MAINSTAY INSTITUTIONAL FUNDS INC, 485APOS, 2000-10-18

MAINSTAY INSTITUTIONAL FUNDS INC
485APOS, 2000-10-18

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 2000

Securities Act File No. 33-36962
Investment Company Act File No. 811-6175
=====================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM N-1A

Registration Statement Under The Securities Act of 1933 /_/
Pre-Effective Amendment No.__ /_/
Post-Effective Amendment No. 24 /X/

and/or

Registration Statement Under The Investment Company Act of 1940 /_/
Amendment No. 26 /X/
(Check appropriate box or boxes)

MAINSTAY INSTITUTIONAL FUNDS INC.
(Exact Name of Registrant as Specified in Charter)

51 Madison Avenue
New York, NY 10010
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (212) 576-8149

Robert Anselmi, Esq. Copy to:
51 Madison Avenue Mitchell B. Birner, Esq.
New York, New York 10010 Dechert
30 Rockefeller Plaza
New York, N.Y. 10112
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box):

/_/ Immediately upon filing pursuant to paragraph (b) of Rule 485

/_/ On ___________ pursuant to paragraph (b)(1)(v) of Rule 485

/_/ 60 days after filing pursuant to paragraph (a)(1) of Rule 485

/_/ On February 29, 2000 pursuant to paragraph (a)(1) of Rule 485

/X/ 75 days after filing pursuant to paragraph (a)(2)

/_/ On ___________ pursuant to paragraph (a)(1) of Rule 485

If appropriate, check the following box:

/_/ This post-effective amendment designated a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
MAINSTAY(R) INSTITUTIONAL FUNDS INC.

/ / PROSPECTUS

JANUARY 2, 2001

CORE BOND PLUS FUND

MID CAP CORE FUND

TAX FREE BOND FUND

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.
<PAGE> 3
MAINSTAY INVESTMENTS

What's Inside?

<TABLE>
<CAPTION>
<S> <C>
PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS: AN OVERVIEW................................................. 1

CORE BOND PLUS FUND.............................................................................................. 3

MID CAP CORE FUND................................................................................................ 6

TAX FREE BOND FUND............................................................................................... 8

MORE ABOUT PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS................................................... 10

SHAREHOLDER GUIDE................................................................................................ 14

KNOW WITH WHOM YOU'RE INVESTING.................................................................................. 24
</TABLE>

i
<PAGE> 4
PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS: AN OVERVIEW

This Prospectus discusses three mutual funds (the "Funds") that invest for
varying combinations of income and growth. The Funds offered by this Prospectus
are part of MainStay Institutional Funds Inc., a series mutual fund with 14
different funds (the "Company"). The 11 funds not discussed in this Prospectus
are offered by a separate prospectus, which is available to you upon request.
Each Fund is managed by New York Life Investment Management LLC ("NYLIM"), which
is responsible for the day-to-day management of the Mid Cap Core Fund. MacKay
Shields LLC ("MacKay Shields") is the Subadvisor for the Core Bond Plus Fund and
the Tax Free Bond Fund and is responsible for the day-to-day management of those
funds. Each Fund pursues somewhat different strategies to achieve its objective.
The Mid Cap Core Fund invests primarily in equity securities and the Core Bond
Plus and the Tax Free Funds invest primarily in debt or fixed income securities.
In times of unusual or adverse conditions, for temporary defensive purposes,
each Fund may invest outside the scope of its principal investment focus.

Publicly held corporations may raise needed cash by issuing or selling equity
securities to investors. When you buy stock in a corporation you become part
owner. Equity securities may be purchased through principal stock exchanges,
such as the New York Stock Exchange or the American Stock Exchange, or in the
over-the-counter market. There are many different types of equity securities,
including: stocks, convertible securities, American Depositary Receipts and
others. Investors buy equity securities to make money through dividend payments
and/or selling them for more than they paid.

Both governments and companies may raise needed cash by issuing or selling debt
securities to investors. Debt securities may be purchased directly from those
governments and companies or in the secondary trading markets. There are many
different types of debt securities, including:

- bonds

- notes

- debentures and others

Some debt securities pay fixed rates of return while others pay variable rates.
Interest may be paid at different intervals. Some debt securities do not make
regular interest payments, but instead are initially sold at a discount to the
principal amount to be paid at maturity.

The amount of interest paid is subject to many variables, including:

- creditworthiness of the issuer

- length of time to maturity of the security

- market factors
<PAGE> 5
- the nature of the debt instrument

NOT INSURED

An investment in the Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

YOU COULD LOSE MONEY

Before considering one or more investments, you should understand that you could
lose money.

NAV WILL FLUCTUATE

The value of Fund shares, also known as net asset value ("NAV"), will fluctuate
based on the value of a Fund's holdings. Security values change. Investment in
common stocks and other equity securities is particularly subject to the risk of
changing economic, stock market, industry and company conditions and the risks
inherent in management's ability to anticipate such changes which can adversely
affect the value of a Fund's holdings. In the case of debt securities, security
values usually change when interest rates change. Generally, when interest rates
go up, the value of a debt security goes down and when interest rates go down,
the value of a debt security goes up. Other factors that can affect security
values and Fund share prices are changes in:

- company or industry conditions

- how the market views the creditworthiness of an issuer

- economic or market conditions

- relative values of currencies, and

- the average maturity of a Fund's investments.

MORE INFORMATION

The next section of this prospectus gives you more detailed information about
the investment objectives, policies, principal investment strategies, principal
risks, past performance and expenses of each of the Funds offered in this
prospectus. Please review it carefully.

2
<PAGE> 6
CORE BOND PLUS FUND

The Core Bond Plus Fund's investment objective is to seek to maximize total
return consistent with the preservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The Fund normally invests at least 65% of its total assets in a diversified
portfolio of

- Debt or debt related securities issued or guaranteed by the
U.S. or foreign governments, their agencies or
instrumentalities;

- Obligations of international or supranational entities;

- Debt securities issued by U.S. or foreign corporate entities;

- Zero coupon bonds;

- Mortgage-related and other asset-backed securities;

- Loan participation interests.

The Fund may also invest up to 20% of its total assets in debt securities rated
below investment grade and 10% of its total assets in foreign securities. As
part of the principal investment strategy, the Fund's Subadviser may use
mortgage dollar rolls and portfolio securities lending techniques.

INVESTMENT PROCESS

The Fund seeks to identify investment opportunities based, in part, on the
financial condition and competitiveness of bond issuers. In addition, among the
principal factors considered in determining whether to increase or decrease the
emphasis placed upon a particular type of security or bond market sector are:

- fundamental economic cycle analysis

- credit quality

- interest rate trends.

The Fund also invests in a variety of countries, which may include countries
with established economies as well as emerging market countries that the
Subadvisor believes present favorable opportunities. Securities of issuers in
one country may be denominated in the currency of another country. The Fund's
principal investments also may include high yield debt securities rated below
BBB by S&P or Baa by Moody's or, if unrated, determined by the Subadvisor to be
of

3
<PAGE> 7
comparable quality. The Fund's principal investments also include
mortgage-related and asset-backed securities, and when-issued securities and
forward commitments.

The Fund may enter into mortgage-dollar roll transactions, buy and sell currency
on a spot basis and may enter into foreign currency forward contracts for
hedging purposes. The Fund may also buy foreign currency options and may use
portfolio securities lending as a principal investment strategy.

PRINCIPAL RISKS

The values of debt securities fluctuate depending upon various factors,
including:

- interest rates

- issuer creditworthiness

- market conditions

- maturities.

The total return for a convertible security will be partly dependent upon the
performance of the underlying common stock into which it can be converted.

PAST PERFORMANCE

Since the Fund commenced operations on January 2, 2001, there are no performance
figures reflecting the Fund's performance.

FEES AND EXPENSES OF THE FUND

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.

