<PAGE> 1
As filed with the Securities and Exchange Commission on September 25, 1998
File No. 33-36962
File No. 811-6175
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ X ]
Post-Effective Amendment No. 19 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
Amendment No. 21 [ X ]
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MAINSTAY 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) 576-8149
--------------
(Registrant's Telephone Number, including Area Code)
Sara L. Badler, 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
1775 Eye Street, N.W.
Washington, D.C. 20006
[ 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.
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MAINSTAY INSTITUTIONAL FUNDS INC.
CROSS REFERENCE SHEET
This registration statement contains a separate Prospectus and Statement
of Additional Information for the Asset Management Money Fund, a separate class
of shares of the Money Market Fund series of the Registrant. This amendment to
the registration statement does not, however, effect the separate Prospectuses
for the Institutional Class Shares, the Institutional Service Class Shares, and
the Money Market Fund's Institutional Service Class Shares, nor does it effect
the combined Statement of Additional Information for those Shares. The
cross-references listed below are applicable to the Prospectus and Statement of
Additional Information of the Asset Management Money Fund.
Items Required by Form N-1A
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Item Number in Part A Prospectus Caption
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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
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6. Capital Stock and Other Tell Me The Key Facts -
Securities Understand the Tax
Consequences; Tell Me The
Details - The Company;
Portfolio Transactions
7. Purchase of Securities Tell Me The Key Facts -
Being Offered Open an Account and Buy
Shares
8. Redemption or Repurchase Tell Me The Key Facts -
Know How to Sell Shares
9. Pending Legal Proceedings Not Applicable
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Statement of Additional
Item Number in Part B Information Caption
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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 Additional Investment
Policies of the Money
Market Fund; Investment
Objectives and Policies;
Investment 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
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20. Tax Status Tax Information
21. Underwriters Management of the Company
22. Calculations of Performance Performance Information
Data
23. Financial Statements Other Information -
Financial Statements
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Asset Management Money Fund Prospectus November , 1998
The Asset Management Money Fund (the "Sweep Shares") is a separate class of the
Money Market Fund (the "Fund"), which is a separate series of MainStay
Institutional Funds Inc. The Fund seeks to provide a high level of current
income while preserving capital and maintaining liquidity.
Read This!
THIS FUND IS NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. The
Sweep Shares 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 FUND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL (SEE
"DESCRIPTION OF INVESTMENTS AND INVESTMENT PRACTICES" ON PAGE 12).
NO GUARANTEES. There can be no assurance that the investment objective of the
Fund will be achieved. All mutual funds involve risk, including the potential to
lose some or all of your original investment. FURTHERMORE, ALTHOUGH THE 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.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Please read this Prospectus carefully before you invest, and keep it for
future reference. It includes information you should know before investing. We
hope you will easily find and understand the information you need. For more
details, write to NYLIFE Distributors Inc., 300 Interpace Parkway, Parsippany,
NJ 07054 or call 1-800-695-2126 for a free copy of the Statement of Additional
Information (SAI) dated November , 1998 (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.
WHAT'S INSIDE?
TELL ME QUICKLY PAGE
The Fund.......................................................................1
TELL ME THE KEY FACTS
Analyze the Costs of Investing: Ongoing Fees...................................2
If You Invest $1,000 You Might Pay.............................................2
Description of the Fund........................................................4
General Investment Considerations..............................................5
Open an Account and Buy Shares...............................................6-7
Know How to Sell Shares........................................................7
Your Earnings..................................................................8
Understand the Tax Consequences................................................8
Know Who You're Investing With..............................................9-10
Know Your Rights as a Shareholder.............................................11
TELL ME THE DETAILS
The Company...................................................................12
Description of Investments and Investment Practices...........................12
Manager and Sub-Adviser.......................................................14
Portfolio Transactions........................................................15
Other Information.............................................................15
Appendix A: Description of Short-Term Securities Ratings......................16
<PAGE> 6
Tell Me The Key Facts
Analyze the Costs of Investing: Ongoing Fees
To help you understand the costs of investing in the Fund, we've provided
expense information based on estimated expenses for the Sweep Shares for the
current fiscal year. You should only use these figures as estimates of what you
might actually pay.
ONGOING FEES
The 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 Fund's total assets. (See
pg. 14, "Manager and Sub-Adviser" for further details.)
EXPENSES HAVE BEEN CAPPED
The Fund's manager has voluntarily agreed to limit the Fund's total expenses.
This expense limitation has the effect of lowering the Fund's total operating
expenses and increasing its earnings. (See pg. 15, "Voluntary Expense
Limitation," for more on the limitation for the Fund.)
The manager may end or revise the voluntary expense limitation at any time. If
this occurs, the Fund's expenses may increase and its earnings may be reduced,
depending on its total assets. (See pg. 15, "Voluntary Expense Limitation," for
more on the limitation for the Fund.)
ACCOUNT REPRESENTATIVES
Account representatives 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 account representative about these fees and conditions.
WHY READ ABOUT COSTS?
Costs are important since they may lower your earnings. For example, a Fund
with higher costs must perform better just to equal the return of a Fund with
lower costs. All things being equal, therefore, a lower-cost Fund will begin
with an advantage. Lower fees alone, however, will not guarantee better total
return performance.
If You Invest $1,000 You Might Pay . . .
The "Example" on the following page is provided to help you understand the
various costs and expenses that an investor in the Sweep Shares will bear
directly or indirectly.
The example on page 3 is 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. The 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 CHART, THEREFORE, DO NOT NECESSARILY REPRESENT HOW YOUR INVESTMENT
WILL PERFORM. THEY ARE STRICTLY HYPOTHETICAL EXAMPLES.
> TAKE NOTE:
We have also assumed that total Fund operating expenses remain the same each
year, and that the voluntary expense limitation would apply for all periods.
Without the limitation, your expenses would generally be higher. The Fund's
manager may end or revise these limitations at any time.
2
<PAGE> 7
Operating Expenses Example
SWEEP SHARES
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SHAREHOLDER TRANSACTION EXPENSES None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Management Fees* (after fee waivers) .39%
----
Other Expenses+
Shareholder Service Fees .25
Distribution (Rule 12b-1) Fees .25
Other .11
----
Total Other Expenses* .61
----
Total Fund Operating Expenses* (after
fee waivers) 1.00%
====
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After 1 year $ 10
After 3 years $ 32
After 5 years $ 55(a)
After 10 years $ 122
IF YOU INVEST $1,000 TODAY, 5 YEARS FROM NOW YOU
WOULD HAVE PAID:
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[PIE CHART]
$22 management fees
14 Rule 12b-1 fees
14 shareholder service fees
5 other
--------------------------------------------------
$55 total fund operating expenses
+"Other Expenses" is based on estimated amounts for the current fiscal year.
*MainStay Management, Inc., as the Fund's manager, has voluntarily agreed to
waive a portion of the fees otherwise payable to it under the terms of the
Fund's Management Agreement (up to the amount of such fees) to the extent
necessary to limit the total operating expenses for the Sweep Shares to the
amount shown above. These expenses are described under "Tell Me The
Details--Manager and Sub-Adviser." Absent the voluntary fee waiver, estimated
total Fund operating expenses for the Sweep Shares would be 1.11%. Absent the
voluntary fee waiver, Fund management fees would be 0.50%.
(a) If the voluntary fee waiver were not applied, the expenses for each period
would generally be higher. For example, the expenses for the Fund for the
five-year period would be $61.
3
<PAGE> 8
Manager: MainStay
Money Market Fund
Management, Inc.
The Fund's objective is:
Sub-Adviser: New York
Life Insurance Company
to seek to provide a high level of current income
while preserving capital and maintaining liquidity.
- --------------------------------------------------------------------------------
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. ALTHOUGH THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE (NAV)
OF $1 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT
WILL SUCCEED IN DOING SO.
The Fund invests in:
...HIGH QUALITY, SHORT-TERM SECURITIES
(that mature within 397 days) denominated
in U.S. dollars, including obligations
issued or guaranteed by the U.S.
Government or any of its agencies or
instrumentalities, foreign securities,
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.)
-------------------------------------------------------------------------
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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).
4
<PAGE> 9
General Investment Considerations
SOME IMPORTANT POINTS TO UNDERSTAND ABOUT INVESTING IN THE FUND.
> INVESTMENT OBJECTIVE:
There cannot be any assurance that the Fund will achieve its investment
objective. The investment objective of the 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 FUND MAY:
- - borrow up to 15% of total assets;
- - lend its securities to brokers, dealers and other financial institutions to
earn income;
- - buy securities on a when-issued, firm, or standby commitment basis. The market
value of these securities may change prior to their delivery to the Fund;
- - invest in high quality commercial paper;
- - invest in repurchase agreements, and enter into reverse repurchase agreements,
which can create leverage and increase the Fund's investment risk; and
- - invest in loan participation interests which involve certain risks, including
credit and liquidity risks. (See pg. 13, "Loan Participation Interests" for
further details.)
INVESTMENTS IN ILLIQUID AND RESTRICTED SECURITIES
The Fund has a nonfundamental policy that it will not invest more than 10% of
its net assets in "illiquid" securities. These are securities subject to legal
or contractual restrictions on resale (other than restricted securities eligible
for resale pursuant to Rule 144A or Section 4(l) under the Securities Act of
1933 ("1933 Act") determined to be liquid pursuant to procedures established by
the Board of Directors), repurchase agreements maturing in more than seven days,
certain options traded over the counter or other securities which legally or in
the opinion of the sub-adviser are deemed illiquid.
There may be undesirable delays and added costs in selling restricted
securities.
FEATURES OF DEBT SECURITIES
The Fund invests primarily in debt securities. Debt securities may have fixed,
variable or floating rates of interest.
5
<PAGE> 10
Open an Account . . .
WHO SHOULD READ THIS SECTION
If you are participating in an account sweep arrangement with a financial
institution, that institution will provide you with the information you need
to open an account and buy Sweep Shares.
WHO MAY BUY SWEEP SHARES
You are eligible to buy Sweep Shares if you are a customer of a financial
institution that has made arrangements with NYLIFE Distributors for the purchase
of Sweep Shares.
HOW TO OPEN AN ACCOUNT
You should speak to your account representative at your financial institution to
open an account in the Fund in conjunction with your brokerage account.
A financial institution will establish a single omnibus account with the Fund's
transfer agent on behalf of its clients. You should read this prospectus along
with the financial institution's agreement or literature describing its services
(including sweep arrangements with the Fund) and fees charged by the financial
institution. (See the SAI for more information on the purchase and redemption of
Sweep Shares.)
. . . and Buy Shares
MINIMUM AMOUNT FOR INVESTMENT
Your financial institution will establish a single omnibus account for their
clients with the Fund.
The minimum required investment by a financial institution is:
- - Initial combined investment--at least $250,000, which may be spread over a
thirteen-month period after opening the account.
- - Each investment after that--at least $1,000.
Please check with your registered representative for investment minimums and/or
other requirements that may apply to brokerage or other accounts through which
you are invested in the Sweep Shares.
For your convenience and to save money, certificates for shares will usually
not be issued.
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.
6
<PAGE> 11
BUY SHARES
Shares (and fractions of shares) are purchased 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, generally $1.00, will be the next NAV that is set after the order is
received from your financial institution in proper form.
The NAV -- the price of a share that is used for buying and selling -- is
determined once each day at 11:00 a.m. Eastern time. It is intended that the
Fund will maintain a stable NAV of $1.00.
The Fund's NAV is calculated by using the amortized cost method of valuation.
(See the SAI for the full details on calculating NAV.)
Know How to Sell Shares
Check with your account representative for information on how your Sweep Shares
may be redeemed (sold).
Generally, if your financial institution offers an automatic sweep arrangement,
the sweep will automatically transfer from your Fund account sufficient amounts
to cover security purchases in your brokerage account.
The price of each share will be the next NAV determined after receipt of a
redemption request. The Fund imposes no charge for selling your shares. You
should check with your account representative to determine if your financial
institution imposes a charge for selling shares.
7
<PAGE> 12
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 money market fund generally earns interest from its
investments. A mutual fund, however, always pays this income to you as
"dividends."
WHEN THE FUND PAYS
The Fund declares dividends daily and pays them monthly.
The Sweep Shares begin earning dividends the business day the transfer agent
receives an investment in U.S. dollars by 11:00 a.m. Eastern time.
CAPITAL GAINS
The Fund will distribute all, or almost all, of its net capital gains at least
once a year.
REINVESTMENT OF EARNINGS
Your earnings will automatically be reinvested in Sweep Shares.
Understand the Tax Consequences
The Fund intends to be treated as a regulated investment company under
subchapter M of the Internal Revenue Code. As a regulated investment company, it
is required to distribute at least 90% of its:
- - net taxable income;
- - net short-term capital gains; and
- - 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.
The Fund may pay dividends in January that were declared in 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.
> 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.
8
<PAGE> 13
Know Who You're Investing With
WHO WORKS TO PROTECT YOUR INTERESTS?
THE BOARD OF DIRECTORS oversees the Fund. 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 Fund. Other than
serving as Directors, most of the Board members have no affiliation with the
Company or its service providers. Information relating to the Directors and
officers appears under the heading "Management of the Company" in the SAI.
WHO RUNS THE FUND'S DAY-TO-DAY BUSINESS?
MainStay Management, Inc., 300 Interpace Parkway, Parsippany, NJ 07054, serves
as manager for the Fund, handling its business affairs. 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 Fund with office facilities and with
ordinary clerical, bookkeeping and recordkeeping services. The manager has
delegated its portfolio management responsibilities to the sub-adviser.
The manager pays the salaries and expenses of all personnel affiliated with the
Fund and all the operational expenses that are not the responsibility of the
Fund, including the fees that are paid to the sub-adviser. For its services, the
Fund pays the manager a monthly fee. (See pg. 14, "Manager and Sub-Adviser", and
the SAI for more details.)
WHO MANAGES YOUR MONEY?
New York Life Insurance Company, 51 Madison Avenue, New York, New York 10010,
serves as the Fund's sub-adviser. Under the supervision of the Company's
Directors and in accordance with the Fund's investment objective and investment
policies, the sub-adviser is 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.
New York Life Insurance Company is a mutual life insurance company organized
under the laws of the State of New York. Authorized to conduct business as a
life insurance company since 1845, it offers a complete line of life insurance
policies and annuity contracts, as well as financial and retirement contracts.
As of December 31, 1997, New York Life had total assets of approximately $84
billion and managed approximately $24 billion in assets for qualified retirement
plans. (See pg. 14, "Manager and Sub-Adviser"--"The Sub-Adviser" for an
explanation of the fees paid to the sub-adviser by the manager.)
9
<PAGE> 14
WHO DISTRIBUTES THE FUND?
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 Fund's
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 Fund. As compensation for account sweep and
other distribution-related services, the Fund pays a monthly fee to NYLIFE
Distributors, NYLIFE Securities or other financial institutions. (See pg. 14,
"Manager and Sub-Adviser--Distribution and Shareholder Service Plans")
WHO PROVIDES CUSTOMER SERVICE AND MAINTAINS
FINANCIAL RECORDS?
MAINSTAY SHAREHOLDER SERVICES INC. (MSS) is the Fund's Transfer, Dividend
Disbursing and Shareholder Servicing Agent. MSS, whose address is 260 Cherry
Hill Road, Parsippany, NJ 07054, is an indirect wholly owned subsidiary of New
York Life Insurance Company. MSS provides customer service, is responsible for
preparing and sending statements, confirms and checks, and keeps certain
financial and accounting records. MSS has entered into an agreement with Boston
Financial Data Services (BFDS), whose address is 2 Heritage Drive, North Quincy,
MA 02171. BFDS will perform certain of the services for which MSS is
responsible. In addition, the Fund may contract with other service
organizations, including broker-dealers and other financial institutions, which
will establish a single omnibus account for their clients with the Fund. The
service organizations will provide shareholder services to the shareholders
within the omnibus accounts and receive fees for those services from the Fund.
THE BANK OF NEW YORK (BONY) is custodian of the Fund's investments and has
subcustodial agreements for holding the Fund's foreign investments. BONY is at
90 Washington Street, New York, NY 10286.
10
<PAGE> 15
Know Your Rights as a Shareholder
YOU HAVE THE RIGHT TO ASK ANY QUESTIONS.
If you have a question about the Fund, you should:
- - call 1-800-695-2126 (between 8:30 a.m. and 5:00 p.m. Eastern time), or
- - write to:
MAINSTAY INSTITUTIONAL FUNDS INC.
BOX 461
PARSIPPANY, NJ 07054-0461
If you have a question about your account, you should call your account
representative.
THE RIGHT TO RECEIVE INFORMATION ABOUT YOUR INVESTMENT
You will receive periodic statements covering the Fund, including the number and
value of shares, dividends declared or paid and other information from your
financial institution.
PERIODIC STATEMENTS.
The transactions that were made with the Fund on your behalf will be reflected
on the periodic statements that you receive from your financial institution.
FINANCIAL REPORTS.
You will receive an annual financial statement for the Fund, audited by the
Fund's independent accountants. You will also receive semiannual statements
which are unaudited.
Each financial report shows:
- - the investments owned by the Fund,
- - the market value of each investment, and
- - other financial information.
> TAKE NOTE:
Keep your statements. You may need them for tax reporting purposes.
Be alert: Mistakes can happen. Always review your statements immediately.
THE RIGHT TO HAVE ONE SHARE, ONE VOTE
Every share issued by the Fund carries equal ownership rights. By owning shares
on your behalf, your financial institution is entitled to vote on certain issues
and policies regarding the Fund or class of shares. There is one vote per share.
You have a right to approve any changes in fundamental investment restrictions
or objectives of the Fund, and you have the right to approve the adoption of any
new management agreement, sub-advisory agreement or plan of distribution.
THE RIGHT TO ATTEND MEETINGS
Although the Company doesn't intend to hold annual shareholder meetings, NYLIFE
Securities, or another financial institution, as shareholder, has the right to
call a meeting of shareholders for the purpose of voting on removing a Director
for cause. Removing a Director requires the approval of a majority of the
outstanding shares of the Company. Generally, shareholder meetings are only held
when the Directors recommend an action which requires shareholder approval.
