may not
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enter into a lending agreement with a counterparty which would cause the Fund to
have loans outstanding to that counterparty for securities having a value
greater than 5% of the Fund's total assets.
MUNICIPAL BONDS
Municipal bonds 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
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 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.
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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 determined to be illiquid securities for purposes of a
Fund's limitation on investments in such securities.
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. Securities acquired by the
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International Bond 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.
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 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
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<PAGE>
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.
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. European Depositary Receipts and
International Depositary Receipts are receipts typically issued by a European
bank or trust company evidencing ownership of the underlying foreign securities.
Global Depositary Receipts are receipts issued by either a U.S. or non-U.S.
banking institution evidencing ownership of the underlying foreign securities.
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
- 10 -
<PAGE>
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
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 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
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.
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) privately issued securities 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
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<PAGE>
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).
Mortgage Pass-Through Securities. Mortgage pass-through which are
--------------------------------
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.
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.
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<PAGE>
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, 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. 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. 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
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<PAGE>
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.
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
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<PAGE>
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' Sub-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.
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
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<PAGE>
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. Each of the Funds limits its
investment in CMO residuals to less than 5% of its net assets.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
-----------------------------------
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated
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<PAGE>
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 a Sub-Adviser to forecast interest rates and other economic
factors correctly. If a Sub-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 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
- 17 -
<PAGE>
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 Receivablessm
("CARSsm"). CARSsm 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 CARSsm 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 CARSsm 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. 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
Sub-Adviser also may invest in other types of assetbacked 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. Brady Bonds are not considered U.S. Government securities.
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<PAGE>
Brady Bonds may be collateralized or uncollateralized and are issued in
various currencies (primarily the U.S. dollar). 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").
Brady Bonds involve various risk factors, including the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative. 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
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<PAGE>
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.
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
- 20 -
<PAGE>
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 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 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 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
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<PAGE>
the Fund in liquid assets 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 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
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<PAGE>
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.
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 Sub-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 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 put option written by the Fund
is "covered" if the Fund maintains liquid assets 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
liquid assets 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
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<PAGE>
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.
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
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<PAGE>
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.
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. 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. 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.
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<PAGE>
A Fund 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 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 liquid assets 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. 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
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<PAGE>
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.
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. 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.
The Funds, as specified in the Prospectus, 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 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.
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<PAGE>
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 liquid assets ("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 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
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<PAGE>
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 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
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<PAGE>
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 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 a Sub-Adviser anticipates that
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<PAGE>
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 a
Sub-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 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 a Sub-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.
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<PAGE>
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 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
- 32 -
<PAGE>
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.
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
- 33 -
<PAGE>
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) liquid assets that, when added
to the amounts deposited with a futures commission merchant as margin, are equal
to the market value of the futures contract. Alternatively, the Fund may "cover"
its position by purchasing a put option on the same futures contract with a
strike price as high or higher than the price of the contract held by 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) liquid assets 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
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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) liquid assets 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. There can be no assurance that hedging strategies using futures will
be successful. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract, which in some cases may
be unlimited. There can be no guarantee that there will be a correlation between
price movements in the hedging vehicle and in the Fund's securities 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 be attempted. 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
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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.
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.
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 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
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EAFE Index Fund may enter into index and currency exchange rate swap agreements,
the Indexed Bond Fund may invest up to 10% of its total assets in 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 liquid assets 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 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.
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 Sub-
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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 Sub-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. 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
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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 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 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
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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 Sub- 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 a Sub-Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell, for a fixed amount of dollars, the amount of
foreign currency approximating the value of some or all of a 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 (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).
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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 a Sub-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 in an amount
equal to the value of the Fund's total assets committed to the consummation of
the subject hedge. The Segregated Account will consist of liquid assets. 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
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Fund will mark-to-market the value of the assets in the Segregated Account. If
the value of the assets placed in the Segregated Account declines, additional
liquid assets 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.
The Sub-Advisers believe 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 Sub-Advisers believe active currency
management can be employed as an overall portfolio risk management tool. For
example, in their view, foreign currency management can provide overall
portfolio risk diversification when combined with a portfolio of foreign
securities and the market risks by currency strategies which may not involve the
currency in which the foreign security is denominated.
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. 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.
The Funds cannot assure that their use of forward contracts will always be
successful. Successful use of forward contracts depends on the Sub-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 Sub-Adviser anticipates.
A Fund may also incur significant costs when converting assets from one currency
to another.
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.
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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 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
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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.
Each of the Funds will only enter into short sales against the box. 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. 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. The proceeds of the short sale are retained by the broker
pursuant to applicable margin rules. In addition, the Fund may segregate assets,
equal in value to 50% of the value of the short sale, in a special account with
the Fund's custodian. The segregated assets are pledged to the broker pursuant
to applicable margin rules. 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. Short sales against
the box will be limited to no more than 25% of a Fund's total assets.
HIGH YIELD/HIGH RISK SECURITIES
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
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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. 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.
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.
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
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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 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 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 (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 or commodities contracts, except that,
subject to restrictions described in the Prospectus and in this Statement of
Additional Information, (i) a Fund may enter into futures contracts on
securities, currencies or on indexes of such securities or currencies, or any
other financial instruments and options on such futures contracts; (ii) a Fund
may enter into spot or forward foreign currency contracts and foreign currency
options; or
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(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 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) (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;
(2) 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);
(3) invest in other companies for the purpose of exercising control;
- 47 -
<PAGE>
(4) purchase the securities of other investment companies, except to the
extent permitted by the 1940 Act or in connection with a merger, consolidation,
acquisition or reorganization;
(5) a 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;
(6) a 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.
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, 49 Director and Chairperson Executive Vice President, New York Life Insurance Company, 1992 to present;
of the Board of Directors* 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, New York Life Benefit Services, Inc., (pension consultant and third
party administrator), 1994 to present; Director, NYLIFE Securities Inc.
(registered broker-dealer), 1994 to present; Director, Eagle Strategies Corp.
(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, NYL Management Limited, 1995 to present; Director, Sanus Corp.
Health Systems; 1984 to 1995; Director, NYLCare Health Plans, Inc. (formerly
Sanus Corp. Health Systems); November 1995 to present; Director, New York Life
Trust Company, (a limited purpose trust company), 1995 to present;
</TABLE>
- 48 -
<PAGE>
<TABLE>
<CAPTION>
Name Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------- ---------------- --------------------
<S> <C> <C>
Director, Japan Gamma Asset Management Limited, 1995 to present; Director,
New York Life Worldwide Holding, Inc., 1995 to present; Director, New York
Life and Health Insurance Company, 1996 to present; Director, NYLINK
Insurance Agency Incorporated, 1996 to present; Director, MainStay
Shareholder Services Inc., 1997 to present; Director, NASD Regulation, Inc.,
1996 to present; Member, Board of Governors of the National Association of
Securities Dealers, Inc., 1994 to 1996; Member, American Council of Life
Insurance Deputies Solvency Oversight Committee, 1991 to 1995; Board of
Governors, Association of Life Insurance Counsel, 1992 to 1996.
Patrick G. Boyle, 43 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 1996; Chairman, Monitor Capital Advisors, Inc., 1996 to
present, and Director, 1991 to present; Director, New York Life Benefit
Services, Inc., 1994 to present; Director, New York Life International
Investment Inc., 1995 to present; Director, New York Life Trust Company, 1995
to present; Director, NYL Capital Management Limited, 1994 to present;
Member, American Council of Life Insurance Pension Committee, 1992 to
present.
Lawrence Glacken, 69 Director Retired, 1987 to present; Vice President,
353 Canterbury Drive Investment Banking, The First Boston Corporation, 1964-1987.
Ramsey, NJ 07446
Robert P. Mulhearn, 50 Director Private Investor, 1987 to present; Managing
60 Twin Brooks Road Director, Morgan Stanley, 1979-1987.
Saddle River, NJ 07458
Susan B. Kerley, 45 Director President, Global Research Associates, 1990 to present; Manager,
P.O. 9572 Special Investments, Rockefeller & Co., 1988-1990; Director of Research,
New Haven, CT 06535 Rogers, Casey and Barksdale, 1983-1988; Director, Landmark Funds, 1991 to
present.
Linda M. Livornese, 45 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; Vice President, NYLIFE Distributors Inc.,
1993 to present; Vice President, NYLIFE Securities Inc., 1992 to present.
</TABLE>
- 49 -
<PAGE>
<TABLE>
<CAPTION>
Name Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------- ---------------- -------------------
<S> <C> <C>
Jefferson C. Boyce, 40 Senior Vice President Senior Vice President, New York Life Insurance Company,
1994 to present; Senior Vice President, The MainStay Funds,
1995 to present; Director, Monitor Capital Advisors, Inc.,
1991 to present and Senior Vice President, 1996 to present;
Director, MSC Holding, Inc., 1992 to present and Secretary,
1994 to present; Director, Eagle Strategies Corp., 1993 to
present; Director, NYLIFE Equity, Inc., 1993 to present;
President and Chief Executive Officer, NYLIFE Distributors
Inc., 1996 to present and Director, 1993 to present;
Director, NYLIFE Inc., 1993 to present; Director, NYLIFE
Structured Asset Management Company Ltd., 1993 to present;
Director, CNP Realty Investments, Inc., 1994 to present;
Director New York Life Benefit Services, Inc., 1994 to
present; Director, NYLIFE Depositary Corporation, 1994 to
present; Director, NYLIFE Realty Inc., 1994 to present;
Director, NYLIFE SFD Holding Inc. (formerly NAFCO, Inc.),
1994 to present; Director, President and Chief Executive
Officer, NYLIFE Securities Inc., 1996 to present; Chairman
and Director, MainStay Shareholder Services Inc., 1997 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 S. Fenster, 47 Vice President Vice President, Pension Department, New York Life Insurance
Company, 1988 to present; Director New York Life Trust
Company, 1995 to present.
Richard W. Zuccaro, 47 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,
NYLIFE SFD Holding 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
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, MainStay VP
Series Fund, Inc., 1991 to present; Tax Vice President, CNP
Realty Investments, Inc., 1991 to present; Tax Vice
President, New York Life Worldwide Holding, Inc., 1992 to
present; Tax Vice President, NYLIFE Structured Asset
Management Company Ltd., 1992 to present; Tax Vice
President, The MainStay Funds, 1991 to present; Tax Vice
President, Eagle Strategies Corp. (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
1995; Vice President, NYLCare Health Plans, Inc., 1995
</TABLE>
- 50 -
<PAGE>
<TABLE>
<CAPTION>
Name Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------- ---------------- -------------------
<S> <C> <C> to present; Vice President - Tax, New York Life and
Health Insurance Co., 1996 to present; Tax Vice
President, New York Life Trust Company, 1996 to
present; Tax Vice President, Monitor Capital Advisors,
Inc., 1996 to present; Tax Vice President, NYLINK
Insurance Agency Incorporated, 1996 to present; Tax
Vice President, MainStay Shareholder Services Inc.,
1997 to present.
Anthony W. Polis, 53 Treasurer (Principal Financial and Vice President, New York Life Insurance Company, 1988
Accounting Officer) to present; Director, Vice President and Chief
Financial Officer, NYLIFE Securities Inc., 1988 to
present; Vice President and Chief Financial Officer,
NYLIFE Distributors Inc., 1993 to present; Vice
President and Chief Financial Officer, Eagle Strategies
Corp., 1993 to present; Vice President and Chief
Financial Officer, MainStay Shareholder Services Inc.,
1997 to present; Vice President and Chief Financial
Officer, The MainStay Funds, 1990 to present;
Treasurer, MainStay VP Series Fund, Inc., 1993 to
present; Assistant Treasurer, MainStay VP Series Fund,
Inc., 1992 to 1993; Vice President and Treasurer,
Eclipse Financial Asset Trust, 1992 to present; Vice
President, 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.
Sara L. Badler, 37 Secretary Assistant General Counsel, New York Life Insurance
Company, 1996 to present; Associate Counsel, New York
Life Insurance Company, 1994 to 1996; Secretary,
MainStay VP Series Fund, Inc., 1997 to present;
Assistant Secretary, the MainStay Funds, 1994 to
present; Assistant Secretary, Eclipse Financial Asset
Trust, 1994 to present; Teacher, New York City Board of
Education, 1993 to 1994; and Vice President and
Associate Counsel and Consulting Attorney; Oppenhyeimer
Management Corporation, 1987 to 1993
</TABLE>
* Mr. Boyle and Ms. Kane are Directors who are "interested persons" of
the Company as that term is defined in the 1940 Act.
COMPENSATION TABLE
The following table sets forth information regarding compensation received
by the Directors of the Company for the year ended December 31, 1996.
- 51 -
<PAGE>
Aggregate Compensation
Name and Position from Company/1/
Lawrence Glacken $ 30,000
Director
Robert P. Mulhearn $ 30,000
Director
Susan B. Kerley $ 30,000
Director
/1/ Directors, other than those affiliated with New York Life
Insurance Company, MainStay Management, Inc., MacKay-Shields
Financial Corporation, Monitor Capital Advisors, Inc. or
NYLIFE Distributors Inc. are paid an annual fee of $24,000 and
$1,000 for each Board of Directors meeting and Committee
meeting attended plus reimbursement for travel and
out-of-pocket expenses.
MANAGEMENT AGREEMENT
Pursuant to the Management Agreement for the Funds dated November 21,
1997, MainStay Management, Inc. (the "Manager"), subject to the supervision of
the Directors of the Company and in conformity with the stated policies of the
Funds, administers the Funds' business affairs and investment advisory
responsibilities.
The Directors, including the Independent Directors, approved the
Management Agreement at an in-person meeting held on September 9, 1997. On
November 17, 1997, the shareholders of each of the Funds approved the Management
Agreement. The Management Agreement will remain in effect for two years
following its effective date, and will continue in effect thereafter only if
such continuance is specifically approved at least annually by the Directors or
by a vote of a majority of the outstanding voting securities of each of the
Funds (as defined in the 1940 Act and the rules thereunder) and, in either case
by a majority of the Directors who are not "interested persons" of the Company
or of the Manager (as the term is defined in the 1940 Act).
The Manager has authorized any of its directors, officers and employees
who have been elected or appointed as Directors of the Company to serve in the
capacities in which the have been elected or appointed.
The Management Agreement provides that the Manager shall not be liable to
a Fund for any error or judgment by the Manager or for any loss sustained by a
Fund except in the case of the Manager's
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<PAGE>
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Agreement also provides that it shall terminate automatically if
assigned and that it may be terminated without penalty by either party upon no
more than 60 days' nor less than 30 days' written notice.
In connection with its administration of the business affairs of each of
the Funds, and except as indicated in the Prospectus under the heading "Manager
and Sub-Advisers," the Manager bears the following expenses:
(a) the salaries and expenses of all personnel of the Company and the
Manager, except the fees and expenses of the Directors not affiliated with the
Manager or the Sub-Adviser;
(b) the fees to be paid to the Sub-Advisers pursuant to the Sub-Advisory
Agreements; and
(c) all expenses incurred by the Manager in connection with administering
the ordinary course of the Funds' business, other than those assumed by the
Company.
For its services, each Fund pays the Manager a monthly fee.
(See page 48 of the Prospectus, "Manager and Sub-Advisers.")