4
<PAGE> 8
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment)
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares (as a None
percentage of offering price)

Maximum Deferred Sales Charge (Load) (as a percentage of redemption None
proceeds)

Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)

Management Fee 0.60%

Distribution (12b-1) Fees None

Shareholder Service Fees None

Other Expenses(1) 0.47%

Total Annual Fund Operating Expenses(2) 1.07%
</TABLE>

(1) "Other Expenses" are based on estimated amounts for the current fiscal
year.

(2) The Manager has voluntarily agreed to waive a portion of the fees
otherwise payable to it to the extent that annual operating expenses
exceed 0.70% of average daily net assets of the Fund. As a result, for
the fiscal period ending October 31, 2001 it is estimated the
management fee paid will be 0.23% and Total Annual Fund Operating
Expenses will be 0.70% of the Fund's average daily net assets. This
waiver may be discontinued at any time without notice.

EXAMPLE

The "Example" is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflects what you
would pay if you close your account at the end of each of the time periods
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund operating expenses remain the same. Your actual costs may be
higher or lower than those shown.

<TABLE>
<CAPTION>
EXPENSES AFTER
<S> <C>
1 year $109
3 years $340
</TABLE>

5
<PAGE> 9
MID CAP CORE FUND

The Mid Cap Core Fund's investment objective is to seek long-term growth of
capital.

PRINCIPAL INVESTMENT STRATEGIES

The Fund normally invests at least 65% of the value of its total assets in the
stocks of Mid-sized companies. NYLIM, the Fund's manager, seeks those mid cap
companies that it believes will outperform the average of the mid cap universe.
Mid-sized companies are those companies with market capitalizations of
approximately $2 billion to $10 billion.

INVESTMENT PROCESS

NYLIM uses a quantitative management approach that ranks stocks based on a
proprietary model. NYLIM ranks companies in the mid cap universe and then
generally invests in those companies ranked in the top 75% of the universe.
NYLIM ranks stocks based on the financial strength of the issuer and the
potential for strong, long-term earnings growth. This approach seeks to
overweight those mid cap stocks that NYLIM believes will outperform the mid cap
universe as a whole.

PRINCIPAL RISKS

Investment in common stocks and other equity securities is particularly subject
to the risk of changing economic, stock market, industry and company conditions
and the risk inherent in management's ability to anticipate such changes that
can adversely affect the value of the Fund's holdings. Mid cap stocks are
generally less established and may be more volatile and less liquid than stocks
of larger companies.

PAST PERFORMANCE

Since the Fund commenced operations on January 2, 2001 there are no performance
figures reflecting the Fund's performance.

FEES AND EXPENSES OF THE FUND

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.

<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment)
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases of Shares (as a None
percentage of offering price)

Maximum Deferred Sales Charge (Load) (as a None
</TABLE>

6
<PAGE> 10
<TABLE>
<S> <C>

percentage of redemption proceeds)

Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)

Management Fee 0.85%

Distribution (12b-1) Fees None

Shareholder Service Fees None

Other Expenses(1) 0.37%

Total Annual Fund Operating Expenses(2) 1.22%
</TABLE>

(1) "Other Expenses" are based on estimated amounts for the current fiscal
year.

(2) The Manager has voluntarily agreed to waive a portion of the fees
otherwise payable to it to the extent that annual operating expenses
exceed 1.00% of average daily net assets of the Fund. As a result, for
the fiscal period ending October 31, 2001 it is estimated that the
management fee paid will be 0.63% and Total Annual Fund Operating
Expenses will be 1.00% of the Fund's average daily net assets. This
waiver may be discontinued at any time without notice.

EXAMPLE

EXPENSES AFTER
1 year $124
3 years $387

7
<PAGE> 11
TAX FREE BOND FUND

The Tax Free Bond Fund's investment objective is to provide a high level of
current income free from regular federal income tax, consistent with the
preservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The Fund normally invests in tax-exempt securities that are, at the time of
purchase, rated in one of the top four categories (or short-term tax-exempt
securities rated in one of the top three categories) by either Moody's, Standard
& Poor's, or Fitch IBCA. Up to 20% of the Fund's net assets may be invested in
unrated tax-exempt securities that are deemed by the Fund's Subadvisor, MacKay
Shields LLC, to be of a quality comparable to those securities rated in the top
four categories. The Fund normally invests at least 80% of its net assets in
"municipal bonds" issued by, or on behalf of, the states, the District of
Columbia, the territories, commonwealths and possessions of the United States
and their political subdivisions, and agencies, authorities and
instrumentalities of these entities. In addition, up to 20% of the Fund's net
assets may be invested in bonds rated below investment grade ("high-yield
securities").

The two main types of municipal bonds are general obligation and revenue bonds.
The Fund may not invest more than 20% of its net assets in tax-exempt securities
subject to the federal alternative minimum tax (AMT) for individual
shareholders.

INVESTMENT PROCESS

The Subadvisor uses a combined approach to investing, analyzing economic trends
as well as factors pertinent to particular issuers and securities. Up to 25% of
the Fund's total assets may be invested in industrial development bonds. The
Fund also may invest in pollution control bonds and zero coupon bonds. The Fund
may also invest more than 25% of its total assets in municipal bonds that are
related in such a way that an economic, business or political development or
change affecting one such security could also affect the other securities (for
example, securities whose issuers are located in the same state). Some of the
Fund's earnings may be subject to federal tax and most may be subject to state
and local taxes.

PRINCIPAL RISKS

The values of debt securities fluctuate depending upon various factors,
including:

- interest rates

- issuer creditworthiness

- market conditions

- maturities.

8
<PAGE> 12
Consistent with its principal investment strategies, the Fund's investments
include derivatives, such as call and put options, futures contracts on debt
securities or securities indexes and options on futures contracts. The Fund may
use derivatives to try to enhance returns or reduce the risk of loss of (hedge)
certain of its holdings. Regardless of the purpose, the Fund may lose money
using derivatives. The use of derivatives may increase the volatility of the
Fund's net asset value and may involve a small investment of cash relative to
the magnitude of risk assumed.

Industrial development, pollution control, and revenue bonds are generally not
secured by the taxing power of the municipality but are secured by revenues paid
by the industrial user. This means that if the industrial user cannot repay
principal and/or interest on the bonds, the Fund may lose money.

High yield securities are generally considered speculative because they present
a greater risk of loss, including default, than higher quality debt securities.
These securities pay investors a premium--a high interest rate or yield--because
of the increased risk of loss. These securities can also be subject to greater
price volatility.

To help you decide whether taxable or nontaxable yields are better for you, see
Appendix A for a comparative yield table.

PAST PERFORMANCE

Since the Fund commenced operation on January 2, 2001, there are no performance
figures reflecting the Fund's performance for a full calendar year.

FEES AND EXPENSES OF THE FUND

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.

<TABLE>
<S> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)

Maximum Sales Charge (Load) Imposed on Purchases of Shares (as a None
percentage of offering price)

Maximum Deferred Sales Charge (Load) (as a percentage of redemption None
proceeds)

Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)

Management Fee 0.50%
</TABLE>

9
<PAGE> 13
<TABLE>
<S> <C>
Distribution (12b-1) Fees None

Shareholder Service Fees None

Other Expenses(1) 0.63%

Total Annual Fund Operating Expenses(2) 1.13%
</TABLE>

(1) "Other Expenses" are based on estimated amounts for the current fiscal
year.

(2) The Manager has voluntarily agreed to waive a portion of the fees
otherwise payable to it to the extent that annual operating expenses
exceed 0.65% of average daily net assets of the Fund. As a result, for
the fiscal period ending October 31, 2001 it is estimated the
management fee paid will be 0.02% and Total Annual Fund Operating
Expenses will be 0.65% of the Fund's average daily net assets. This
waiver may be discontinued at any time without notice.

