MAINSTAY INSTITUTIONAL FUNDS INC, 485APOS, 1997-09-19

MAINSTAY INSTITUTIONAL FUNDS INC
485APOS, 1997-09-19

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<PAGE>

As filed with the Securities and Exchange Commission on September 19, 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. 15 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]

Amendment No. 17 [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 60 days
after filing pursuant to paragraph (a) of Rule 485 under the Securities
------------
Act of 1933.

Registrant has elected to register an indefinite number of shares of its common
stock under the Securities Act of 1933, as amended, pursuant to Rule 24f-2 under
the Investment Company Act of 1940. Registrant filed a notice pursuant to Rule
24f-2 on February 25, 1997.
<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 __, 1997
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Institutional Class

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Read This!
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These Funds aren't federally insured or guaranteed by the U.S. government.
Shares of these Funds are not deposits or obligations of, or guaranteed or
insured by, any financial institution, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.
Investments in the Funds are subject to investment risks, including possible
loss of principal.

No guarantees. There can be no assurance that the investment objective of any
Fund will be achieved. All mutual funds involve risk, including the potential to
lose some or all of your original investment. Except for money market funds, the
price of a mutual fund share will fluctuate, and, when sold, may be higher or
lower than your original purchase price. Furthermore, although the Money Market
Fund attempts to maintain a stable net asset value of $1.00 per share, there can
be no assurance that it will succeed in doing so.

These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.

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Please read this Prospectus carefully before you invest, and keep it for future
reference. 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 May 1, 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.
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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

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Fixed Income
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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>

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What's Inside?
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<TABLE>
<CAPTION>
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Tell Me Quickly Page
- --------------------------------------------------------------------------------
<S> <C>
The Funds; The Number to Call for Help .......................................1

A Quick Overview: Understanding MainStay Institutional Funds ...............4-5

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Tell Me The Key Facts
- --------------------------------------------------------------------------------

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

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Tell Me The Details
- --------------------------------------------------------------------------------

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 ...
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1
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Set your investment priorities

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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.

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- ----
2
- ----

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Study the Funds' objectives,
policies and risks
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Focus on the Funds that seem to be seeking your objectives. Read about the
people who manage each Fund. Understand the types of securities in which each
Fund invests and the risks associated with those investments.

If you have a registered representative or service agent, discuss the Funds with
him or her or call 1-(800) 695-2126 ext. 2055.

For key facts about, and risks associated with, the Funds, see pgs. 19-29.

(For more detailed information, see "Tell Me The Details" in this Prospectus and
the Statement of Additional Information (SAI).)

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- ----
3
- ----

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Evaluate each Fund's track
record, fees and expenses
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Turn to pgs. 11-16 for Financial Highlights. Read down the columns (by year) and
find, in particular, the beginning and ending share prices, the amount of income
produced, and the "total investment return" figures, to see how each Fund has
done in the past.

Don't just look at recent performance, which may or may not be repeated. Read
the "total investment return" for each year to look for a performance pattern.
Remember, though, no fund can ever guarantee it will continue to perform at the
same levels.

Understand the ongoing fees.

(See the Examples beginning on pg. 6, "Analyze the Costs of Investing: Ongoing
Fees," for your Fund's ongoing fees and the impact of those costs on a $1,000
investment.)

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7
- ----

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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.")

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- ----
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.")

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- ----
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.")

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4
<PAGE>

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...Understanding MainStay Institutional Funds
- --------------------------------------------------------------------------------

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4
- ----

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Decide how much to invest
in each Fund
- --------------------------------------------------------------------------------

(See pgs. 32-33, "Open an Account and Buy Shares," for the amounts.)

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

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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.")

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- ----
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.")

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- ----
10
- ----

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Manage your taxes/
Align your goals
- --------------------------------------------------------------------------------

If you've made a profit on your investment either through dividends,
distributions or capital gains, you may have to pay taxes at tax time.
Generally, taxes are deferred if you're investing through a "tax-exempt" plan,
such as 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.)

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- ----
11
- ----

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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.)