11
<PAGE> 16
Tell Me The Details
THE COMPANY
The Company is registered with the SEC as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
Registration involves no supervision of management of the Company by the SEC.
The Company currently has eleven Funds. Each Fund has a different investment
objective which it pursues through separate investment policies. The Company was
incorporated under the laws of the State of Maryland on September 21, 1990.
The Fund is a diversified investment company under the 1940 Act.
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 September 1, 1998, New York Life Trust Company and the Northern Trust
Company as Trustee for Baker Hughes Thrift Plan own a controlling interest (as
that term is defined under the 1940 Act) of the Money Market Fund.
DESCRIPTION OF INVESTMENTS AND
INVESTMENT PRACTICES
Investment restrictions that appear below or elsewhere in this Prospectus that
involve a maximum percentage of securities or assets shall not be considered to
be violated unless an excess over the percentage occurs immediately after, and
is caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by or on behalf of the Fund. For more information about the Fund's
investments, investment practices and investment restrictions, including those
described in this section, please see the SAI.
BANKING INDUSTRY OBLIGATIONS
The Fund may invest in certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks.
BORROWING
The Fund may borrow from a bank up to a limit of 15% of its total assets, but
only for temporary or emergency purposes. Money borrowed will be subject to
interest costs (which may include commitment fees and/or the cost of maintaining
minimum average balances). The Fund will repay any money borrowed from a bank in
excess of 5% of its total assets prior to purchasing additional securities.
CORPORATE DEBT SECURITIES
The Fund's investments in U.S. dollar denominated corporate debt securities of
domestic or foreign issuers are limited to corporate debt securities (corporate
bonds, debentures, notes, commercial paper and other similar corporate debt
instruments) which meet the credit quality and maturity criteria of the Fund.
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 the Fund and not for purposes of leveraging the
Fund's assets. However, the Fund will not accrue any income on these securities
prior to delivery. There is a risk that a party with whom the Fund has entered
into such
12
<PAGE> 17
transactions will not perform its commitment, which could result in a gain or
loss to the Fund.
FLOATERS
The 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. To
be an eligible investment for the Fund, there must be a reasonable expectation
that, at any time until the final maturity of the floater or the period
remaining until the principal amount can be recovered through demand, the market
value of a floater will approximate its amortized cost.
GOVERNMENT SECURITIES
Government securities are obligations of, or guaranteed by, the U.S. government
or its agencies or instrumentalities.
LENDING OF PORTFOLIO SECURITIES
The 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 the
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, the Fund's
sub-adviser will consider all relevant facts and circumstances, including the
creditworthiness of the borrower.
LOAN PARTICIPATION INTERESTS
The Fund 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.
The Fund's investments in loan participation interests will be subject to its
limitation on investments in illiquid securities.
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. The Fund may incur additional credit risk,
however, when it is in the position of participant rather than 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. The Fund may only invest in
mortgage-backed and asset-backed securities that meet the requirements of Rule
2a-7 under the 1940 Act.
REPURCHASE AGREEMENTS AND
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, which entail the purchase of a
portfolio eligible security from a bank or broker-dealer that agrees to
repurchase the security at the Fund's cost plus interest within a specified time
(normally one day).
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers, which
13
<PAGE> 18
involves the sale of a security by the 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. The 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 the Fund creates leverage which
increases the 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 will increase faster than otherwise would be
the case; conversely, if the income and gains fail to exceed the costs, earnings
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 Fund to enter into repurchase agreements
with such sellers. If the other party to a repurchase agreement were to become
bankrupt, the Fund could experience delays in recovering its investment or
losses.
RESTRICTED SECURITIES
To the extent that it invests in restricted securities, the Fund may be exposed
to additional risks. "Restricted" securities are those securities which have not
been registered under the 1933 Act. 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.
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.
MANAGER AND SUB-ADVISER
THE MANAGER
MainStay Management, Inc. serves as the Fund's manager pursuant to a Management
Agreement dated November 21, 1997 between MainStay Management, Inc. and the
Company. Under the Management Agreement, the manager is responsible for the
Company's business affairs, subject to the supervision of the Company's
Directors. The manager, among other things, furnishes the Fund with office
facilities and with ordinary clerical, bookkeeping and recordkeeping services.
The manager may consult with or utilize the services of its affiliated companies
to assist the manager in carrying out its responsibilities to the Company.
In connection with its administration of the business affairs of the Fund, 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
Fund's sub-adviser; and
2. all expenses incurred by the manager in connection with administering the
ordinary course of the Fund's business, other than those assumed by the Company.
As compensation for these services, the 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 of 0.50%.
THE SUB-ADVISER
As compensation for services, the manager, not the Fund, pays the Fund's
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 of 0.10%.
DISTRIBUTION AND SHAREHOLDER
SERVICES PLANS
The Company has adopted a Plan of Distribution ("Distribution Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to the Sweep Shares. Under the terms
of the Distribution Plan, the Fund is authorized to pay to NYLIFE Distributors,
NYLIFE Securities, or any other broker-dealer or financial institution, as
compensation for certain account sweep and/or other
14
<PAGE> 19
distribution-related services rendered to the Sweep Shares, a distribution fee
at the rate of 0.25% on an annualized basis of the average daily net assets of
the Sweep Shares. The Company has also adopted a Shareholder Services Plan with
respect to the Sweep Shares (the "Plan"). Under the terms of the Plan, the Fund
is authorized to pay to New York Life, as compensation for service activities
rendered by New York Life, its affiliates or independent third-party service
providers, to the shareholders of the Sweep Shares, a shareholder services fee
at the rate of 0.25% on an annualized basis of the average daily net asset value
of the Sweep Shares.
The Fund may pay to service agents "service fees" as that term is defined in the
rules of the National Association of Securities Dealers, Inc. (the "NASD") for
services provided to shareholders of the Sweep Shares. These fees are for
personal services, including assistance in establishing and maintaining
shareholder accounts and assisting shareholders that have questions or other
needs relating to their accounts. (For a more complete description of the
Distribution Plan and the Plan and their terms, see the SAI.)
VOLUNTARY EXPENSE LIMITATION
The manager has voluntarily agreed to limit the total expenses (excluding
interest, taxes, brokerage commissions, litigation and indemnification expenses,
and other extraordinary expenses and any class-specific expenses) of the Sweep
Shares to an annual rate of 1.00% of average daily net assets. This expense
limitation may be amended or terminated at any time. As long as this temporary
expense limitation continues, it may lower the Fund's expenses and increase its
yield. If the voluntary expense limitation is terminated or revised, the Fund's
expenses may increase and its yield may be reduced, depending on the total
assets of the Fund.
PORTFOLIO TRANSACTIONS
Pursuant to the Fund's Sub-Advisory Agreement, the 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 the Fund, the Fund's
sub-adviser will seek the best price and execution of the Fund's orders. In
doing so, the Fund may pay higher commission rates than the lowest available
when the Fund's sub-adviser believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. Consistent with the foregoing primary consideration, the Rules
of Fair Practice of the NASD and such other policies as the Directors may
determine, the Fund's sub-adviser may consider sales of shares of the Fund as a
factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. NYLIFE Securities Inc. may act as a broker for the Company in
accordance with applicable regulation.
Some securities considered for investment by the Fund may also be appropriate
for other clients served by the Fund's sub-adviser. If a purchase or sale of
securities consistent with the investment policies of the 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 Fund and the clients by the Fund's sub-adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Fund's sub-adviser, and the results of such
allocations, are subject to periodic review by the Company's Directors.
OTHER INFORMATION
The services provided to the Fund by the manager, the sub-adviser and the Fund's
other service providers are dependent on those service providers' computer
systems. Many computer software and hardware systems in use today cannot
distinguish between the year 2000 and the year 1900 because of the way dates are
encoded and calculated (the "Year 2000 Issue"). The failure to make this
distinction could have a negative implication on handling securities
15
<PAGE> 20
trades, pricing and account services. The manager, the sub-adviser and the
Fund's other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. The Fund has no reason to believe these steps will not be
sufficient to avoid any material adverse impact on the Fund, although there can
be no assurances. The costs or consequences of incomplete or untimely resolution
of the Year 2000 Issue are unknown to the manager, the sub-adviser and the
Fund's other service providers at this time but could have a material adverse
impact on the operations of the Fund and the manager, the sub-adviser and the
Fund's other service providers.
APPENDIX A
DESCRIPTION OF SHORT-TERM
SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
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, unless explicitly noted.
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.
STANDARD & POOR'S
A-1: A short-term obligation rated "A-1" is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which
16
<PAGE> 21
could lead to the obligor's inadequate capacity to meet its financial commitment
on the obligation.
C: A short-term obligation rated "C" is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
17
<PAGE> 22
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus and in the related Statement of Additional Information, in connection
with the offer contained in this Prospectus, and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Company or the Distributor. This Prospectus and the related Statement of
Additional Information do not constitute an offer by the Company or by the
Distributor to sell or a solicitation of any offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
<PAGE> 23
Asset Management Money Fund
Distributed by NYLIFE Distributors Inc,
Member NASD
300 Interpace Parkway, Building A
Parsippany, NJ 07054
AMMF-1198
ASSET
MANAGEMENT
MONEY FUND
------------------------------------------------------
PROSPECTUS DATED
NOVEMBER , 1998
<PAGE> 24
MAINSTAY INSTITUTIONAL FUNDS INC.
ASSET MANAGEMENT MONEY FUND
STATEMENT OF ADDITIONAL INFORMATION
DATE: NOVEMBER __, 1998
MainStay Institutional Funds Inc. (the "Company") is an open-end
management investment company currently consisting of eleven separate investment
portfolios, one of which is the Money Market Fund (the "Fund"). This Statement
of Additional Information discusses the Asset Management Money Fund (the "Sweep
Shares"), a class of shares offered by the Fund.
This Statement of Additional Information supplements the information
contained in the Prospectus for the Sweep Shares dated November ___, 1998 (the
"Prospectus"), and should be read in conjunction with the Prospectus. The
Prospectus is available without charge by writing to MainStay Institutional
Funds Inc., P.O. Box 461, Parsippany, New Jersey 07054-0461, or by calling
1-800-695-2126. This Statement of Additional Information, although not in itself
a prospectus, is incorporated in its entirety by reference in and is made a part
of the Prospectus.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, in connection with the
offer contained herein, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund or
NY Life Distributors, Inc. (the "Distributor"). This Statement of Additional
Information and the Prospectus do not constitute an offer by the Company or by
the Distributor to sell or a solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES............................................... 1
Borrowing ........................................................ 4
Commercial Paper.................................................... 4
Repurchase Agreements and Reverse Repurchase
Agreements.............................................. 5
Government Securities............................................... 6
Lending of Portfolio Securities..................................... 6
Banking Industry and Savings and Loan Industry
Obligations............................................. 7
Floating and Variable Rate Securities............................... 7
Foreign Securities.................................................. 8
When-Issued and Firm or Standby Commitment Agreements............... 9
Mortgage-Related and Other Asset-Backed Securities.................. 9
Loan Participation Interests........................................ 17
Zero Coupon Bonds................................................... 19
INVESTMENT RESTRICTIONS......................................................... 20
MANAGEMENT OF THE COMPANY....................................................... 24
Directors and Officers.............................................. 24
Compensation Table.................................................. 27
Management Agreement................................................ 27
Sub-Advisory Agreement.............................................. 28
Distributor ........................................................ 30
Service Fees........................................................ 30
Distribution Fees................................................... 31
PURCHASES AND REDEMPTIONS....................................................... 32
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................ 33
NET ASSET VALUE................................................................. 35
TAX INFORMATION................................................................. 35
PERFORMANCE INFORMATION......................................................... 41
OTHER INFORMATION............................................................... 42
Capitalization...................................................... 42
Beneficial Ownership of Shares...................................... 42
Code of Ethics...................................................... 42
Independent Accountants............................................. 42
Legal Counsel....................................................... 44
Financial Statements................................................ 43
Registration Statement.............................................. 43
</TABLE>
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<PAGE> 26
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the investment objective of the Fund and the
policies to be employed to achieve that objective. This section contains
supplemental information concerning certain of the securities and other
instruments in which the Fund may invest, the investment policies and portfolio
strategies the Fund may utilize, and certain risks involved with those
investments, policies and strategies.
The Fund may invest its assets in U.S. dollar-denominated securities of
U.S. or foreign issuers and in securities of foreign branches of U.S. banks,
such as negotiable certificates of deposit (Eurodollars). Since the portfolio of
the Fund may contain such securities, an investment therein involves investment
risks that are different in some respects from an investment in a fund which
invests only in debt obligations of U.S. domestic issuers. Such risks may
include future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities held in
the portfolio, possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of the
principal of and interest on securities in the portfolio.
All of the assets of the Fund generally will be invested in obligations
which mature in 397 days or less and substantially all of these investments will
be held to maturity; however, securities collateralizing repurchase agreements
may have maturities in excess of 397 days. The Fund will, to the extent
feasible, make portfolio investments primarily in anticipation of or in response
to changing economic and money market conditions and trends. The dollar-weighted
average maturity of the Fund's portfolio may not exceed 90 days. Consistent with
the provisions of Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"), the Fund invests only in U.S. dollar-denominated money market instruments
that present minimal credit risk and, with respect to 95% of its total assets,
measured at the time of investment, that are of the highest quality. The Fund's
sub-adviser, New York Life Insurance Company (the "Sub-Adviser" or "New York
Life"), shall determine whether a security presents minimal credit risk under
procedures adopted by the Company's Board of Directors. A money market
instrument will be considered to be of the highest quality (1) if rated in the
highest rating category (i.e., Aaa or Prime-1 by Moody's, AAA or A-1 by S&P's)
by (i) any two nationally recognized statistical rating organizations ("NRSROs")
or, (ii) if rated by only one NRSRO, by that NRSRO; (2) if issued by an issuer
that has received a short-term rating from an NRSRO with respect to a class of
debt obligations that is comparable in priority and security, and that are rated
in the highest rating category by (i) any two NRSROs or, (ii) if rated by only
one NRSRO, by that NRSRO; (3) an
<PAGE> 27
unrated security that is of comparable quality to a security in the highest
rating category as determined by the Sub-Adviser; (4)(i) with respect to a
security that is subject to any features that entitle the holder, under certain
circumstances, to receive the approximate amortized cost of the underlying
security or securities plus accrued interest "Demand Feature" or obligations of
a person other than the issuer of the security, under certain circumstances, to
undertake to pay the principal amount of the underlying security plus interest
"Guarantee," the Guarantee has received a rating from an NRSRO or the Guarantee
is issued by a guarantor that has received a rating from an NRSRO with respect
to a class of debt obligations that is comparable in priority and security to
the Guarantee, with certain exceptions, and (ii) the issuer of the Demand
Feature or Guarantee, or another institution, has undertaken promptly to notify
the holder of the security in the event that the Demand Feature or Guarantee is
substituted with another Demand Feature or Guarantee; (5) if it is a security
issued by a money market fund registered with the Securities and Exchange
Commission ("SEC") under the 1940 Act; or (6) if it is a Government Security.
With respect to 5% of its total assets, measured at the time of investment, the
Fund may also invest in money market instruments that are in the second-highest
rating category for short-term debt obligations (i.e., rated Aa or Prime-2 by
Moody's or AA or A-2 by S&P).
The Fund may not invest more than 5% of its total assets, measured at
the time of investment, in securities of any one issuer that are of the highest
quality, except that the Fund may exceed this 5% limitation with respect to 25%
of its total assets for up to three business days after the purchase of
securities of any one issuer and except that this limitation shall not apply to
U.S. government securities or securities subject to certain Guarantees.
Immediately after the acquisition of any Demand Feature or Guarantee, the Fund,
with respect to 75% of its total assets, shall not have invested more than 10%
of its assets in securities issued by or subject to Demand Features or
Guarantees from the institution that issued the Demand Feature or Guarantee,
with certain exceptions. In addition, immediately after the acquisition of any
Demand Feature or Guarantee (or a security after giving effect to the Demand
Feature or Guarantee) that is not within the highest rating category by NRSROs,
the Fund shall not have invested more than 5% of its total assets in securities
issued by or subject to Demand Features or Guarantees from the institution that
issued the Demand Feature or Guarantee. The Fund may not invest more than the
greater of 1% of its total assets or one million dollars, measured at the time
of investment, in securities of any one issuer that are in the second-highest
rating category, except that this limitation shall not apply to U.S. government
securities or securities subject to certain Guarantees. In the event that an
instrument acquired by
- 2 -
<PAGE> 28
the Fund is downgraded or otherwise ceases to be of the quality that is eligible
for the Fund, the Sub-Adviser, under procedures approved by the Board, shall
promptly reassess whether such security presents minimal credit risk and shall
recommend to the Valuation Committee of the Board (the "Valuation Committee")
that the Fund take such action as it determines is in the best interest of the
Fund and its shareholders. The Valuation Committee, after consideration of the
recommendation of the Sub-Adviser and such other information as it deems
appropriate, shall cause the Fund to take such action as it deems appropriate,
and shall report promptly to the Board the action it has taken and the reasons
for such action.
Pursuant to the rule, the Fund uses the amortized cost method of valuing
its investments, which facilitates the maintenance of the Fund's per share net
asset value at $1.00. The amortized cost method, which is normally used to value
all of the Fund's portfolio securities, involves initially valuing a security at
its cost and thereafter amortizing to maturity any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument.
The Directors have also established procedures designed to stabilize, to
the extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of the
Fund's portfolio by the Directors, at such intervals as they deem appropriate,
to determine whether the Fund's net asset value calculated by using available
market quotations or market equivalents (the determination of value by reference
to interest rate levels, quotations of comparable securities and other factors)
deviates from $1.00 per share based on amortized cost.
The extent of deviation between the Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be periodically examined by the Directors. If such deviation
exceeds 1/2 of 1%, the Directors will promptly consider what action, if any,
will be initiated. In the event the Directors determine that a deviation exists
which may result in material dilution or other unfair results to investors or
existing shareholders, they will take such corrective action as they regard to
be necessary and appropriate, including the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding part or all of dividends or payment of distributions from
capital or capital gains; redemptions of shares in kind; or establishing a net
asset value per share by using available market quotations or equivalents. In
addition, in order to stabilize the net asset value per share at $1.00, the
Directors have the authority (1) to reduce or
- 3 -
<PAGE> 29
increase the number of shares outstanding on a pro rata basis, and (2) to offset
each shareholder's pro rata portion of the deviation between the net asset value
per share and $1.00 from the shareholder's accrued dividend account or from
future dividends.