EXAMPLE

<TABLE>
<CAPTION>
INSTITUTIONAL
EXPENSES AFTER CLASS
<S> <C> <C>
1 year $115
3 years $359
</TABLE>

MORE ABOUT PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS

INFORMATION ABOUT EACH FUND'S PRINCIPAL INVESTMENTS, INVESTMENT PRACTICES AND
PRINCIPAL RISKS APPEARS AT THE BEGINNING OF THE PROSPECTUS. THE INFORMATION
BELOW DESCRIBES IN GREATER DETAIL THE PRINCIPAL INVESTMENTS, INVESTMENT
PRACTICES AND PRINCIPAL RISKS PERTINENT TO THE FUNDS.

MORTGAGE-RELATED AND ASSET-BACKED SECURITIES

Mortgage-related (including mortgage-backed) and asset-backed securities are
securities whose value is based on underlying pools of loans that may include
interests in pools of lower-rated debt securities, consumer loans or mortgages,
or complex instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may

10
<PAGE> 14
be significantly affected by changes in interest rates, the market's perception
of issuers and the creditworthiness of the parties involved. NYLIM's or MacKay
Shields' ability to correctly forecast interest rates and other economic factors
correctly will impact the success of investments in mortgage-related and
asset-backed securities. Some securities may have a structure that makes their
reaction to interest rate changes and other factors difficult to predict, making
their value highly volatile. These securities may also be subject to prepayment
risk if interest rates fall and if the security has been purchased at a premium
the amount of some or all of the premium may be lost in the event of prepayment.

SWAP AGREEMENTS

Certain Funds may enter into interest rate, index and currency exchange rate
swap agreements to attempt to obtain a desired return at a lower cost than a
direct investment in an instrument yielding that desired return.

Whether a Fund's use of swap agreements will be successful will depend on
whether the Manager or the Subadvisor correctly predicts movements in interest
rates, indexes and currency exchange rates. Because they are two-party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid. Moreover, a Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty.

LENDING OF PORTFOLIO SECURITIES

Portfolio securities may be lent to brokers, dealers and financial institutions
to realize additional income under guidelines adopted by the Board of Directors.
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 Manager or the
Subadvisor will consider all relevant facts and circumstances, including the
creditworthiness of the borrower.

RISK MANAGEMENT TECHNIQUES

Various techniques can be used to increase or decrease a Fund's exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling futures contracts and
options on futures contracts, entering into foreign currency transactions (such
as forward foreign currency exchange contracts and options on foreign
currencies) and purchasing put or call options on securities and securities
indexes.

These practices can be used in an attempt to adjust the risk and return
characteristics of the Funds' portfolios of investments. For example, to gain
exposure to a particular market, the Fund may be able to purchase a futures
contract with respect to that market. When a Fund uses such techniques in an
attempt to reduce risk it is known as "hedging." If the Manager or the
Subadvisor judges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investments, these techniques could result in
a loss, regardless of whether

11
<PAGE> 15
the intent was to reduce risk or increase return. These techniques may increase
the volatility of a Fund and may involve a small investment of cash relative to
the magnitude of the risk assumed. In addition, these techniques could result in
a loss if the counterparty to the transaction does not perform as promised.

DERIVATIVE SECURITIES

The value of derivatives is based on certain underlying equity or fixed-income
securities, interest rates, currencies or indexes. Derivative securities may be
hard to sell and are very sensitive to changes in the underlying security,
interest rate, currency or index, and as a result can be highly volatile. If the
Manager or the Subadvisor is wrong about its expectations of changes in interest
rates or market conditions, the use of derivatives could result in a loss. A
Fund could also lose money if the counterparty to the transaction does not meet
its obligations. In addition, the leverage associated with inverse floaters, a
type of derivative, may result in greater volatility in their market value than
other income-producing securities.

FORWARD COMMITMENTS

Debt securities are often sold on a forward commitment basis. The price (or
yield) of such securities is fixed at the time a commitment to purchase is made,
but delivery and payment for the securities take place at a later date. During
the period between purchase and settlement, no payment is made by the Fund and
no interest accrues to the Fund. The market value of the securities on the
settlement date may be more or less than the purchase price payable at
settlement date.

RISKS OF INVESTING IN HIGH YIELD DEBT SECURITIES ("JUNK BONDS")

Debt securities rated lower than Baa by Moody's or BBB by S&P or, if not rated,
determined to be of equivalent quality by the Manager or the Subadvisor are
sometimes referred to as junk bonds and are considered speculative.

Investment in high yield bonds involves special risks in addition to the risks
associated with investments in higher rated debt securities. High yield bonds
may be regarded as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. Moreover, such
securities may, under certain circumstances, be less liquid than higher rated
debt securities.

TEMPORARY DEFENSIVE INVESTMENTS

In times of unusual or adverse conditions, for temporary defensive purposes,
each Fund may invest outside the scope of its principal investment focus. During
such times, a Fund may not invest in accordance with its investment objective or
investment strategies and, as a result, there is no assurance that the Fund will
achieve its investment objective. Under such conditions, each Fund may invest
without limit in money market and other investments as described in this
Prospectus and the Statement of Additional Information. During such times, a
Fund may not

12
<PAGE> 16
invest in accordance with its invest in accordance with its investment objective
or investment strategies and, as a result, may not achieve its investment
objectives.

PORTFOLIO TURNOVER

Portfolio turnover measures the amount of trading a Fund does during the year.
The use of certain investment strategies may generate increased portfolio
turnover. Funds with high turnover rates (over 100%) often have higher
transaction costs (which are paid by the Fund) and may generate short-term
capital gains (on which you'll pay taxes, even if you don't sell any shares by
year-end).

13
<PAGE> 17
SHAREHOLDER GUIDE

The following pages are intended to help you understand the costs associated
with buying, holding and selling your MainStay investments.

BUYING AND SELLING MAINSTAYSHARES:

HOW TO OPEN YOUR MAINSTAY ACCOUNT

Return your completed MainStay application with a check for the amount of your
investment to MainStay Institutional Funds Inc., 260 Cherry Hill Road,
Parsippany, NJ 07054. If you place your order by phone, MainStay must receive
your completed application and check in good order within three business days.
"Good order" means all the necessary information, signatures and documentation
have been received.

When you open your account, you may also want to choose certain buying and
selling options, including transactions by wire. In most cases, these choices
can be made later in writing, but it may be quicker and more convenient to
decide on them when you open your account.

You buy shares at net asset value. NAV is generally calculated as of the close
of regular trading on the New York Stock Exchange (usually 4 pm Eastern time)
every day the Exchange is open. When you buy shares, you must pay the NAV next
calculated after MainStay Shareholder Services receives your order in good
order.

INVESTMENT MINIMUMS:

- $1,000 for any single Fund

- $100 for each subsequent investment in any of the Funds or

- $100 for initial and subsequent purchases through a systematic
investment plan.

- *The Company may also accept investments of smaller amounts at
its discretion.

- Tax deductible contributions to a regular IRA generally are
limited to $2,000 a year ($4,000 in the case of a spousal
IRA). An investor in certain qualified retirement plans may be
able to open an account with a smaller minimum investment.

- The minimum initial investment amount is waived for purchases
by the Directors and New York Life and its subsidiaries and
their employees, officers, directors or agents.

14
<PAGE> 18
BUYING AND SELLING MAINSTAY SHARES

OPENING YOUR ACCOUNT

<TABLE>
<CAPTION>
HOW DETAILS
<S> <C> <C>
- MainStay must receive your application and
By phone: Between 8 am and 6 pm check in good order within three
Eastern time any day the New business days. If not, MainStay can
York Stock Exchange is open; cancel your order and hold you
call before 4 pm to buy liable for costs incurred in placing
shares at the current day's it.
price.
- $1,000 minimum.
</TABLE>

BUYING ADDITIONAL SHARES

<TABLE>
<CAPTION>
HOW DETAILS
<S> <C> <C>

By wire: To buy shares the same day, Phone in your order and wire the purchase amount to:
MainStay must receive your wired
money by 4 pm.

State Street Bank and Trust Company.
- ABA #011 0000 28
- The MainStay Institutional Funds Inc. (DDA
#99046179)
- Attn: Custody and Shareholder Services
- Fund name and class
- your account number
- name(s) of investor(s)

Electronically: ACH Call 1-800-695-2126

Eligible investors can
purchase shares by using
electronic debits from a
designated bank account.