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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.

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- --------------------------------------------------------------------------------
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.

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[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).

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6
<PAGE>

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Operating Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EAFE INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .66%+
Other Expenses .28
---
Total Fund Operating Expenses* .94%
===
</TABLE>

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Examples
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 10
After 3 years $ 30
After 5 years $ 52(a)
After 10 years $116
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$33.00 management fees
19.00 other
---------------------------
$52.00 total fund operating
expenses
</TABLE>

- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees .85%+
Other Expenses .07
---
Total Fund Operating Expenses .92%
===
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 9
After 3 years $ 29
After 5 years $ 51
After 10 years $114
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$42.50 management fees
8.50 other
---------------------------
$51.00 total fund operating
expenses
</TABLE>

- --------------------------------------------------------------------------------
INDEXED EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .21%+
Other Expenses .09
---
Total Fund Operating Expenses* .30%
===
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 3
After 3 years $ 10
After 5 years $ 17(a)
After 10 years $ 38
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$10.50 management fees
6.50 other
---------------------------
$17.00 total fund operating
expenses
</TABLE>

7
<PAGE>

- --------------------------------------------------------------------------------
Operating Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .78%+
Other Expenses .22
----
Total Fund Operating Expenses* 1.00%
====
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 10
After 3 years $ 32
After 5 years $ 55(a)
After 10 years $123
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$39.00 management fees
16.00 other
---------------------------
$55.00 total fund operating
expenses
</TABLE>

- --------------------------------------------------------------------------------
MULTI-ASSET FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees .65%+
Other Expenses .10
---
Total Fund Operating Expenses .75%
===
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 8
After 3 years $ 24
After 5 years $ 42
After 10 years $ 93
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$32.50 management fees
9.50 other
---------------------------
$42.00 total fund operating
expenses
</TABLE>

- --------------------------------------------------------------------------------
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees .85%+
Other Expenses .07
---
Total Fund Operating Expenses .92%
===
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 9
After 3 years $ 29
After 5 years $ 51
After 10 years $114
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$42.50 management fees
8.50 other
---------------------------
$51.00 total fund operating
expenses
</TABLE>

8
<PAGE>

- --------------------------------------------------------------------------------
Operating Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .64%+
Other Expenses .11
---
Total Fund Operating Expenses* .75%
===
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 8
After 3 years $ 24
After 5 years $ 42(a)
After 10 years $ 93
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$32.00 management fees
10.00 other
---------------------------
$42.00 total fund operating
expenses
</TABLE>

- --------------------------------------------------------------------------------
INDEXED BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .35%+
Other Expenses .15
---
Total Fund Operating Expenses* .50%
===
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 5
After 3 years $ 16
After 5 years $ 28(a)
After 10 years $ 63
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$17.50 management fees
10.50 other
---------------------------
$28.00 total fund operating
expenses
</TABLE>

- --------------------------------------------------------------------------------
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .67%+
Other Expenses .28
---
Total Fund Operating Expenses* .95%
===
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 10
After 3 years $ 30
After 5 years $ 53(a)
After 10 years $117
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$33.50 management fees
19.50 other
---------------------------
$53.00 total fund operating
expenses
</TABLE>

9
<PAGE>

- --------------------------------------------------------------------------------
Operating Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .33%+
Other Expenses .17
---
Total Fund Operating Expenses* .50%
===
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 5
After 3 years $ 16
After 5 years $ 28(a)
After 10 years $ 63
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$16.50 management fees
11.50 other
---------------------------
$28.00 total fund operating
expenses
</TABLE>

- --------------------------------------------------------------------------------
SHORT-TERM BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .41%+
Other Expenses .19
---
Total Fund Operating Expenses* .60%
===
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 6
After 3 years $ 19
After 5 years $ 34(a)
After 10 years $ 75
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$20.50 management fees
13.50 other
---------------------------
$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--.__%; International Equity Fund--.__%; Bond Fund--.__%; Indexed Bond
Fund--.__%; International Bond Fund--.__%; Money Market Fund--.__%; and
Short-Term Bond Fund--.__%. 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%. Theses 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 .__%.