SUB-ADVISORY AGREEMENTS
Pursuant to the Sub-Advisory Agreements between the Manager and
MacKay-Shields Financial Corporation ("MacKay-Shields"), between the Manager and
Monitor Capital Advisors, Inc. ("Monitor") and between the Manager and New York
Life Insurance Company ("New York Life") on behalf of each Fund (each a
"Sub-Adviser" and collectively the "Sub-Advisers"), MacKay-Shields, Monitor and
New York Life, subject to the supervision of the Directors of the Company and
the Manager in conformity with the stated policies of each of the Funds and the
Company, manage the Funds' portfolios, including the purchase, retention,
disposition and loan of securities.
The Directors, including the Independent Directors, approved the
Sub-Advisory Agreements at an in-person meeting held September 9, 1997. On
November 17, the shareholders of each of the Funds approved the Sub-Advisory
Agreements with MacKay-Shields, Monitor and New York Life. The Sub-Advisory
Agreements will remain in effect for two years following its effective date, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Directors or by a vote of a majority of the
outstanding voting securities of each of the Funds (as defined in the 1940 Act
and the rules thereunder) and, in either case by a majority of the Directors who
are not
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<PAGE>
"interested persons" of the Company, the Manager, or any Sub- Adviser (as the
term is defined in the 1940 Act).
The Sub-Advisory Agreements provide that the Sub-Advisers shall not be
liable to a Fund for any error of judgment by a Sub- Adviser or for any loss
sustained by a Fund except in the case of the Sub-Adviser's willful misfeasance,
bad faith, gross negligence or reckless disregard of duty. The Sub-Advisory
Agreements also provide that they shall terminate automatically if assigned and
that they may be terminated without penalty by either party upon no more than 60
days' nor less than 30 days' written notice.
In previous years, prior to a change in management structure, each Fund
paid an advisory fee directly to New York Life, MacKay- Shields or Monitor. For
the fiscal years ended December 31, 1996, 1995 and 1994, the amount of the
advisory fee paid by each Fund to New York Life, MacKay-Shields or Monitor was
as follows:
Year Ended Year Ended Year Ended
Fund 12/31/96 12/31/95 12/31/94
- ---- -------- -------- --------
EAFE Index Fund $ 124,284 $ 115,497 $ 106,887
Growth Equity Fund 1,186,388 879,351 676,347
Indexed Equity Fund 502,686 295,487 238,454
International Equity Fund 395,717 290,777 N/A
Multi-Asset Fund 461,408 372,064 374,026
Value Equity Fund 1,768,836 1,275,060 890,814
Bond Fund 355,167 378,811 427,182
Indexed Bond Fund 123,798 168,137 167,785
International Bond Fund 141,296 121,813 N/A
Money Market Fund 100,230 59,918 63,676
Short-Term Bond Fund 98,265 79,193 156,983
In previous years, prior to a change in management structure, each Fund
paid an administrative fee directly to New York Life as administrator. For the
fiscal years ended December 31, 1996, 1995 and 1994, the amount of the
administration fee paid by each Fund to New York Life was as follows:
Year Ended Year Ended Year Ended
Fund 12/31/96 12/31/95 12/31/94
- ---- -------- -------- --------
EAFE Index Fund $ 662,846 $ 615,986 $ 570,064
Growth Equity Fund 2,847,330 2,110,442 1,623,233
Indexed Equity Fund 2,010,753 1,181,947 953,814
International Equity Fund 565,311 415,395 N/A
Multi-Asset Fund 1,538,025 1,240,213 1,246,753
Value Equity Fund 4,245,206 3,060,145 2,137,952
Bond Fund 976,711 1,041,729 1,174,749
Indexed Bond Fund 495,190 672,553 671,140
International Bond Fund 235,493 203,021 N/A
Money Market Fund 400,921 239,673 254,704
Short-Term Bond Fund 294,794 237,578 470,949
Also prior to the above-referenced change in management structure and in
connection with the voluntary expense limitation, New York Life, as
administrator, assumed the following expenses for
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<PAGE>
the Funds for the fiscal years ended December 31, 1996, 1995 and
1994.
Year Ended Year Ended Year Ended
Fund 12/31/96 12/31/95 12/31/94
- ---- -------- -------- --------
EAFE Index Fund $238,764 $ 165,321(1) $ N/A(2)
Growth Equity Fund N/A(2) N/A(2) N/A(2)
Indexed Equity Fund 753,575(3) 272,396 194,838
International Equity Fund 82,203 60,652 N/A
Multi-Asset Fund 164,519(4) 167,833 130,798
Value Equity Fund N/A(2) N/A(2) N/A(2)
Bond Fund 188,561 198,399 148,020
Indexed Bond Fund 189,996 225,553 177,755
International Bond Fund 61,961 31,528 N/A
Money Market Fund 170,221 136,576 116,556
Short-Term Bond Fund 122,335 114,433 121,241
1 Fund expense limitation resumed April 1, 1995.
2 Fund had no expense limitation during period.
3 New York Life assumed $676,954, Monitor assumed $76,621.
4 Fund expense limitation expired December 31, 1996.
As of November 21, 1997, the Manager has limited certain Funds' expenses
as discussed in the Prospectus. As long as temporary expense limitations
continue, they may lower the Funds' expenses and increase their respective
yields. After December 31, 1997, (December 31, 1998 for the Indexed Equity 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.
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 4, 1997. 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
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<PAGE>
"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, 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, each Fund may pay to
service agents "service fees" as that term is defined in the rules of the
National Association of Securities Dealers for services provided to shareholders
of the Institutional Service Class of the Fund. These fees are for personal
services, including assistance in establishing and maintaining shareholder
accounts and assisting shareholders that have questions or other needs relating
to their accounts.
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 and amended at a meeting held on March 4,
1997.
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 Sub-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 Sub-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.
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.
Certain of the Funds have entered into a committed line of credit with The
Bank of New York, as agent, and various other lenders, from whom a Fund may
borrow up to 5% of its net assets in order to honor redemptions. The credit
facility is expected to be utilized in periods when the Funds experience
unusually large redemption requests.
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
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<PAGE>
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 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 Sub-Adviser will seek the best execution of the Fund's
orders. The Sub-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' Sub- 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 Sub-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 Sub-Adviser. Although there
is no specified formula for allocating such transactions, the various allocation
methods used by a Fund's Sub-Adviser, and the results of such allocations, are
subject to periodic review by the Company's Directors.
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<PAGE>
It has for many years been a common practice in the investment advisory
business for advisers (or sub-advisers) of investment companies and other
institutional investors to receive research services from broker-dealers which
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, the Sub-Adviser for a Fund may receive research services from
many broker-dealers with which the Sub-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 Sub-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 and the sub-advisory fee
paid by the Manager are not reduced because the Sub-Adviser and its affiliates
receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, an
investment adviser (or sub-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 (or sub-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, 1996, 1995 and 1994 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
12/31/96 12/31/95 12/31/94 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EAFE Index Fund $ N/A $ 44,798 $ 79,676 0(0%)(1) 0(0%)(1) 0(0%)(1)
Growth Equity Fund 296,284 306,776 254,728 0(0%)(1) 0(0%)(1) 1,490(0%)(1)*
Indexed Equity Fund N/A25,484 45,597 0 (0%) 0(0%)(1) 0(0%)(1)
International Equity Fund 290,329 330,914 N/A 0(0%)(1) 0(0%)(1) N/A
Multi-Asset Fund N/A 12,451 87,112 0(0%)(1) 0(0%)(1) 0(0%)(1)
Value Equity Fund 1,042,205 945,310 588,653 0(0%)(1) 0(0%)(1) 720(0%)(1)*
Bond Fund 768 15,608 13,436 0(0%)(1) 0(0%)(1) 0(0%)(1)
Short-Term Bond Fund 106 523 1,939 0(0%)(1) 0(0%)(1) 0(0%)(1)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Total Brokerage
Total Amount of Transaction Commissions Paid
Where Commissions Paid to Brokers that
Provided
Research
Year ended Year ended Year ended Year ended
12/31/96 12/31/95 12/31/96 12/31/94
-------------- -------------- --------------- -------------------
<S> <C> <C> <C> <C>
EAFE Index Fund..........$ N/A $ 10,362,714(0%)(2) $ 56,509,039(0%)(2) $ N/A
Growth Equity Fund....... 182,941,279 173,585,053(0%)(2) 134,977,896(2%)(2) 290,265
Indexed Equity Fund...... 70,163,300 20,707,836(0%)(2) 339,976,251(0%)(2) N/A
International Equity Fund N/A 79,632,317(0%)(2) N/A 290,329
Multi-Asset Fund......... N/A 9,523,672(0%)(2) 72,654,644(0%)(2) N/A
Value Equity Fund....... .656,491,378 490,519,118(0%)(2) 306,971,001(0%)(2)* 1,037,247
Bond Fund................ 17,690,332 200,756,257(0%)(2) 179,145,860(0%)(2) 768
Short Term Bond Fund..... 1,533,460 7,828,803(0%)(2) 25,030,765(0%)(2) 106
</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, 1996, 1995 and
1994.
As of December 31, 1996, the following Funds held securities in issuers
with whose broker-dealer subsidiaries or affiliates of the Funds regularly
conduct business:
Fund Broker-Dealer Market Value
- ---- ------------- ------------
Growth Equity Fund American Express Credit Corp. $ 17,315,000(1)
Schwab (Charles) Corp. 12,960,000(2)
Indexed Equity Fund Alexander & Alexander Services, Inc. 86,892(2)
American Express Company 2,925,344(2)
Dean Witter Discover & Company 1,164,476(2)
Morgan (J.P.) & Co. Inc. 2,009,709(2)
Marsh & McLennan Companies, Inc. 838,032(2)
Merrill Lynch & Co., Inc. 1,462,354(2)
Morgan Stanley Group, Inc. 951,474(2)
Salomon Inc. 571,061(2)
Multi-Asset Fund Alexander & Alexander Services, Inc. 30,736(2)
American Express Company 1,045,193(2)
Dean Witter Discover & Company 418,104(2)
Morgan (J.P.) & Co. Inc. 731,895(2)
Marsh & McLennan Companies, Inc. 299,416(2)
Merrill Lynch & Co., Inc. 527,876(2)
Morgan Stanley Group, Inc. 338,237(2)
Salomon Inc. 198,679(2)
Bear Stearns Cos., Inc. (The) 489,375(3)
Morgan (J.P.) & Co. Inc. 545,625(3)
PaineWebber Group, Inc. 412,500(3)
Value Equity Fund American Express Credit Corp. 26,386,000(1)
Prudential Funding Corp. 19,940,000(1)
- 60 -
<PAGE>
Bond Fund American Express Credit Corp. 420,000(1)
Lehman Brothers Holdings, Inc. 2,061,660(3)
Merrill Lynch & Co., Inc. 1,889,794(3)
Morgan Stanley Group, Inc. 1,665,285(3)
PaineWebber Group, Inc. 1,961,826(3)
Salomon Inc. 1,643,265(3)
Indexed Bond Fund Donaldson, Lufkin & Jenrette
Securities Corp. 2,925,000(3)
Money Market Fund Dean Witter Discover & Company 4,984,512(1)
Morgan Stanley Group, Inc. 2,991,133(1)
Short-Term Bond Fund American Express Credit Corp. 1,420,000(1)
(1) Represents investment in commercial paper.
(2) Represents investment in common stock.
(3) Represents investment in corporate bond.
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.
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 increased brokerage
commissions and 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.
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
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<PAGE>
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 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 Sub-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 Sub-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 Sub-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
- 62 -
<PAGE>
Fund's Sub-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 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 Sub-
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.
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<PAGE>
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 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) 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 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
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<PAGE>
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 (c) 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.
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
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<PAGE>
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.
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
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<PAGE>
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.
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
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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 taxable income and distributions by a Fund will be
treated as United States source income.
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<PAGE>
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 intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
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<PAGE>
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.
Certain of the options, futures contracts, and forward
contracts in which the Funds may invest may be "section 1256
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<PAGE>
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 investment company might be affected. It is possible that
developments in the swap market and the laws relating to swaps,
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<PAGE>
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. Shareholders who are not U.S.
persons should consult their tax advisers regarding U.S. and foreign tax
consequences of ownership
- 72 -
<PAGE>
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 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.
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.
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 366/7, 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)366/7] - 1
The current and effective seven-day average yields as of June 30, 1997 for
the Money Market Fund were 5.33% and 5.47%, 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 New York Life, the Fund's
administrator at that time, these yields would have been 5.26% and 5.40%,
respectively, for the Institutional Class, and 5.01% and 5.14%, 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
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<PAGE>
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 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 June 30, 1997, the yield for the Short-Term
Bond Fund was 6.11% for the Institutional Class, and was 5.87% 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 or Class 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 or Class expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid. Quotations of total return may also be
shown for other periods.
The average annual total return of the following Funds for the one-year
and five-year periods ended June 30, 1997 and the period from inception to June
30, 1997 were as follows:
Five Years Average Annual
Year Ended Ended Total Return
Fund 6/30/97 6/30/97 Since Inception
---- ------- ------- ---------------
EAFE Index Fund
Institutional Class (1)........ 12.51% 11.70% 8.65%
Institutional Service Class(2). 12.29% 11.56% 8.55%
Growth Equity Fund
Institutional Class (1)........ 24.07% 20.43% 21.73%
Institutional Service Class(2). 23.77% 20.26% 21.60%
- 74 -
<PAGE>
Indexed Equity Fund
Institutional Class (1)....... 34.32% 19.25% 19.03%
Institutional Service Class(2). 33.96% 19.12% 18.93%
International Equity Fund
Institutional Class (3)........ 15.74% N/A 11.73%*
Institutional Service Class(3) 15.49% N/A 11.56%*
Multi-Asset Fund
Institutional Class (1)........ 25.41% 14.48% 13.99%
Institutional Service Class(2). 25.15% 14.37% 13.91%
Value Equity Fund
Institutional Class (1)........ 26.27% 18.18% 20.57%
Institutional Service Class(2). 25.91% 18.07% 20.48%
Bond Fund
Institutional Class (1)........ 7.69% 6.61% 7.54%
Institutional Service Class(2). 7.40% 6.47% 7.43%
Indexed Bond Fund
Institutional Class (1)........ 7.33% 6.59% 7.68%
Institutional Service Class(3). 7.11% 6.51% 7.62%
International Bond Fund
Institutional Class (3)........ 9.64% 10.53%* 10.11%*
Institutional Service Class(3). 9.39% 10.41%* 10.03%*
Short-Term Bond Fund
Institutional Class (1)........ 6.25% 5.27% 6.23%
Institutional Service Class(2). 6.01% 5.14% 6.13%
(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 figures include the historical performance of the Separate
Accounts for the period prior to commencement of operations of the
International Bond Fund and the International Equity Fund on January 1,
1995. MacKay-Shields Financial Corporation, the current sub-adviser to
both the International Bond Fund and the International Equity Fund, served
as investment adviser to both corresponding Separate Accounts, and the
objectives, policies, restrictions, guidelines and management styles of
the Separate Accounts were materially equivalent to those of their
corresponding Funds. Performance figures for the period prior to January
1, 1995, have been calculated by measuring the change in value of a unit
in the Separate Account from the time period indicated to January 1, 1995
using the expense structure of each Separate Account, which generally was
higher than the expense structure of its corresponding Fund. Neither
Separate Account was registered under the Investment Company Act of 1940
("1940 Act") and therefore was not subject to certain investment
restrictions imposed under the 1940 Act. If the Separate Accounts had been
registered under the 1940 Act, their
- 75 -
<PAGE>
performance may have been adversely affected. The International Equity
Fund's predecessor Separate Account commenced operations on July 31, 1992;
the International Bond Fund's predecesor Separate Account commenced
operations on January 31, 1990.