By mail: Address your order to:

The MainStay Institutional Make your check payable to The MainStay
Funds Inc. Institutional Funds Inc. Be sure to write on
P.O. Box 8407 your check the Fund name, account number
</TABLE>

15
<PAGE> 19
<TABLE>
<S> <C> <C>
Boston, MA 02266-8407 and class of shares.

* $1,000 minimum for initial purchases and $100 for
subsequent purchases.

Send overnight orders to:

The MainStay Institutional
Funds Inc.
c/o Boston Financial
Data Services
66 Brooks Drive
Braintree, MA 02184
</TABLE>

SELLING SHARES

<TABLE>
<CAPTION>
HOW DETAILS
<S> <C> <C>
By phone: TO RECEIVE PROCEEDS BY CHECK: * The maximum order MainStay can process is
$100,000.

Call 1-800-695-2126 Between 8 am * MainStay will only send checks to the account's
and 6 pm Eastern time any day the owner at the owner's address of record and will not
New York Stock Exchange is open; send checks to addresses on record for 30 days or
call before 4 pm to sell shares at less.
the current day's prices (NAV).

TO RECEIVE PROCEEDS BY WIRE: * MainStay must have your bank account
information on file.

* Generally, after receiving your sell order by phone,
Call 1-800-695-2126. MainStay will send the proceeds by bank
wire to your designated bank account the
next business day, although it may take up
to seven days to do so. Your bank may
charge you a fee to receive the wire
transfer.

Eligible investors may sell shares
and have proceeds electronically
credited to a designated bank
account.
</TABLE>

16
<PAGE> 20
<TABLE>
<S> <C> <C>
You can have redemption proceeds
wired any day banks and the New * MainStay charges a $10 fee per transaction.
York Stock Exchange are open.

* $1,000 minimum.

By mail: Address your order to: Write a letter of instruction that includes:

The MainStay Institutional Funds * your name(s) and signature(s)
Inc. * your account number
P.O. Box 8407 * Fund name and class of shares
Boston, MA 02266-8407 * dollar or share amount you want to sell.

Send overnight orders to: * Obtain a signature guarantee or other
The MainStay Institutional Funds Inc. documentation, if required.
c/o Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184

There is a $15 fee for checks mailed to you
overnight. There is a $10 fee for wire redemptions.
</TABLE>

Reinvestment won't relieve you of any tax consequences on gains realized from
the sale. The deductions for losses may, however, be denied.

CONVENIENT, YES . . .

BUT NOT RISK-FREE. Telephone redemption privileges are convenient, but you give
up some security. When you sign the application to buy shares, you agree that
The MainStay Funds will not be liable for following phone instructions that they
reasonably believe are genuine. When using the MainStay Audio Response System,
you bear the risk of any loss from your errors unless the Funds or MainStay
Shareholder Services fails to use established safeguards for your protection.
These safeguards are among those currently in place at The MainStay Funds:

- all phone calls with service representatives are tape recorded
and

- written confirmation of every transaction is sent to your
address of record.

REDEMPTIONS-IN-KIND

The Trust reserves the right to pay certain large redemptions, either totally or
partially, by a distribution-in-kind of securities (instead of cash) from the
applicable Fund's portfolio.

17
<PAGE> 21
SHAREHOLDER SERVICES

AUTOMATIC SERVICES

Buying or selling shares automatically is easy with the services described
below. You select your schedule and amount, subject to certain restrictions. You
can set up most of these services with your application, or by calling
1-800-695-2126 for a form.

SYSTEMATIC INVESTING

MainStay offers three automatic investment plans.

AUTOINVEST

If you are authorized, you can automatically debit your designated bank account
by:

- making regularly scheduled investments

- purchasing shares whenever you choose.

DIVIDEND REINVESTMENT

Automatically reinvest dividends and distributions from one MainStay Fund into
the same Fund or the same class of any other MainStay Fund.

PAYROLL DEDUCTIONS

If your employer offers this option, you can make automatic investments through
payroll deduction.

SYSTEMATIC WITHDRAWAL PLAN

Withdrawals must be at least $100. You must have at least $10,000 in your
account at the time of request and shares must not be in certificate form.

The Funds will not knowingly permit systematic withdrawals if, at the same time,
you are making systematic investments.

EXCHANGING SHARES AMONG THE MAINSTAY INSTITUTIONAL FUNDS INC.

You exchange shares when you sell all or a portion of shares in one Fund and use
the proceeds to purchase shares in another Fund. You may exchange shares of the
same Class between Funds. Exchanges will be based upon each Fund's NAV per share
next computed following receipt of a properly executed exchange request. You may
request an exchange by calling 1-800-695-2126. You may also use the Systematic
Exchange program described above.

18
<PAGE> 22
INVESTING FOR RETIREMENT

Except for the Tax Free Bond Fund, you can purchase shares of any of the Funds
for retirement plans providing tax-deferred investments for individuals and
institutions. You can use the Funds in established plans or the Distributor may
provide the required plan documents for selected plans. A plan document must be
adopted for a plan to be in existence.

MainStay also provides custodial services for IRA, ROTH IRA, SEP, SARSEP, SIMPLE
IRA and Education IRA plans and for 403(b)(7) TSA Custodial Accounts. Plan
administration is also available for select qualified retirement plans.

An investor should consult with his or her tax adviser before establishing any
tax-deferred retirement plan.

GENERAL POLICIES

BUYING SHARES

- All investments must be in U.S. dollars with funds drawn on a
U.S. bank. MainStay does not accept third-party checks, and it
reserves the right to limit the number of checks processed at
one time. If your check or ACH purchase is returned unpaid,
your order will be canceled and your account will be charged a
$20 fee for each returned check or ACH purchase. In addition,
the Fund may also redeem shares to cover any losses it incurs
as a result. If an AutoInvest payment is returned unpaid for
two consecutive periods, the privilege will be suspended until
you notify us to reinstate it.

SELLING SHARES

- If you have share certificates, you must return them with a
written redemption request.

- Your shares will be sold at the next NAV calculated after MSS
receives your order in good order. MainStay will make the
payment, within seven days after receiving your request in
good order.

- If you buy shares by check or by ACH purchase and quickly
decide to sell them the Fund may withhold payment for 10 days
from the date the check or ACH purchase order is received.

- There will be no redemption during any period in which the
right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or
trading on the Exchange is restricted or the SEC deems an
emergency to exist.

19
<PAGE> 23
- Unless you decline telephone privileges on your application,
you may be responsible for any fraudulent telephone order as
long as MSS takes reasonable measures to verify the order.

- MainStay requires a written order to sell shares if:

- an account has submitted a change of address in the
previous 30 days.

- MainStay requires a written order to sell shares and a
signature guarantee if;

- MainStay does not have required bank information

- the proceeds from the sale will exceed $100,000

- the proceeds of the sale are to be sent to an address
other than the address of record or,

- the proceeds are to be payable to someone other than
the account holder.

In the interests of all shareholders, MainStay reserves the right to:

- change or discontinue its exchange privilege upon notice to
shareholders, or temporarily suspend this privilege without
notice under extraordinary circumstances.

- change or discontinue the systematic withdrawal plan on notice
to shareholders.

- charge a $12 annual account fee (maximum of $36 per social
security or tax I.D. number) on accounts with balances less
than $500. The fee is not charged on retirement plan accounts,
accounts with automatic investment plans and accounts for
which tracking data is not available.

- change its minimum investment amounts.

CORRECTION

When you buy and sell shares directly from the Fund, you will receive
confirmation statements that describe your transaction. You should review the
information in the confirmation statements carefully. If you notice an error,
you should call MainStay immediately. If you fail to notify MainStay within one
year of the transaction, you may be required to bear the costs of correction.