The Fund may hold cash for the purpose of stabilizing its net asset
value per share. Holdings of cash, on which no return is earned, would tend to
lower the yield on the Fund's shares.
The Fund may also, consistent with the provisions of the rule, invest in
securities with a face maturity of more than 397 days, provided that the
security is a variable or floating rate security that meets the guidelines of
Rule 2a-7 with respect to maturity.
BORROWING
The Fund may borrow from a bank up to a limit of 15% of its total
assets, but only for temporary or emergency purposes. This borrowing may be
unsecured. The 1940 Act requires the Fund to maintain continuous asset coverage
(that is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, the Fund may be
required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time and could cause
the Fund to be unable to meet certain requirements for qualification as a
regulated investment company for Federal tax purposes. To avoid the potential
leveraging effects of the Fund's borrowings, the Fund will repay any money
borrowed in excess of 5% of its total assets prior to purchasing additional
securities. Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the market value of the Fund's portfolio securities.
Money borrowed will be subject to interest costs which may or may not be
recovered by appreciation of the securities purchased. The Fund also may be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate.
COMMERCIAL PAPER
The Fund may invest in commercial paper. The Fund will invest in
commercial paper only if rated at the time of investment Prime-1 by Moody's or
A-1 by S&P, or, if not rated by Moody's or S&P, if the Sub-Adviser determines
that the commercial
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paper is of comparable quality. Commercial paper represents short-term unsecured
promissory notes issued by banks or bank holding companies, corporations and
finance companies. (See "Appendix A - Description of Short-Term Securities
Ratings" in the Prospectus.)
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
The Fund may enter into domestic or foreign repurchase agreements with
certain sellers deemed to be creditworthy pursuant to guidelines adopted by the
Directors. A repurchase agreement, which provides a means for the Fund to earn
income on uninvested cash for periods as short as overnight, is an arrangement
under which the purchaser (i.e., the Fund) purchases securities (the
"Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. Repurchase agreements with foreign
banks may be available with respect to government securities of the particular
foreign jurisdiction. The custody of the Obligation will be maintained by the
Fund's Custodian. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund together with
the repurchase price upon repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. The Sub-Adviser seeks to minimize the risk
of loss from repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security. However, if the market value of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including accrued interest), the Fund will direct the seller of the Obligation
to deliver additional securities so that the market value of all securities
subject to the repurchase agreement equals or exceeds the repurchase price. The
Fund will not invest more than 10% of its net assets (taken at current market
value) in repurchase agreements maturing in more than seven days.
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers, which involve the sale of a security by the Fund and its
agreement to repurchase the instrument at a
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specified time and price. The Fund will maintain a segregated account consisting
of liquid assets to cover its obligations under reverse repurchase agreements.
The 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 the Fund creates leverage which increases the 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.
GOVERNMENT SECURITIES
Government securities are obligations of, or guaranteed by, the U.S.
government or its agencies or instrumentalities. Some U.S. government
securities, such as Treasury bills, notes and bonds, are supported by the full
faith and credit of the United States; others, such as those of the Federal Home
Loan Bank, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
LENDING OF PORTFOLIO SECURITIES
In accordance with guidelines adopted by the Board of Directors, the
Fund may seek to increase its income by lending portfolio securities. Under
present regulatory policies, such loans may be made to institutions, such as
broker-dealers, and would be required to be secured continuously by collateral
in cash or U.S. Government securities maintained on a current basis at an amount
at least equal to 100% of the current market value of the securities loaned. The
Fund would have the right to call a loan and obtain the securities loaned at any
time generally on less than five days' notice. For the duration of a loan, the
Fund would continue to receive the equivalent of the interest or dividends paid
by the issuer on the securities loaned and would also receive compensation from
the investment of the collateral. The Fund would not, however, have the right to
vote any securities having voting rights during the existence of the loan, but
the Fund would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their consent
on a material matter affecting the investment. The Company, on behalf of the
Fund, has entered into an agency agreement with Merrill Lynch Portfolio
Services,
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Inc. which acts as the Fund's agent in making loans of portfolio securities and
short-term money market investments of the cash collateral received, subject to
the supervision and control of the Sub-Adviser.
As with other extensions of credit, there are risks of delay in recovery
of, or even loss of rights in, the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by a Sub-Adviser to be creditworthy and approved by the Board, and when,
in the judgment of the Sub-Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk. If
the Sub-Adviser determines to make securities loans, it is intended that the
value of the securities loaned would not exceed 33% of the value of the total
assets of the Fund. Under the guidelines adopted by the Board of Directors, the
Fund may not enter into a lending agreement with a counterparty which would
cause the Fund to have loans outstanding to that counterparty for securities
having a value greater than 5% of the Fund's total assets.
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS
Certificates of deposit are receipts from a bank or savings and loan
association ("S&L"), for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally similar
to certificates of deposit, but are uncertificated. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. The Fund may not invest in time deposits
maturing in more than seven days which are subject to withdrawal penalties. The
Fund will limit its investment in time deposits for which there is a penalty for
early withdrawal to 10% of its net assets.
The Fund will not invest in any obligation of a domestic or foreign bank
unless (i) the bank has capital, surplus, and individual profits (as of the date
of the most recently published financial statements) in excess of $100 million,
or the equivalent in other currencies, and (ii) in the case of a U.S. bank, its
deposits are insured by the Federal Deposit Insurance Corporation. These
limitations do not prohibit investments in the securities issued by foreign
branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.
FLOATING AND VARIABLE RATE SECURITIES
Floating and variable rate securities provide for a periodic adjustment
in the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are
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adjusted periodically based upon an interest rate adjustment index as provided
in the respective obligations. The adjustment intervals may be regular, and
range from daily up to annually, or may be event based, such as based on a
change in the prime rate.
The interest rate on a floating rate debt instrument ("floater") is a
variable rate which is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater resets periodically,
typically every six months. While, because of the interest rate reset feature,
floaters provide the Fund with a certain degree of protection against rises in
interest rates, the Fund will participate in any declines in interest rates as
well.
The interest rate on a leveraged inverse floating rate debt instrument
("inverse floater") resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be determined to be illiquid securities for purposes of the
Fund's limitation on investments in such securities.
FOREIGN SECURITIES
The Fund may purchase U.S. dollar-denominated securities of foreign
issuers. Foreign investing involves the possibility of expropriation,
nationalization, confiscatory taxation, foreign taxation of income earned in the
foreign nation (including withholding taxes on interest and dividends) or other
foreign taxes imposed with respect to investments in the foreign nation, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), default in foreign government securities,
political or social instability or diplomatic developments which could affect
investments in securities of issuers in those nations. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. Foreign companies are
not generally subject to uniform accounting and auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to U.S. companies. In many foreign countries, there is less
government supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the United States. Foreign
securities transactions may be subject to higher brokerage and
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custodial costs than domestic securities transactions. In addition, the foreign
securities markets of many of the countries in which the Fund may invest may
also be smaller, less liquid and subject to greater price volatility than those
in the United States.
WHEN-ISSUED AND FIRM OR STANDBY COMMITMENT AGREEMENTS
The Fund may from time to time purchase securities on a "when-issued" or
"firm commitment" or "standby commitment" basis. Debt securities are often
issued in this manner. The price of such securities, which may be expressed in
yield terms, is fixed at the time a commitment to purchase is made, but delivery
of and payment for the when-issued, or firm or standby commitment securities
take place at a later date. Normally, the settlement date occurs within one
month of the purchase. During the period between purchase and settlement, no
payment is made by the Fund and no interest accrues to the Fund. To the extent
that assets of the Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Company's
intention that the Fund will be fully invested to the extent practicable and
subject to the policies stated herein. Although when-issued, or firm or standby
commitment securities may be sold prior to the settlement date, the Company
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons.
At the time the Company makes the commitment on behalf of the Fund to
purchase a security on a when-issued, or firm or standby commitment basis, it
will record the transaction and reflect the amount due and the value of the
security in determining the Fund's net asset value. The market value of the
when-issued, or firm or standby commitment securities may be more or less than
the purchase price payable at the settlement date. The Directors do not believe
that the Fund's net asset value or income will be exposed to additional risk by
the purchase of securities on a when-issued or firm commitment basis. The Fund
will establish a segregated account in which it will maintain liquid assets at
least equal in value to any commitments to purchase securities on a when-issued,
firm, or standby commitment basis. Such segregated securities either will mature
or, if necessary, be sold on or before the settlement date.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
The value of some mortgage-related or asset-backed securities in which
the Fund invests may be particularly sensitive to changes in prevailing interest
rates, and, like the other investments of the Fund, the ability of the Fund to
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successfully utilize these instruments may depend in part upon the ability of an
investment adviser to forecast interest rates and other economic factors
correctly. While principal and interest payments on some mortgage-related
securities may be guaranteed by the U.S. government, government agencies or
other guarantors, the market value of such securities is not guaranteed.
The Fund will invest only in mortgage-related (or other asset-backed)
securities that meet the requirements of Rule 2a-7 under the 1940 Act. In
addition, if any such security is determined to be illiquid, the Fund will limit
its investments in these and other illiquid instruments to not more than 10% of
its net assets.
Mortgage Pass-Through Securities. Mortgage pass-through securities,
which are securities representing interests in pools of mortgage-related
securities, differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of such securities. Additional payments are caused by
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as S&Ls, commercial banks and
mortgage bankers) and backed by pools of Federal Housing Administration-insured
or Veterans Administration-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan
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Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation owned
entirely by private stockholders. It is subject to general regulation by the
Secretary of Housing and Urban Development. FNMA purchases conventional (i.e.,
not insured or guaranteed by any government agency) residential mortgages from a
list of approved seller/servicers which include state and federally chartered
savings and loan associations, mutual savings banks, commercial banks, credit
unions and mortgage bankers. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not
backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Fund's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. Although the market for
such securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Fund to a lower rate
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of return upon reinvestment of principal. Also, if a security subject to
repayment has been purchased at a premium, in the event of prepayment the value
of the premium would be lost. The Fund will not purchase mortgage-related
securities or any other assets which in the opinion of the Sub-Adviser are
illiquid if, as a result, more than 10% of the value of the Fund's net assets
will be illiquid.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between
a mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third-party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
The Fund will not invest in any privately issued CMOs that do not meet
the requirements of Rule 3a-7 under the 1940 Act if, as a result of such
investment, more than 5% of the Fund's net assets would be invested in any one
CMO, more than 10% of the Fund's net assets would be invested in CMOs and other
investment
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company securities in the aggregate, or the Fund would hold more than 3% of any
outstanding issue of CMOs.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt
obligations of FHLMC issued in multiple classes having different maturity dates
which are secured by the pledge of a pool of conventional mortgage loans
purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of Federal Housing Administration ("FHA") prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are
identical to those of FHLMC Pcs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Related Securities. The Sub-Adviser expects that
governmental, government-related or private entities may create mortgage loan
pools and other mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. As new types of mortgage-related securities are developed and
offered to investors, the Sub-Adviser will, consistent with the Fund's
investment objectives, policies and quality standards, consider
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making investments in such new types of mortgage-related securities.
CMO Residuals. CMO residuals are derivative mortgage securities issued
by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks
and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Stripped
Mortgage-Backed Securities." In addition, if a series of a CMO includes a class
that bears interest at an adjustable rate, the yield to maturity on the related
CMO residual will also be extremely sensitive to changes in the level of the
index upon which interest rate adjustments are based. As described below with
respect to stripped mortgage-backed securities, in certain circumstances the
Fund may fail to recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended. CMO
residuals, whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to a
portfolio's limitations on investment in illiquid securities. The Fund limits
its investment in CMO residuals to less than 5% of its net assets.
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Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in these securities
even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Fund's limitations on investment in illiquid securities.
Risks Associated with Mortgage-Backed Securities. Like other fixed
income securities, when interest rates rise the value of a mortgage-related
security generally will decline; however, when interest rates are declining, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed income securities. The value of some mortgage-backed
securities in which the Fund may invest may be particularly sensitive to changes
in prevailing interest rates, and, like the other investments of the Fund, the
ability of the Fund to successfully utilize these instruments may depend in part
upon the ability of the Sub-Adviser to forecast interest rates and other
economic factors correctly. If the Sub-Adviser incorrectly forecasts such
factors and has taken a position in mortgage-backed securities that is or
becomes contrary to
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<PAGE> 41
prevailing market trends, the Fund could be exposed to the
risk of a loss.
Investment in mortgage-backed securities poses several risks, including
prepayment, market, and credit risk. Prepayment risk reflects the chance that
borrowers may prepay their mortgages faster than expected, thereby affecting the
investment's average life and perhaps its yield. Whether or not a mortgage loan
is prepaid is almost entirely controlled by the borrower. Borrowers are most
likely to exercise their prepayment options at a time when it is least
advantageous to investors, generally prepaying mortgages as interest rates fall,
and slowing payments as interest rates rise. Besides the effect of prevailing
interest rates, the rate of prepayment and refinancing of mortgages may also be
affected by home value appreciation, ease of the refinancing process and local
economic conditions.
Market risk reflects the chance that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and the Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.
Credit risk reflects the chance that the Fund may not receive all or
part of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. Government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. Government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions.
Other Asset-Backed Securities. The Sub-Adviser expects that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile Receivabless
("CARSs"). CARSs represent undivided fractional interests in a trust ("trust")
whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARSs are passed-through monthly to
certificate holders, and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the
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<PAGE> 42
trust. An investor's return on CARSs may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the trust may be prevented from realizing the full amount due on a
sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of Federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted.
Consistent with the Fund's investment objective and policies and the
requirements of Rule 2a-7, the Sub-Adviser also may invest in other types of
asset-backed securities. Certain asset-backed securities may present the same
types of risks that may be associated with mortgage-backed securities.
LOAN PARTICIPATION INTERESTS
The Fund's investment in loan participation interests may take the form
of participation interests in, assignments or novations of a corporate loan
("Participation Interests"). The Participation Interests may be acquired from an
agent bank, co-lenders or other holders of Participation Interests
("Participants"). In a novation, the Fund would assume all of the rights of the
lender in a corporate loan, including the right to receive payments of principal
and interest and other amounts directly from the borrower and to enforce its
rights as a lender directly against the borrower. As an alternative, the Fund
may purchase an assignment of all or a portion of a lender's interest in a
corporate loan, in which case, the Fund may be required generally to rely on the
assigning lender to demand payment and enforce its rights against the borrower,
but would otherwise be entitled to all of such lender's rights in the corporate
loan. The Fund also may purchase a Participation Interest in a portion of the
rights of a lender in a corporate loan. In such a case, the Fund will be
entitled to receive payments of principal, interest and fees, if any, but
generally will not be entitled to enforce its rights directly against the agent
bank or the borrower; rather the Fund must rely on the lending institution for
that purpose. The Fund will not act as an agent bank, a guarantor or sole
negotiator of a structure with respect to a corporate loan.
In a typical corporate loan involving the sale of Participation
Interests, the agent bank administers the terms of the corporate loan agreement
and is responsible for the collection of principal and interest and fee payments
to the credit of all lenders which are parties to the corporate loan
- 17 -
<PAGE> 43
agreement. The agent bank in such cases will be qualified under the 1940 Act to
serve as a custodian for a registered investment company such as the Company.
The Fund generally will rely on the agent bank or an intermediate Participant to
collect its portion of the payments on the corporate loan. The agent bank
monitors the value of the collateral and, if the value of the collateral
declines, may take certain action, including accelerating the corporate loan,
giving the borrower an opportunity to provide additional collateral or seeking
other protection for the benefit of the Participants in the corporate loan,
depending on the terms of the corporate loan agreement. Furthermore, unless
under the terms of a participation agreement the Fund has direct recourse
against the borrower (which is unlikely), the Fund will rely on the agent bank
to use appropriate creditor remedies against the borrower. The agent bank also
is responsible for monitoring compliance with covenants contained in the
corporate loan agreement and for notifying holders of corporate loans of any
failures of compliance. Typically, under corporate loan agreements, the agent
bank is given broad discretion in enforcing the corporate loan agreement, and is
obligated to use only the same care it would use in the management of its own
property. For these services, the borrower compensates the agent bank. Such
compensation may include special fees paid on structuring and funding the
corporate loan and other fees paid on a continuing basis.
A financial institution's employment as an agent bank may be terminated
in the event that it fails to observe the requisite standard of care or becomes
insolvent, or has a receiver, conservator, or similar official appointed for it
by the appropriate bank regulatory authority or becomes a debtor in a bankruptcy
proceeding. A successor agent bank generally will be appointed to replace the
terminated bank, and assets held by the agent bank under the corporate loan
agreement should remain available to holders of corporate loans. If, however,
assets held by the agent bank for the benefit of the Fund were determined by an
appropriate regulatory authority or court to be subject to the claims of the
agent bank's general or secured creditors, the Fund might incur certain costs
and delays in realizing payment on a corporate loan, or suffer a loss of
principal and/or interest. In situations involving intermediate Participants
similar risks may arise.