In addition, advertising for a Fund may indicate that investors may
consider diversifying their investment portfolios in order to seek protection of
the value of their assets against inflation. From time to time, advertising
materials for a Fund may refer to or discuss current or past business,
political, economic or financial conditions, including events as they relate to
those conditions, such as any U.S. monetary or fiscal policies and the current
rate of inflation. In addition, from time to time, advertising materials for a
Fund may include information concerning retirement and investing for retirement
and may refer to the approximate number of then-current Fund shareholders,
shareholder accounts and Fund assets.
From time to time, advertising and sales literature for a Fund may discuss
the investment philosophy, personnel and assets under management of the Fund's
Sub-Adviser, and other pertinent facts relating to the management of the Fund by
the Sub-Adviser.
From time to time any of the Funds may publish an indication of its past
performance as measured by independent sources such as Lipper Analytical
Services, Incorporated, Weisenberger Investment Companies Service, Donoghue's
Money Fund Report, Spot Market Prices, Barron's, BusinessWeek, Kiplinger's
-------- ------------ -----------
Personal Finance, Financial World, Forbes, Money, Morningstar, Personal
- ---------------- --------------- ------ ----- ----------- --------
Investor, Sylvia Porter's Personal Finance, and The Wall Street Journal.
- -------- -------------------------------- -----------------------
In addition, performance information for a Fund may be compared, in
advertisements, sales literature, and reports to shareholders, to: (i) unmanaged
indexes, such as the Standard & Poor's 500 Composite Stock Price Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Morgan Stanley Capital
International indexes; the Dow Jones Industrial Average, Donoghue Money Market
Institutional Averages, the Merrill Lynch 1 to 3 Year Treasury Index, the
Salomon Brothers World Government Benchmark Bond Index, the Salomon Brothers
non-U.S. Dollar World Government Bond Index, the Lehman Brothers Municipal Bond
Index and the Lehman Brothers Government Corporate Index; (ii) other groups of
mutual funds tracked by Morningstar Inc. or Lipper Analytical Services, widely
used independent research firms which rank mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) and other
measures of the performance of the economy to assess the real rate of return
- 76 -
<PAGE>
from an investment in the Funds. Unmanaged indexes may assume the reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs and expenses.
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 Insurance Company 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, the
amount of 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.
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 October 31, 1997, of the Funds' shares by each person who
beneficially owned more than 5% of the voting securities of any Fund:
- 77 -
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Outstanding
NAME AND ADDRESS OF SHAREHOLDER Fund Shares Owned/1/ Shares/2/
<S> <C> <C> <C>
TRUSTEES OF THE NEW YORK LIFE INSURANCE BOND 5,731,200 32.0%
COMPANY RETIREMENT PLAN AND PENSION GROWTH EQUITY 4,825,445 18.6%
PLAN (COMPANY PLAN) INDEXED BOND 3,714,205 33.2%
51 MADISON AVENUE INDEXED EQUITY 6,253,056 18.2%
NEW YORK, NY 10010 INTERNATIONAL BOND 3,140,707 73.3%
INTERNATIONAL EQUITY 1,275,171 12.4%
VALUE EQUITY 17,100,865 31.9%
TRUSTEES OF THE NEW YORK LIFE INSURANCE BOND 1,939,637 10.8%
COMPANY RETIREMENT PLAN (AGENTS) GROWTH EQUITY 3,293,924 12.7%
51 MADISON AVENUE INDEXED BOND 1,407,656 12.6%
NEW YORK, NY 10010 INDEXED EQUITY 6,090,693 17.7%
INTERNATIONAL BOND 894,825 20.9%
INTERNATIONAL EQUITY 2,337,654 22.7%
VALUE EQUITY 10,707,828 20.0%
NEW YORK LIFE INSURANCE COMPANY EAFE INDEX 892,964 23.5%
51 MADISON AVENUE INDEXED EQUITY 3,828,817 11.1%
NEW YORK, NY 10010 MULTI-ASSET 7,604,406 29.9%
THE PENSION BOARD OF THE UNITED FOO BOND 1,877,135 10.5%
AND COMMERCIAL WORKERS INTERNATIONAL
UNION RETIREMENT PLAN FOR EMPLOYEES
1775 K STREET, N.W.
WASHINGTON, D.C. 20006
TRUSTEES OF THE LONE STAR HOURLY MONEY MARKET 15,893,419 6.5%
RETIREMENT PLAN, DAY & ZIMMERMAN, INC. SHORT-TERM BOND 289,533 5.7%
1818 MARKET STREET
PHILADELPHIA, PA 19103
SCAPA GROUP INC. SALARIED EAFE INDEX 195,372 5.1%
EMPLOYEES TRUST
5400 GLENWOOD AVE., SUITE 115
RALEIGH, NC 27612
TRUSTEES OF THE NEW YORK LIFE INSURANCE GROWTH EQUITY 5,644,686 21.8%
COMPANY EMPLOYEE PROGRESS SHARING INDEXED EQUITY 2,273,692 6.6%
INVESTMENT PLAN TRUST MULTI-ASSET 1,898,770 7.5%
51 MADISON AVENUE SHORT-TERM BOND 386,986 7.7%
NEW YORK, NY 10010
TRUSTEES OF THE NEW YORK LIFE INSURANCE GROWTH EQUITY 2,927,236 11.3%
COMPANY AGENTS PROGRESS SHARING
INVESTMENT PLAN TRUST
51 MADISON AVENUE
NEW YORK, NY 10010
NEW YORK LIFE INSURANCE COMPANY EAFE INDEX 485,908 12.8%
EMPLOYEES' HEALTH AND LIFE BENEFIT
TRUST - (HEALTH BENEFITS)
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
</TABLE>
- 78 -
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Outstanding
NAME AND ADDRESS OF SHAREHOLDER Fund Shares Owned/1/ Shares/2/
<S> <C> <C> <C>
NEW YORK LIFE INS. CO EMPLOYEES' HEEAFE INDEX 198,366 5.2%
AND LIFE BENEFIT TRUST
(LIFE BENEFITS)
51 MADISON AVENUE
NEW YORK, NY 10010
NEW YORK LIFE INS. CO. AGENTS' HEALEAFE INDEX 419,009 11.0%
AND LIFE BENEFIT TRUST -
(HEALTH BENEFITS)
51 MADISON AVENUE
NEW YORK, NY 10010
FRANK G. AND FRIEDA K. BROTZ INDEXED BOND 867,484 7.7%
FAMILY FOUNDATION INC.
3518 LAKESHORE ROAD
SHEBOYGAN, WI 53083
PLASTICS ENGINEERING COMPANY EAFE INDEX 544,648 14.3%
P.O. BOX 758
SHEBOYGAN, WI 53082-0758
MERRILL LYNCH TRUST COMPANY INDEXED EQUITY 2,511,194 7.3%
TTBE FBO CHRYSLER 401(K) PLAN
265 DAVIDSON AVENUE
SOMERSET, NJ 08873
NEW YORK LIFE TRUST COMPANY BOND 1,626,153 9.1%
51 MADISON AVENUE, ROOM 117A EAFE INDEX 313,269 8.3%
NEW YORK, NY 10010 GROWTH EQUITY 4,053,353 15.6%
INDEXED BOND 2,438,397 21.8%
INDEXED EQUITY 5,828,158 16.9%
MONEY MARKET 108,659,517 44.5%
MULTI-ASSET 4,868,953 19.2%
SHORT-TERM BOND 675,825 13.4%
VALUE EQUITY 10,059,704 18.8%
TRUSTEES OF THE HARVEST STATES INTERNATIONAL EQUITY 747,555 7.3%
COOPERATIVE COMBINED RETIREMENT FUND
P.O. BOX 64594
ST. PAUL, MN 55164
METHODIST HOME ENDOWMENT FUND INTERNATIONAL EQUITY 685,751 6.7%
1111 HERRING AVENUE
WACO, TX 76708
MACKAY-SHIELDS FINANCIAL CORPORATIO SHORT-TERM BOND 1,028,983 20.3%
9 WEST 57TH STREET
NEW YORK, NY 10019
BHC SECURITIES INC. CORP. MONEY MARKET 58,152,704 23.8%
2005 MARKET STREET
1 COMMERCE SQUARE
PHILADELPHIA, PA 19103-7042
- ----------------------------
</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
- 79 -
<PAGE>
Securities Exchange Act of 1934. Fractional shares have been
omitted.
(2) Only the ownership of at least one-tenth of one percent is listed.
As of October 31, 1997, 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 the Manager or a Sub-Adviser unless
such power is the result of their position with the Company or Manager or Sub-
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 Investments and the Statements of
Operations for the year ended December 31, 1996, and the Statements of Changes
in Net Assets for the years ended December 31, 1996 and December 31, 1995, the
notes to the Financial Statements, and the Report of the Independent
Accountants, all of which are included in the 1996 Annual Report to
Shareholders, are hereby incorporated by reference into this Statement of
Additional Information. In addition, unaudited financial statement of each of
the Funds including the Portfolio of Investments as of June 30, 1997, the
Statement of Assets and
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<PAGE>
Liabilities as of June 30, 1997, the Statement of Operations for the six months
ended June 30, 1997, the Statement of Changes in Net Assets for the six months
ended June 30, 1997 and the Notes to the Financial Statements are hereby
incorporated by reference into the 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.
- 81 -
<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, 1995 and 1996 and for the six months ended June
30, 1997 (unaudited).
Incorporated by reference in Part B of this Registration Statement:
Statement of Assets and Liabilities at December 31, 1996 and as of
June 30, 1997 (unaudited);
Statement of Operations for the year ended December 31, 1996 and six
months ended June 30, 1997 (unaudited);
Statement of Changes in Net Assets for the years ended December 31,
1995 and 1996 and six months ended June 30, 1997 (unaudited);
Notes to Financial Statements;
Portfolio of Investments at December 31, 1996 and at June 30, 1997
(unaudited).
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/
<PAGE>
5. (a) Form of (composite) Management Agreement between MainStay
Institutional Funds, Inc., on behalf of the Bond Fund, EAFE Index
Fund, Growth Equity Fund, Indexed Bond Fund, Indexed Equity Fund,
International Bond Fund, International Equity Fund, Money Market
Fund, Multi-Asset Fund, Short-Term Bond Fund and Value Equity
Fund, and MainStay Management, Inc.
(b) Form of (composite) Sub-Advisory Agreement between MainStay
Management, Inc., on behalf of the Bond Fund, Growth Equity Fund,
International Bond Fund, International Equity Fund, Short-Term
Bond Fund and Value Equity Fund, and MacKay-Shields Financial
Corporation.
(c) Form of (composite) Sub-Advisory Agreement between MainStay
Management, Inc., on behalf of the EAFE Index Fund, Indexed Bond
Fund, Indexed Equity Fund and Multi-Asset Fund, and Monitor
Capital Advisors, Inc.
(d) Form of (composite) Sub-Advisory Agreement between MainStay
Management, Inc., on behalf of the Money Market Fund and New York
Life Insurance Company.
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 License Agreement/2/
(c) Form of Service Agreement with New York Life Benefit Services,
Inc.
(d) Form of Service Agreement with New York Life Insurance Company
10. Opinion and Consent of Counsel/4/
11. Consent of Independent Accountants
12. Inapplicable
13. Initial Subscription Agreement/3/
14. Inapplicable
C-2
<PAGE>
15. (a) Form of Account Application/3/
(b) Shareholder Services Plan/11/
16. Inapplicable
17. Financial Data Schedules/12/
18. Amended and Restated Multiple Class Plan
- ---------------------
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, 1996.
11. Filed with Post-Effective Amendment No. 14 to Registration Statement No.
33-36962 on May 1, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following chart indicates the persons controlled by New York Life:
C-3
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
---- --------------- ------------------
<S> <C> <C>
Eagle Strategies Corporation Arizona 100%
Greystone Realty Corporation which owns 100% Delaware 100%
of the shares of:
Greystone Realty Management, Inc. Delaware
NYLIFE Administration Corp. Texas 100%
(doing business as NYLACOR)
MacKay-Shields Financial Corporation Delaware 100%
MSC Holding, Inc. (formerly Magnus Software Georgia 85.43%
Corporation)
MainStay Institutional Funds Inc. Maryland ***
MainStay Management, Inc. Delaware 100%
MainStay Shareholder Services, Inc. Delaware 100%
Monitor Capital Advisors, Inc. Delaware 100%
NYLIFE SFD Holding, Inc. Delaware 100%
which owns 83.33% of NYLIFE
Structured Asset Management Company Ltd. Texas
New York Life Capital Corporation Delaware 100%
New York Life Fund, Inc. New York *
New York Life Insurance and Annuity 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:
NYL Management Limited England
MainStay VP Series Fund, Inc. Maryland *
New York Life Worldwide Holding, Inc., which Delaware 100%
owns 100% of the shares of:
New York Life Worldwide Capital, Inc. Delaware
New York Life Worldwide Development, Inc. Delaware
New York Life Worldwide (Bermuda) Ltd. Bermuda
New York Life Insurance Worldwide Ltd. Bermuda
and owns 99.97% of the shares of
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
---- --------------- ------------------
<S> <C> <C>
New York Life (U.K.) Ltd., which owns United Kingdom
100% of the shares of:
Windsor Construction Company Limited England
and owns 31.3% of the shares of:
Life Assurance Holding Corporation England
Limited, which owns 100% of the shares
of:
Windsor Life Assurance Company Limited England
and which owns 51% of the shares of:
KOHAP New York Life Insurance Ltd. South Korea
and which owns 50.2% of the shares of:
P.T. Asuransi Jiwa Sewu-New York Indonesia
and which owns 49% of the shares of:
GEO New York Life, S.A. Mexico
NYLIFE Depositary Corporation which owns Delaware 100%
16.67% of NYLIFE Structured Asset Texas
Management Company Ltd.
New York Life Benefit Services, Inc. which owns Massachusetts 100%
100% of ADQ Insurance Agency Inc. Massachusetts
New York Life Trust Company New York 100%
NYLIFE Distributors Inc. Delaware 100%
NYLIFE Equity Inc. Delaware 100%
NYLIFE Funding Inc. Delaware 100%
NYLIFE Healthcare Management Inc., which Delaware
owns 54% of total combined stock and 89.6%
of the voting rights of:
Express Scripts, Inc., which owns 100% of Delaware
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. Canada
IVTx of Houston, Inc. Texas
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
---- --------------- ------------------
<S> <C> <C>
IVTx of Dallas, Inc. Texas
PhyNet, Inc. Delaware
Express Scripts Vision Corporation Delaware
NYLCare Health Plans, Inc. Delaware
(formerly Sanus Corp. Health Systems),
which owns 100% of the shares of:
New York Life and Health Insurance Company Delaware
Avanti Corporate Health Systems Inc. Delaware
100% of the shares of:
Avanti Health Systems of Texas, Inc. Texas
Avanti of the District, Inc. Maryland
Avanti of Illinois, Inc. Illinois
Avanti of New York, Inc. New York
which owns 100% of MBS IPA,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 Maryland
Foundation, Inc.