A signature guarantee helps protect against fraud. You can obtain one from most
banks, credit unions and securities dealers, but not from a notary public. For
joint accounts, each signature must be guaranteed. Please call MSS at
1-800-695-2126 to ensure that your signature will be guaranteed by an
appropriate institution.

The policies and fees described in this prospectus govern transactions with The
MainStay Funds. If you invest through a third party -- bank, broker, 401(k)
plan, financial adviser or financial supermarket -- there may be transaction
fees for and you may be subject to different investment

20
<PAGE> 24
minimums or limitations on buying or selling shares. Consult a representative of
your plan or financial institution if in doubt.

DETERMINING THE FUNDS' SHARE PRICES (NAV) AND THE VALUATION OF SECURITIES

MainStay generally calculates the share price of each Fund (also known as its
net asset value, or NAV) at the close of regular trading on the New York Stock
Exchange (usually 4 pm Eastern time). The value of the Funds' investments is
based on current market prices. If current market values are not available,
investments will be valued by another method that the Board of Trustees believes
accurately reflects fair value. Changes in the value of the Funds' securities
after the close of regular trading that occur will not be reflected in the
calculation of NAV unless the Subadvisor deems a particular event would
materially affect NAV. In this case, an adjustment in the valuing of the
securities may be made.

FUND EARNINGS

DIVIDENDS AND INTEREST

Most Funds earn either dividends from stocks, interest from bonds and other
securities, or both. A mutual fund, however, always pays this income to you as
"dividends." The dividends paid by each Fund will vary based on the income from
its investments and the expenses incurred by the Fund.

CAPITAL GAINS

The Funds earn capital gains when they sell securities at a profit.

WHEN THE FUNDS PAY DIVIDENDS

The Funds declare and distribute any dividends at least once a year.

WHEN THE FUNDS PAY CAPITAL GAINS

At each fiscal year-end, each Fund matches its gains against its losses. If the
balance results in a gain, the Fund will distribute the gain to shareholders.

If you prefer to reinvest dividends and/or capital gains in another Fund, you
must first establish an account in that class of shares of the Fund.

HOW TO TAKE YOUR EARNINGS

You may receive your share of MainStay Fund earnings in one of five ways. You
can make your choice at the time of application, and change it as often as you
like by notifying your investment professional (if permitted by the
broker-dealer) or MainStay directly. The five choices are:

1. Reinvest everything in:

21
<PAGE> 25
- the same Fund or

- another MainStay Fund of your choice.

2. Take the dividends in cash and reinvest the capital gains in:

- the same Fund or

- another MainStay Fund of your choice.

3. Take the capital gains in cash and reinvest the dividends in:

- the same Fund or

- another MainStay Fund of your choice.

4. Take a percentage of dividends or capital gains in cash and reinvest
the remainder in the same Fund.

5. Take everything in cash.

If you do not make one of these choices on your application, your earnings will
be automatically reinvested in the same class of shares of the same Fund.

UNDERSTAND THE TAX CONSEQUENCES

Any dividends and capital gains distributions you receive from the Mid Cap Core
Fund and Core Bond Plus Fund are taxable, whether you take them as cash or
automatically reinvest them. A Fund's realized earnings are taxed based on the
length of time a Fund holds its investments, regardless of how long you hold
Fund shares. If a Fund realizes long-term capital gains, the earnings are taxed
as long-term capital gains; earnings from short-term capital gains and income
generated on debt investments and other sources are generally taxed as ordinary
income. Earnings of the Mid Cap Core Fund, if any, will generally be a result of
capital gains that may be taxed as either long-term capital gains or short-term
capital gains (taxed as ordinary income). Earnings of the Core Bond Plus Fund,
if any, will generally be a result of income generated on debt investments and
will be taxable as ordinary income.

MainStay will mail your tax report each year by January 31. This report will
tell you which distributions should be treated as taxable ordinary income,
which, if any, as tax-exempt income, and which, if any, as long-term capital
gains.

SEEK PROFESSIONAL ASSISTANCE. Your investment professional can help you keep
your investment goals coordinated with your tax considerations. But for tax
counsel, always rely on your tax adviser. For additional information on federal,
state and local taxation, see "Tax Information" in the SAI.

22
<PAGE> 26
BUY AFTER THE DIVIDEND PAYMENT. Avoid buying shares shortly before a dividend
payment. Part of your investment may be returned in the form of a dividend,
which may be taxable.

EXCHANGES

An exchange of shares of one MainStay Fund for shares of another will be treated
as a sale of shares of the first Fund and a purchase of shares of the second
MainStay Fund. Any gain on the transaction may be subject to taxes.

"TAX-FREE" RARELY MEANS 'TOTALLY TAX-FREE"

Dividends paid by the Tax Free Bond Fund will generally be exempt form federal
tax. It should be noted, however, that

- Tax-exempt dividends may still be subject to state and local taxes.

- A portion of the distributions may be treated as ordinary income and/or
long-term capital gains.

- Any time you sell shares -- even shares of a tax-free fund -- you will
be subject to tax on any gain (the rise in the share price).

- If you sell shares of a tax-free fund after receiving a tax-exempt
dividend, and you have held those shares for six months or less, then
you may not be allowed to claim a loss on the sale.

- If you sell shares in a tax-free fund before you become entitled to
receive tax-exempt interest as a dividend, the amount that would have
been treated as a tax-free dividend will instead be treated as a
taxable part of the sales proceeds.

- Some tax-exempt income may be subject to the alternative minimum tax.

23
<PAGE> 27
KNOW WITH WHOM
YOU'RE INVESTING

WHO RUNS THE FUNDS' DAY-TO-DAY BUSINESS?

New York Life Investment Management LLC (the "Manager"), 300 Interpace Parkway,
Building A, Parsippany, NJ 07054, serves as the Funds' manager, handling
business affairs for the Funds. The Manager was formed as an independently
managed, wholly-owned subsidiary of New York Life Insurance Company in April,
2000. The Manager is an indirect wholly-owned subsidiary of New York Life
Insurance Company. The Manager provides offices and conducts clerical,
recordkeeping and bookkeeping services, and keeps most of the financial and
accounting records required for the Funds. The Manager has delegated its
portfolio management responsibilities for two funds to MacKay Shields LLC. The
Manager has also delegated certain of its administrative responsibilities to New
York Life Insurance Company.

The Manager pays the salaries and expenses of all personnel affiliated with the
Funds, and all the operational expenses that aren't the responsibility of the
Funds, including the fees paid to the Subadvisors and New York Life Insurance
Company as the subadministrator.

The Manager receives an aggregate fee for services performed as a percentage of
the average daily net assets of each Fund as follows:

<TABLE>
<CAPTION>
RATE PAYABLE FOR CALENDAR
YEAR 2001
<S> <C>
Core Bond Plus Fund .60%
Mid Cap Core Fund .85%
Tax Free Fund .50%
</TABLE>

New York Life Investment Management LLC has voluntarily
agreed to waive a portion of the fees otherwise payable to
it to the extent that annual fund operating expenses
exceed 1.00% of average daily net assets of the Core Bond
Plus Fund, 1.00% average daily net assets of Mid Cap Core
Fund and 0.65% of average daily net assets of Tax Free
Bond Fund.

The Manager is not responsible for records maintained by the Funds' Custodian,
Transfer Agent, Dividend Disbursing and Shareholder Servicing Agent, or
Subadvisor. As of September 30, 2000, the Manager managed over $__ billion in
assets.

Under the supervision of the Manager, the Subadvisor is responsible for making
the specific decisions about buying, selling and holding securities; selecting
brokers and brokerage firms to trade for it; maintaining accurate records; and,
if possible, negotiating favorable commissions and fees with the brokers and
brokerage firms. For these services, the Subadvisor is paid a monthly fee by the
Manager, not the Funds. (See the SAI for a breakdown of fees.) The Funds'
Directors oversee the management and operations of the Funds.

24
<PAGE> 28
WHO MANAGES YOUR MONEY?