When the Fund acts as co-lender in connection with a Participation
Interest or when the Fund acquires a Participation Interest the terms of which
provide that the Fund will be in privity of contract with the corporate
borrower, the Fund will have direct recourse against the borrower in the event
the borrower fails to pay scheduled principal and interest. In all other cases,
the Fund will look to the agent bank to enforce
- 18 -
<PAGE> 44
appropriate credit remedies against the borrower. In acquiring Participation
Interests the Sub-Adviser will conduct analysis and evaluation of the financial
condition of each such co-lender and participant to ensure that the
Participation Interest meets the Fund's qualitative standards. There is a risk
that there may not be a readily available market for loan Participation
Interests and, in some cases, this could result in the Fund disposing of such
securities at a substantial discount from face value or holding such security
until maturity. When the Fund is required to rely upon a lending institution to
pay the Fund principal, interest, and other amounts received by the lending
institution for the loan participation, the Fund will treat both the borrower
and the lending institution as an "issuer" of the loan participation for
purposes of certain investment restrictions pertaining to the diversification
and concentration of the Fund's portfolio. The Fund considers Participation
Interests not subject to puts to be illiquid.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations issued without any requirement
for the periodic payment of interest. Zero coupon bonds are issued at a
significant discount from the face value. The discount approximates the total
amount of interest the bonds would accrue and compound over the period until
maturity at a rate of interest reflecting the market rate at the time of
issuance. Cash to pay dividends representing unpaid, accrued interest may be
obtained from sales proceeds of portfolio securities and Fund shares and from
loan proceeds. Because interest on zero coupon obligations is not paid to the
Fund on a current basis but is in effect compounded, the value of the securities
of this type is subject to greater fluctuations in response to changing interest
rates than the value of debt obligations which distribute income regularly. Zero
coupon bonds tend to be subject to greater market risk than interest paying
securities of similar maturities. The discount represents income a portion of
which the Fund must accrue and distribute every year
- 19 -
<PAGE> 45
even though the Fund receives no payment on the investment in that year.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions set forth below are fundamental
policies of the Fund; i.e., they may not be changed without a majority vote of
the outstanding shares of the Fund, as defined in the 1940 Act. Except for those
investment policies of the Fund specifically identified as fundamental in the
Prospectus and this Statement of Additional Information, all other investment
policies and practices described may be changed by the Board of Directors
without the approval of shareholders.
Unless otherwise indicated, all of the percentage limitations below, and
in the investment restrictions recited in the Prospectus, apply to the Fund on
an individual basis, and apply only at the time a transaction is entered into.
Accordingly, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in the percentage which results from a
relative change in values will not be considered a violation.
The Fund has adopted a fundamental restriction that it 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 Fund elects to
be so classified and the foregoing limitation shall no longer apply with respect
to the Fund;
(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;
(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;
- 20 -
<PAGE> 46
(4) borrow money or issue senior securities, except that the 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;
(5) lend any funds or other assets, except that the 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;
(6) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein);
(7) purchase or sell commodities or commodities contracts, except that,
subject to restrictions described in the Prospectus and in this Statement of
Additional Information, (i) the Fund may enter into futures contracts on
securities, currencies or on indexes of such securities or currencies, or any
other financial instruments and options on such futures contracts; (ii) the Fund
may enter into spot or forward foreign currency contracts and foreign currency
options; or
(8) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the Federal securities laws.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Unless otherwise indicated, all percentage limitations apply to the Fund
on an individual basis, and apply only at the time a transaction is entered
into. Accordingly, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in the percentage which results from a
relative change in values will not be considered a violation.
- 21 -
<PAGE> 47
Under these restrictions, the Fund may not:
(1) purchase puts, calls, straddles, spreads and any combination thereof
if, as a result, the value of its aggregate investment in such classes of
securities would exceed 5% of its total assets;
(2) purchase securities that may not be sold without first being
registered under the Securities Act of 1933, as amended ("restricted
securities") other than Rule 144A securities and Section 4(2) commercial paper
determined to be liquid pursuant to guidelines adopted by the Company's Board of
Directors; enter into repurchase agreements having a duration of more than seven
days; purchase loan participation interests that are not subject to puts;
purchase instruments lacking readily available market quotations ("illiquid
instruments"); or purchase or sell over-the-counter options, if as a result of
the purchase or sale, the Fund's aggregate holdings of restricted securities,
repurchase agreements having a duration of more than seven days, loan
participation interests that are not subject to puts, illiquid instruments, and
over-the-counter options purchased by the Fund and the assets used as cover for
over-the-counter options written by the Fund exceed 10% of the Fund's net
assets;
(3) invest in other companies for the purpose of exercising control;
(4) purchase the securities of other investment companies, except to the
extent permitted by the 1940 Act or in connection with a merger, consolidation,
acquisition or reorganization;
(5) the Fund may not purchase securities on margin, except that the Fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin;
(6) the Fund may not sell securities short, except for covered short
sales or unless it owns or has the right to obtain securities equivalent in kind
and amount to the securities sold short, and provided that transactions in
options, futures and forward contracts are deemed not to constitute short sales
of securities.
The Directors have the ultimate responsibility for determining whether
specific securities are liquid or illiquid. The Directors have delegated the
function of making day-to-day determinations of liquidity to the Sub-Adviser,
pursuant to guidelines approved by the Directors.
- 22 -
<PAGE> 48
The Sub-Adviser takes into account a number of factors in determining
whether a Rule 144A security being considered for purchase by the Fund is
liquid, including at least the following:
(i) the frequency and size of trades and quotes for the Rule 144A
security relative to the size of the Fund's holding;
(ii) the number of dealers willing to purchase or sell the 144A security
and the number of other potential purchasers;
(iii)dealer undertaking to make a market in the 144A security; and
(iv) the nature of the 144A security and the nature of the market for
the 144A security (i.e., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
To make the determination that an issue of 4(2) commercial paper is liquid, the
Sub-Adviser must conclude that the following conditions have been met:
(a) the 4(2) commercial paper is not traded flat or in default as
to principal or interest;
(b) the 4(2) commercial paper is rated:
(i) in one of the two highest rating categories by at least two NRSROs;
or
(ii) if only one NRSRO rates the security, the 4(2) commercial paper is
rated in one of the two highest rating categories by that NRSRO; or
(iii) if the security is unrated, the Sub-Adviser has determined that
the security is of equivalent quality based on factors commonly used by rating
agencies; and
(c) there is a viable trading market for the specific security,
taking into account all relevant factors (e.g., whether the security is the
subject of a commercial paper program that is administered by an issuing and
paying agent bank and for which there exists a dealer willing to make a market
in the security, the size of trades relative to the size of the Fund's holding
or whether the 4(2) commercial paper is administered by a direct issuer pursuant
to a direct placement program).
- 23 -
<PAGE> 49
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The Directors and Officers of the Company, their addresses, ages and
their principal occupations during the past five years are as follows (unless
otherwise indicated, the address of all persons below is 51 Madison Avenue, New
York, NY 10010):
<TABLE>
<CAPTION>
Name Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------- ---------------- -------------------
<S> <C> <C>
Stephen C. Roussin, 35 Director and Chairperson of the President, Chief Executive Officer and Trustee,
Board of Directors* The MainStay Funds, 1997-present; Senior Vice
President, New York Life Insurance Company, 1997
to present; Senior Vice President, Smith Barney,
1994 to 1997; and Division Sales Manager,
Prudential Securities, 1989 to 1994. Director,
New York Life Trust Company, 1997 to present;
Director, New York Life Benefit Services, Inc.,
1997 to present; Director, NYLIFE Securities,
Inc., 1997 to present; Director, MainStay
Shareholder Services Inc., 1997 to present;
Director, Eagle Strategies Corp., 1997 to
present; Director, President and Chief Executive
Officer, MainStay Management, Inc., 1997 to
present.
Patrick G. Boyle, 44 Director* Senior Vice President, Pension Department, New
York Life Insurance Company, 1991 to present;
Vice President, Pension Department, New York
Life Insurance Company, 1988-1991; Pension Vice
President, Pension Department, New York Life
Insurance Company, 1986-1988; Assistant Vice
President, Pension Department, New York Life
Insurance Company, 1985-1986; Director, NYLIFE
Distributors Inc., 1993 to 1996; Chairman,
Monitor Capital Advisors, Inc., 1996 to present,
and Director, 1991 to present; Director, New
York Life Benefit Services, Inc., 1994 to
present; Director, New York Life International
Investment Inc., 1995 to present; Director, New
York Life Trust Company, 1995 to present;
Director, NYL Capital Management Limited, 1994
to present; Member, American Council of Life
Insurance Pension Committee, 1992 to present.
Lawrence Glacken, 70 Director Retired, 1987 to present; Vice President,
353 Canterbury Drive Investment Banking, The First Boston
Ramsey, NJ 07446 Corporation, 1964-1987.
Robert P. Mulhearn, 51 Director Private Investor, 1987 to present; Managing
60 Twin Brooks Road Director, Morgan Stanley, 1979-1987.
Saddle River, NJ 07458
Susan B. Kerley, 47 Director President, Global Research Associates, 1990 to
P.O. 9572 present; Manager, Special Investments,
New Haven, CT 06535 Rockefeller & Co., 1988-1990; Director of
Research, Rogers, Casey and Barksdale,
1983-1988; Director, Citifunds, 1991 to present.
Linda M. Livornese, 47 President Vice President, Pension Department, New York
Life Insurance Company, 1990 to present; Pension
</TABLE>
- 24 -
<PAGE> 50
<TABLE>
<CAPTION>
Name Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------- ---------------- -------------------
<S> <C> <C>
Vice President, Pension Department, New York
Life Insurance Company, 1988-1990; Assistant
Vice President, Pension Department, New York
Life Insurance Company, 1986-1988; Vice
President, NYLIFE Distributors Inc., 1993 to
present; Vice President, NYLIFE Securities Inc.,
1992 to present.
Jefferson C. Boyce, 41 Senior Vice President Senior Vice President, New York Life Insurance
Company, 1994 to present; Senior Vice President,
The MainStay Funds, 1995 to present; Director,
Monitor Capital Advisors, Inc., 1991 to present
and Senior Vice President, 1996 to present;
Director, MSC Holding, Inc., 1992 to present and
Secretary, 1994 to present; Director, Eagle
Strategies Corp., 1993 to present; Director,
NYLIFE Equity, Inc., 1993 to present; President
and Chief Executive Officer, NYLIFE Distributors
Inc., 1996 to present and Director, 1993 to
present; Director, NYLIFE Inc., 1993 to present;
Director, NYLIFE Structured Asset Management
Company Ltd., 1993 to present; Director, CNP
Realty Investments, Inc., 1994 to present;
Director, New York Life Benefit Services, Inc.,
1994 to present; Director, NYLIFE Depositary
Corporation, 1994 to present; Director, NYLIFE
Realty Inc., 1994 to present; Director, NYLIFE
SFD Holding Inc. (formerly NAFCO, Inc.), 1994 to
present; Director, President and Chief Executive
Officer, NYLIFE Securities Inc., 1996 to
present; Chairman and Director, MainStay
Shareholder Services Inc., 1997 to present;
Chief Administrative Officer, Pension, Mutual
Funds, Structured Finance, Corporate Quality,
Human Resources and Employees' Health
Departments, New York Life Insurance Company,
1992 to 1994; Vice President, Pension
Department, New York Life Insurance Company,
1989 to 1992.
Robert S. Fenster, 48 Vice President Vice President, Pension Department, New York
Life Insurance Company, 1988 to present;
Director New York Life Trust Company, 1995 to
present.
Richard W. Zuccaro, 48 Tax Vice President Vice President, New York Life Insurance Company,
1995 to present; Vice President -- Tax, New York
Life Insurance Company, 1986 to 1995; Tax Vice
President, NYLIFE Securities Inc., 1987 to
present; Tax Vice President, NYLIFE SFD Holding
Inc., 1990 to present; Tax Vice President,
NYLIFE Depositary Inc., 1990 to present; Tax
Vice President, NYLIFE Inc., 1990 to present;
Tax Vice President, NYLIFE Insurance Company of
Arizona, 1990 to present; Tax Vice President,
NYLIFE Realty Inc., 1991 to present; Tax Vice
President, NYLICO Inc., 1991 to present; Tax
Vice President, New York Life Fund Inc., 1991 to
present; Tax Vice President, New York Life
International Investment, Inc., 1991 to present;
Tax Vice President NYLIFE Funding Inc., 1991 to
present; Tax Vice President, NYLCO, 1991 to
present; Tax Vice President, NYLIFE Equity Inc.,
</TABLE>
- 25 -
<PAGE> 51
<TABLE>
<CAPTION>
Name Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------- ---------------- -------------------
<S> <C> <C>
1991 to present; Tax Vice President, MainStay VP
Series Fund, Inc., 1991 to present; Tax Vice
President, CNP Realty Investments, Inc., 1991 to
present; Tax Vice President, New York Life
Worldwide Holding, Inc., 1992 to present; Tax
Vice President, NYLIFE Structured Asset
Management Company Ltd., 1992 to present; Tax
Vice President, The MainStay Funds, 1991 to
present; Tax Vice President, Eagle Strategies
Corp. (registered investment adviser), 1993 to
present; Tax Vice President, NYLIFE Distributors
Inc., 1993 to present; Vice President &
Assistant Controller, New York Life Insurance
and Annuity Corp., 1995 to present, and
Assistant Controller, 1991 to 1995; Vice
President, NYLCare Health Plans, Inc., 1995 to
present; Vice President - Tax, New York Life and
Health Insurance Co., 1996 to present; Tax Vice
President, New York Life Trust Company, 1996 to
present; Tax Vice President, Monitor Capital
Advisors, Inc., 1996 to present; Tax Vice
President, NYLINK Insurance Agency Incorporated,
1996 to present; Tax Vice President, MainStay
Shareholder Services Inc., 1997 to present.
Anthony W. Polis, 55 Treasurer (Principal Financial Vice President, New York Life Insurance Company,
and Accounting Officer) 1988 to present; Director, Vice President and
Chief Financial Officer, NYLIFE Securities
Inc., 1988 to present; Vice President and Chief
Financial Officer, NYLIFE Distributors Inc.,
1993 to present; Vice President and Chief
Financial Officer, Eagle Strategies Corp., 1993
to present; Vice President and Chief Financial
Officer, MainStay Shareholder Services Inc.,
1997 to present; Vice President and Chief
Financial Officer, The MainStay Funds, 1990 to
present; Treasurer, MainStay VP Series Fund,
Inc., 1993 to present; Assistant Treasurer,
MainStay VP Series Fund, Inc., 1992 to 1993;
Vice President and Treasurer, Eclipse Financial
Asset Trust, 1992 to present; Vice President,
Drexel Burnham Lambert Incorporated, DBL
Tax-Free Fund Inc., DBL Cash Fund Inc., The
Drexel Burnham Fund, Drexel Series Trust,
Fenimore International Fund Inc., BT Investment
Trust and BT Tax Free Investment Trust, 1983 to
1988; Assistant Treasurer, Drexel Bond-
Debenture Trading Fund, 1983-1988.
</TABLE>
- 26 -
<PAGE> 52
<TABLE>
<CAPTION>
Name Position(s) with Principal Occupation(s)
Address and Age the Company During Past 5 Years
- --------------- ---------------- -------------------
<S> <C> <C>
Sara L. Badler, 38 Secretary Assistant General Counsel, New York Life
Insurance Company, 1996 to present; Associate
Counsel, New York Life Insurance Company, 1994
to 1996; Secretary, MainStay VP Series Fund,
Inc., 1997 to present; Assistant Secretary, the
MainStay Funds, 1994 to present; Assistant
Secretary, Eclipse Financial Asset Trust, 1994
to present; Teacher, New York City Board of
Education, 1993 to 1994; and Vice President and
Associate Counsel and Consulting Attorney;
Oppenheimer Management Corporation, 1987 to
1993.
</TABLE>
* Messrs. Boyle and Roussin are Directors who are "interested persons" of
the Company as that term is defined in the 1940 Act.
COMPENSATION TABLE
The following table sets forth information regarding compensation
received by the Directors of the Company for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Aggregate Compensation
Name and Position from Company(1)
----------------- ----------------------
<S> <C>
Lawrence Glacken $ 30,000
Director
Robert P. Mulhearn $ 30,000
Director
Susan B. Kerley $ 30,000
Director
</TABLE>
(1) Directors, other than those affiliated with New York Life Insurance
Company, MainStay Management, Inc., MacKay-Shields Financial
Corporation, Monitor Capital Advisors, Inc. or NYLIFE Distributors Inc.
are paid an annual fee of $24,000 and $1,000 for each Board of Directors
meeting and Committee meeting attended plus reimbursement for travel and
out-of-pocket expenses.
As of September 25, 1998, the Directors and Officers of the Company as a group
owned less than 1% of the outstanding shares of any class of the Fund.
- 27 -
<PAGE> 53
MANAGEMENT AGREEMENT
Pursuant to the Management Agreement for the Fund dated November 21,
1997, MainStay Management, Inc. (the "Manager"), subject to the supervision of
the Directors of the Company and in conformity with the stated policies of the
Fund, administers the Fund's business affairs and investment advisory
responsibilities.
The Directors, including the Independent Directors, approved the
Management Agreement at an in-person meeting held on September 9, 1997. On
November 17, 1997, the shareholders of the Fund approved the Management
Agreement. The Management Agreement will remain in effect for two years
following its effective date, and will continue in effect thereafter only if
such continuance is specifically approved at least annually by the Directors or
by a vote of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act and the rules thereunder) and, in either case by a
majority of the Directors who are not "interested persons" of the Company or of
the Manager (as the term is defined in the 1940 Act).
The Manager has authorized any of its directors, officers and employees
who have been elected or appointed as Directors of the Company to serve in the
capacities in which they have been elected or appointed.
The Management Agreement provides that the Manager shall not be liable
to the Fund for any error or judgment by the Manager or for any loss sustained
by the Fund except in the case of the Manager's willful misfeasance, bad faith,
gross negligence or reckless disregard of duty. The Management Agreement also
provides that it shall terminate automatically if assigned and that it may be
terminated without penalty by either party upon no more than 60 days' nor less
than 30 days' written notice.
In connection with its administration of the business affairs of the
Fund, and except as indicated in the Prospectus under the heading "Manager and
Sub-Adviser," the Manager bears the following expenses:
(a) the salaries and expenses of all personnel of the Company and the
Manager, except the fees and expenses of the Directors not affiliated with the
Manager or the Sub-Adviser;
(b) the fees to be paid to the Sub-Adviser pursuant to the Sub-Advisory
Agreement; and
(c) all expenses incurred by the Manager in connection with
administering the ordinary course of the Fund's business, other than those
assumed by the Company.
- 28 -
<PAGE> 54
For its services, the Fund pays the Manager a monthly fee. (See the
Prospectus, "Manager and Sub-Adviser.")
Commencing November 21, 1997 through December 31, 1997, the Fund paid
the Manager advisory fees of $142,675. For the six month period ended June 30,
1998, the Fund paid the Manager advisory fees of $678,166. There were no Sweep
Shares of the Fund outstanding during these periods.