Lonestar Holding Company, which owns 90% Delaware
of the shares of:
Lone Star Health Plan, Inc., which Texas
owns 100% of the shares of:
NYLCare Health Plans of the Texas
Gulf Coast, Inc.
Prime Provider Corp., which owns 100%
of the shares of: New York
Prime Provider Corp. of Texas Texas
NYLCare of Connecticut, Inc. Connecticut
Sanus Dental Plan of NJ, Inc. New Jersey
NYLCare Dental Plans of the
Southwest, Inc. Texas
NYLCare Health Plans of New York, New York
Inc.
NYLCare Health Plans of Connecticut, Connecticut
Inc.
NYLCare Health Plans of the Midwest, Illinois
Inc.
NYLCare Health Plans of New Jersey, New Jersey
Inc.
NYLCare of Texas, Inc., which owns Texas
100% of the shares of:
NYLCare Passport PPO of the Texas
Southwest, Inc.
NYLCare Preferred Services,Inc. Maryland
Sanus Preferred Providers West, Inc. California
Sanus Preferred Services of Illinois, Illinois
Inc.
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
---- --------------- ------------------
<S> <C> <C>
NYLCare Health Plans of the Oklahoma
Southwest (Oklahoma), Inc.
NYLCare Health Plans of the Texas
Southwest, Inc.
WellPath of Arizona Reinsurance Arizona
Company
and owns 99.8% of the shares of:
NYLCare Health Plans of Louisiana, Louisiana
Inc.
NYLCare of New England, Inc. Delaware
Sanus - Northeast, Inc. Delaware
NYLCare Health Plans of Maine, Inc. Maine
NYLCare NC Holdings, Inc. which owns
50% of the shares of: Delaware
WellPath Community Health Plans L.L.C. North Carolina
which owns 100% of the shares of WPCHP
Holdings, Inc. and 99.9% of the shares of: Delaware
WellPath Preferred Services, L.L.C. North Carolina
and
WellPath Select Holdings, L.L.C. North Carolina
which owns 100% of:
WellPath Select, Inc. North Carolina
WellPath of Carolina, Inc. Delaware
Sanus of New York and New Jersey, Inc. New York
NYLCare Health Plans of Pennsylvania, Pennsylvania
Inc.
Docservo, Inc. New York
The ETHIX Corporation, which owns Delaware
100% of the shares of:
ETHIX Great Lakes, Inc. Michigan
ETHIX Mid-Atlantic, Inc. Pennsylvania
ETHIX Midlands, Inc. Delaware
ETHIX Mid-Rivers, Inc. Missouri
ETHIX Northwest Public Services, Washington
Inc.
ETHIX Northwest, Inc., Washington
which owns 100% of:
NYLCare Health Plans Northwest, Washington
Inc.
ETHIX Pacific, Inc. Oregon
ETHIX Risk Management, Inc. Oregon
ETHIX Southeast, Inc. North Carolina
ETHIX Southwest, Inc. Texas
which owns 50% of the shares of
Benefit Panel Services, Inc. California
which owns 100% of:
VivaHealth, Incorporated and California
BPS Healthplan Administrators California
One Liberty Plaza Holdings, Inc. Delaware
NYLIFE Inc. New York 100%
NYLIFE Insurance Company of Arizona Arizona 100%
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
---- --------------- ------------------
<S> <C> <C>
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%
NYLINK Insurance Agency Incorporated Delaware 100%
which owns 100% of the shares of:
NYLINK Insurance Agency of Alabama Alabama
Incorporated
NYLINK Insurance Agency of New Mexico New Mexico
Incorporated
NYLINK Insurance Agency of Hawaii, Incorporated Hawaii
NYLINK Insurance Agency of Massachusetts, Massachusetts
Incorporated
NYLTEMPS Inc. Delaware 100%
</TABLE>
_____________________
+ By including the indicated corporations in this list, New York Life is not
stating or admitting that said corporations are under its actual control;
rather, these corporations are listed here to ensure full compliance with
the requirements of this Form N-1A.
* New York Life serves as investment adviser to these entities, the shares of
which are held of record by separate accounts of New York Life (for the New
York Life Fund, Inc.) and NYLIAC (for the MainStay VP Series Fund, Inc.).
New York Life disclaims any beneficial ownership and control of these
entities.
** New York Life Foundation does not issue voting securities.
*** MacKay-Shields Financial Corporation and Monitor Capital Advisors, Inc.
serve as sub-advisers to this entity.
Item 26. Number of Holders of Securities.
As of October 31, 1997, the number of record holders of each class of
securities of the Registrant were as follows:
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- ----------------
<S> <C>
Shares of Common Stock:
Bond Fund
Institutional Class 145
Institutional Service Class 58
EAFE Index Fund
Institutional Class 92
Institutional Service Class 44
</TABLE>
C-8
<PAGE>
<TABLE>
<S> <C>
Growth Equity Fund
Institutional Class 257
Institutional Service Class 185
Indexed Bond Fund
Institutional Class 50
Institutional Service Class 43
Indexed Equity Fund
Institutional Class 153
Institutional Service Class 115
International Bond Fund
Institutional Class 20
Institutional Service Class 12
International Equity Fund
Institutional Class 50
Institutional Service Class 29
Money Market Fund
Institutional Class 163
Institutional Service Class 83
Multi-Asset Fund
Institutional Class 261
Institutional Service Class 102
Short-Term Bond Fund
Institutional Class 137
Institutional Service Class 22
Value Equity Fund
Institutional Class 369
Institutional Service Class 159
</TABLE>
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 MainStay Management, Inc. is summarized under "Know Who
You're Investing With" 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 MainStay
Management, Inc. is currently listed in the investment adviser registration on
Form ADV for MainStay Management, Inc. (File No. 801-54912) and is hereby
incorporated herein by reference thereto.
C-9
<PAGE>
The business of MacKay-Shields Financial Corporation is summarized under
"Who Manages Your Money" in the Prospectus constituting Part A of this
Registration Statement, which summary is incorporated herein by reference.
The business of Monitor Capital Advisors, Inc. is summarized under "Who
Manages Your Money?" 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 "Who
Manages Your Money?" 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.
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>
Mistero, Frank Director, President and Chief None
300 Interpace Parkway Executive Officer
Parsippany, NJ 07054
Brady, Robert E. Director and Vice President None
260 Cherry Hill Road
Parsippany, NJ 07054
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
(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
Kane, Alice T. Director Chairperson and
51 Madison Avenue Director
New York, NY 10010
Gallo, Michael G. Director None
51 Madison Avenue
New York, NY 10010
Rock, Robert D. Director None
51 Madison Avenue
New York, NY 10010
Boccio, Frank M. Director None
51 Madison Avenue
New York, NY 10010
Hildebrand, Phillip J. Director None
51 Madison Avenue
New York, NY 10010
Sheila Davidson Chief Compliance Officer None
51 Madison Avenue
New York, NY 10010
Adasse, Louis H. Corporate Vice President None
51 Madison Avenue,
New York, NY 10010
Polis, Anthony W. Vice President and Chief Treasurer, Chief
300 Interpace Parkway Financial Officer Financial and
Parsippany, NJ 07054 Accounting Officer
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
Krystel, David J. Vice President None
51 Madison Avenue
New York, NY 10010
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
(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>
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
300 Interpace Parkway
Parsippany, NJ 07054
Arizmendi, Arphiela Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Cirillo, Antoinette B. Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Lorito, Geraldine Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Brenner, Nancy Secretary Assistant Secretary
51 Madison Avenue
New York, NY 10010
Murray, Thomas J. Corporate Vice President None
51 Madison Avenue
New York, NY 10010
Zwarick, Phyllis Corporate Vice President None
51 Madison Avenue
New York, NY 10010
Gomez, Mark A. Assistant Secretary None
51 Madison Avenue
New York, NY 10010
</TABLE>
c. Inapplicable.
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
MainStay Management, Inc. and NYLIFE Distributors Inc., 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
C-12
<PAGE>
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-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment No. 17 to the Registraton Statement meets the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 17 to the 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 21st day of November, 1997.
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. 17 to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
____________________ Director November 21, 1997
Alice T. Kane*
____________________ Director November 21, 1997
Patrick G. Boyle*
____________________ Director November 21, 1997
Lawrence Glacken*
____________________ Director November 21, 1997
Robert P. Mulhearn*
____________________ Director November 21, 1997
Susan B. Kerley*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
____________________ President November 21, 1997
Linda M. Livornese* (Principal
Executive
Officer)
____________________ Treasurer November 21, 1997
Anthony W. Polis* (Principal
Financial
and Accounting
Officer)
</TABLE>
*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
------- ----
Form of Composite Management Agreement 5(a)
Form of Composite Sub-Advisory Agreement 5(b)
Form of Composite Sub-Advisory Agreement 5(c)
Form of Sub-Advisory Agreement 5(d)
Consent of independent accountants 11(a)
Financial Data Schedules 17
Amended and Restated Multiple Class Plan 18
<PAGE>
EXHIBIT 5(a)
FORM OF
C O M P O S I T E
-----------------
MAINSTAY INSTITUTIONAL FUNDS INC.
[BOND FUND]
[EAFE INDEX FUND]
[GROWTH EQUITY FUND]
[INDEXED BOND FUND]
[INDEXED EQUITY FUND]
[INTERNATIONAL BOND FUND]
[INTERNATIONAL EQUITY FUND]
[MONEY MARKET FUND]
[MULTI-ASSET FUND]
[SHORT-TERM BOND FUND]
[VALUE EQUITY FUND]
MANAGEMENT AGREEMENT
Agreement, made as of the 21st day of November 1997 between MAINSTAY
INSTITUTIONAL FUNDS INC., a Maryland corporation (the "Company"), on behalf of
the [Bond Fund, EAFE Index Fund, Growth Equity Fund, Indexed Bond Fund, Indexed
Equity Fund, International Bond Fund, International Equity Fund, Money Market
Fund, Multi-Asset Fund, Short-Term Bond Fund, and Value Equity Fund](the
"Fund"), a separate series of the Company, and MainStay Management, Inc., a
Delaware corporation (the "Manager").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the shares of beneficial interest of the Company (the "Shares")
are divided into separate series, each of which is established pursuant to a
written instrument executed by the Board of Directors of the Company and the
Directors may from time to time terminate such series or establish and terminate
additional series; and
WHEREAS, the Fund desires to retain the Manager to render investment
advisory and related administrative services to the Fund, and the Manager is
willing to render such services on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the parties agree as follows:
<PAGE>
1. Appointment. The Fund hereby appoints MainStay Management, Inc. to
-----------
act as manager to the Fund for the period and on the terms set forth in this
Agreement. The Manager accepts such appointment and agrees to render the
services herein described, for the compensation herein provided.
2. Duties as Manager. Subject to the supervision of the Directors of the
-----------------
Company, the Manager shall administer the Fund's business affairs and manage the
investment operations of the Fund and the composition of the portfolio of the
Fund, including the purchase, retention and disposition thereof, in accordance
with the investment objectives, policies and restrictions of the Fund, as stated
in the Prospectus (as hereinafter defined) and subject to the following
understandings:
(a) The Manager shall (i) furnish the Fund with office facilities;
(ii) be responsible for the financial and accounting records required to be
maintained by the Fund (excluding those being maintained by the Fund's Custodian
and Transfer Agent except as to which the Manager has supervisory functions) and
other than those being maintained by the Fund's sub-adviser, if any; and (iii)
furnish the Fund with ordinary clerical, bookkeeping and recordkeeping services
at such office facilities.
(b) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or lent by the Fund, and what portion of the Fund's
assets will be invested or held uninvested as cash.
(c) The Manager shall use its best judgment in the performance of its
duties under this Agreement.
(d) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (each as hereinafter defined) of the
Company and with the instructions and directions of the Directors of the Company
and will conform to and comply with the requirements of the 1940 Act and all
other applicable federal and state laws and regulations.
(e) The Manager, and any sub-adviser to whom such authority has been
delegated, shall determine the securities to be purchased or sold by the Fund
and will place orders pursuant to its determination with or through such
persons, brokers or dealers (including NYLIFE Securities Inc.) in conformity
with the policy with respect to brokerage as set forth in the Company's
Registration Statement and Prospectus (each as hereinafter defined) or as the
Directors may direct from time to time. It is recognized that, in providing the
Fund with investment supervision or the placing of orders for portfolio
transactions, the Manager or any sub-adviser will give primary consideration to
securing the most favorable price and efficient execution. Consistent with this
policy, the Manager or any sub-adviser may consider the financial
responsibility, research and investment information and other services provided
by brokers or dealers who may effect or be a party to any such transaction or
other transactions to which other clients of the Manager or any sub-adviser may
be a party. It is understood that neither the Fund, the Company nor the
Manager or sub-adviser has adopted a formula for allocation of the Fund's
- 2 -
<PAGE>
investment transaction business. It is also understood that it is desirable for
the Fund that the Manager or any sub-adviser have access to supplemental
investment and market research and security and economic analyses provided by
certain brokers who may execute brokerage transactions at a higher cost to the
Fund than may result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore, the Manager
or any sub-adviser is authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by the
Company's Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful to the Manager or any sub-adviser in connection with
its services to other clients.
On occasions when the Manager or any sub-adviser deems the purchase or sale
of a security to be in the best interest of the Fund as well as other clients,
the Manager or any sub-adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as expenses incurred in the
transaction, will be made by the Manager or any sub-adviser in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Fund and to such other clients.
(f) The Manager shall maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act and any other books and
records required to be maintained by it under the 1940 Act and the Rules
thereunder and shall render to the Company's Directors such periodic and special
reports as the Directors may reasonably request.
(g) The Manager shall provide the Company's Custodian on each business day
with information relating to the execution of all portfolio transactions
pursuant to standing instructions.
(h) With respect to any or all Series of the Company, including the Fund,
the Manager may enter into one or more contracts ("Sub-Advisory or Sub-
Administration Contract") with a sub-adviser or sub-administrator in which the
Manager delegates to such sub-adviser or sub-administrator any or all its duties
specified in this Agreement, provided that each Sub-Advisory or Sub-
Administration Contract meets all requirements of the 1940 Act and rules
thereunder.
3. Manager Personnel. The Manager shall authorize and permit any of its
-----------------
directors, officers and employees who may be elected or appointed as Directors
or officers of the Company to serve in the capacities in which they are elected
or appointed. Services to be furnished by the Manager under this Agreement may
be furnished through the medium of any of such directors, officers, or
employees.
4. Books and Records. The Manager shall keep the Fund's books and
-----------------
records required to be maintained by it, pursuant to paragraph 2 hereof. The
Manager agrees that all
- 3 -
<PAGE>
records which it maintains for the Fund are the property of the Fund, and it
will surrender promptly to the Fund any of such records upon the Fund's request.