New York Life Investment Management LLC, 300 Interpace Parkway, Building A,
Parsippany, NJ 07054, serves as Manager of the assets of the Mid Cap Core Fund.
NYLIM was formed in April, 2000 as a Delaware limited liability company. NYLIM
is an indirect wholly-owned subsidiary of New York Life Insurance Company. As of
September 30, 2000, NYLIM managed approximately $_________].

MacKay Shields LLC, 9 West 57th St., New York, NY 10019, is the Subadvisor to
the Core Bond Plus Fund and the Tax Free Bond Fund. MacKay Shields is also the
Subadvisor to the MainStay Institutional Bond, Growth Equity, International
Bond, International Equity, Short-Term Bond, and Value Equity Funds. The firm
was incorporated in 1969 as an independent investment advisory firm and was
privately held until 1984 when it became a wholly-owned, but autonomously
managed subsidiary of New York Life Insurance Company. MacKay Shields became a
Delaware limited liability company in 1999. As of September 30, 2000, MacKay
Shields managed over $30 billion in assets.

PORTFOLIO MANAGERS: BIOGRAPHIES

CORE BOND PLUS FUND

GARY GOODENOUGH. Mr. Goodenough is a portfolio manager of the Core Bond Plus and
has managed the Fund since its inception. Mr. Goodenough became a manager of the
MainStay Funds Government Fund and MainStay Funds Total Return Fund in July
2000. Mr. Goodenough joined MacKay Shields as Managing Director and Co-head of
the Bond Team in 2000. Prior to joining MacKay Shields, Mr. Goodenough was a
Senior Portfolio Manager at Loomis Sayles & Co. from December 1993 to May 2000.
Prior to this, he was a Managing Director at Bear Stearns & Company and was a
Managing Director of High Yield Bonds and a Managing Director of Global Bonds at
Salomon Brothers.

CHRISTOPHER HARMS. Mr. Harms is a portfolio manager of the Core Bond Plus Fund
and has managed the Fund since its inception. Mr. Harms has managed the MainStay
Institutional Short-Term Bond and MainStay Institutional Bond Funds since April
1999. Mr. Harms is a Managing Director of MacKay Shields. He joined MacKay
Shields in 1991.

MID CAP CORE FUND

STEPHEN B. KILLIAN. Mr. Killian is a portfolio manager of the Mid Cap Core Fund
and has managed the Fund since its inception. Mr. Killian has also managed the
MainStay Institutional Indexed Equity Fund since February 1999 and the MainStay
Institutional EAFE Index Fund since March 1999. Mr. Killian is a Managing
Director of NYLIM and President of Monitor Capital Advisors LLC. In those roles,
he has portfolio management responsibility for international equity funds,
active quantitative equity portfolios and development of quantitative
strategies. He joined Monitor Capital in 1997, which became part of NYLIM in
April, 2000.

25
<PAGE> 29
Mr. Killian was a Partner and Senior Portfolio Manager at RhumbLine Advisers
from 1992 to 1997.

HARVEY FRAM. Mr Fram is a portfolio manager of the Mid Cap Core Fund. He joined
Monitor Capital Advisors in February 1999 as a Portfolio Manager and Research
Strategist. He is also a Vice President of NYLIM. He is responsible for the
management of Monitor Capital's quantitative equity portfolios. Prior to joining
Monitor, he was a quantitative equity research analyst at ITG, a technology
based equity brokerage firm. Mr. Fram was awarded his CFA designation in 1999
and has an MBA from the Wharton School at the University of Pennsylvania.

TAX FREE BOND FUND

JOHN FITZGERALD. Mr. Fitzgerald is a portfolio manager of the Tax Free Bond Fund
and has managed the Fund since its inception. Mr. Fitzgerald became a manager of
the MainStay Funds California Tax Free Fund and the MainStay Funds New York Tax
Free Fund in July 2000. Prior to joining MacKay Shields, Mr. Fitzgerald was
Senior Portfolio Manager at SSB Citibank Asset Management where he managed
tax-exempt fixed income accounts for institutions and high net-worth individuals
from August 1999 to May 2000. Prior to this, Mr. Fitzgerald was a Vice President
and Portfolio Manager at BlackRock Inc. and an Assistant Vice President at TCW
Insurance Advisors.

LAURIE WALTERS. Mr. Walters is a portfolio manager of the Tax Free Bond Fund and
has managed the Fund since its inception. Ms. Walters became a manager of the
MainStay Funds California Tax Free Fund and the MainStay Funds New York Tax Free
Fund in July 2000. Ms. Walters, who joined MacKay Shields in 1997, was a
Mortgage Trader at Bear Stearns & Company from September 1994 to February 1995
and with Nomura Securities International from 1987 to 1994. Prior to this, she
was an investment banking analyst at PaineWebber, Inc. Ms. Walters has 13 years
of investment management and research experience.

26
<PAGE> 30
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 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.

STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Funds. A current SAI is incorporated by
reference into the prospectus and has been filed with the SEC.

ANNUAL/SEMIANNUAL REPORTS
Provide additional information about the Funds' investments and include
discussions of market conditions and investment strategies that significantly
affected the Funds' performance during the last fiscal year or fiscal period.

TO OBTAIN INFORMATION:
Write NYLIFE Distributors Inc., attn: MainStay Marketing Dept., 300 Interpace
Parkway, Building A, Parsippany, N.J. 07054, call 1-800-695-2126.

You can obtain information about the Funds (including the SAI ) by visiting the
SEC's Public Relations Room in Washington, D.C. (phone 1-202-942-8090). You may
visit the SEC's website at http://www.sec.gov or you may send your written
request and duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-0102.

THE MAINSTAY INSTITUTIONAL FUNDS INC.
SEC File Number: 811-6175

NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway
Building A
Parsippany, New Jersey 07054
Distributor of MainStay Institutional Funds Inc.
NYLIFE Distributors Inc. is an indirect wholly owned
subsidiary of New York Life Insurance Company.

27
<PAGE> 31
[MAINSTAY INVESTMENTS LOGO]

[RECYCLE LOGO]
More information about the Funds is available free upon request.

28
<PAGE> 32
MAINSTAY INSTITUTIONAL FUNDS INC.
51 MADISON AVENUE
NEW YORK, NEW YORK 10010

STATEMENT OF ADDITIONAL INFORMATION

CORE BOND PLUS FUND
MID CAP CORE FUND
TAX FREE BOND FUND

DATE: JANUARY 2, 2001

This Statement of Additional Information (the "SAI") supplements the
information contained in the Company's Prospectus dated January 2, 2001, as
amended or supplemented from time to time (the "Prospectus"), for the Core Bond
Plus Fund, Mid Cap Core Fund and Tax Free Bond Fund and should be read in
conjunction with the Prospectus. The Prospectus is available without charge by
writing to MainStay Institutional Funds Inc., 260 Cherry Hill Road, Parsippany,
New Jersey 07054-1108, or by calling 1-800-695-2126. This SAI, although not in
itself a Prospectus, is incorporated in its entirety by reference in and is made
a part of the Prospectus. The Core Bond Plus Fund, Mid Cap Core Fund and Tax
Free Bond Fund are part of the MainStay Institutional family of Funds, which
include 14 mutual funds. The 11 other funds are offered in a separate prospectus
dated January 2, 2001, also available by writing to or calling the Distributor.

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
SAI or in the related Prospectus, in connection with the offer contained herein,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Funds or NYLIFE Distributors, Inc.
(the "Distributor"). This SAI and the related Prospectus do not constitute an
offer by the Company or by the Distributor to sell or a solicitation of any
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.