The Manager has agreed to limit certain Fund expenses as discussed in
the Prospectus. In connection with a voluntary expense limitation, the Manager
assumed expenses in the amount of $37,695 for the period November 21, 1997
through December 31, 1997, and $182,640 for the six month period ended June 30,
1998 for the Fund's other classes of shares.
As long as the expense limitation continues, it may lower the Fund's
expenses and increase its yield. The voluntary expense limitation may be
terminated or revised at any time, at which time the Fund's expenses may
increase and its yield may be reduced, depending on the total assets of the
Fund.
SUB-ADVISORY AGREEMENT
Pursuant to the Sub-Advisory Agreement between the Manager and the
Sub-Adviser on behalf of the Fund, the Sub-Adviser, subject to the supervision
of the Directors of the Company and the Manager in conformity with the stated
policies of the Fund and the Company, manages the Fund's portfolio, including
the purchase, retention, disposition and loan of securities.
The Directors, including the Independent Directors, approved the
Sub-Advisory Agreement at an in-person meeting held September 9, 1997. On
November 17, 1997, the shareholders of the Fund approved the Sub-Advisory
Agreement with New York Life. The Sub-Advisory Agreement will remain in effect
for two years following its effective date, and will continue in effect
thereafter only if such continuance is specifically approved at least annually
by the Directors or by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act and the rules thereunder) and, in either
case, by a majority of the Directors who are not "interested persons" of the
Company, the Manager, or the Sub-Adviser (as the term is defined in the 1940
Act).
The Sub-Advisory Agreement provides that the Sub-Adviser shall not be
liable to the Fund for any error of judgment by the Sub-Adviser or for any loss
sustained by the Fund except in the case of the Sub-Adviser's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Sub-Advisory Agreement also provides that it shall terminate automatically if
- 29 -
<PAGE> 55
assigned and that they may be terminated without penalty by either party upon no
more than 60 days' nor less than 30 days' written notice.
In previous years, prior to a change in management structure, the Fund
paid an advisory fee directly to New York Life. For the period January 1, 1997
through November 20, 1997 and the fiscal years ended December 31, 1996 and 1995,
the amount of the advisory fee paid by the Fund to New York Life was $181,674,
$100,230 and $59,918, respectively.
In previous years, prior to a change in management structure, the Fund
paid an administrative fee directly to New York Life as administrator. For the
period January 1, 1997 through November 20, 1997 and the fiscal years ended
December 31, 1996 and 1995, the amount of the administration fee paid by the
Fund to New York Life was $726,696, $400,921 and $239,673, respectively.
Also prior to the above-referenced change in management structure and in
connection with the voluntary expense limitation, New York Life, as
administrator, assumed expenses for the Fund for the period January 1, 1997
through November 20, 1997 and the fiscal years ended December 31, 1996 and 1995
in the amounts of $194,751, $170,221 and $136,576, respectively.
DISTRIBUTOR
NYLIFE Distributors Inc. serves as the Company's distributor and
principal underwriter (the "Distributor") pursuant to a Distribution Agreement,
dated January 1, 1994. Prior to that time, NYLIFE Securities Inc. ("NYLIFE
Securities"), an affiliated company, had acted as principal underwriter. NYLIFE
Securities sells shares of the Fund pursuant to a dealer agreement with the
Distributor. The Distributor is not obligated to sell any specific amount of the
Fund's shares, and receives no compensation from the Company pursuant to the
Distribution Agreement. The Company anticipates making a continuous offering of
the Fund's shares, although it reserves the right to suspend or terminate such
offering at any time. The Distribution Agreement was most recently approved by
the Board of Directors, including a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) of the Company or the
Distributor, on March 4, 1997. After an initial two-year period, the
Distribution Agreement is subject to annual approval by the Board of Directors.
The Distribution Agreement is terminable with respect to the Fund at any time,
without payment of a penalty, by vote of a majority of the Company's Directors
who are not "interested persons" (as defined in the 1940 Act) of the Company,
upon 60 days' written notice to the Distributor, by vote of a
- 30 -
<PAGE> 56
majority of the outstanding voting securities of the Fund, upon 60 days'
written notice to the Distributor, or by the Distributor, upon 60 days' written
notice to the Company. The Distribution Agreement will terminate in the event of
its assignment.
SERVICE FEES
The Company has adopted a Shareholder Services Plan with respect to the
Sweep Shares. Under the terms of the Plan, the Company is permitted to pay, out
of the assets of the Fund attributable to Sweep Shares, a fee in the amount of
0.25% on an annualized basis of the average daily net assets attributable to the
Sweep Shares, to New York Life Insurance Company, its affiliates or independent
third party service providers, for providing services in connection with the
administration of plans or programs that use Fund shares as their funding
medium.
Under the terms of the Shareholder Services Plan, the Fund may pay to
service agents "service fees" as that term is defined in the rules of the
National Association of Securities Dealers for services provided to shareholders
of the Sweep Shares. These fees are for personal services, including assistance
in establishing and maintaining shareholder accounts and assisting shareholders
that have questions or other needs relating to their accounts.
The Plan provides that it may not be amended to materially increase the
costs which holders of Sweep Shares may bear under the Plan without the approval
of a majority of both (i) the Directors of the Company and (ii) those Directors
who are not "interested persons" of the Company (as defined in the 1940 Act) and
who have no direct or indirect financial interest in the operation of the Plan
or any agreements related to it (the "Independent Directors"), cast in person at
a meeting called for the purpose of voting on such amendment, and by a majority
(as defined in the 1940 Act) of the outstanding voting securities of the Sweep
Shares.
The Plan provides that it may not take effect until approved by vote of
a majority of both (i) the Directors of the Company and (ii) the Independent
Directors. The Plan was approved by the Directors, including the Independent
Directors, at a meeting held on September 1, 1998.
The Plan provides that it shall continue in effect so long as such
continuance is specifically approved at least annually by the Directors and the
Independent Directors. The Plan provides that New York Life shall provide to the
Directors, and the Board shall review at least quarterly, a written report of
the amounts
- 31 -
<PAGE> 57
expended in connection with the performance of service activities, and the
purposes for which such expenditures were made.
DISTRIBUTION FEES
The Company has adopted a Rule 12b-1 Plan of Distribution ("12b-1 Plan")
with respect to the Sweep Shares. Under the terms of the 12b-1 Plan, the Company
is permitted to pay, out of the assets of the Fund attributable to Sweep Shares,
a fee at the annual rate of 0.25% of the average daily net assets attributable
to the Sweep Shares, to the Distributor, NYLIFE Securities, Inc. or any other
broker-dealer or other financial institution, for account sweep and other
distribution-related services to the Sweep Shares and for services to
shareholders of the Sweep Shares. The amounts payable under the 12b-1 Plan are
used to support the distribution of Sweep Shares, including the establishment
and operation of account sweep services and any other activities or expenses
primarily intended to result in the sale of Sweep Shares.
The 12b-1 Plan provides that it may not be amended to materially
increase the costs which holders of Sweep Shares may bear under the Plan without
the approval of a majority of both (i) the Directors of the Company and (ii) the
Independent Directors, cast in person at a meeting called for the purpose of
voting on such amendment, and by a majority (as defined in the 1940 Act) of the
outstanding voting securities comprising the Sweep Shares.
The 12b-1 Plan provides that it may not take effect until approved by
vote of a majority of both (i) the Directors of the Company and (ii) the
Independent Directors. The 12b-1 Plan was approved by the Directors, including
the Independent Directors, at a meeting held on September 1, 1998.
The 12b-1 Plan provides that it shall continue in effect so long as such
continuance is specifically approved at least annually by the Directors and the
Independent Directors. The Plan provides that NYLIFE Distributors, Inc. and/or
NYLIFE Securities, Inc. shall provide to the Directors, and the Board shall
review at least quarterly, a written report of the amounts expended under the
12b-1 Plan and the purposes for which such expenditures were made.
ADDITIONAL INFORMATION
Shareholders maintaining Fund accounts through brokerage firms and other
institutions should be aware that such institutions necessarily set deadlines
for receipt of transaction orders from their clients that are earlier than the
transaction times of the Fund itself so that the institutions may properly
process such orders prior to their transmittal to MainStay Shareholder Services.
- 32 -
<PAGE> 58
Should an investor place a transaction order with such an institution after its
deadline, the institution may not effect the order with the Fund until the next
business day. Accordingly, an investor should familiarize himself or herself
with the deadlines set by his or her institution. A brokerage firm acting on
behalf of a customer in connection with transactions in Fund shares is subject
to the same legal obligations imposed on it generally in connection with
transactions in securities for a customer, including the obligation to act
promptly and accurately.
Orders for the purchase of Sweep Shares become effective at the next
transaction time after Federal funds or bank wire monies become available to
MainStay Shareholder Services for a shareholder's investment. Federal funds are
a bank's deposits in a Federal Reserve Bank. These funds can be transferred by
Federal Reserve wire from the account of one member bank to that of another
member bank on the same day and are considered to be immediately available
funds; similar immediate availability is accorded monies received at MainStay
Shareholder Services by bank wire. Money transmitted by a check drawn on a
member of the Federal Reserve System is converted to Federal funds in one
business day following receipt. Checks drawn on banks which are not members of
the Federal Reserve System may take longer. All payments must be in United
States dollars.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus under the
headings "Tell Me The Key Facts -- Open an Account and Buy Shares", and "Know
How to Sell Shares", and that information is incorporated herein by reference.
The Company determines the net asset value per share of the Fund on each
day the New York Stock Exchange is open for trading.
The Company reserves the right to suspend or postpone redemptions during
any period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
For shares of the Fund redeemed within any 90-day period, the Fund
reserves the right to pay the shareholder 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 redeemed above this amount may not
be paid in
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<PAGE> 59
cash, but could be paid 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
redeemed. Even though it is highly unlikely that shares would ever actually be
redeemed in kind, shareholders would probably have to pay transaction costs to
sell the securities distributed in kind, should such a distribution occur.
The Fund has entered into a committed line of credit with The Bank of
New York, as agent, and various other lenders, from whom the Fund may borrow up
to 5% of its net assets in order to honor redemptions. The credit facility is
expected to be utilized in periods when the Fund experiences unusually large
redemption requests.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchases and sales of securities on a securities exchange are effected
by brokers, and the Fund pays a brokerage commission for this service. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are fixed.
In the over-the-counter markets, securities (i.e., municipal bonds and other
debt securities) are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. Transactions in certain
over-the-counter securities also may be effected on an agency basis when the
total price paid (including commission) is equal to or better than the best
total prices available from other sources. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid.
In effecting purchases and sales of portfolio securities for the account
of the Fund, the Sub-Adviser will seek the best execution of the Fund's orders.
The Sub-Adviser attempts to achieve this result by selecting broker-dealers to
execute portfolio transactions on behalf of the Fund and its other clients on
the basis of the broker-dealers' professional capability, the value and quality
of their brokerage services and the level of their brokerage commissions.
NYLIFE Securities (the "Affiliated Broker") may act as broker for the
Fund. In order for the Affiliated Broker to
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<PAGE> 60
effect any portfolio transactions for the Fund on an exchange, the commissions,
fees or other remuneration received by the Affiliated Broker must be reasonable
and fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time. This
standard would allow the Affiliated Broker to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arms-length transaction. The Fund will not deal with the
Affiliated Broker in any portfolio transaction in which the Affiliated Broker
acts as principal.
Some securities considered for investment by the Fund may also be
appropriate for other clients served by the Sub-Adviser. If a purchase or sale
of securities consistent with the investment policies of the Fund and one or
more of the clients served by the Sub-Adviser is considered at or about the same
time, transactions in such securities will, to the extent practicable, be
allocated among the Fund and clients in a manner deemed equitable to the Fund
and the clients by the Sub-Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Sub-Adviser, and the results of such allocations, are subject to periodic review
by the Company's Directors.
It has for many years been a common practice in the investment advisory
business for advisers (or sub-advisers) of investment companies and other
institutional investors to receive research services from broker-dealers which
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, the Sub-Adviser may receive research services from many
broker-dealers with which the Sub-Adviser places the Fund's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Sub-Adviser in advising its various clients (including the Fund),
although not all of these services are necessarily useful and of value in
managing the Fund. The management fee paid by the Fund and the sub-advisory fee
paid by the Manager are not reduced because the Sub-Adviser and its affiliates
receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, an
investment adviser (or sub-adviser) may cause a fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in that Act) to the
investment adviser (or sub-adviser) an amount of disclosed commission for
effecting a
- 35 -
<PAGE> 61
securities transaction for the Fund in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
For the years ended December 31, 1997, 1996 and 1995 the Fund paid no
brokerage commissions on portfolio transactions. There were no Sweep Shares of
the Fund outstanding during these periods.
As of December 31, 1997, the Fund held commercial paper of the following
issuers with whose broker-dealer subsidiaries or affiliates the Fund regularly
conducts business:
<TABLE>
<CAPTION>
Broker-Dealer Market Value
- ------------- ------------
<S> <C>
Goldman, Sachs & Co. $9,838,360
Morgan (J.P.) & Co. Inc. $4,957,747
Morgan Stanley, Dean Witter, Discover & Company $7,928,105
</TABLE>
NET ASSET VALUE
The Company determines the net asset value per share of each class of
the Fund on each day the New York Stock Exchange is open for trading. Net asset
value per share is calculated as of 11:00 a.m.(New York City time) for the Sweep
Shares of the Fund, by dividing the amortized cost of the total assets
attributable to the Sweep Class, less liabilities attributable to that class, by
the total number of outstanding shares of that class.
Portfolio securities of the Fund are valued at their amortized cost,
which does not take into account unrealized securities gains or losses. This
method involves initially valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any premium paid or discount
received. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. During such
periods, the yield to an investor in the Fund may differ somewhat than that
obtained in a similar investment company which uses available market quotations
to value all of its portfolio securities.
To the extent that any newly organized class of shares receives, on or
before December 31, any seed capital, the net asset value of such class(es) will
be calculated as of December 31.
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<PAGE> 62
TAX INFORMATION
The discussion herein relating to taxes is presented for general
informational purposes only. Since the tax laws are complex and tax results can
vary depending upon specific circumstances, investors should consult tax
advisers regarding investment in the Fund.
The Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). If the Fund so qualifies and elects, it generally
will not be subject to Federal income tax on its investment company taxable
income (which includes, among other items, dividends, interest, and the excess,
if any, of net short-term capital gains over net long-term capital losses) and
its net capital gains (net long-term capital gains in excess of net short-term
capital losses) that it distributes to its shareholders.
To qualify for treatment as a regulated investment company, the Fund
generally must, among other things: (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of securities or
foreign currencies, and other income (including gains from certain options,
futures, and forward contracts) derived with respect to its business of
investing in securities or foreign currencies; (b) diversify its holdings so
that at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, cash items, U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies), or of two or more
issuers which the Fund controls and which are engaged in the same or similar
trades or businesses or related trades or businesses; and (c) distribute in each
taxable year at least 90% of its investment company taxable income. If the Fund
does not meet all of these Code requirements, it will be taxed as an ordinary
corporation and its distributions (to the extent of available earnings and
profits) will be taxed to shareholders as ordinary income (except to the extent
a shareholder is exempt from tax).
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<PAGE> 63
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, the Fund must distribute for the calendar
year an amount equal to the sum of (1) at least 98% of its ordinary taxable
income (excluding any capital gains or losses) for the calendar year, (2) at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) for the one-year period ending October 31 of such year,
and (3) all ordinary taxable income and capital gain net income (adjusted for
certain ordinary losses) for previous years that were not distributed during
such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by the Fund in October, November or December of
that year to shareholders on a record date in such a month and paid by the Fund
during January of the following calendar year. Such a distribution will be
includable in the gross income of shareholders in the calendar year in which it
is declared, rather than the calendar year in which it is received.
Distributions of net capital gains, if any, designated by the Fund as
capital gain dividends, will generally be taxable to shareholders as long-term
capital gains, regardless of how long the shareholder has held Fund shares. Net
capital gains from assets held by the Fund for one year or less will be taxed as
ordinary income. All distributions are includable in the gross income of a
shareholder whether reinvested in additional shares or received in cash.
Shareholders will be notified annually as to the Federal tax status of
distributions.
The Fund's distributions with respect to a given taxable year may exceed
its current and accumulated earnings and profits available for distribution. In
that event, distributions in excess of such earnings and profits would be
characterized as a return of capital to shareholders for Federal income tax
purposes, thus reducing each shareholder's cost basis in his Fund shares.
Distributions in excess of a shareholder's cost basis in his shares would be
treated as a gain realized from a sale of such shares.
Upon the taxable disposition (including a sale or redemption) of shares
of the Fund, a shareholder may realize a gain or loss depending generally upon
his basis in his shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of shares of the Fund with respect to which capital gain dividends
have been paid will, to the extent of such capital gain dividends
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<PAGE> 64
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Fund on the reinvestment date.
Foreign investing involves the possibility of confiscatory taxation,
foreign taxation of income earned in the foreign nation (including withholding
taxes on interest and dividends) or other foreign taxes imposed with respect to
investments in the foreign nation.
Some of the debt securities that may be acquired by the Fund may be
treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Fund, original issue
discount on a taxable debt security earned in a given year generally is treated
for Federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any debt security acquired after April
30, 1993 or any taxable debt security acquired prior to May 1, 1993 having
market discount will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of the Fund, at a constant yield to maturity which takes
into account the semi-annual compounding of interest.
If the Fund holds zero coupon bonds in its portfolio it will recognize
income currently for Federal tax purposes in the amount of the unpaid, accrued
interest (determined under tax rules) and generally will be required to
distribute dividends representing
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<PAGE> 65
such income to shareholders currently, even though funds representing such
income have not been received by the Fund.
The Fund may recognize gain from a constructive sale of an "appreciated
financial position" it holds if it enters into a transaction, such as a short
sale against the box, that substantially reduces the risk of loss with respect
to the appreciated position. In that event, the Fund would be treated as if it
had sold and immediately repurchased the property and would be taxed on any gain
(but not loss) from the constructive sale. The character of gain from a
constructive sale would depend upon the Fund's holding period in the property.