The Manager further agrees to preserve for the periods prescribed by Rule 31a-2
as promulgated by the Commission under the 1940 Act any such records as are
required to be maintained by the Manager pursuant to paragraph 2 hereof.
5. Services Not Exclusive. The services furnished by the Manager
----------------------
hereunder are not to be deemed exclusive and the Manager shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby.
6. Documents. The Company has delivered to the Manager copies of each
---------
of the following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Company, filed with the Secretary
of State of Maryland (such Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein called the "Articles of
Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date
hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified Resolutions of the Directors of the Company authorizing
the appointment of the Manager and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-lA (the "Registration Statement"), as filed with
the Securities and Exchange Commission (the "Commission") relating to the Fund
and the Fund's Shares and all amendments thereto;
(e) Notification of Registration of the Company under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus and Statement of Additional Information of the Fund
(such Prospectus and Statement of Additional Information, as currently in effect
and as amended or supplemented from time to time, being herein called the
"Prospectus").
7. Expenses. (a) In connection with the services rendered by the
--------
Manager under this Agreement, the Manager will bear all of the following
expenses:
(i) the salaries and expenses of all personnel of the Company
and the Manager, except the fees and expenses of Directors who are not
interested persons of the Manager or of the Company; and
(ii) all expenses incurred by the Manager in connection with
managing the investment operations of the Fund and administering the ordinary
course of the Fund's business, other than those assumed by the Fund herein;
- 4 -
<PAGE>
(b) The Fund assumes and will pay its expenses, including but not
limited to those described below (where any such category applies to more than
one series of the Company, the Fund shall be liable only for its allocable
portion of the expenses):
(i) the fees and expenses of Directors who are not interested
persons of the Manager or of the Company;
(ii) the fees and expenses of the Fund's custodian which relate
to (A) the custodial function and the recordkeeping connected therewith, (B) the
maintenance of the required accounting records of the Fund not being maintained
by the Manager, (C) the pricing of the Fund's Shares, including the cost of any
pricing service or services which may be retained pursuant to the authorization
of the Directors of the Company, and (D) for both mail and wire orders, the
cashiering function in connection with the issuance and redemption of the Fund's
Shares;
(iii) the fees and expenses of the Company's transfer and
dividend disbursing agent, which may be the custodian, which relate to the
maintenance of each shareholder account;
(iv) the charges and expenses of legal counsel and independent
accountants for the Company;
(v) brokers' commissions and any issue or transfer taxes
chargeable to the Company in connection with its securities transactions on
behalf of the Fund;
(vi) all taxes and business fees payable by the Fund to federal,
state or other governmental agencies;
(vii) the fees of any trade association of which the Company may
be a member;
(viii) the cost of share certificates representing the Fund's
Shares;
(ix) the fees and expenses involved in registering and
maintaining registrations of the Company and of its Shares with the Securities
and Exchange Commission, 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 filing
under federal and state securities laws for such purposes;
(x) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing reports to shareholders in the amount necessary
for distribution to the shareholders;
- 5 -
<PAGE>
(xi) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business; and
(xii) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
(c) Fees and expenses of legal counsel, registering shares, holding
meetings and communicating with shareholders as described in subparagraph (b)
above include an allocable portion of the cost of maintaining an internal legal
and compliance department.
8. Organization Expenses. The Fund hereby agrees to reimburse the
---------------------
Manager for the organization expenses of, and the expenses incurred in
connection with, the initial offering of any Shares of a Fund.
9. Compensation. For the services provided and the facilities furnished
------------
pursuant to this Agreement, the Company will pay to the Manager as full
compensation therefor a fee at an annual rate of the following percentage of the
average daily net assets of each Fund.
[Bond Fund 0.75%
EAFE Index Fund 0.95%
Growth Equity Fund 0.85%
Indexed Bond Fund 0.50%
Indexed Equity Fund 0.50%
International Equity Fund 0.85%
International Bond Fund 0.80%
Money Market Fund 0.50%
Multi-Asset Fund 0.65%
Short-Term Bond Fund 0.60%
Value Equity Fund 0.85%]
This fee will be computed daily and will be paid to the Manager monthly.
This fee will be chargeable only to the Fund, and no other series of the Company
shall be liable for the fee due and payable hereunder. The Fund shall not be
liable for any expense of any other series of the Company.
10. Standard of Care. The Manager shall not be liable for any error of
----------------
judgment or for any loss suffered by the Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
11. Duration and Termination. This Agreement shall continue in effect
------------------------
with respect to the Fund for a period of more than two years from the date
hereof only so long as such continuance is specifically approved at least
annually with respect to the Fund in conformity with the requirements of the
1940 Act and the Rules thereunder; provided, however, that this
- 6 -
<PAGE>
Agreement may be terminated with respect to the Fund at any time, without the
payment of any penalty, by the Directors of the Company or by vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund,
or by the Manager at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other party. This
Agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
12. Other Business. Nothing in this Agreement shall limit or restrict
--------------
the right of any of the Manager's directors, officers, or employees who may also
be a Director, officer, or employee of the Company to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any business, whether of a similar or dissimilar nature, nor limit or
restrict the Manager's right to engage in any other business or to render
services of any kind to any other corporation, trust, firm, individual or
association.
13. Independent Contractor. Except as otherwise provided herein or
----------------------
authorized by the Directors of the Company from time to time, the Manager shall
for all purposes herein be deemed to be an independent contractor and shall have
no authority to act for or represent the Fund or the Company in any way or
otherwise be deemed an agent of the Fund or the Company.
14. Company Materials. During the term of this Agreement, the Company
-----------------
agrees to furnish the Manager at its principal office all Prospectuses, proxy
statements, reports to shareholders, sales literature or other material prepared
for distribution to shareholders of the Fund or to the public, which refer to
the Manager in any way, prior to use thereof and not to use such material if the
Manager reasonably objects in writing within five business days (or such other
time as may be mutually agreed) after receipt thereof. In the event of
termination of this Agreement, the Company will continue to furnish to the
Manager copies of any of the above-mentioned materials which refer in any way to
the Manager. The Company shall furnish or otherwise make available to the
Manager such other information relating to the business affairs of the Fund as
the Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.
15. Amendment. This Agreement may be amended in writing by mutual
---------
consent, but the consent of the Fund, if required, must be obtained in
conformity with the requirements of the 1940 Act and the Rules thereunder.
16. Notice. Any notice or other communication required to be given
------
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Morris Corporate Center
I, Building A, 300 Interpace Parkway, Parsippany, New Jersey 07054; or (2) to
the Company at 51 Madison Avenue, New York, NY 10010.
17. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
18. Use of Name. The Fund may use any name including the word "MainStay"
-----------
only for so long as this Agreement or any other Investment Advisory Agreement
between the Manager
- 7 -
<PAGE>
or any other affiliate of New York Life Insurance Company and the Company or any
extension, renewal or amendment thereof remains in effect, including any similar
agreement with any organization which shall have succeeded to the Manager's
business as investment adviser. At such time as such an agreement shall no
longer be in effect, the Fund will (to the extent that it lawfully can) cease to
use such name or any other name indicating that it is advised by or otherwise
connected with the Manager or any organization which shall have so succeeded to
its business.
19. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. As used in this Agreement, terms shall have the same meaning
as such terms have in the 1940 Act. Where the effect of a requirement of the
federal securities laws reflected in any provision of this Agreement is made
less restrictive by a rule, regulation or order of the Commission, whether of
special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order. This Agreement may be signed in
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
MAINSTAY INSTITUTIONAL FUNDS INC., on
behalf of
_________________________ FUND,
a series
By: ________________________________
Name:
Title:
MAINSTAY MANAGEMENT, INC.
By: ________________________________
Name:
Title:
- 8 -
<PAGE>
EXHIBIT 5(b)
C O M P O S I T E
-----------------
[BOND FUND]
[GROWTH EQUITY FUND]
[INTERNATIONAL BOND FUND]
[INTERNATIONAL EQUITY FUND]
[SHORT-TERM BOND FUND]
[VALUE EQUITY FUND]
SUB-ADVISORY AGREEMENT
Agreement made as of November 21, 1997 (the "Agreement") between MainStay
Management, Inc., a Delaware corporation (the "Manager"), and MacKay-Shields
Financial Corporation, a Delaware corporation (the "Sub-Adviser") (the
"Agreement").
WHEREAS, the Manager has entered into a Management Agreement, dated
November 21, 1997 (the "Management Agreement"), with MainStay Institutional
Funds Inc. (the "Company"), an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), on behalf
of the [Bond Fund, Growth Equity Fund, International Bond Fund, International
Equity Fund, Short-Term Bond Fund and Value Equity Fund] (the "Fund"), a series
of the Company;
WHEREAS, under the Management Agreement, the Manager has agreed to provide
certain investment advisory and related administrative services to the Fund;
WHEREAS, the Management Agreement permits the Manager to delegate certain
of its investment advisory duties under the Management Agreement to a sub-
adviser; and
WHEREAS, the Manager desires to retain the Sub-Adviser to furnish certain
investment advisory services with respect to the Fund and the Sub-Adviser is
willing to furnish such services;
NOW, THEREFORE, the parties agree as follows:
I. Appointment. The Manager hereby appoints the Sub-Adviser as an investment
-----------
sub-adviser with respect to the Fund for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts that appointment and agrees
to render the services herein set forth, for the compensation herein
provided.
II. Duties as Sub-Adviser. Subject to the supervision of the Board of
---------------------
Directors of the Company and the Manager, the Sub-Adviser shall manage the
investment operations of the Fund and the composition of the portfolio of
the Fund, including the purchase, retention and disposition thereof, in
accordance with the investment objectives, policies
<PAGE>
and restrictions of the Fund, as specified in the currently effective
Prospectus (as hereinafter defined) and statement of additional information
and subject to the following understandings:
A. The Sub-Adviser shall provide supervision of the Fund's investments and
determine from time to time what investments or securities will be
purchased, retained, sold or lent by the Fund, and what portion of the
Fund's assets will be invested or held uninvested as cash.
B. The Sub-Adviser shall use its best judgment in the performance of its
duties under this Agreement.
C. The Sub-Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (each as hereinafter defined) of
the Company and with the instructions and directions of the Board of
Directors and the Manager and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal and state
laws and regulations.
D. The Sub-Adviser shall determine the securities to be purchased or sold
by the Fund and will place orders pursuant to its determination with or
through such persons, brokers or dealers (including NYLIFE Securities
Inc.) in conformity with the policy with respect to brokerage as set
forth in the Company's Registration Statement and Prospectus (each as
hereinafter defined) or as the Board of Directors may direct from time
to time. It is recognized that, in providing the Fund with investment
supervision or the placing of orders for portfolio transactions, the
Sub-Adviser will give primary consideration to securing the most
favorable price and efficient execution. Consistent with this policy,
the Sub-Adviser may consider the financial responsibility, research and
investment information and other services provided by brokers or
dealers who may effect or be a party to any such transaction or other
transactions to which other clients of the Sub-Adviser may be a party.
It is understood that none of the Fund, the Company, the Manager nor
the Sub-Adviser has adopted a formula for allocation of the Fund's
investment transaction business. It is also understood that it is
desirable for the Fund that the Sub-Adviser have access to supplemental
investment and market research and security and economic analyses
provided by certain brokers who may execute brokerage transactions at a
higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Sub-Adviser is authorized to place
orders for the purchase and sale of securities for the Fund with such
certain brokers, subject to review by the Company's Board of Directors
from time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers
may be useful to the Sub-Adviser in connection with its services to
other clients.
- 2 -
<PAGE>
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients, the Sub-Adviser, to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate
the securities to be so sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient execution.
In such event, allocation of the securities so purchased or sold, as
well as expenses incurred in the transaction, will be made by the Sub-
Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other
clients.
E. The Sub-Adviser shall maintain all books and records with respect to
the Fund's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act
and any other books and records required to be maintained by it under
the 1940 Act and the Rules thereunder and shall render to the Manager
and to the Company's Directors such periodic and special reports as the
Manager or the Directors may reasonably request.
F. The Sub-Adviser shall provide the Fund's Custodian on each business day
with information relating to the execution of all portfolio
transactions pursuant to standing instructions.
III. Sub-Adviser Personnel. The Sub-Adviser shall authorize and permit any
---------------------
of its directors, officers and employees who may be elected or appointed
as Directors or officers of the Company to serve in the capacities in
which they are elected or appointed. Services to be furnished by the Sub-
Adviser under this Agreement may be furnished through the medium of any of
such directors, officers, or employees.
IV. Books and Records. The Sub-Adviser shall keep the Fund's books and
-----------------
records required to be maintained by it, pursuant to paragraph 2 hereof.
The Sub-Adviser agrees that all records which it maintains for the Fund
are the property of the Fund, and it will surrender promptly to the Fund
any of such records upon the Fund's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 as promulgated
by the Commission under the 1940 Act any such records as are required to
be maintained by the Sub-Adviser pursuant to paragraph 2 hereof.
V. Services Not Exclusive. The services furnished by the Sub-Adviser
----------------------
hereunder are not to be deemed exclusive and the Sub-Adviser shall be free
to furnish similar or different services to others so long as its services
under this Agreement are not impaired thereby.
VI. Documents. The Manager has delivered to the Sub-Adviser copies of each of
---------
the following documents and will deliver to it all future amendments and
supplements, if any:
A. Articles of Incorporation of the Company, filed with the Secretary of
State of Maryland (such Articles of Incorporation, as in effect on the
date hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
- 3 -
<PAGE>
B. By-Laws of the Company (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
C. Certified Resolutions of the Board of Directors of the Company
authorizing the appointment of the Sub-Adviser and approving the form
of this Agreement;
D. Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-lA (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating
to the Fund and the Fund's Shares and all amendments thereto;
E. Notification of Registration of the Company under the 1940 Act on Form
N-8A as filed with the Commission and all amendments thereto; and
F. Prospectus and Statement of Additional Information of the Fund (such
Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time, being herein
called the "Prospectus").
VII. Expenses. During the term of this Agreement, the Sub-Adviser will bear
--------
all expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses
incurred by the Company, the Fund or the Manager.
VIII. Compensation. For the services provided and the expenses assumed by the
------------
Sub-Adviser pursuant to this Agreement, the Manager, not the Company or
the Fund, will pay to the Sub-Adviser a fee, computed daily and payable
monthly, at an annual rate of the following percentage of each Fund's
average daily net assets:
[Bond Fund 0.20%
Growth Equity Fund 0.25%
International Equity Fund 0.35%
International Bond Fund 0.30%
Short-Term Bond Fund 0.15%
Value Equity Fund 0.25%]
IX. Standard of Care. Subject to the applicable law, the Sub-Adviser shall
----------------
not be liable for any error of judgment or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
X. Duration and Termination. This Agreement shall continue in effect for a
------------------------
period of more than two years from the date hereof only so long as such
continuance is specifically approved at least annually with respect to the
Fund in conformity with the requirements of the 1940 Act and the Rules
thereunder. Notwithstanding the foregoing, this Agreement
- 4 -
<PAGE>
may be terminated: (a) at any time without penalty by the Fund upon the
vote of a majority of the Directors or by vote of the majority of the
Fund's outstanding voting securities, upon sixty (60) days' written notice
to the Sub-adviser, (b) by the Manager at any time without penalty upon
sixty (60) days' written notice to the Sub-Adviser or immediately upon
material breach by the Sub-Adviser or immediately if, in the reasonable
judgment of the Manager, the Sub-Adviser becomes unable to discharge its
duties and obligations under this Agreement, or (c) by the Sub-Adviser at
any time without penalty, upon sixty (60) days' written notice to the
Fund. This Subadvisory Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act) or the assignment or
termination of the Management Agreement.