Shareholder inquiries should be made by writing directly to MainStay
Institutional Funds Inc., 260 Cherry Hill Road, Parsippany, New Jersey
07054-1108, or by calling 1-800-695-2126. In addition, you can make inquiries
through your registered representatives.
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE MAINSTAY INSTITUTIONAL FUNDS.............................................. 1
ADDITIONAL INFORMATION ABOUT THE FUNDS........................................ 1
CORE BOND PLUS FUND.................................................. 1
MID CAP CORE FUND.................................................... 2
TAX FREE BOND FUND................................................... 2
INVESTMENT PRACTICES AND INSTRUMENTS COMMON TO MULTIPLE FUNDS................. 3
TEMPORARY DEFENSIVE MEASURES......................................... 3
ARBITRAGE............................................................ 3
BORROWING............................................................ 3
CASH EQUIVALENTS..................................................... 4
COMMERCIAL PAPER..................................................... 4
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS.............. 4
U.S. GOVERNMENT SECURITIES........................................... 5
CORPORATE DEBT SECURITIES............................................ 5
LENDING OF PORTFOLIO SECURITIES...................................... 5
RESTRICTED SECURITIES................................................ 6
MUNICIPAL SECURITIES................................................. 6
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS........... 6
FLOATING AND VARIABLE RATE SECURITIES................................ 6
FOREIGN SECURITIES................................................... 7
FORWARD FOREIGN CURRENCY CONTRACTS................................... 8
FOREIGN INDEX-LINKED INSTRUMENTS..................................... 10
AMERICAN DEPOSITARY RECEIPTS ("ADRs")................................ 11
WHEN-ISSUED AND FIRM OR STANDBY COMMITMENT AGREEMENTS................ 11
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES................... 11
MORTGAGE DOLLAR ROLLS................................................ 16
BRADY BONDS.......................................................... 16
LOAN PARTICIPATION INTERESTS......................................... 16
REAL ESTATE INVESTMENT TRUSTS........................................ 17
RISK MANAGEMENT TECHNIQUES........................................... 18
OPTIONS ON SECURITIES................................................ 18
OPTIONS ON FOREIGN CURRENCIES........................................ 21
FUTURES TRANSACTIONS................................................. 22
WARRANTS............................................................. 27
SHORT SALES AGAINST THE BOX.......................................... 28
RISKS ASSOCIATED WITH DEBT SECURITIES................................ 28
SWAP AGREEMENTS...................................................... 28
HIGH YIELD/HIGH RISK SECURITIES...................................... 30
ZERO COUPON BONDS.................................................... 31
FUNDAMENTAL INVESTMENT RESTRICTIONS........................................... 31
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS....................................... 32
DIRECTORS AND OFFICERS........................................................ 33
THE MANAGER, THE SUBADVISOR AND THE DISTRIBUTOR............................... 37
MANAGEMENT AGREEMENT................................................. 37
SUB-ADVISORY AGREEMENTS.............................................. 38
DISTRIBUTION AGREEMENT............................................... 39
SHAREHOLDER INVESTMENT ACCOUNT................................................ 39
SHAREHOLDER TRANSACTIONS...................................................... 39
PURCHASES, REDEMPTIONS, EXCHANGES AND REPURCHASE.............................. 40
HOW TO PURCHASE SHARES OF THE FUNDS.................................. 40
REDEMPTIONS AND EXCHANGES............................................ 41
TAX-DEFERRED RETIREMENT PLANS................................................. 42
</TABLE>

i
<PAGE> 34
<TABLE>
<S> <C>
CASH OR DEFERRED PROFIT SHARING PLANS UNDER SECTION 401(k)
FOR CORPORATIONS AND SELF-EMPLOYED INDIVIDUALS....................... 42
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")................................ 42
403(b)(7) TAX SHELTERED ACCOUNT...................................... 43
GENERAL INFORMATION.................................................. 44
ADDITIONAL REDEMPTION INFORMATION.................................... 44
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................... 44
NET ASSET VALUE............................................................... 46
TAX INFORMATION............................................................... 47
TAXATION OF THE FUNDS................................................ 47
CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- GENERAL................ 48
CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- TAX FREE BOND FUND..... 49
DISCOUNT............................................................. 50
USERS OF BOND-FINANCED FACILITIES.................................... 50
TAXATION OF OPTIONS, FUTURES AND SIMILAR INSTRUMENTS................. 50
PASSIVE FOREIGN INVESTMENT COMPANIES................................. 51
FOREIGN CURRENCY GAINS AND LOSSES.................................... 52
DISPOSITIONS OF FUND SHARES.......................................... 52
TAX REPORTING REQUIREMENTS........................................... 52
FOREIGN TAXES........................................................ 53
STATE AND LOCAL TAXES................................................ 53
EXPLANATION OF FUND DISTRIBUTIONS.................................... 53
GENERAL INFORMATION.................................................. 53
PERFORMANCE INFORMATION....................................................... 54
OTHER INFORMATION............................................................. 55
CAPITALIZATION....................................................... 55
EFFECTIVE MATURITY................................................... 55
CONTROL PERSONS AND SHARE OWNERSHIP OF THE FUNDS..................... 55
CODE OF ETHICS....................................................... 55
INDEPENDENT ACCOUNTANTS.............................................. 55
LEGAL COUNSEL........................................................ 55
TRANSFER AGENT....................................................... 56
CUSTODIAN............................................................ 56
REGISTRATION STATEMENT............................................... 56
APPENDIX A.................................................................... 57
MOODY'S INVESTORS SERVICE, INC................................................ 57
STANDARD & POOR'S............................................................. 59
</TABLE>

ii
<PAGE> 35
THE MAINSTAY INSTITUTIONAL FUNDS

MainStay Institutional Funds Inc. (the "Company") is an open-end
management investment company (or mutual fund) currently consisting of 14
separate investment portfolios: Asset Manager Fund (formerly known as
Multi-Asset Fund), EAFE Index Fund, Growth Equity Fund, Indexed Equity Fund,
International Equity Fund, Value Equity Fund, Bond Fund, Indexed Bond Fund,
International Bond Fund, Money Market Fund, Short-Term Bond Fund, Core Bond Plus
Fund, Mid Cap Core Fund and Tax Free Bond Fund (hereinafter, the Core Bond Plus
Fund, Mid Cap Core Fund and Tax Free Bond Fund are individually referred to as a
"Fund" or, collectively, the "Funds"). Each Fund is a diversified fund as
defined by the Investment Company Act of 1940, as amended (the "1940 Act"). This
Statement of Additional Information refers specifically to the Core Bond Plus
Fund, Mid Cap Core Fund and Tax Free Bond Fund.

The Company, formed on September 21, 1990, is a Maryland corporation.
New York Life Investment Management LLC (the "Manager") serves as the manager
for the Funds and has entered into Sub-Advisory Agreements with MacKay Shields
LLC ("MacKay Shields", the "Subadvisor") with respect to the Core Bond Plus Fund
and the Tax Free Bond Fund.

ADDITIONAL INFORMATION ABOUT THE FUNDS

The Prospectus discusses the investment objectives, principal
investment strategies and principal risks of the Funds. This section contains
supplemental information concerning certain of the securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies the Funds may utilize, and certain risks involved with those
investments, policies and strategies.

NONE OF THE FUNDS ALONE CONSTITUTES A COMPLETE INVESTMENT PROGRAM.

Investment decisions for each Fund are made independently from those of
the other accounts and investment companies that may be managed by a Subadvisor.
However, if such other accounts or investment companies are prepared to invest
in, or desire to dispose of, securities in which one Fund invests at the same
time as another Fund managed by the same Subadvisor, available investments or
opportunities for sales will be allocated equitably to each. In some cases, this
procedure may adversely affect the size of the position obtained for or disposed
of by a Fund or the price paid or received by a Fund.

CORE BOND PLUS FUND

The Core Bond Plus Fund's investment objective is to seek to maximize
total return consistent with the preservation of capital. The Fund normally
invests at least 65% of its total assets in a diversified portfolio of

- Debt or debt related securities issued or guaranteed by the US or
foreign governments, their agencies or instrumentalities;

- Obligations of international or supranational entities;

- Debt securities issued by US or foreign corporate entities;

- Zero coupon bonds;

- Mortgage-related and other asset-backed securities;

- Loan participation interests.