(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 _________, 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>
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 ........... $ 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) ................. 1.71%+ 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>
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 .......... $ 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>

INDEXED EQUITY 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 .......... $ 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>

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>

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>

13
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

VALUE EQUITY 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 .......... $ 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>
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 .......... $ 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>
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 .......... $ 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>
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 .......... $ 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 substantially similar to those of the International Equity
Fund. Performance figures for the period prior to January 1, 1995 have been
calculated 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 substantially
similar to those of the International Bond Fund. Performance figures for
the period prior to January 1, 1995 have been calculated 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 and related derivative securities (options, futures, options on
futures, or swap agreements).

...the Fund may also invest in:

...up to 20% of total assets in stock index options, futures contracts and
options on futures to maintain cash reserves while fully invested, to
facilitate trading, or to reduce transaction costs.

...up to 10% of total assets in index and currency exchange rate swap
agreements.

...foreign currency exchange transactions using currencies, options, futures
or options on futures, or forward contracts for any legally permissible
purpose, including to protect against foreign currency exchange risks
involving securities the Fund owns or plans to own. (See pg. 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 they want to. The Fund would remain
obligated to make margin deposits until it could close the position.

There are no guarantees that hedging transactions or the use of options and
futures will successfully protect investments, or lead to better Fund
performance. In some instances, the Fund may lose money.

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

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:
- --------------------------------------------------------------------------------

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

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.

- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------

...all 500 stocks, in the same proportion as they are represented in the Index,
to the extent feasible.

...at least 80% of total assets, under normal market conditions, in stocks in
the Index and related derivative securities (options, futures, options on
futures, or swap agreements);

...the Fund may also invest in:

...up to 20% of total assets in options and futures contracts to maintain cash
reserves while fully invested, to facilitate trading or to reduce
transaction costs.

...up to 10% of total assets in index swap agreements. (For a description of
"Swap Agreements," see pg. 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.

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

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.

- --------------------------------------------------------------------------------
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 bonds don't have to be in the Index). These debt securities may have fixed,
variable, or floating rates of interest.

...10% to 60% of net assets in selected money market instruments.

Within these constraints, the Fund may also invest:

...up to 20% of total assets in foreign securities (defined as "traded
primarily in a market outside the U.S.") of developed and emerging market
countries.

...up to 10% of total assets in interest rate, index, and currency exchange
rate swap agreements.

...in futures transactions to rebalance 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.

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

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, 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 and member of its Board of Directors
in 1993. Prior to that, he was a portfolio manager and research analyst with
Value Line Inc. Mr. Laplaige has been a portfolio manager of the Value Equity
Fund since the Fund's inception in January 1991.

Mr. 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.

o 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.

...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.

- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------

...at least 80% of total assets, under normal market conditions, in fixed income
securities in the Index and related derivative securities (bond index options,
futures and options on futures; interest rate futures and options on these
contracts; or swap agreements related to fixed-income securities).

...up to 20% of total assets in bond and interest rate index options and futures
and options on these futures to maintain cash reserves while fully invested,
facilitate trading, or reduce transaction costs.

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.

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

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.)

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 and denominated in U.S. dollars or foreign currencies;
certificates of deposit and time deposits issued by savings and loan
associations.

...domestic and foreign corporate debt securities, municipal bonds, zero coupon
bonds and variable or floating rate securities rated Baa or better by Moody's or
BBB or better by S&P when purchased; or, if unrated, 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.

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

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 Fund and may generate 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;

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 and
accepted. (All MainStay Institutional Funds are no load funds and are sold
without a sales charge at the net asset value (NAV) per share. There are ongoing
fees, however, as well as minimum investment amounts.)

The NAV--the price of a share that is used for buying and selling--is determined
once each day at the close of the New York Stock Exchange (4:00 p.m. Eastern
time) for each Fund except for the Money Market Fund, which is determined at
noon.

NAV is calculated by:

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.