XI. Other Business. Nothing in this Agreement shall limit or restrict the
--------------
right of any of the Sub-Adviser's directors, officers, or employees who
may also be a Director, officer, or employee of the Company to engage in
any other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, trust, firm, individual or association.
XII. Amendment. No provision of this Agreement may be changed, waived,
---------
discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this
Agreement shall be effective until approved (i) by a vote of a majority of
those Directors who are not parties to this Agreement or interested
persons of any such party, and (ii) by a vote of a majority of the Fund's
outstanding voting securities (unless in the case of (ii), the Company
receives an SEC order or no-action letter permitting it to modify the
Agreement without such vote).
XIII. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
XIV. Notice. Any notice or other communication required to be given pursuant
------
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Morris Corporate
Center I, Building A, 300 Interpace Parkway, Parsippany, New Jersey 07054;
or (2) to the Sub-Adviser at 9 West 57th Street, New York, NY 10019.
XV. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. As used in this Agreement, the terms
"majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "net
assets," "sale," "sell" and "security" shall have the same meaning as such
terms have in the 1940 Act. Where the effect of a requirement of the
federal securities
- 5 -
<PAGE>
laws reflected in any provision of this Agreement is made less restrictive
by a rule, regulation or order of the Commission, whether of special or
general application, such provision shall be deemed to incorporate the
effect of such rule, regulation or order. This Agreement may be signed in
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
MAINSTAY MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
MACKAY-SHIELDS FINANCIAL CORPORATION
By:
-----------------------------------
Name:
Title:
- 6 -
<PAGE>
EXHIBIT 5(c)
FORM OF
C O M P O S I T E
-----------------
[EAFE INDEX FUND]
[INDEXED BOND FUND]
[INDEXED EQUITY FUND]
[MULTI-ASSET FUND]
SUB-ADVISORY AGREEMENT
Agreement made as of November 21, 1997 (the "Agreement") between MainStay
Management, Inc., a Delaware corporation (the "Manager"), and Monitor Capital
Advisors, Inc., a Delaware corporation (the "Sub-Adviser") (the "Agreement").
WHEREAS, the Manager has entered into a Management Agreement, dated
November 21, 1997 (the "Management Agreement"), with MainStay Institutional
Funds Inc. (the "Company"), an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), on behalf
of the [EAFE Index Fund, Indexed Bond Fund, Indexed Equity Fund, and Multi-Asset
Fund] (the "Fund"), a series of the Company;
WHEREAS, under the Management Agreement, the Manager has agreed to provide
certain investment advisory and related administrative services to the Fund;
WHEREAS, the Management Agreement permits the Manager to delegate certain
of its investment advisory duties under the Management Agreement to a sub-
adviser; and
WHEREAS, the Manager desires to retain the Sub-Adviser to furnish certain
investment advisory services with respect to the Fund and the Sub-Adviser is
willing to furnish such services;
NOW, THEREFORE, the parties agree as follows:
I. Appointment. The Manager hereby appoints the Sub-Adviser as an investment
-----------
sub-adviser with respect to the Fund for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts that appointment and
agrees to render the services herein set forth, for the compensation
herein provided.
II. Duties as Sub-Adviser. Subject to the supervision of the Board of
---------------------
Directors of the Company and the Manager, the Sub-Adviser shall manage the
investment operations of the Fund and the composition of the portfolio of
the Fund, including the purchase, retention and disposition thereof, in
accordance with the investment objectives, policies and restrictions of
the Fund, as specified in the currently effective Prospectus (as
<PAGE>
hereinafter defined) and statement of additional information and subject
to the following understandings:
A. The Sub-Adviser shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or lent by the Fund, and what portion of the
Fund's assets will be invested or held uninvested as cash.
B. The Sub-Adviser shall use its best judgment in the performance of its
duties under this Agreement.
C. The Sub-Adviser, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (each as hereinafter defined) of
the Company and with the instructions and directions of the Board of
Directors and the Manager and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal and
state laws and regulations.
D. The Sub-Adviser shall determine the securities to be purchased or sold
by the Fund and will place orders pursuant to its determination with
or through such persons, brokers or dealers (including NYLIFE
Securities Inc.) in conformity with the policy with respect to
brokerage as set forth in the Company's Registration Statement and
Prospectus (each as hereinafter defined) or as the Board of Directors
may direct from time to time. It is recognized that, in providing the
Fund with investment supervision or the placing of orders for
portfolio transactions, the Sub-Adviser will give primary
consideration to securing the most favorable price and efficient
execution. Consistent with this policy, the Sub-Adviser may consider
the financial responsibility, research and investment information and
other services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which other
clients of the Sub-Adviser may be a party. It is understood that none
of the Fund, the Company, the Manager nor the Sub-Adviser has adopted
a formula for allocation of the Fund's investment transaction
business. It is also understood that it is desirable for the Fund that
the Sub-Adviser have access to supplemental investment and market
research and security and economic analyses provided by certain
brokers who may execute brokerage transactions at a higher cost to the
Fund than may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execution.
Therefore, the Sub-Adviser is authorized to place orders for the
purchase and sale of securities for the Fund with such certain
brokers, subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers
may be useful to the Sub-Adviser in connection with its services to
other clients.
- 2 -
<PAGE>
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients, the Sub-Adviser, to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate
the securities to be so sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased
or sold, as well as expenses incurred in the transaction, will be made
by the Sub-Adviser in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and to such
other clients.
E. The Sub-Adviser shall maintain all books and records with respect to
the Fund's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act
and any other books and records required to be maintained by it under
the 1940 Act and the Rules thereunder and shall render to the Manager
and to the Company's Directors such periodic and special reports as
the Manager or the Directors may reasonably request.
F. The Sub-Adviser shall provide the Fund's Custodian on each business
day with information relating to the execution of all portfolio
transactions pursuant to standing instructions.
III. Sub-Adviser Personnel. The Sub-Adviser shall authorize and permit any
---------------------
of its directors, officers and employees who may be elected or appointed
as Directors or officers of the Company to serve in the capacities in
which they are elected or appointed. Services to be furnished by the Sub-
Adviser under this Agreement may be furnished through the medium of any of
such directors, officers, or employees.
IV. Books and Records. The Sub-Adviser shall keep the Fund's books and
-----------------
records required to be maintained by it, pursuant to paragraph 2 hereof.
The Sub-Adviser agrees that all records which it maintains for the Fund
are the property of the Fund, and it will surrender promptly to the Fund
any of such records upon the Fund's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 as promulgated
by the Commission under the 1940 Act any such records as are required to
be maintained by the Sub-Adviser pursuant to paragraph 2 hereof.
V. Services Not Exclusive. The services furnished by the Sub-Adviser
----------------------
hereunder are not to be deemed exclusive and the Sub-Adviser shall be free
to furnish similar or different services to others so long as its services
under this Agreement are not impaired thereby.
VI. Documents. The Manager has delivered to the Sub-Adviser copies of each of
---------
the following documents and will deliver to it all future amendments and
supplements, if any:
A. Articles of Incorporation of the Company, filed with the Secretary of
State of Maryland (such Articles of Incorporation, as in effect on the
date hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
- 3 -
<PAGE>
B. By-Laws of the Company (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
C. Certified Resolutions of the Board of Directors of the Company
authorizing the appointment of the Sub-Adviser and approving the form
of this Agreement;
D. Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-lA (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Fund and the Fund's Shares and all amendments thereto;
E. Notification of Registration of the Company under the 1940 Act on Form
N-8A as filed with the Commission and all amendments thereto; and
F. Prospectus and Statement of Additional Information of the Fund (such
Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time, being herein
called the "Prospectus").
VII. Expenses. During the term of this Agreement, the Sub-Adviser will bear
--------
all expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses
incurred by the Company, the Fund or the Manager.
VIII. Compensation. For the services provided and the expenses assumed by the
------------
Sub-Adviser pursuant to this Agreement, the Manager, not the Company or
the Fund, will pay to the Sub-Adviser a fee, computed daily and payable
monthly, at an annual rate of the following percentage of each Fund's
average daily net assets:
[EAFE Index Fund 0.15%
Indexed Bond Fund 0.10%
Indexed Equity Fund 0.10%
Multi-Asset Fund] 0.15%
IX. Standard of Care. Subject to the applicable law, the Sub-Adviser shall
----------------
not be liable for any error of judgment or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
X. Duration and Termination. This Agreement shall continue in effect for a
------------------------
period of more than two years from the date hereof only so long as such
continuance is specifically approved at least annually with respect to the
Fund in conformity with the requirements of the 1940 Act and the Rules
thereunder. Notwithstanding the foregoing, this Agreement may be
terminated: (a) at any time without penalty by the Fund upon the vote of a
majority of the Directors or by vote of the majority of the Fund's
outstanding voting
- 4 -
<PAGE>
securities, upon sixty (60) days' written notice to the Sub-adviser, (b)
by the Manager at any time without penalty upon sixty (60) days' written
notice to the Sub-Adviser or immediately upon material breach by the Sub-
Adviser or immediately if, in the reasonable judgment of the Manager, the
Sub-Adviser becomes unable to discharge its duties and obligations under
this Agreement, or (c) by the Sub-Adviser at any time without penalty,
upon sixty (60) days' written notice to the Fund. This Subadvisory
Agreement will also terminate automatically in the event of its assignment
(as defined in the 1940 Act) or the assignment or termination of the
Management Agreement.
XI. Other Business. Nothing in this Agreement shall limit or restrict the
--------------
right of any of the Sub-Adviser's directors, officers, or employees who
may also be a Director, officer, or employee of the Company to engage in
any other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, trust, firm, individual or association.
XII. Amendment. No provision of this Agreement may be changed, waived,
---------
discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this
Agreement shall be effective until approved (i) by a vote of a majority of
those Directors who are not parties to this Agreement or interested
persons of any such party, and (ii) by a vote of a majority of the Fund's
outstanding voting securities (unless in the case of (ii), the Company
receives an SEC order or no-action letter permitting it to modify the
Agreement without such vote).
XIII. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
XIV. Notice. Any notice or other communication required to be given pursuant
------
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Morris Corporate
Center I, Building A, 300 Interpace Parkway, Parsippany, New Jersey 07054;
or (2) to the Sub-Adviser at 504 Carnegie Center, Princeton, NJ 08540.
XV. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. As used in this Agreement, the terms
"majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "net
assets," "sale," "sell" and "security" shall have the same meaning as such
terms have in the 1940 Act. Where the effect of a requirement of the
federal securities laws reflected in any provision of this Agreement is
made less restrictive by a rule, regulation or order of the Commission,
whether of special or general application, such
- 5 -
<PAGE>
provision shall be deemed to incorporate the effect of such rule,
regulation or order. This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
MAINSTAY MANAGEMENT, INC.
By:
------------------------------------
Name:
Title:
MONITOR CAPITAL ADVISORS, INC.
By:
------------------------------------
Name:
Title:
- 6 -
<PAGE>
EXHIBIT 5(d)
FORM OF
MONEY MARKET FUND
SUB-ADVISORY AGREEMENT
Agreement made as of November 21, 1997 (the "Agreement") between MainStay
Management, Inc., a Delaware corporation (the "Manager"), and New York Life
Insurance Company, a mutual life insurance company organized under the laws of
the state of New York (the "Sub-Adviser") (the "Agreement").
WHEREAS, the Manager has entered into a Management Agreement, dated
November 21, 1997 (the "Management Agreement"), with MainStay Institutional
Funds Inc. (the "Company"), an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), on behalf
of the Money Market Fund (the "Fund"), a series of the Company;
WHEREAS, under the Management Agreement, the Manager has agreed to provide
certain investment advisory and related administrative services to the Fund;
WHEREAS, the Management Agreement permits the Manager to delegate certain
of its investment advisory duties under the Management Agreement to a sub-
adviser; and
WHEREAS, the Manager desires to retain the Sub-Adviser to furnish certain
investment advisory services with respect to the Fund and the Sub-Adviser is
willing to furnish such services;
NOW, THEREFORE, the parties agree as follows:
I. Appointment. The Manager hereby appoints the Sub-Adviser as an investment
-----------
sub-adviser with respect to the Fund for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts that appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
II. Duties as Sub-Adviser. Subject to the supervision of the Board of Directors
---------------------
of the Company and the Manager, the Sub-Adviser shall manage the investment
operations of the Fund and the composition of the portfolio of the Fund,
including the purchase, retention and disposition thereof, in accordance
with the investment objectives, policies and restrictions of the Fund, as
specified in the currently effective Prospectus (as hereinafter defined)
and statement of additional information and subject to the following
understandings:
A. The Sub-Adviser shall provide supervision of the Fund's investments and
determine from time to time what investments or securities will be
purchased, retained, sold
<PAGE>
or lent by the Fund, and what portion of the Fund's assets will be
invested or held uninvested as cash.
B. The Sub-Adviser shall use its best judgment in the performance of its
duties under this Agreement.
C. The Sub-Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (each as hereinafter defined) of
the Company and with the instructions and directions of the Board of
Directors and the Manager and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal and state
laws and regulations.
D. The Sub-Adviser shall determine the securities to be purchased or sold
by the Fund and will place orders pursuant to its determination with or
through such persons, brokers or dealers (including NYLIFE Securities
Inc.) in conformity with the policy with respect to brokerage as set
forth in the Company's Registration Statement and Prospectus (each as
hereinafter defined) or as the Board of Directors may direct from time
to time. It is recognized that, in providing the Fund with investment
supervision or the placing of orders for portfolio transactions, the
Sub-Adviser will give primary consideration to securing the most
favorable price and efficient execution. Consistent with this policy,
the Sub-Adviser may consider the financial responsibility, research and
investment information and other services provided by brokers or
dealers who may effect or be a party to any such transaction or other
transactions to which other clients of the Sub-Adviser may be a party.
It is understood that none of the Fund, the Company, the Manager nor
the Sub-Adviser has adopted a formula for allocation of the Fund's
investment transaction business. It is also understood that it is
desirable for the Fund that the Sub-Adviser have access to supplemental
investment and market research and security and economic analyses
provided by certain brokers who may execute brokerage transactions at a
higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Sub-Adviser is authorized to place
orders for the purchase and sale of securities for the Fund with such
certain brokers, subject to review by the Company's Board of Directors
from time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers
may be useful to the Sub-Adviser in connection with its services to
other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients, the Sub-Adviser, to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate
the securities to be so sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased
or sold, as well as expenses
-2-
<PAGE>
incurred in the transaction, will be made by the Sub-Adviser in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients.
E. The Sub-Adviser shall maintain all books and records with respect to
the Fund's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act
and any other books and records required to be maintained by it under
the 1940 Act and the Rules thereunder and shall render to the Manager
and to the Company's Directors such periodic and special reports as
the Manager or the Directors may reasonably request.