Loss from a constructive sale would be recognized when the property was
subsequently disposed of, and its character would depend on the Fund's holding
period and the application of various loss deferral provisions of the Code.
Constructive sale treatment does not apply to transactions closed in the 90-day
period ending with the 30th day after the close of the taxable year, if certain
conditions are met.
The Fund is required to report to the IRS all distributions except in
the case of certain exempt shareholders. All such distribution and redemption
proceeds generally are subject to withholding of Federal income tax at a rate of
31% ("backup withholding") in the case of non-exempt shareholders if (1) the
shareholder fails to furnish the Fund with and to certify the shareholder's
correct taxpayer identification number, (2) the IRS notifies the Fund or
shareholder that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect, or (3)
when required to do so, the shareholder fails to certify that he is not subject
to backup withholding. If the withholding provisions are applicable, any such
distributions, whether reinvested in additional shares or taken in cash, will be
reduced by the amounts required to be withheld. Backup withholding is not an
additional tax and any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability. Investors may wish to consult
their tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Fund also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisers with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisers regarding U.S. and foreign tax
consequences of ownership
- 40 -
<PAGE> 66
of shares of the Fund including the likelihood that distributions to them would
be subject to withholding of U.S. tax at a rate of 30% (or at a lower rate under
a tax treaty).
PERFORMANCE INFORMATION
The Company may, from time to time, include the yield and effective
yield and total return of the Fund in advertisements, sales literature, or
reports to shareholders or prospective investors.
Current yield for the Fund will be based on the change in the value of a
hypothetical investment (exclusive of capital charges) over a particular
seven-day period, less a pro rata share of Fund expenses accrued over that
period (the "base period"), and stated as a percentage of the investment at the
start of the base period (the "base period return"). The base period return is
then annualized by multiplying by 365/7, with the resulting yield figure carried
to at least the nearest hundredth of one percent. "Effective yield" for the Fund
assumes that all dividends received during an annual period have been
reinvested. Calculation of "effective yield" begins with the same "base period
return" used in the calculation of yield, which is then annualized to reflect
weekly compounding pursuant to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
Quotations of average annual total return for the Fund will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Fund or Class over certain periods that will include a period
of one year (or, if less, up to the life of the Fund), calculated pursuant to
the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment
of $1,000, T = the total return for the period, n = the number of periods, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). Quotations of total return may also be shown for other
periods. All total return figures reflect the deduction of a proportional share
of Fund or Class expenses on an annual basis, reflect fee waivers or
reimbursements in effect for each period and assume that all dividends and
distributions are reinvested when paid. Quotations of total return may also be
shown for other periods.
In addition, advertising for the Fund may indicate that investors may
consider diversifying their investment portfolios in order to seek protection of
the value of their assets against inflation. From time to time, advertising
materials for the Fund may refer to or discuss current or past business,
political,
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<PAGE> 67
economic or financial conditions, including events as they relate to
those conditions, such as any U.S. monetary or fiscal policies and the current
rate of inflation. In addition, from time to time, advertising materials for the
Fund may include information concerning retirement and investing for retirement
and may refer to the approximate number of then-current Fund shareholders,
shareholder accounts and Fund assets.
From time to time, advertising and sales literature for the Fund may
discuss the investment philosophy, personnel and assets under management of the
Sub-Adviser, and other pertinent facts relating to the management of the Fund by
the Sub-Adviser.
From time to time the Fund may publish an indication of its past
performance as measured by independent sources such as Lipper Analytical
Services, Incorporated, Weisenberger Investment Companies Service, Donoghue's
Money Fund Report, Spot Market Prices, Barron's, BusinessWeek, Kiplinger's
Personal Finance, Financial World, Forbes, Money, Morningstar, Personal
Investor, Sylvia Porter's Personal Finance, and The Wall Street Journal.
In addition, performance information for the Fund may be compared, in
advertisements, sales literature, and reports to shareholders, to: (i) unmanaged
indexes, such as the Standard & Poor's 500 Composite Stock Price Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Morgan Stanley Capital
International indexes; the Dow Jones Industrial Average, Donoghue Money Market
Institutional Averages, the Merrill Lynch 1 to 3 Year Treasury Index, the
Salomon Brothers World Government Benchmark Bond Index, the Salomon Brothers
non-U.S. Dollar World Government Bond Index, the Lehman Brothers Municipal Bond
Index and the Lehman Brothers Government Corporate Index; (ii) other groups of
mutual funds tracked by Morningstar Inc. or Lipper Analytical Services, widely
used independent research firms which rank mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) and other
measures of the performance of the economy to assess the real rate of return
from an investment in the Fund. Unmanaged indexes may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
From time to time, advertisements for the Fund may include general
information about the services and products offered by the Fund, The MainStay
Funds and New York Life Insurance Company and its subsidiaries. For example,
such advertisements may include statistical information about those entities
including, but not limited to, the number of current shareholder accounts,
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<PAGE> 68
the amount of assets under management, sales information, the distribution
channels through which the entities' products are available, marketing efforts
and statements about this information by the entities' officers, directors and
employees.
OTHER INFORMATION
CAPITALIZATION
The Fund is a separate portfolio of the Company, an open-end management
investment company, incorporated under the laws of Maryland on September 21,
1990. The Company was formerly known as New York Life Institutional Funds Inc.
On January 3, 1995 the name of the Company was changed to its present form. In
addition to the Sweep Shares, the Fund offers two other classes of shares, the
Institutional Class and the Institutional Service Class. The Company also offers
ten other portfolios, each of which has two classes of shares. The Board of
Directors may establish additional portfolios (with different investment
objectives and fundamental policies), and classes thereof, at any time in the
future. Establishment and offering of additional portfolios or classes will not
alter the rights of the Company's shareholders. When issued, shares are fully
paid, non-assessable, redeemable, and freely transferable.
BENEFICIAL OWNERSHIP OF SHARES
As of the date of this Statement of Additional Information, NYLIFE
Distributors owned all of the outstanding Sweep Shares.
CODE OF ETHICS
The Company has adopted a Code of Ethics governing personal trading
activities of all Directors, officers of the Company and persons who, in
connection with their regular functions, play a role in the recommendation of
any purchase or sale of a security by the Company or obtain information
pertaining to such purchase or sale or who have the power to influence the
management or policies of the Company or the Manager or a Sub-Adviser unless
such power is the result of their position with the Company or Manager or
Sub-Adviser. Such persons are generally required to preclear all security
transactions with the Company's Compliance Officer or his designee and to report
all transactions on a regular basis. The Company has developed procedures for
administration of the Code of Ethics.
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<PAGE> 69
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, has been selected as independent accountants of the Company.
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
passes upon certain legal matters in connection with the shares offered by the
Company, and also acts as counsel to the Company.
FINANCIAL STATEMENTS
The Company will furnish to shareholders of Sweep Shares annual reports
containing financial statements audited by independent public accountants and
semi-annual reports containing unaudited financial statements.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Company's registration statement
filed with the SEC under the Securities Act of 1933 with respect to the
securities offered hereby, certain portions of which have been omitted pursuant
to the rules and regulations of the SEC. The registration statement, including
the exhibits filed therewith, may be examined at the offices of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
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<PAGE> 70
MAINSTAY INSTITUTIONAL FUNDS INC.
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C>
a. Financial Statements:
Not Applicable
b. Exhibits:
1. (a) Articles of Incorporation1
(b) Articles Supplementary2
(c) Articles of Amendment4
(d) Form of Articles Supplementary6
(e) Articles of Amendment7
(f) Form of Articles Supplementary
2. By-laws(1)
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
3. Inapplicable
4. Specimen Certificates for Common Stock(3)
5.
(a) Form of (composite) Management Agreement between
MainStay Institutional Funds, Inc., on behalf of
the Bond Fund, EAFE Index Fund, Growth Equity
Fund, Indexed Bond Fund, Indexed Equity Fund,
International Bond Fund, International Equity
Fund, Money Market Fund, Multi-Asset Fund,
Short-Term Bond Fund and Value Equity Fund, and
MainStay Management, Inc.(11)
(b) Form of (composite) Sub-Advisory Agreement between
MainStay Management, Inc., on behalf of the Bond
Fund, Growth Equity Fund, International Bond Fund,
International Equity Fund, Short-Term Bond Fund
and Value Equity Fund, and MacKay-Shields
Financial Corporation.(11)
(c) Form of (composite) Sub-Advisory Agreement between
MainStay Management, Inc., on behalf of the EAFE
Index Fund, Indexed Bond Fund, Indexed Equity Fund
and Multi-Asset Fund, and Monitor Capital
Advisors, Inc.(11)
(d) Form of Sub-Advisory Agreement between MainStay
Management, Inc., on behalf of the Money Market
Fund and New York Life Insurance Company.(11)
6. Distribution Agreement(5)
7. Inapplicable
8. Form of Custodian Contract(6)
9. (a) Form of Transfer Agency and Service Agreement(2)
(b) Form of License Agreement(2)
(c) Form of Service Agreement with New York Life
Benefit Services, Inc.)10)
(d) Form of Service Agreement with New York Life
Insurance Company(10)
10. Opinion and Consent of Counsel
11. Consent of Independent Accountants
12. Annual Reports(12)
13. Initial Subscription Agreement(3)
14. Inapplicable
</TABLE>
C-2
<PAGE> 72
<TABLE>
<S> <C>
15. (a) Form of Account Application(3)
(b) Shareholder Services Plan(10)
(c) Amended and Restated Shareholder Services Plan
(d) Shareholder Services Plan for Asset Managment
Money Fund
(e) Plan of Distribution Pursuant to Rule 12b-1 for
Asset Management Money Fund
16. Inapplicable
17. Financial Data Schedules
18. (a) Multiple Class Plan(11)
(b) Form of Amended and Restated Multiple Class Plan
</TABLE>
- ---------------
1. Filed with Registration Statement No. 33-36962 on September 21, 1990.
2. Filed with Pre-Effective Amendment No. 1 to Registration Statement No.
33-36962 on November 19, 1990.
3. Filed with Pre-Effective Amendment No. 2 to Registration Statement No.
33-36962 on December 26, 1990.
4. Filed with Post-Effective Amendment No. 4 to Registration Statement
No. 33-36962 on November 2, 1992.
5. Filed with Post-Effective Amendment No. 6 to Registration Statement
No. 33-36962 on April 29, 1994.
6. Filed with Post-Effective Amendment No. 7 to Registration Statement
No. 33-36962 on October 14, 1994.
7. Filed with Post-Effective Amendment No. 8 to Registration Statement
No. 33-36962 on December 29, 1994.
8. Filed with Post-Effective Amendment No. 10 to Registration Statement
No. 33-36962 on April 28, 1995.
9. Filed with Post-Effective Amendment No. 12 to Registration Statement
No. 33-36962 on February 28, 1996.
10. Filed with Post-Effective Amendment No. 14 to Registration Statement
No. 33-36962 on May 1, 1997.
11. Filed with Post-Effective Amendment No. 17 to Registration Statement
No. 33-36962 on May 1, 1997.
12. Filed on Form N-30D pursuant to Rule 30d-1 (accession no.
0000950109-98-001634) and incorporated herein by reference.
C-3
<PAGE> 73
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following chart indicates the persons controlled by New York Life:
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name+ Organization Securities Owned
----- ---------------- -----------------
<S> <C> <C>
Eagle Strategies Corporation Arizona 100%
Greystone Realty Corporation which owns 100% Delaware 100%
of the shares of:
Greystone Realty Management, Inc. Delaware 100%
NYLIFE Administration Corp. Texas 100%
MacKay-Shields Financial Corporation Delaware 100%
Madison Square Advisors, Inc. Delaware 100%
MSC Holding, Inc. (formerly Magnus Software Corporation, Inc.) Georgia 85.43%
The Mainstay Funds Massachusetts ***
MainStay Management, Inc. Delaware 100%
MainStay Shareholder Services, Inc. Delaware 100%
Monitor Capital Advisors, Inc. Delaware 100%
NYLIFE SFD Holding, Inc. Delaware
which owns 83.33% of NYLIFE
Structured Asset Management Company Ltd. Texas 100%
New York Life Capital Corporation Delaware 100%
New York Life Insurance and Annuity
Corporation Delaware 100%
New York Life International Investment Inc. Delaware
which owns 100% of the shares of:
Monetary Research Ltd. Bermuda
and 100% of the shares of:
NYL Management Limited England
MainStay VP Series Fund, Inc. Maryland *
New York Life International, Inc. (formerly New York Life Worldwide Holding, Delaware
Inc.), which owns 100% of the shares of:
New York Life Worldwide Capital, Inc. Delaware
New York Life Worldwide Development, Inc. Delaware
New York Life Worldwide (Bermuda) Ltd., which owns 100% of the shares of
New York Life Insurance Worldwide Ltd.
New York Life (U.K.) Ltd., which owns Bermuda
100% of the shares of: England
</TABLE>
C-4
<PAGE> 74
<TABLE>
<S> <C> <C>
Windsor Construction Company Limited England 100%
and 33.3% of Japan Gamma Asset Management Japan
Limited and 31.5% of the shares of:
Life Assurance Holding Corporation Limited, South Korea
which owns 100% of the shares of:
Windsor Life Assurance Company Limited Indonesia
and which owns 51% of the shares of:
KOHAP New York Life Insurance Ltd. Mexico
and which owns 50.2% of the shares of:
P.T. Asuransi Jiwa Sewur - New York
and which owns 49% of the shares of:
GEO New York Life, S.A.
NYLIFE Depositary Corporation which owns 16.67% of Delaware 100%
NYLIFE Structured Asset Management Company Ltd. Texas
New York Life Benefit Services, Inc. which owns 100% of Massachusetts 100%
ADQ Insurance Agency Inc. Massachusetts 100%
New York Life Trust Company New York 100%
NYLIFE Distributors Inc. Delaware 100%
NYLIFE Healthcare Management Inc., which owns 54.3% of
total combined stock and 89.6% of the voting rights of:
Express Scripts, Inc., which owns 100% of the
shares of: Delaware
Great Plains Reinsurance Company Arizona
Practice Patterns Science, Inc. Delaware
ESI Canada Holdings, Inc., which owns 100% of Canada
the shares of:
ESI Canada, Inc. Canada
IVTx of Houston, Inc. Texas
IVTx of Dallas, Inc. Texas
PhyNet, Inc. Texas
Express Scripts Vision Corporation Delaware
and owns 100% of the shares of: Delaware
Avanti Corporate Health Systems Inc. Delaware
Avanti of the District, Inc. Maryland
Avanti of New Jersey, Inc. New Jersey
Maryland
Prime Provider Corp., which owns 100% of the
shares of: New York
Prime Provider Corp. of Texas Texas
</TABLE>
C-5
<PAGE> 75
<TABLE>
<S> <C> <C>
WellPath of Arizona Reinsurance Company Arizona
NYLCare NC Holdings, Inc. which owns 50% of the Delaware
shares of:
WellPath Community Health Plan Holdings, North Carolina
L.L.C. which owns 100% of WPCHP Holdings, Inc.
and 99% of: Delaware
WellPath Preferred Services, L.L.C.
and North Carolina
WellPath Select Holdings, L.L.C., which
owns 100% of: North Carolina
WellPath Select, Inc. North Carolina
WellPath of Carolina, Inc. North Carolina
NYLCare Health Plans of Pennsylvania, Inc. Pennsylvania
Docservo, Inc. New York
New York Life International Investment Asia, Ltd. Mauritius 100%
ETHIX Southeast, Inc. North Carolina
NYLIFE Inc. New York 100%
NYLIFE Insurance Company of Arizona Arizona 100%
NYLIFE Refinery, Inc. Delaware 100%
NYLIFE Securities Inc. New York 100%
</TABLE>
C-6
<PAGE> 76
<TABLE>
<S> <C> <C>
NYLINK Insurance Agency Incorporated Delaware 100%
which owns 100% of the shares of:
NYLINK Insurance Agency of Alabama Alabama
NYLINK Insurance Agency of New Mexico New Mexico
NYLINK Insurance Agency of Hawaii Incorporated Hawaii
NYLINK Insurance Agency of Massachusetts, Massachusetts 100%
Incorporated
NYLTEMPS Inc. Delaware
</TABLE>
+ By including the indicated corporation in this list, New Your life is
not stating or admitting that said corporations are under its actual
control; rather, these corporations are listed here to ensure full
compliance with the requirements of this Form N-1A.
* New York Life serves as investment adviser to this entity the
shares of which are held of record by separate accounts of NYLIAC
(for the MainStay VP Series Fund, Inc.). New York Life disclaims any
beneficial ownership and control of this entity.
** New York Life Foundation does not issue voting securities.
*** MacKay-Shields Financial Corporation and Monitor Capital Advisores,
Inc. serve as sub-advisers to this entity.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of September 1, 1998, the number of record holders of each class of
securities of the Registrant were as follows:
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
- -------------- ------------------------
<S> <C>
Shares of Common Stock:
Bond Fund
Institutional Class 137
Institutional Service Class 58
EAFE Index Fund
Institutional Class 76
Institutional Service Class 45
Growth Equity Fund
Institutional Class 333
Institutional Service Class 292
Indexed Equity Fund
Institutional Class 213
Institutional Service Class 764
Indexed Bond Fund 292
</TABLE>
C-7
<PAGE> 77
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
- -------------- ------------------------
<S> <C>
Institutional Class 80
Institutional Service Class 58
International Bond Fund
Institutional Class 20
Institutional Service Class 24
International Equity Fund
Institutional Class 65
Institutional Service Class 50
Money Market Fund
Institutional Class 171
Institutional Service Class 82
Multi-Asset Fund
Institutional Class 303
Institutional Service Class 213
Short-Term Bond Fund
Institutional Class 117
Institutional Service Class 24
Value Equity Fund
Institutional Class 380
Institutional Service Class 231
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article VI of the Registrant's By-Laws (Exhibit 2),
and Article VII, Section 2 of the Registrant's Articles of Incorporation
(Exhibit 1), which are incorporated by reference herein.
ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISERS
The business of MainStay Management, Inc. is summarized under "Know Who
You're Investing With" in the Prospectus constituting Part A of this
Registration Statement, which summary is incorporated herein by reference.