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

[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.

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

For your convenience and to save money, certificates for shares will usually not
be issued.

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

[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. (See pg. 1,
"Read This!," for the wire address.)

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.

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.

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

[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 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 _______ Fund; New York Life owned a
controlling interest of the _______ Fund; and MacKay-Shields owned a controlling
interest of the _______ 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
- --------------------------------------------------------------------------------

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 or to defer
recognition of a gain or loss for federal income tax purposes on the security
owned by the Fund. 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

46
<PAGE>

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.

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

- --------------------------------------------------------------------------------
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 ______, 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 the Sub-Advisory Agreement on behalf of each Fund, 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 securi-

49
<PAGE>

ty 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 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 ____, 1997

- --------------------------------------------------------------------------------
Institutional Service Class

- --------------------------------------------------------------------------------
Read This!
- --------------------------------------------------------------------------------

MainStay Institutional Funds Inc.
Box 461
Parsippany, NJ 07054-0461

or visit our website at:

http://www.mainstayfunds.com

MainStay Institutional Funds offers 11 no-load mutual funds with a broad range
of investment choices.

Growth Equity Fund ...................................................... 20

Indexed Equity Fund ..................................................... 21

International Equity Fund ............................................... 22

Multi-Asset Fund ........................................................ 23

Value Equity Fund ....................................................... 24

- --------------------------------------------------------------------------------
Fixed Income
- --------------------------------------------------------------------------------
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?
- --------------------------------------------------------------------------------

A Quick Overview: Understanding MainStay Institutional Funds ................4-5

- --------------------------------------------------------------------------------
Tell Me The Key Facts
- --------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------
Tell Me The Details
- --------------------------------------------------------------------------------

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

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

- ----
2
- ----

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
- ----

Understand the ongoing fees.

(See the Examples beginning on pg. 6, "Analyze the Costs of Investing: Ongoing
Fees," for your Fund's ongoing fees and the impact of those costs on a $1,000
investment.)

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

- ----
7
- ----

- --------------------------------------------------------------------------------
Ongoing fees

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

(To learn more, see pg. 48, "Manager and Sub-Advisers.")

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

- ----
8
- ----

- --------------------------------------------------------------------------------
Earn dividends and capital gains

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

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

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

(To learn more, see pgs. 34-35, "Know How to Sell and Exchange Shares.")

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

4
<PAGE>

- ----
4
- ----

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.

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
- ----

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.

(To learn more, see pgs. 32-33, "Open an Account and Buy Shares.")

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

- ----
10
- ----

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

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

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

Why read about costs?

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

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.

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

[ARROW] Take note:

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

6
<PAGE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .66%+
Other Expenses
Shareholder Service Fees .25
Other .28
----
Total Other Expenses .53
----
Total Fund Operating Expenses* 1.19%
====
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 12
After 3 years $ 38
After 5 years $ 66(a)
After 10 years $145
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$34.50 management fees
12.50 shareholder service fees
19.00 other
-------------------------------
$66.00 total fund operating
expenses
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees .85%+
Other Expenses
Shareholder Service Fees .25
Other .07
----
Total Other Expenses .32
----
Total Fund Operating Expenses 1.17%
====
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 12
After 3 years $ 37
After 5 years $ 65
After 10 years $143
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$44.00 management fees
12.50 shareholder service fees
8.50 other
-------------------------------
$65.00 total fund operating
expenses
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .21%+
Other Expenses
Shareholder Service Fees .25
Other .09
----
Total Other Expenses .34
----
Total Fund Operating Expenses* .55%
====
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 6
After 3 years $18
After 5 years $31(a)
After 10 years $69
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$12.00 management fees
12.50 shareholder service fees
6.50 other
-------------------------------
$31.00 total fund operating
expenses
</TABLE>