F. The Sub-Adviser shall provide the Fund's Custodian on each business
day with information relating to the execution of all portfolio
transactions pursuant to standing instructions.
III. Sub-Adviser Personnel. The Sub-Adviser shall authorize and permit any of
---------------------
its directors, officers and employees who may be elected or appointed as
Directors or officers of the Company to serve in the capacities in which
they are elected or appointed. Services to be furnished by the Sub-Adviser
under this Agreement may be furnished through the medium of any of such
directors, officers, or employees.
IV. Books and Records. The Sub-Adviser shall keep the Fund's books and records
-----------------
required to be maintained by it, pursuant to paragraph 2 hereof. The Sub-
Adviser agrees that all records which it maintains for the Fund are the
property of the Fund, and it will surrender promptly to the Fund any of
such records upon the Fund's request. The Sub-Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 as promulgated by the
Commission under the 1940 Act any such records as are required to be
maintained by the Sub-Adviser pursuant to paragraph 2 hereof.
V. Services Not Exclusive. The services furnished by the Sub-Adviser
----------------------
hereunder are not to be deemed exclusive and the Sub-Adviser shall be free
to furnish similar or different services to others so long as its services
under this Agreement are not impaired thereby.
VI. Documents. The Manager has delivered to the Sub-Adviser copies of each of
---------
the following documents and will deliver to it all future amendments and
supplements, if any:
A. Articles of Incorporation of the Company, filed with the Secretary of
State of Maryland (such Articles of Incorporation, as in effect on the
date hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
B. By-Laws of the Company (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
C. Certified Resolutions of the Board of Directors of the Company
authorizing the appointment of the Sub-Adviser and approving the form
of this Agreement;
-3-
<PAGE>
D. Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-lA (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Fund and the Fund's Shares and all amendments thereto;
E. Notification of Registration of the Company under the 1940 Act on Form
N-8A as filed with the Commission and all amendments thereto; and
F. Prospectus and Statement of Additional Information of the Fund (such
Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time, being herein
called the "Prospectus").
VII. Expenses. During the term of this Agreement, the Sub-Adviser will bear all
--------
expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses
incurred by the Company, the Fund or the Manager.
VIII. Compensation. For the services provided and the expenses assumed by the
------------
Sub-Adviser pursuant to this Agreement, the Manager, not the Company or
the Fund, will pay to the Sub-Adviser a fee, computed daily and payable
monthly, at an annual rate of 0.10% of the Fund's average daily net
assets.
IX. Standard of Care. Subject to the applicable law, the Sub-Adviser shall not
----------------
be liable for any error of judgment or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard by it
of its obligations and duties under this Agreement.
X. Duration and Termination. This Agreement shall continue in effect for a
------------------------
period of more than two years from the date hereof only so long as such
continuance is specifically approved at least annually with respect to the
Fund in conformity with the requirements of the 1940 Act and the Rules
thereunder. Notwithstanding the foregoing, this Agreement may be
terminated: (a) at any time without penalty by the Fund upon the vote of a
majority of the Directors or by vote of the majority of the Fund's
outstanding voting securities, upon sixty (60) days' written notice to the
Sub-adviser, (b) by the Manager at any time without penalty upon sixty
(60) days' written notice to the Sub-Adviser or immediately upon material
breach by the Sub-Adviser or immediately if, in the reasonable judgment of
the Manager, the Sub-Adviser becomes unable to discharge its duties and
obligations under this Agreement, or (c) by the Sub-Adviser at any time
without penalty, upon sixty (60) days' written notice to the Fund. This
Subadvisory Agreement will also terminate automatically in the event of
its assignment (as defined in the 1940 Act) or the assignment or
termination of the Management Agreement.
XI. Other Business. Nothing in this Agreement shall limit or restrict the
--------------
right of any of the Sub-Adviser's directors, officers, or employees who
may also be a Director, officer, or
-4-
<PAGE>
employee of the Company to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of
any business, whether of a similar or dissimilar nature, nor limit or
restrict the Sub-Adviser's right to engage in any other business or to
render services of any kind to any other corporation, trust, firm,
individual or association.
XII. Amendment. No provision of this Agreement may be changed, waived,
---------
discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this
Agreement shall be effective until approved (i) by a vote of a majority of
those Directors who are not parties to this Agreement or interested
persons of any such party, and (ii) by a vote of a majority of the Fund's
outstanding voting securities (unless in the case of (ii), the Company
receives an SEC order or no-action letter permitting it to modify the
Agreement without such vote).
XIII. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
XIV. Notice. Any notice or other communication required to be given pursuant to
------
this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Morris Corporate
Center I, Building A, 300 Interpace Parkway, Parsippany, New Jersey 07054;
or (2) to the Sub-Adviser at 51 Madison Ave., New York, NY 10010.
XV. Miscellaneous. The captions in this Agreement are included for convenience
-------------
of reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. If any provision
of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. As used in this Agreement, the terms "majority of the
outstanding voting securities," "affiliated person," "interested person,"
"assignment," "broker," "investment adviser," "net assets," "sale," "sell"
and "security" shall have the same meaning as such terms have in the 1940
Act. Where the effect of a requirement of the federal securities laws
reflected in any provision of this Agreement is made less restrictive by a
rule, regulation or order of the Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. This Agreement may be signed in
counterpart.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
MAINSTAY MANAGEMENT, INC.
By:____________________________________
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY
By:____________________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT 99.11(a)
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. 17 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 21, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 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
Prospectuses and under the headings "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 19, 1997
<PAGE>
EXHIBIT 18
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
FOR
MAINSTAY INSTITUTIONAL FUNDS INC.
BOND FUND
EAFE INDEX FUND
GROWTH EQUITY FUND
INDEXED BOND FUND
INDEXED EQUITY FUND
INTERNATIONAL BOND FUND
INTERNATIONAL EQUITY FUND
MONEY MARKET FUND
MULTI-ASSET FUND
SHORT-TERM BOND FUND
VALUE EQUITY FUND
WHEREAS, MainStay Institutional Funds Inc. (the "Company"), engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided into a
number of separate series, including the BOND FUND; EAFE INDEX FUND; GROWTH
EQUITY FUND; INDEXED BOND FUND; INDEXED EQUITY FUND; INTERNATIONAL BOND FUND;
INTERNATIONAL EQUITY FUND; MONEY MARKET FUND; MULTI-ASSET FUND; SHORT-TERM BOND
FUND; and the VALUE EQUITY FUND; (the "Funds");
WHEREAS, the Company desires to adopt, on behalf of each of the Funds, a
Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with
respect to each of the Funds;
WHEREAS, pursuant to a Management Agreement dated November 21, 1997, the
Company employs MainStay Management, Inc. as manager for the Funds; and
WHEREAS, pursuant to a Distribution Agreement dated January 1, 1994, the
Company employs NYLIFE Distributors Inc. as distributor of the securities of
which it is the issuer.
NOW THEREFORE, the Company hereby adopts, on behalf of the Funds, the Plan,
in accordance with Rule 18f-3 under the Act, subject to the following terms and
conditions:
1. FEATURES OF THE CLASSES. Each Fund issues its shares of common stock
in two classes: "Institutional Class" shares and "Institutional Service Class"
shares. Shares of each Class of a Fund shall represent an equal pro rata
interest in such Fund, and generally, shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (a) each
class shall have a different designation; (b) each class of shares shall bear
any Class Expenses, as defined in Section 3 below; and (c) each class shall have
exclusive voting rights on any matter submitted to shareholders that relates
solely to its service arrangement and each class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the
<PAGE>
interests of any other class. In addition, Institutional Class shares and
Institutional Service Class shares shall have the features described in Sections
4 and 5 below.
2. SERVICE PLANS. Shares of the Institutional Service class of each Fund
are offered pursuant to a Shareholder Services Plan ("Service Plan") between the
Company and New York Life Insurance Company ("New York Life"). Shareholders of
the Institutional Service Class of each Fund receive additional shareholder
services that are not provided to shareholders of the Institutional Class. The
cost of such services is borne by the shareholders of the Institutional Service
Class.
Under the Service 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 holders of the Institutional
Service Class shares of a Fund, a shareholder service fee at the rate of 0.25%
on an annualized basis of the average net asset value of the Institutional
Service Class shares of the Fund (the "Service Fee").
For purposes of the Service Plan, "service activities" shall mean those
activities for which a "service fee," as defined by the rules of National
Association of Securities Dealers Inc., may be paid.
3. ALLOCATION OF INCOME AND EXPENSES. (a) The gross income of each Fund
shall, generally, be allocated to each class on the basis of net assets. To the
extent practicable, certain expenses, (other than Class Expenses as defined
below which shall be allocated more specifically), shall be subtracted from the
gross income on the basis of net assets of each class of the Fund. These
expenses include:
(1) Expenses incurred by the Company (for example fees of Directors,
auditors, and legal counsel) not attributable to a particular Fund or to a
particular class of shares of a Fund ("Corporate Level Expenses"); and
(2) Expenses incurred by a Fund not attributable to any particular class of
the Fund's shares (for example, advisory fees, custodial fees, or other expenses
relating to the management of the Fund's assets)("Fund Expenses").
(b) Expenses attributable to a particular class ("Class Expenses") shall be
limited to: (i) payments made pursuant to the service Plan; (ii) transfer agent
fees attributable to a specific class; (iii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a specific class; (iv) Blue
Sky registration fees incurred by a class; (v) SEC registration fees incurred by
a class; (vi) the expense of administrative personnel and services to support
the shareholders of a specific class; (vii) litigation or other legal expenses
relating solely to one class; and (viii) Directors' fees incurred as a result of
issues relating solely to one class. Expenses in category (i) above must be
allocated to the class for which such expenses are incurred. All other "Class
Expenses" listed in categories (ii)-(viii) above may be allocated to a class but
only if the President and Treasurer have determined, subject to Board approval
-2-
<PAGE>
or ratification, which of such categories of expenses will be treated as Class
Expenses, consistent with applicable legal principals under the Act and the
Internal Revenue Code of 1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each class of shares
depending upon the nature of the expense item. Corporate Level Expenses and
Fund Expenses will be allocated among the classes of shares based on their
relative net asset values. Approved Class Expenses shall be allocated to the
particular class to which they are attributable. In addition, certain expenses
may be allocated differently if their method of imposition changes. Thus, if a
Class Expense can no longer be attributed to a class, it shall be charged to a
Fund for allocation among classes, as determined by the Board of Directors. Any
additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of the
Company in light of the requirements of the Act and the Internal Revenue Code of
1986, as amended.
4. EXCHANGE PRIVILEGES. Shareholders may exchange shares of one class of
a Fund for shares of an identical class of any other Fund, based upon each
Fund's net asset value per share.
5. CONVERSION FEATURES. No conversion from Institutional Class shares
into Institutional Service Class shares, or vice versa, is currently offered.
6. QUARTERLY AND ANNUAL REPORTS. The Directors shall receive quarterly
and annual statements concerning all allocated Class Expenses and servicing
expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be
amended from time to time. In the statements, only expenditures properly
attributable to the servicing of a particular class of shares will be used to
justify any servicing fee attributable to that class. Expenditures not related
to the servicing of a particular class shall not be presented to the Directors
to justify any fee attributable to that class. The statements, including the
allocations upon which they are based, shall be subject to the review and
approval of the independent Directors in the exercise of their fiduciary duties.
Under the Service Plan, the amount of the Service Fee payable to New York Life
is not related directly to expenses incurred by New York Life, its affiliates,
or independent third party service providers on behalf of a Fund in servicing
holders of Institutional Service Class shares of the Fund.
7. ACCOUNTING METHODOLOGY. (a) The following procedures shall be
implemented in order to meet the objective of properly allocating income and
expenses among the Funds:
(1) On a daily basis, a Fund Accountant shall calculate the Service Fee to
be charged to each Institutional Service Class of shares of a Fund by
calculating the average daily net asset value of such shares outstanding and
applying the fee rate to the result of that calculation.
(2) The Fund Accountant will allocate designated Class Expenses., if any,
to the respective classes.
(3) The Fund Accountant will allocate income and Corporate Level and Fund
Expenses among the respective classes of shares based on the net asset value of
each class in relation to
-3-
<PAGE>
the net asset value of the Fund for Fund Expenses, and in relation to the net
asset value of the Company for Corporate Level Expenses. These calculations
shall be based on net asset values at the beginning of the day for non-money
market funds, and based on the relative value of settled shares at the beginning
of the day for any money market funds.
(4) The Fund Accountant shall then complete a worksheet (attached as
Exhibit A) using the allocated income and expense calculations from Paragraph
(3) above, and the additional fees calculated from Paragraphs (1), and (2)
above. The Fund Accountant may make non-material changes to the form of
worksheet as it deems appropriate.
(5) The Fund Accountant shall develop and use appropriate internal control
procedures to assure the accuracy of its calculations and appropriate allocation
of income and expenses in accordance with this Plan.
8. WAIVER OR REIMBURSEMENT OF EXPENSES. Expenses may be waived or
reimbursed by any adviser to the Company, by the Company's underwriter or any
other provider of services to the company without the prior approval of the
Company's Board of Directors.
9. EFFECTIVENESS OF PLAN. This Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of the Company
and (b) those Directors of the Company who are not "interested persons" of the
Company (as defined in the Act) and who have no direct or indirect interest in
the operation of the Plan, cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan.
10. MATERIAL MODIFICATION. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in Paragraph 9 hereof.
IN WITNESS WHEREOF, the Company, on behalf of the Funds, has adopted this
Multiple Class Plan as of the 6th day of June, 1995 and amended this Multiple
Class Plan as of the 4th day of March, 1997, and the 21st day of November, 1997.
MAINSTAY INSTITUTIONAL FUNDS INC.