The business or other connections of each director and officer of
MainStay Management, Inc. is currently listed in the investment adviser
registration on Form ADV for MainStay Management, Inc. (File No. 801-54912) and
is hereby incorporated herein by reference thereto.
C-8
<PAGE> 78
The business of MacKay-Shields Financial Corporation is summarized under
"Who Manages Your Money" in the Prospectus constituting Part A of this
Registration Statement, which summary is incorporated herein by reference.
The business of Monitor Capital Advisors, Inc. is summarized under "Who
Manages Your Money?" in the Prospectus constituting Part A of this Registration
Statement, which summary is incorporated herein by reference.
The business or other connections of each director and officer of
Monitor Capital Advisors, Inc. is currently listed in the investment adviser
registration on Form ADV for Monitor Capital Advisors, Inc. (File No. 801-34412)
and is hereby incorporated herein by reference thereto.
The business of New York Life Insurance Company is summarized under "Who
Manages Your Money?" in the Prospectus constituting Part A of this Registration
Statement, which summary is incorporated herein by reference.
The business or other connections of each director and officer of New
York Life Insurance Company is currently listed in the investment adviser
registration on Form ADV for New York Life Insurance Company (File No.
801-19525) and is hereby incorporated herein by reference thereto.
ITEM 29. PRINCIPAL UNDERWRITERS
a. NYLIFE Distributors Inc. also acts as the principal underwriter for The
MainStay Funds (File No. 33-2610) and NYLIAC Variable Universal Life
Separate Accounts I and II.
<TABLE>
<CAPTION>
b. (3)
(1) (2) Position(s) and Office
Name and Principal Position(s)and Office(s) Office(s) with
Business Address with NYLIFE Distributors Inc. Registrant
---------------- ----------------------------- ----------------------
<S> <C> <C>
Davidson, Sheila Chief Compliance Officer None
51 Madison Avenue
New York, NY 10010
Brady, Robert E. Director and Vice President None
260 Cherry Hill Road
Parsippany, NJ 07054
Boyce, Jefferson C. Director Senior Vice President
51 Madison Avenue
New York, NY 10010
Roussin, Stephen C. Director Director and Chairman
300 Interpace Parkway
Parsippany, NJ 07054
Gallo, Michael G. Director None
51 Madison Avenue
New York, NY 10010
Rock, Robert D. Director None
51 Madison Avenue
</TABLE>
C-9
<PAGE> 79
<TABLE>
<S> <C> <C>
New York, NY 10010
Boccio, Frank M. Director None
51 Madison Avenue
New York, NY 10010
Hildebrand, Phillip J. Director None
51 Madison Avenue
New York, NY 10010
Adasse, Louis H. Corporate Vice President None
51 Madison Avenue,
New York, NY 10010
Polis, Anthony W. Vice President and Treasurer,Chief
300 Interpace Parkway Chief Financial Officer Financial and
Parsippany, NJ 07054 Accounting Officer
Calhoun, Jay S. Vice President and Treasurer None
51 Madison Avenue
New York, NY 10010
Warga, Thomas J. Senior Vice President None
51 Madison Avenue and General Auditor
New York, NY 10010
Livornese, Linda M. Vice President President
51 Madison Avenue
New York, NY 10010
Murray, Thomas J. Corporate Vice President None
51 Madison Avenue
New York, NY 10010
Zuccaro, Richard W. Tax Vice President Tax Vice President
51 Madison Avenue
New York, NY 10010
Krystel, David J. Vice President None
51 Madison Avenue
New York, NY 10010
O'Byrne, John H. Vice President and Chief None
51 Madison Avenue Compliance Officer
New York, NY 10010
Daoust, George R. Assistant Vice President None
300 Interpace Parkway
Parsippany, NJ 07054
Arizmendi, Arphiela Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Cirillo, Antoinette B. Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Lorito, Geraldine Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
Gomez, Mark A. Assistant Secretary None
51 Madison Avenue
New York, NY 10010
Linda E. O'Sullivan Director and Senior Accountant Assitant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054
</TABLE>
c. Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant, and New York Life
Insurance Company, 51 Madison Avenue, New York, NY 10010, at the offices of
MainStay Management, Inc. and NYLIFE Distributors Inc., 300 Interpace Parkway,
Parsippany NJ 07054, at the offices of Monitor Capital Advisors, Inc., 504
Carnegie Center, Princeton, NJ 08540-6242,
C-10
<PAGE> 80
and at the offices of MacKay-Shields Financial Corporation, 9 West 57th Street,
New York, NY 10019. Records relating to the duties of the custodian for the
Funds are maintained by The Bank of New York, 90 Washington Street, New York, NY
10286. Records relating to the duties of the Registrant's transfer agent are
maintained by Boston Financial Data Services, 2 Heritage Drive, North Quincy, MA
02171.
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
ITEM 32. UNDERTAKINGS.
c. The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report
to shareholders upon request and without charge.
C-11
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 19 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York in the State of New York, on the 25th day of September, 1998.
MAINSTAY INSTITUTIONAL FUNDS INC.
By: /s/ Linda M. Livornese
----------------------
Linda M. Livornese
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 19 to the Registrant's Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
- -------------------- Chairperson and September 25, 1998
Stephen C. Roussin* Director
- -------------------- Director September 25, 1998
Patrick G. Boyle*
- -------------------- Director September 25, 1998
Lawrence Glacken*
- -------------------- Director September 25, 1998
Robert P. Mulhearn*
- -------------------- Director September 25, 1998
Susan B. Kerley*
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Linda M. Livornese President September 25, 1998
- ---------------------- (Principal
Linda M. Livornese Executive
Officer)
/s/ Anthony W. Polis Treasurer September 25, 1998
- -------------------- (Principal
Anthony W. Polis Financial
and Accounting
Officer)
</TABLE>
*By: /s/ Jeffrey L. Steele
---------------------
Jeffrey L. Steele
as Attorney-in-Fact
* Powers of Attorney filed with the initial Registration Statement No.
33-36962 on September 21, 1990, with Pre-Effective Amendment No. 2 to
the Registration Statement on December 26, 1990, with Post-Effective
Amendment No. 7 to the Registration Statement on October 14, 1994, and
with Post-Effective Amendment No. 18 to the Registration Statement on
April 30, 1998, incorporated by reference within.
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT ITEM NO.
------- --------
<S> <C>
Articles Supplementary 1(f)
Opinion and Consent of Counsel 10
Consent of Independent Accountants 11
Amended and Restated Shareholder Services Plan 15(c)
Shareholder Services Plan for Asset Management
Money Fund 15(d)
Plan of Distribution Pursuant to Rule 12b-1 for
Asset Management Money Fund 15(e)
Amended and Restated Multiple Class Plan 18(b)
</TABLE>
<PAGE> 1
EXHIBIT 1(f)
MAINSTAY INSTITUTIONAL FUNDS INC.
ARTICLES SUPPLEMENTARY
MainStay Institutional Funds Inc., a Maryland corporation
registered as an open-end company under the Investment Company Act of 1940 and
having its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST: There is hereby established and designated an
additional class of shares of the Money Market Fund, a series
of the Corporation, designated the Asset Management Money
Fund, to which the Board of Directors has allocated FOUR
BILLION (4,000,000,000) of the authorized and unissued shares
of common stock, par value One Cent ($0.01) per share, of the
Corporation, of which TWO BILLION (2,000,000,000) shares had
previously been classified as Money Market Fund Institutional
Class Common Stock and TWO BILLION (2,000,000,000) shares had
previously been classified as Money Market Fund Institutional
Service Class Common Stock.
SECOND: The total number of shares of common stock
authorized for issuance by the Corporation, and the aggregate
par value thereof, is unchanged hereby.
THIRD: The shares of the Corporation classified
pursuant to Article First of these Articles Supplementary have
been so classified by the Board of Directors under the
authority contained in the Charter of the Corporation. The
number of Shares of capital stock of the various classes that
the Corporation has authority to issue has been established by
the Board of Directors in accordance with Section 2-105 of the
Maryland General Corporation Law.
FOURTH: Immediately prior to the effectiveness of the
Articles Supplementary of the Corporation as hereinabove set
forth, the corporation had the authority to issue TWENTY TWO
BILLION (22,000,000,000) shares of the par value of ONE CENT
($.01) per shares and of the aggregate par value of TWO
HUNDRED TWENTY MILLION DOLLARS ($220,000,000), which the Board
of Directors had designated into series and classified the
shares of each series as follows:
<PAGE> 2
Previously Classified Shares
----------------------------
<TABLE>
<CAPTION>
Name of Series and Class Authorized Shares (in millions)
------------------------ -------------------------------
<S> <C>
Bond Fund Institutional 500
Bond Fund Institutional Service 500
EAFE Index Fund Institutional 500
EAFE Index Fund Institutional Service 500
Indexed Bond Fund Institutional 500
Indexed Bond Fund Institutional Service 500
Indexed Equity Fund Institutional 500
Indexed Equity Fund Institutional Service 500
International Bond Fund Institutional 500
International Bond Fund Institutional Service 500
International Equity Fund Institutional 500
International Equity Fund Institutional Service 500
Money Market Fund Institutional 6,000
Money Market Fund Institutional Service 6,000
Multi-Asset Fund Institutional 500
Multi-Asset Fund Institutional Service 500
Short-Term Bond Fund Institutional 500
Short-Term Bond Fund Institutional Service 500
Value Equity Fund Institutional 500
Value Equity Fund Institutional Service 500
Growth Equity Fund Institutional 500
Growth Equity Fund Institutional Service 500
</TABLE>
As amended hereby, the Corporation's Articles of Incorporation
authorize the issuance of TWENTY TWO BILLION (22,000,000,000) shares
of the par value of ONE CENT ($.01) per share and of the aggregate par
value of TWO HUNDRED TWENTY MILLION DOLLARS ($220,000,000), which the
Board of Directors has designated into series and classified the
shares of each series as follows:
Current Classification of Shares
--------------------------------
<TABLE>
<CAPTION>
Name of Series and Class Authorized Shares (in millions)
------------------------ -------------------------------
<S> <C>
Bond Fund Institutional 500
Bond Fund Institutional Service 500
EAFE Index Fund Institutional 500
EAFE Index Fund Institutional Service 500
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Indexed Bond Fund Institutional 500
Indexed Bond Fund Institutional Service 500
Indexed Equity Fund Institutional 500
Indexed Equity Fund Institutional Service 500
International Bond Fund Institutional 500
International Bond Fund Institutional Service 500
International Equity Fund Institutional 500
International Equity Fund Institutional Service 500
Money Market Fund Institutional 4,000
Money Market Fund Institutional Service 4,000
Money Market Fund Asset Management Money Fund 4,000
Multi-Asset Fund Institutional 500
Multi-Asset Fund Institutional Service 500
Short-Term Bond Fund Institutional 500
Short-Term Bond Fund Institutional Service 500
Value Equity Fund Institutional 500
Value Equity Fund Institutional Service 500
Growth Equity Fund Institutional 500
Growth Equity Fund Institutional Service 500
</TABLE>
FIFTH: The preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualification and
terms and conditions of redemption of the three classes of shares
shall be as set forth in the Corporation's Articles of Incorporation,
as amended, and shall be subject to all provisions of the Articles of
Incorporation relating to shares of the Corporation generally, and
those set forth as follows:
(a) The assets belonging to each class of a Series of the
Corporation shall be invested in the same investment portfolio.
(b) The dividends and distributions of investment income
and capital gains with respect to each class shall be in such amounts
as may be declared from time to time by the Board of Directors, and
the dividends and distributions of each class may vary from dividends
and distributions of investment income and capital gains with respect
to the other classes to reflect differing allocations of the expenses
of the Corporation among the holders of the various classes and any
resultant differences in the net asset value per share of the various
classes, to such extent and for such purposes as the Board of
Directors may deem appropriate. The allocation of investment income
or capital gains and expenses and liabilities of the Corporation among
the Institutional Class Shares, Institutional Service Class Shares and
the Asset Management Money Fund shall be determined by the Board of
Directors in a manner that is consistent with the order dated June 6,
1994 (Investment Company Act of 1940 Release No. IC-20336) issued by
the Securities
<PAGE> 4
and Exchange Commission in connection with the application for
exemption filed by New York Life Institutional Funds Inc., et. al.,
and any amendment to such order or any rule or interpretation under
the Investment Company Act of 1940 that modifies or supersedes such
Order.
(c) Institutional Service Class Shares (including
fractional shares) may be subject to a service fee pursuant to the
terms of a Shareholder Services Plan.
(d) Asset Management Money Fund Shares (including
fractional shares) may be subject to a service fee pursuant to the
terms of a Shareholder Services Plan and a distribution fee pursuant
to the terms of a Plan of Distribution Pursuant to Rule 12b-1.
(e) The holders of shares of each class shall have (i)
exclusive voting rights with respect to provisions of any distribution
plan adopted by the Corporation pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (a "Plan") applicable to the respective
class, including the Plan of Distribution Pursuant to Rule 12b-1 of
the Asset Management Money Fund, and (ii) no voting rights with
respect to provisions of any Plan applicable to the other classes or
with regard to any other matter submitted to a vote of shareholders
which does not affect holders of that respective class.
IN WITNESS WHEREOF, MainStay Institutional Funds Inc. has
caused these Articles Supplementary to be signed in its name on its
behalf by its authorized officers who acknowledge that the Articles
Supplementary are the act of the Corporation, that to best of their
knowledge, information and belief, all matters and facts set forth
herein relating to the authorization and approval of these Articles
Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
<TABLE>
<S> <C>
Dated this day of October, 1998.
----
MainStay Institutional Funds Inc.
By:
--------------------
Attest:
- ---------------------
</TABLE>
<PAGE> 1
EXHIBIT 10
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, D.C. 20006
MainStay Institutional Funds Inc.
51 Madison Avenue
New York, New York 10010
Dear Madam or Sir:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of shares (the "Shares") of common stock of the Asset
Management Money Fund, a class of shares offered by the Money Market Fund (the
"Fund"), a series of MainStay Institutional Funds Inc. (the "Company"), we have
examined such matters as we have deemed necessary, and we are of the opinion
that, as permitted by its Articles of Incorporation, and assuming that (i) the
Company files with the Maryland Department of Assessments and Taxation the
Articles Supplementary, a form of which is filed as exhibit 1(f) to
Post-Effective Amendment No. 19 to the Company's Registration Statement on Form
N-1A (the "Amendment"), and (ii) the Company or its agent receives consideration
for such Shares in accordance with the provisions of its Articles of
Incorporation, the Shares will be legally and validly issued, will be fully
paid, and will be non-assessable by the Company.
We hereby consent to the use of this opinion as an exhibit to the
Amendment, and to the use of our name in the prospectus and statement of
additional information contained therein, and any amendments thereto.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
Dechert Price & Rhoads
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Other Information
- -- Independent Accountants" in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 19 to the registration
statement on Form N-1A, dated September 25, 1998.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York
September 25, 1998
<PAGE> 1
EXHIBIT 15(c)
AMENDED AND RESTATED SHAREHOLDER SERVICES PLAN
FOR INSTITUTIONAL SERVICE CLASS SHARES
OF MAINSTAY INSTITUTIONAL FUNDS INC.
WHEREAS, MainStay Institutional Funds Inc. (the "Company") engages in
business as an open-end management investment company and is registered under
the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Company are currently
divided into eleven separate series, including Bond Fund, EAFE Index Fund,
Growth Equity Fund, Indexed Bond Fund, Indexed Equity Fund, International Bond
Fund, International Equity Fund, Money Market Fund, Multi-Asset Fund,
Short-Term Bond Fund and Value Equity Fund (the "Funds");
WHEREAS, shares of the Funds (other than the Money Market Fund) are
issued in two classes, designated the Institutional Class and the Institutional
Service Class, and shares of the Money Market Fund are issued in three classes
designated the Institutional Class, the Institutional Service Class and the
Asset Management Money Fund;
WHEREAS, on behalf of Bond Fund, EAFE Index Fund, Growth Equity Fund,
Indexed Bond Fund, Indexed Equity Fund, International Bond Fund, International
Equity Fund, Money Market Fund, Multi-Asset Fund, Short-Term Bond Fund and
Value Equity Fund, the Company desires to appoint New York Life to provide
certain services to holders of the Institutional Service Class shares of the
Funds under the terms and conditions described herein;
NOW, THEREFORE, the Company hereby adopts this Shareholder Services
Plan (the "Plan"), on behalf of the Institutional Service Class shares of the
Funds, subject to the following terms and conditions:
1. Each Fund is authorized to pay to New York Life Insurance
Company ("New York Life"), as compensation for service activities (as defined
in Paragraph 5 hereof) rendered by New York Life to holders of the
Institutional Service Class shares of a Fund, a shareholder service fee at the
rate of 0.25% on an annualized basis of the average daily net asset value of
Institutional Service Class shares of the Fund (the "Fee"). Such Fee shall be
calculated daily and paid monthly or at such other intervals as the Board shall
determine. New York Life is authorized to pay its affiliates or independent
third party service providers for performing service activities consistent with
this Plan.
2. The Plan shall not take effect with respect to a class of
shares of a Fund until it, together with any related agreements, has been
approved by votes of a majority of both (a) the Directors of the Company and
(b) those Directors of the Company who are not "interested persons" of the
Company (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Plan Directors"), cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related agreements.
<PAGE> 2
3. The Plan shall continue in full force and effect as to a Fund
for so long as such continuance is specifically approved at least annually in
the manner provided for approval of the Plan in Paragraph 2.
4. New York Life shall provide to the Directors of the Company
and the Directors shall review, at least quarterly, a written report of the
amounts expended in connection with its performance of "service activities," as
defined in this Paragraph 4, and the purposes for which such expenditures were
made. New York Life shall submit only information regarding amounts expended
for "service activities" to the Board in support of the Fee payable hereunder.
For purposes of the Plan, "service activities" shall mean those
activities for which a "service fee," as defined by the rules of the National
Association of Securities Dealers Inc., may be paid.