7
<PAGE>

- --------------------------------------------------------------------------------
Operating Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .78%+
Other Expenses
Shareholder Service Fees .25
Other .22
----
Total Other Expenses .47
----
Total Fund Operating Expenses* 1.25%
====
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 13
After 3 years $ 40
After 5 years $ 69(a)
After 10 years $152
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$40.50 management fees
12.50 shareholder service fees
16.00 other
-------------------------------
$69.00 total fund operating
expenses
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees .65%+
Other Expenses
Shareholder Service Fees .25
Other .10
----
Total Other Expenses .35
----
Total Fund Operating Expenses 1.00%
====
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 10
After 3 years $ 32
After 5 years $ 55
After 10 years $123
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$34.00 management fees
12.50 shareholder service fees
8.50 other
-------------------------------
$55.00 total fund operating
expenses
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees .85%+
Other Expenses
Shareholder Service Fees .25
Other .07
----
Total Other Expenses .32
----
Total Fund Operating Expenses 1.17%
====
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 12
After 3 years $ 37
After 5 years $ 65
After 10 years $143
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$44.00 management fees
12.50 shareholder service fees
8.50 other
-------------------------------
$65.00 total fund operating
expenses
</TABLE>

8
<PAGE>

- --------------------------------------------------------------------------------
Operating Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .64%+
Other Expenses
Shareholder Service Fees .25
Other .11
----
Total Other Expenses .36
----
Total Fund Operating Expenses* 1.00%
====
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 10
After 3 years $ 32
After 5 years $ 55(a)
After 10 years $123
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$32.50 management fees
12.50 shareholder service fees
10.00 other
-------------------------------
$55.00 total fund operating
expenses
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .35%+
Other Expenses
Shareholder Service Fees .25
Other .15
----
Total Other Expenses .40
----
Total Fund Operating Expenses* .75%
====
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 8
After 3 years $24
After 5 years $42(a)
After 10 years $93
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$19.00 management fees
12.50 shareholder service fees
10.50 other
-------------------------------
$42.00 total fund operating
expenses
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .67%+
Other Expenses
Shareholder Service Fees .25
Other .28
----
Total Other Expenses .53
----
Total Fund Operating Expenses* 1.20%
====
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 12
After 3 years $ 38
After 5 years $ 66(a)
After 10 years $146
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$34.00 management fees
12.50 shareholder service fees
19.50 other
-------------------------------
$66.00 total fund operating
expenses
</TABLE>

9
<PAGE>

- --------------------------------------------------------------------------------
Operating Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses None

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .33%+
Other Expenses
Shareholder Service Fees .25
Other .17
----
Total Other Expenses .42
----
Total Fund Operating Expenses* .75%
====
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 8
After 3 years $24
After 5 years $42(a)
After 10 years $93
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$18.00 management fees
12.50 shareholder service fees
11.50 other
-------------------------------
$42.00 total fund operating
expenses
</TABLE>

Annual Fund Operating Expenses
(as a percentage of average daily net assets)

Management Fees
(reflecting expense limitations) .41%+
Other Expenses
Shareholder Service Fees .25
Other .19
----
Total Other Expenses .44
----
Total Fund Operating Expenses* .85%
====
</TABLE>

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

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
After 1 year $ 9
After 3 years $ 27
After 5 years $ 47(a)
After 10 years $105
</TABLE>

If you invest $1,000 today, 5 years from now you would have paid:

[THE FOLLOWING TABLE WAS REPRESENTED AS BOTH A PIE CHART
AND TABLE IN THE PRINTED REPORT]

<TABLE>
<S> <C>
$21.00 management fees
12.50 shareholder service fees
13.50 other
-------------------------------
$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--.__%; International Equity
Fund--.__%; Bond Fund--.__%; Indexed Bond Fund--.__%; International Bond Fund--
.__%; Money Market Fund--.__%; and Short-Term Bond Fund--.__%. 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 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 .__%.

(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 _______, 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%(b) 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%+ 1.18%
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>
- ----------

(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 substantially similar to those of the International Equity
Fund. Performance figures for the period prior to January 1, 1995 have been
calculated 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 substantially
similar to those of the International Bond Fund. Performance figures for
the period prior to January 1, 1995 have been calculated 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>

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

The EAFE Index is a capitalization-weighted index of approximately 1,200
equities (stocks and stock-related securities) from countries outside the United
States.