By: __________________________________
Title: Secretary
-4-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MAINSTAY INSTITUTIONAL MONEY MARKET FUND-INSTITUTIONAL CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 230,923,025
<INVESTMENTS-AT-VALUE> 230,923,025
<RECEIVABLES> 11,616,414
<ASSETS-OTHER> 134
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 242,539,573
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,745,076
<TOTAL-LIABILITIES> 11,745,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,792,278
<SHARES-COMMON-STOCK> 178,144,009
<SHARES-COMMON-PRIOR> 110,761,096
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,219
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 230,794,497
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,745,676
<OTHER-INCOME> 0
<EXPENSES-NET> (478,244)
<NET-INVESTMENT-INCOME> 4,267,432
<REALIZED-GAINS-CURRENT> 3,107
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,270,539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,214,415)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 196,367,497
<NUMBER-OF-SHARES-REDEEMED> (131,813,317)
<SHARES-REINVESTED> 2,828,733
<NET-CHANGE-IN-ASSETS> 68,439,037
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (888)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 576,000
<AVERAGE-NET-ASSETS> 170,974,000
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.025
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.025)
<PER-SHARE-DISTRIBUTIONS> 0.000
<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> 012
<NAME> MAINSTAY INSTIT. MONEY MARKET FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 230,923,025
<INVESTMENTS-AT-VALUE> 230,923,025
<RECEIVABLES> 11,616,414
<ASSETS-OTHER> 134
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 242,539,573
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,745,076
<TOTAL-LIABILITIES> 11,745,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,792,278
<SHARES-COMMON-STOCK> 52,648,269
<SHARES-COMMON-PRIOR> 34,664,473
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,219
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 230,794,497
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,745,676
<OTHER-INCOME> 0
<EXPENSES-NET> (478,244)
<NET-INVESTMENT-INCOME> 4,267,432
<REALIZED-GAINS-CURRENT> 3,107
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,270,539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,053,017)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,204,840
<NUMBER-OF-SHARES-REDEEMED> (28,184,762)
<SHARES-REINVESTED> 963,718
<NET-CHANGE-IN-ASSETS> 21,201,318
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (888)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 576,000
<AVERAGE-NET-ASSETS> 170,974,000
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.024
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.024)
<PER-SHARE-DISTRIBUTIONS> 0.000
<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> 021
<NAME> MAINSTAY INSTITUTIONAL SHORT-TERM BOND FUND-INSTIT. CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 51,908,483
<INVESTMENTS-AT-VALUE> 51,903,758
<RECEIVABLES> 3,255,629
<ASSETS-OTHER> 598
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55,159,985
<PAYABLE-FOR-SECURITIES> 2,576,221
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107,048
<TOTAL-LIABILITIES> 2,683,269
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,871,587
<SHARES-COMMON-STOCK> 5,248,625
<SHARES-COMMON-PRIOR> 6,099,579
<ACCUMULATED-NII-CURRENT> 1,685,345
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (7,075,491)
<ACCUM-APPREC-OR-DEPREC> (4,725)
<NET-ASSETS> 52,476,716
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,814,376
<OTHER-INCOME> 0
<EXPENSES-NET> (160,956)
<NET-INVESTMENT-INCOME> 1,653,420
<REALIZED-GAINS-CURRENT> (171,862)
<APPREC-INCREASE-CURRENT> (31,046)
<NET-CHANGE-FROM-OPS> 1,450,512
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,299,819
<NUMBER-OF-SHARES-REDEEMED> (2,150,773)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,640,974
<ACCUMULATED-NII-PRIOR> 31,925
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,903,629
<GROSS-ADVISORY-FEES> 40,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,000
<AVERAGE-NET-ASSETS> 53,509,000
<PER-SHARE-NAV-BEGIN> 9.480
<PER-SHARE-NII> 0.310
<PER-SHARE-GAIN-APPREC> (0.050)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.740
<EXPENSE-RATIO> 0.600
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> MAINSTAY INSTIT. SHORT-TERM BOND FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 51,908,483
<INVESTMENTS-AT-VALUE> 51,903,758
<RECEIVABLES> 3,255,629
<ASSETS-OTHER> 598
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55,159,985
<PAYABLE-FOR-SECURITIES> 2,576,221
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107,048
<TOTAL-LIABILITIES> 2,683,269
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,871,587
<SHARES-COMMON-STOCK> 138,903
<SHARES-COMMON-PRIOR> 139,107
<ACCUMULATED-NII-CURRENT> 1,685,345
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (7,075,491)
<ACCUM-APPREC-OR-DEPREC> (4,725)
<NET-ASSETS> 52,476,716
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,814,376
<OTHER-INCOME> 0
<EXPENSES-NET> (160,956)
<NET-INVESTMENT-INCOME> 1,653,420
<REALIZED-GAINS-CURRENT> (171,862)
<APPREC-INCREASE-CURRENT> (31,046)
<NET-CHANGE-FROM-OPS> 1,450,512
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,723
<NUMBER-OF-SHARES-REDEEMED> (21,927)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,447,645
<ACCUMULATED-NII-PRIOR> 31,925
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,903,629
<GROSS-ADVISORY-FEES> 40,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,000
<AVERAGE-NET-ASSETS> 53,509,000
<PER-SHARE-NAV-BEGIN> 9.460
<PER-SHARE-NII> 0.300
<PER-SHARE-GAIN-APPREC> (0.050)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.710
<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-INSTITUTIONAL CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 175,401,846
<INVESTMENTS-AT-VALUE> 176,687,106
<RECEIVABLES> 15,880,503
<ASSETS-OTHER> 224
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192,567,833
<PAYABLE-FOR-SECURITIES> 12,894,567
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 153,821
<TOTAL-LIABILITIES> 13,048,388
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,242,143
<SHARES-COMMON-STOCK> 18,212,251
<SHARES-COMMON-PRIOR> 18,605,554
<ACCUMULATED-NII-CURRENT> 5,516,831
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (15,524,789)
<ACCUM-APPREC-OR-DEPREC> 1,285,260
<NET-ASSETS> 179,519,445
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,171,812
<OTHER-INCOME> 0
<EXPENSES-NET> (654,981)
<NET-INVESTMENT-INCOME> 5,516,831
<REALIZED-GAINS-CURRENT> (1,066,656)
<APPREC-INCREASE-CURRENT> 335,376
<NET-CHANGE-FROM-OPS> 4,785,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 460,561
<NUMBER-OF-SHARES-REDEEMED> (853,864)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,092,894
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,458,133)
<GROSS-ADVISORY-FEES> 174,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 738,000
<AVERAGE-NET-ASSETS> 175,591,000
<PER-SHARE-NAV-BEGIN> 9.510
<PER-SHARE-NII> 0.300
<PER-SHARE-GAIN-APPREC> (0.030)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.780
<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-INSTITUTIONAL SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 175,401,846
<INVESTMENTS-AT-VALUE> 176,687,106
<RECEIVABLES> 15,880,503
<ASSETS-OTHER> 224
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192,567,833
<PAYABLE-FOR-SECURITIES> 12,894,567
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 153,821
<TOTAL-LIABILITIES> 13,048,388
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,242,143
<SHARES-COMMON-STOCK> 149,565
<SHARES-COMMON-PRIOR> 168,265
<ACCUMULATED-NII-CURRENT> 5,516,831
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (15,524,789)
<ACCUM-APPREC-OR-DEPREC> 1,285,260
<NET-ASSETS> 179,519,445
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,171,812
<OTHER-INCOME> 0
<EXPENSES-NET> (654,981)
<NET-INVESTMENT-INCOME> 5,516,831
<REALIZED-GAINS-CURRENT> (1,066,656)
<APPREC-INCREASE-CURRENT> 335,376
<NET-CHANGE-FROM-OPS> 4,785,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48,806
<NUMBER-OF-SHARES-REDEEMED> (67,506)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,606,309
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,458,133)
<GROSS-ADVISORY-FEES> 174,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 738,000
<AVERAGE-NET-ASSETS> 175,591,000
<PER-SHARE-NAV-BEGIN> 9.490
<PER-SHARE-NII> 0.280
<PER-SHARE-GAIN-APPREC> (0.030)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.740
<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-INSTITUTIONAL CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 116,069,620
<INVESTMENTS-AT-VALUE> 117,114,022
<RECEIVABLES> 1,739,394
<ASSETS-OTHER> 54,654
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 118,908,070
<PAYABLE-FOR-SECURITIES> 98,876
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,502
<TOTAL-LIABILITIES> 189,378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,366,863
<SHARES-COMMON-STOCK> 10,708,460
<SHARES-COMMON-PRIOR> 10,402,630
<ACCUMULATED-NII-CURRENT> 3,885,182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,573,681)
<ACCUM-APPREC-OR-DEPREC> 1,040,328
<NET-ASSETS> 118,718,692
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,173,081
<OTHER-INCOME> 0
<EXPENSES-NET> (291,875)
<NET-INVESTMENT-INCOME> 3,881,206
<REALIZED-GAINS-CURRENT> (103,783)
<APPREC-INCREASE-CURRENT> (622,359)
<NET-CHANGE-FROM-OPS> 3,155,064
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 869,543
<NUMBER-OF-SHARES-REDEEMED> (563,713)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,401,831
<ACCUMULATED-NII-PRIOR> 3,976
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,469,898)
<GROSS-ADVISORY-FEES> 58,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 382,000
<AVERAGE-NET-ASSETS> 116,257,000
<PER-SHARE-NAV-BEGIN> 10.520
<PER-SHARE-NII> 0.350
<PER-SHARE-GAIN-APPREC> (0.060)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.810
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> MAINSTAY INSTIT. INDEXED BOND FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 116,069,620
<INVESTMENTS-AT-VALUE> 117,114,022
<RECEIVABLES> 1,739,394
<ASSETS-OTHER> 54,654
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 118,908,070
<PAYABLE-FOR-SECURITIES> 98,876
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,502
<TOTAL-LIABILITIES> 189,378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,366,863
<SHARES-COMMON-STOCK> 269,451
<SHARES-COMMON-PRIOR> 262,696
<ACCUMULATED-NII-CURRENT> 3,885,182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,573,681)
<ACCUM-APPREC-OR-DEPREC> 1,040,328
<NET-ASSETS> 118,718,692
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,173,081
<OTHER-INCOME> 0
<EXPENSES-NET> (291,875)
<NET-INVESTMENT-INCOME> 3,881,206
<REALIZED-GAINS-CURRENT> (103,783)
<APPREC-INCREASE-CURRENT> (622,359)
<NET-CHANGE-FROM-OPS> 3,155,064
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 66,806
<NUMBER-OF-SHARES-REDEEMED> (60,051)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,225,423
<ACCUMULATED-NII-PRIOR> 3,976
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,469,898)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 382,000
<AVERAGE-NET-ASSETS> 2,920,000
<PER-SHARE-NAV-BEGIN> 10.520
<PER-SHARE-NII> 0.340
<PER-SHARE-GAIN-APPREC> (0.060)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.800
<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-INSTITUTIONAL CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 313,661,580
<INVESTMENTS-AT-VALUE> 391,477,192
<RECEIVABLES> 2,311,296
<ASSETS-OTHER> 25,155
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 393,813,643
<PAYABLE-FOR-SECURITIES> 1,349,849
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 673,276
<TOTAL-LIABILITIES> 2,023,125
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 281,432,641
<SHARES-COMMON-STOCK> 24,989,426
<SHARES-COMMON-PRIOR> 24,545,741
<ACCUMULATED-NII-CURRENT> 4,350,517
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,449,117
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 78,532,807
<NET-ASSETS> 384,918,998
<DIVIDEND-INCOME> 2,269,830
<INTEREST-INCOME> 3,401,939
<OTHER-INCOME> 0
<EXPENSES-NET> 1,336,588
<NET-INVESTMENT-INCOME> 4,335,181
<REALIZED-GAINS-CURRENT> 7,836,678
<APPREC-INCREASE-CURRENT> 43,520,438
<NET-CHANGE-FROM-OPS> 55,692,297
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,921,288
<NUMBER-OF-SHARES-REDEEMED> 1,477,603
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 62,492,804
<ACCUMULATED-NII-PRIOR> 15,336
<ACCUMULATED-GAINS-PRIOR> 19,612,439
<OVERDISTRIB-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 13.19
<PER-SHARE-NII> 0.170
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<TABLE> <S> <C>
<PAGE>
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<SERIES>
<NUMBER> 052
<NAME> MAINSTAY INSTIT. MULTI-ASSET FUND-INSTIT. SERVICE CLASS
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<S> <C>
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<NET-ASSETS> 6,871,520
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<EXPENSES-NET> 1,336,588
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<NUMBER-OF-SHARES-SOLD> 84,753
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<ACCUMULATED-GAINS-PRIOR> 19,612,439
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<GROSS-EXPENSE> 1,337,000
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<PER-SHARE-NAV-BEGIN> 13.19
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> MAINSTAY INSTITUTIONAL VALUE FUND-INSTITUTIONAL CLASS
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<S> <C>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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<PAID-IN-CAPITAL-COMMON> 639,792,411
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<SHARES-COMMON-PRIOR> 51,768,954
<ACCUMULATED-NII-CURRENT> 5,658,300
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<ACCUMULATED-NET-GAINS> 101,186,160
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 157,371,828
<NET-ASSETS> 904,008,699
<DIVIDEND-INCOME> 8,694,692
<INTEREST-INCOME> 785,130
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<EXPENSES-NET> 3,889,581
<NET-INVESTMENT-INCOME> 5,590,241
<REALIZED-GAINS-CURRENT> 83,987,217
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<NUMBER-OF-SHARES-SOLD> 5,170,197
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<NET-CHANGE-IN-ASSETS> 67,532,047
<ACCUMULATED-NII-PRIOR> 68,059
<ACCUMULATED-GAINS-PRIOR> 17,198,943
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<GROSS-EXPENSE> 3,890,000
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<PER-SHARE-NAV-BEGIN> 15.87
<PER-SHARE-NII> 0.110
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> MAINSTAY INSTIT. VALUE FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 904,008,699
<DIVIDEND-INCOME> 8,694,692
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<OTHER-INCOME> 0
<EXPENSES-NET> 3,889,581
<NET-INVESTMENT-INCOME> 5,590,241
<REALIZED-GAINS-CURRENT> 83,987,217
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 157,694
<NUMBER-OF-SHARES-REDEEMED> (100,246)
<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 68,059
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<GROSS-EXPENSE> 3,890,000
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<PER-SHARE-NII> 0.090
<PER-SHARE-GAIN-APPREC> 1.640
<PER-SHARE-DIVIDEND> 0.000
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> MAINSTAY INSTITUTIONAL GROWTH EQUITY FUND-INSTIT. CLASS
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
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<PAID-IN-CAPITAL-COMMON> 346,347,482
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 264,712,978
<NET-ASSETS> 639,474,049
<DIVIDEND-INCOME> 1,598,485
<INTEREST-INCOME> 326,279
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<NET-INVESTMENT-INCOME> (776,922)
<REALIZED-GAINS-CURRENT> 26,000,223
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<NUMBER-OF-SHARES-SOLD> 3,332,761
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NII> (0.030)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NUMBER> 072
<NAME> MAINSTAY INSTIT. GROWTH EQUITY FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
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<PAID-IN-CAPITAL-COMMON> 346,347,482
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<NET-ASSETS> 639,474,049
<DIVIDEND-INCOME> 1,598,485
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<EXPENSES-NET> 2,701,686
<NET-INVESTMENT-INCOME> (776,922)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> MAINSTAY INSTITUTIONAL INDEXED EQUITY FUND-INSTIT. CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
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<NET-ASSETS> 832,391,189
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<PER-SHARE-NII> 0.16
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> MAINSTAY INSTIT. INDEXED EQUITY FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME> MAINSTAY INSTITUTIONAL EAFE INDEX FUND-INSTITUTIONAL CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
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</TABLE>
<TABLE> <S> <C>
<PAGE>
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<NAME> MAINSTAY INSTIT. EAFE INDEX FUND-INSTIT. SERVICE CLASS
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<S> <C>
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</TABLE>
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<PAGE>
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<NUMBER> 101
<NAME> MAINSTAY INSTIT. INTERNATIONAL BOND FUND-INSTIT. CLASS
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> INSTIT. INTERNATIONAL BOND FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> INSTITUTIONAL INTERNATIONAL EQUITY FUND-INSTITUTIONAL CLASS
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 112
<NAME> INSTITUTIONAL INTERNATIONAL EQUITY FUND-INSTIT. SERVICE CLASS
<MULTIPLIER> 1
<S> <C>
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