5. The amount of the Fee payable to New York Life under Paragraph
1 hereof is not related directly to expenses incurred by New York Life, its
affiliates, or independent third party service providers on behalf of a Fund in
servicing holders of Institutional Service Class shares of the Fund. The Fee
set forth in Paragraph 1 hereof will be paid by a Fund to New York Life until
the Plan is terminated or not renewed with respect to that Fund. If the Plan
is terminated or not renewed with respect to a Fund, any expenses incurred by
New York Life, its affiliates or independent third party service providers, on
behalf of the Fund in excess of the payments of the Fee specified in Paragraph
1 hereof which New York Life has received or accrued through the termination
date are the sole responsibility and liability of New York Life, and are not
obligations of the Fund.
6. This Plan may be terminated as to any Fund at any time,
without payment of any penalty, by vote of a majority of the Plan Directors or
by a vote of a majority of the outstanding voting securities of the affected
class of a Fund on not more than 30 days' written notice to any other party to
the Plan.
7. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
8. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. The Plan may be amended at any time with respect to a Fund
provided that any amendment to increase materially the amount of the Fee
provided for in Paragraph 1 is invalid and unenforceable unless such amendment
is approved in the manner provided for approval in Paragraph 2 hereof, and by a
majority (as defined in the Act) of the outstanding voting securities
-2-
<PAGE> 3
of the Institutional Service Class of the Fund, and no material amendment to
the Plan shall be made unless approved in the manner provided for approval in
Paragraph 2 hereof.
-3-
<PAGE> 1
EXHIBIT 15(d)
SHAREHOLDER SERVICES PLAN
FOR ASSET MANAGEMENT MONEY FUND SHARES
OF MAINSTAY INSTITUTIONAL FUNDS INC.
MONEY MARKET FUND
WHEREAS, MainStay Institutional Funds Inc. (the "Company") engages in
business as an open-end management investment company and is registered under
the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Company are currently
divided into several separate series, including the Money Market Fund (the
"Fund");
WHEREAS, shares of the Fund are or may be issued in three classes,
designated the Institutional Class, the Institutional Service Class, and the
Asset Management Money Fund ("Sweep Class"), respectively;
WHEREAS, on behalf of the Fund, the Company desires to appoint New
York Life to provide certain services to holders of the Sweep Class shares of
the Fund under the terms and conditions described herein;
NOW, THEREFORE, the Company hereby adopts this Shareholder Services
Plan (the "Plan"), on behalf of the Sweep Class shares of the Fund, subject to
the following terms and conditions:
1. The Fund is authorized to pay to New York Life Insurance
Company ("New York Life"), as compensation for service activities (as defined
in Paragraph 5 hereof) rendered by New York Life to holders of the Sweep Class
shares of the Fund, a shareholder service fee at the rate of 0.25% on an
annualized basis of the average daily net asset value of Sweep Class shares of
the Fund (the "Fee"). Such Fee shall be calculated daily and paid monthly or
at such other intervals as the Board shall determine. New York Life is
authorized to pay its affiliates or independent third party service providers
for performing service activities consistent with this Plan.
2. The Plan shall not take effect with respect to a class of
shares of the Fund until it, together with any related agreements, has been
approved by votes of a majority of both (a) the Directors of the Company and
(b) those Directors of the Company who are not "interested persons" of the
Company (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Plan Directors"), cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related agreements.
3. The Plan shall continue in full force and effect as to the
Fund for so long as such continuance is specifically approved at least annually
in the manner provided for approval of the Plan in Paragraph 2.
<PAGE> 2
4. New York Life shall provide to the Directors of the Company
and the Directors shall review, at least quarterly, a written report of the
amounts expended in connection with its performance of "service activities," as
defined in this paragraph 4, and the purposes for which such expenditures were
made. New York Life shall submit only information regarding amounts expended
for "service activities" to the Board in support of the Fee payable hereunder.
For purposes of the Plan, "service activities" shall mean those
activities for which a "service fee," as defined by the rules of the National
Association of Securities Dealers Inc., may be paid.
5. The amount of the Fee payable to New York Life under Paragraph
1 hereof is not related directly to expenses incurred by New York Life, its
affiliates, or independent third party service providers on behalf of the Fund
in servicing holders of Sweep Class shares of the Fund. The Fee set forth in
Paragraph 1 hereof will be paid by the Fund to New York Life until the Plan is
terminated or not renewed with respect to the Fund. If the Plan is terminated
or not renewed with respect to the Fund, any expenses incurred by New York
Life, its affiliates or independent third party service providers, on behalf of
the Fund in excess of the payments of the Fee specified in Paragraph 1 hereof
which New York Life has received or accrued through the termination date are
the sole responsibility and liability of New York Life, and are not obligations
of the Fund.
6. This Plan may be terminated as to the Fund at any time,
without payment of any penalty, by vote of a majority of the Plan Directors or
by a vote of a majority of the outstanding voting securities of the affected
class of the Fund on not more than 30 days' written notice to any other party
to the Plan.
7. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
8. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. The Plan may be amended at any time with respect to the Fund
provided that any amendment to increase materially the amount of the Fee
provided for in Paragraph 1 is invalid and unenforceable unless such amendment
is approved in the manner provided for initial approval in Paragraph 3 hereof,
and no material amendment to the Plan shall be made unless approved in the
manner provided for approval in Paragraph 3 hereof.
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<PAGE> 1
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
ASSET MANAGEMENT MONEY FUND SHARES
OF MAINSTAY INSTITUTIONAL FUNDS INC.
MONEY MARKET FUND
WHEREAS, MainStay Institutional Funds Inc. (the "Company") engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided
into a number of separate series, including the Money Market Fund (the "Fund");
WHEREAS, the Directors of the Company have determined that there is a
reasonable likelihood that adoption of the Plan of Distribution will benefit
the Company, the Fund and its shareholders;
WHEREAS, the Company employs NYLIFE Distributors Inc. ("NYLIFE
Distributors") as distributor of the securities of which it is the issuer,
including Asset Management Money Fund ("Sweep Class") shares of the Fund; and
WHEREAS, NYLIFE Distributors makes shares of the Sweep Class of the
Fund available to customers of NYLIFE Securities, Inc. ("NYLIFE Securities").
NOW, THEREFORE, the Company hereby adopts on behalf of the Fund, in
accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to NYLIFE Distributors, NYLIFE Securities
or any other broker-dealer or other financial institution, for account sweep
and other distribution-related services to the Sweep Class and for services to
shareholders of the Sweep Class shares of the Fund at the annual rate of 0.25%
of the Fund's average daily net assets of the Fund's Sweep Class shares. Such
fee shall be calculated and accrued daily and paid monthly or at such other
intervals as the Directors shall determine, subject to any applicable
restriction imposed by rules of the National Association of Securities Dealers,
Inc. If this Plan is terminated, the Fund will owe no payments to NYLIFE
Securities other than any portion of the distribution fee accrued through the
effective date of termination but then unpaid.
2. The amount set forth in paragraph 1 of this Plan shall be paid
for services in support of the distribution of Sweep Class shares of the Fund,
including the establishment and operation of account sweep services and any
other activities or expenses primarily intended to result in the sale of Sweep
Class shares of the Fund.
3. This Plan shall not take effect until it, together with any
related agreements, has been approved by votes of a majority of both (a) the
Directors of the Company and (b) those Directors of the Company who are not
"interested persons" of the Company (as defined in the Act) and who have no
direct or indirect financial interest in the operation of this Plan or any
<PAGE> 2
agreements related to it (the "Rule 12b-l Directors"), cast in person at a
meeting (or meetings) called for the purpose of voting on this Plan and such
related agreements.
4. The Plan of Distribution shall continue in full force and
effect as to the Fund for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in paragraph
3.
5. NYLIFE Distributors and/or NYLIFE Securities shall provide to
the Directors of the Company and the Directors shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
6. This Plan may be terminated as to the Fund at any time,
without payment of any penalty, by vote of a majority of the Rule 12b-l
Directors, or by a vote of a majority of the outstanding voting securities of
the affected class of the Fund on not more than 30 days' written notice to any
other party to the Plan.
7. This Plan may not be amended to increase materially the amount
of the compensation provided for in paragraph 1 hereof unless such amendment is
approved by a majority of the outstanding shares of the Sweep Class of the
Fund, as defined in the Act, and no material amendment to the Plan shall be
made unless approved in the manner provided for approval and annual renewal in
paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
9. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
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<PAGE> 1
EXHIBIT 18(b)
AMENDED AND RESTATED
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
FOR
MAINSTAY INSTITUTIONAL FUNDS INC.
BOND FUND
EAPE INDEX FUND
GROWTH EQUITY FUND
INDEXED BOND FUND
INDEXED EQUITY FUND
INTERNATIONAL BOND FUND
INTERNATIONAL EQUITY FUND
MONEY MARKET FUND
MULTI-ASSET FUND
SHORT-TERM BOND FUND
VALUE EQUITY FUND
WHEREAS, MainStay Institutional Funds Inc. (the "Company"), engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided
into a number of separate series, including the BOND FUND; EAFE INDEX FUND;
GROWTH EQUITY FUND; INDEXED BOND FUND; INDEXED EQUITY FUND; INTERNATIONAL BOND
FUND; INTERNATIONAL EQUITY FUND; MONEY MARKET FUND; MULTI-ASSET FUND;
SHORT-TERM BOND FUND; and VALUE EQUITY FUND (the "Funds");
WHEREAS, the Company desires to adopt, on behalf of each of the Funds,
a Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with
respect to each of the Funds;
WHEREAS, pursuant to a Management Agreement dated November 21, 1997,
the Company employs MainStay Management, Inc. as manager for the Funds; and
WHEREAS, pursuant to a Distribution Agreement dated January 1, 1994,
the Company employs NYLIFE Distributors Inc. ("NYLIFE Distributors") as
distributor of the securities of which it is the issuer.
NOW THEREFORE, the Company hereby adopts, on behalf of the Funds, the
Plan, in accordance with Rule 18f-3 under the Act, subject to the following
terms and conditions:
1. FEATURES OF THE CLASSES. Each Fund issues its shares of
common stock in two classes: "Institutional Class" shares and "Institutional
Service Class" shares. The Money Market Fund, in addition to the foregoing
classes, issues a third class of shares: "Asset Management Money Fund" shares.
Shares of each Class of a Fund shall represent an equal pro rata interest in
<PAGE> 2
such Fund, and generally, shall have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (a) each
class shall have a different designation; (b) each class of shares shall bear
any Class Expenses, as defined in Section 3 below; and (c) each class shall
have exclusive voting rights on any matter submitted to shareholders that
relates solely to its service and/or distribution arrangement and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
In addition, each class of shares shall have the features described in Sections
5 and 6 below.
2. SERVICE PLANS. Shares of the Institutional Service class of
each Fund and the Asset Management Money Fund ("Sweep Class") of the Money
Market Fund are offered pursuant to Shareholder Services Plans ("Service
Plans") adopted by the Board of Directors on behalf of each such class.
Shareholders of the Institutional Service Class of each Fund and the Sweep
Class of the Money Market Fund receive additional shareholder services that are
not provided to shareholders of the Institutional Class. The cost of such
services is borne by the shareholders of the Institutional Service Class and
the Sweep Class.
Under each Service Plan, each Fund is authorized to pay to New York
Life Insurance Company ("New York Life"), as compensation for service
activities rendered by New York Life, its affiliates, or independent third
party service providers, to holders of the Institutional Service Class of the
Fund or the Sweep Class shares, a shareholder service fee at the rate of 0.25%
on an annualized basis of the average daily net asset value of the respective
class of shares of the Fund (the "Service Fee").
For purposes of each Service Plan, "service activities" shall mean
those activities for which a "service fee," as defined by the rules of National
Association of Securities Dealers Inc., may be paid.
3. DISTRIBUTION PLAN. Shares of the Sweep Class of the Money
Market Fund are offered pursuant to a Plan of Distribution Pursuant to Rule
12b-1 ("Distribution Plan") adopted by the Board of Directors on behalf of such
class in accordance with Rule 12b-1 under the Act. The Sweep Class receives
certain distribution-related services that are not provided to the
Institutional Class or the Institutional Service Class. The cost of such
services is borne by the shareholders of the Sweep Class.
Under the Distribution Plan, the Money Market Fund is authorized to
pay to NYLIFE Distributors, NYLIFE Securities, Inc. ("NYLIFE Securities"), or
any other broker-dealer or financial institution, as compensation for certain
account sweep and/or other distribution-related services rendered to the Sweep
Class, a distribution fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Sweep Class shares of the Fund (the
"Distribution Fee").
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<PAGE> 3
For purposes of the Distribution Plan, "distribution-related services"
shall mean those services for which a distribution fee may be paid pursuant to
Rule 12b-1 under the Act.
4. ALLOCATION OF INCOME AND EXPENSES. (a) The gross income of
each Fund shall, generally, be allocated to each class on the basis of net
assets. To the extent practicable, certain expenses, (other than Class
Expenses as defined below which shall be allocated more specifically), shall be
subtracted from the gross income on the basis of net assets of each class of
the Fund. These expenses include:
(1) Expenses incurred by the Company (for example fees of
Directors, auditors, and legal counsel) not attributable to a particular Fund
or to a particular class of shares of a Fund ("Corporate Level Expenses"); and
(2) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example, advisory fees, custodial
fees, or other expenses relating to the management of the Fund's assets)("Fund
Expenses").
(b) Expenses attributable to a particular class ("Class
Expenses") shall be limited to: (i) payments made pursuant to a Service Plan or
the Distribution Plan; (ii) transfer agent fees attributable to a specific
class; (iii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders of a specific class; (iv) Blue Sky registration fees
incurred by a class; (v) SEC registration fees incurred by a class; (vi) the
expense of administrative personnel and services to support the shareholders of
a specific class; (vii) litigation or other legal expenses relating solely to
one class; and (viii) Directors' fees incurred as a result of issues relating
solely to one class. Expenses in category (i) above must be allocated to the
class for which such expenses are incurred. All other "Class Expenses" listed
in categories (ii)-(viii) above may be allocated to a class but only if the
President and Treasurer have determined, subject to Board approval or
ratification, which of such categories of expenses will be treated as Class
Expenses, consistent with applicable legal principals under the Act and the
Internal Revenue Code of 1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each class of
shares depending upon the nature of the expense item. Corporate Level Expenses
and Fund Expenses will be allocated among the classes of shares based on their
relative net asset values. Approved Class Expenses shall be allocated to the
particular class to which they are attributable. In addition, certain expenses
may be allocated differently if their method of imposition changes. Thus, if a
Class Expense can no longer be attributed to a class, it shall be charged to a
Fund for allocation among classes, as determined by the Board of Directors.
Any additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of
the Company in light of the requirements of the Act and the Internal Revenue
Code of 1986, as amended.
5. EXCHANGE PRIVILEGES. Shareholders may exchange shares of one
class of a Fund for shares of an identical class of any other Fund, based upon
each Fund's net asset value per share.
-3-
<PAGE> 4
6. CONVERSION FEATURES. No conversion from one class of shares
into another class of shares is currently offered.
7. QUARTERLY AND ANNUAL REPORTS. The Directors shall receive
quarterly and annual statements concerning all allocated Class Expenses and
servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as it
may be amended from time to time. In the statements, only expenditures
properly attributable to the servicing of a particular class of shares will be
used to justify any servicing fee attributable to that class. Expenditures not
related to the servicing of a particular class shall not be presented to the
Directors to justify any fee attributable to that class. The statements,
including the allocations upon which they are based, shall be subject to the
review and approval of the independent Directors in the exercise of their
fiduciary duties. Under the Service Plans, the amount of the Service Fee
payable to New York Life is not related directly to expenses incurred by New
York Life, its affiliates, or independent third party service providers on
behalf of a Fund in servicing holders of Institutional Service Class shares or
Sweep Class shares of the Fund. Similarly, under the Distribution Plan, the
amount of the Distribution Fee payable to NYLIFE Securities is not related
directly to expenses incurred by NYLIFE Securities on behalf of the Money
Market Fund in providing distribution-related services to the Sweep Class
shares of the Fund.
8. ACCOUNTING METHODOLOGY. (a) The following procedures shall be
implemented in order to meet the objective of properly allocating income and
expenses among the Funds:
(1) On a daily basis, a Fund Accountant shall calculate
the Service Fee to be charged to each Institutional Service Class of shares and
the Sweep Class by calculating the average daily net asset value of such shares
outstanding and applying the fee rate to the result of that calculation. The
Fund Accountant shall also calculate the Distribution Fee to the Sweep Class
of shares of the Money Market Fund in the same manner.
(2) The Fund Accountant will allocate designated Class
Expenses, if any, to the respective classes.
(3) The Fund Accountant will allocate income and
Corporate Level and Fund Expenses among the respective classes of shares based
on the net asset value of each class in relation to the net asset value of the
Fund for Fund Expenses, and in relation to the net asset value of the Company
for Corporate Level Expenses. These calculations shall be based on net asset
values at the beginning of the day for non-money market funds, and based on the
relative value of settled shares at the beginning of the day for any money
market funds.
(4) The Fund Accountant shall then complete a worksheet
(attached as Exhibit A) using the allocated income and expense calculations
from Paragraph (3) above, and the additional fees calculated from Paragraphs
(1), and (2) above. The Fund Accountant may make non-material changes to the
form of worksheet as it deems appropriate.
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<PAGE> 5
(5) The Fund Accountant shall develop and use appropriate
internal control procedures to assure the accuracy of its calculations and
appropriate allocation of income and expenses in accordance with this Plan.
9. WAIVER OR REIMBURSEMENT OF EXPENSES. Expenses may be waived
or reimbursed by any adviser to the Company, by the Company's underwriter or
any other provider of services to the company without the prior approval of the
Company's Board of Directors.
10. EFFECTIVENESS OF PLAN. This Plan shall not take effect until
it has been approved by votes of a majority of both (a) the Directors of the
Company and (b) those Directors of the Company who are not "interested persons"
of the Company (as defined in the Act) and who have no direct or indirect
interest in the operation of the Plan, cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan.
11. MATERIAL MODIFICATION. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in Paragraph 9 hereof.
IN WITNESS WHEREOF, the Company, on behalf of the Funds, has adopted
this Multiple Class Plan as of the 6th day of June, 1995 and amended this
Multiple Class Plan as of the 4th day of March, 1997 and the 1st day of
September, 1998.
MAINSTAY INSTITUTIONAL FUNDS INC.
By:
-----------------------
Title: Secretary
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