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

WHO'S MANAGING
YOUR MONEY?

JAMES A. MEHLING OF MONITOR
CAPITAL ADVISORS, INC.

- --------------------------------------------------------------------------------
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 and related derivative securities (options, futures, options on
futures, or swap agreements).

...the Fund may also invest in:

...up to 20% of total assets in stock index options, futures contracts and
options on futures to maintain cash reserves while fully invested, to
facilitate trading, or to reduce transaction costs.

...up to 10% of total assets in index and currency exchange rate swap
agreements.

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.")

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

19
<PAGE>

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.

- --------------------------------------------------------------------------------
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.

...the Fund may also 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.")

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

20
<PAGE>

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

WHO'S MANAGING YOUR MONEY?

JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.

- --------------------------------------------------------------------------------
The Fund invests in:
- --------------------------------------------------------------------------------

...all 500 stocks, in the same proportion as they are represented in the Index,
to the extent feasible.

...at least 80% of total assets, under normal market conditions, in stocks in
the Index and related derivative securities (options, futures, options on
futures, or swap agreements);

...the Fund may also invest in:

...up to 20% of total assets in options and futures contracts to maintain cash
reserves while fully invested, to facilitate trading or to reduce
transaction costs.

...up to 10% of total assets in index swap agreements. (For a description of
"Swap Agreements," see pg. 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.")

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

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>

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.

...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.")

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22
<PAGE>

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WHO'S MANAGING YOUR MONEY?

JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.

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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 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.

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23
<PAGE>

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.

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WHO'S MANAGING YOUR MONEY?

DENIS P. LAPLAIGE AND JEFFREY A. SIMON OF MACKAY-SHIELDS FINANCIAL CORPORATION.

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The Fund invests in:
- --------------------------------------------------------------------------------

...the Fund may also invest in:

...stock index futures contracts and related options to protect against changes
in stock prices.

...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.")

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24
<PAGE>

to seek to maximize total return, consistent with liquidity, low risk to
principal and investment in debt securities.

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WHO'S MANAGING YOUR MONEY?

RAVI AKHOURY AND EDWARD J. MUNSHOWER OF MACKAY-SHIELDS FINANCIAL CORPORATION.

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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 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

...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.

...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.")

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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.

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<PAGE>

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

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.

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.

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WHO'S MANAGING YOUR MONEY?

JAMES A. MEHLING OF MONITOR CAPITAL ADVISORS, INC.

Mr. Mehling is President and Chief Investment Officer of Monitor 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.

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The Fund invests in:
- --------------------------------------------------------------------------------

...at least 80% of total assets, under normal market conditions, in fixed
income securities in the Index and related derivative securities (bond index
options, futures and options on futures; interest rate futures and options on
these contracts; or swap agreements related to fixed-income securities).

...up to 20% of total assets in bond and interest rate index options and
futures and options on these futures to maintain cash reserves while fully
invested, facilitate trading, or reduce transaction costs.

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.")

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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.

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26
<PAGE>

to seek to provide total return by investing primarily in a portfolio of
non-U.S. (primarily government) debt securities.

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WHO'S MANAGING YOUR MONEY?

JOSEPH PORTERA OF MACKAY-SHIELDS FINANCIAL CORPORATION.

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The Fund invests in:
- --------------------------------------------------------------------------------

...any debt or debt-related investment, domestic or foreign, denominated in
foreign or U.S. currency.

...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:

...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.")

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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.

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27
<PAGE>

to seek to provide a high level of current income while preserving capital and
maintaining liquidity.

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WHO'S MANAGING YOUR MONEY?

DAVID CLEMENT OF NEW YORK LIFE INSURANCE COMPANY.

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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 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.

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28
<PAGE>

to seek to maximize total return, consistent with liquidity, preservation of
capital and investment in short-term debt securities.

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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.

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The Fund invests in:
- --------------------------------------------------------------------------------

...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.