The Fund may also invest up to 20% of its total assets in debt
securities rated below investment grade and 10% of its total assets in foreign
securities. As part of the principal investment strategy, the Fund's Subadvisor
may use mortgage dollar rolls and portfolio securities lending techniques.
<PAGE> 36
MID CAP CORE FUND

The Mid Cap Core Fund's investment objective is to seek long-term
growth of capital.

The Fund normally invests at least 65% of the value of its total assets
in the stocks of mid-sized companies. NYLIM, the Fund's manager, seeks those mid
cap companies that it believes will outperform the average of the mid cap
universe. Mid-sized companies are those companies with market capitalizations of
approximately $2 billion to $10 billion.

NYLIM uses a quantitative management approach that ranks stocks based
on a proprietary model. NYLIM ranks companies in the mid cap universe and then
generally invests in those companies ranked in the top 75% of the universe.
NYLIM ranks stocks based on the financial strength of the issuer and the
potential for strong, long-term earnings growth. This approach seeks to
overweight those mid cap stocks that NYLIM believes will outperform the mid cap
universe as a whole.

TAX FREE BOND FUND

The Tax Free Bond Fund's investment objective is to provide a high
level of current income free from regular federal income tax, consistent with
the preservation of capital. The Subadvisor uses a combined approach to
investing, analyzing economic trends as well as factors pertinent to particular
issuers and securities. Up to 25% of the Fund's total assets may be invested in
industrial development bonds. The Fund also may invest in pollution control
bonds and zero coupon bonds. The Fund may also invest more than 25% of its total
assets in municipal bonds that are related in such a way that an economic,
business or political development or change affecting one such security could
also affect the other securities (for example, securities whose issuers are
located in the same state). Some of the Fund's earnings may be subject to
federal tax and most may be subject to state and local taxes.

The values of debt securities fluctuate depending upon various factors,
including:

- interest rates

- issuer creditworthiness

- market conditions

- maturities.

Consistent with its principal investment strategies, the Fund's
investments include derivatives, such as call and put options, futures contracts
on debt securities or securities indexes and options on futures contracts. The
Fund may use derivatives to try to enhance returns or reduce the risk of loss of
(hedge) certain of its holdings. Regardless of the purpose, the Fund may lose
money using derivatives. The use of derivatives may increase the volatility of
the Funds net asset value and may involve a small investment of cash relative to
the magnitude of risk assumed.

Industrial development, pollution control, and revenue bonds are
generally not secured by the taxing power of the municipality but are secured by
revenues paid by the industrial user. This means that if the industrial user
cannot repay principal and/or interest on the bonds, the Fund may lose money.

High yield securities are generally considered speculative because they
present a greater risk of loss, including default, than higher quality debt
securities. These securities pay investors a premium--a high interest rate or
yield--because of the increased risk of loss. These securities can also be
subject to greater price volatility.

To help you decide whether taxable or nontaxable yields are better for
you, see Appendix A for a comparative yield table.

Municipal bonds are issued to obtain funds for various public purposes.
The two main types of municipal bonds are general obligation and revenue bonds.
The interest on these obligations is generally exempt from regular federal
income tax in the hands of most investors. Because the Fund may hold high-grade
municipal bonds, the income earned on

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shares of the Fund may tend to be less than it might be on a portfolio
emphasizing lower quality securities. Conversely, to the extent that the Fund
holds lower quality securities, the risk of default in the payment of principal
or interest by the issuer of a portfolio security is greater than if the Fund
held only higher quality securities. Although higher quality tax-exempt
securities may produce lower yields, they are generally more marketable. To
protect the Fund's capital under adverse market conditions, the Fund may from
time to time purchase higher quality securities or taxable short-term
investments with a resultant decrease in yield or increase in the proportion of
taxable income.

The Fund may sell a security at any time in order to improve the yield
on the Fund's portfolio. In buying and selling portfolio securities, the Fund
seeks to take advantage of market developments, yield disparities and variations
in the creditworthiness of issuers. The Fund will not engage in arbitrage
transactions. The Fund may invest in Industrial Development and Pollution
Control Bonds and municipal lease obligations.

From time to time, the Fund may invest 25% or more of the value of its
total assets in municipal bonds that are related in such a way that an economic,
business, or political development or change affecting one such security could
also affect the other securities (for example, securities whose issuers are
located in the same state). The Fund may also invest up to 25% of its total
assets in Industrial Development Bonds. Further, the Fund may acquire all or
part of privately negotiated loans made to tax-exempt borrowers. To the extent
that these private placements are not readily marketable, the Fund will limit
its investment in such securities (along with all other illiquid securities) to
no more than 10% of the value of its total assets. Because an active trading
market may not exist for such securities, the price that the Fund may pay for
these securities or receive on their resale may be lower than that for similar
securities with a more liquid market. The Fund may not invest more than 20% of
its net assets in tax-exempt securities subject to the federal alternative
minimum tax (AMT) for individual shareholders.

The duration of the Fund's portfolio will be managed in light of
current and projected economic and market conditions and other factors
considered relevant by the Subadvisor.

INVESTMENT PRACTICES AND INSTRUMENTS COMMON TO MULTIPLE FUNDS

The Funds may engage in the following investment practices, or invest
in the following instruments to the extent permitted in the Prospectus and
elsewhere in this SAI.

TEMPORARY DEFENSIVE MEASURES

In times of unusual or adverse market conditions - for temporary
defensive purposes - each Fund may invest without limit in cash and cash
equivalents. See "Cash Equivalents."

ARBITRAGE

Each Fund may sell in one market a security which it owns and
simultaneously purchase the same security in another market, or it may buy a
security in one market and simultaneously sell it in another market, in order to
take advantage of differences in the price of the security in the different
markets. The Funds do not actively engage in arbitrage. Such transactions may be
entered into only with respect to debt securities and will occur only in a
dealer's market where the buying and selling dealers involved confirm their
prices to the Fund at the time of the transaction, thus eliminating any risk to
the assets of a Fund. Such transactions, which involve costs to a Fund, may be
limited by the requirements imposed on each Fund to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code").

BORROWING

A Fund may borrow from a bank up to a limit of 15% of its total assets,
but only for temporary or emergency purposes. This borrowing may be unsecured.
The 1940 Act requires a Fund to maintain continuous asset coverage (that is,
total assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, a Fund may be required to sell
some of its portfolio holdings within three days to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time and could cause the Fund
to be unable to meet

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<PAGE> 38
certain requirements for qualification as a regulated investment company for
Federal tax purposes. To avoid the potential leveraging effects of a Fund's
borrowings, a Fund will repay any money borrowed in excess of 5% of its total
assets prior to purchasing additional securities. Borrowing may exaggerate the
effect on a Fund's net asset value of any increase or decrease in the market
value of the Fund's portfolio securities. Money borrowed will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased. A Fund also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate.

CASH EQUIVALENTS

Each of the Funds may invest in cash or cash equivalents, which
include, but are not limited to: short-term obligations issued or guaranteed as
to interest and principal by the U.S. Government or any agency or
instrumentality thereof (including repurchase agreements collateralized by such
securities); obligations of banks (certificates of deposit, bankers' acceptances
and time deposits) which at the date of investment have capital, surplus, and
undivided profits (as of the date of their most recently published financial
statements) in excess of $100,000,000, and obligations of other banks or savings
and loan associations if such obligations are federally insured; commercial
paper (as described in this SAI); short-term corporate obligations which at the
date of investment are rated AA or better by S&P or Aa or better by Moody's; and
other debt instruments not specifically described above if such instruments are
deemed by the Subadvisor to be of comparable high quality and liquidity.

COMMERCIAL PAPER

Each Fund may invest in commercial paper. Each Fund will invest in
commercial paper 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 Funds Subadvisor determines that
the commercial paper is of comparable quality. Commercial paper represents
short-term unsecured promissory notes issued by banks or bank holding companies,
corporations and finance companies.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS

The Funds may enter into domestic or foreign repurchase agreements with
certain sellers determined by the Manager or Subadvisor to be creditworthy. A
repurchase agreement, which provides a means for a Fund to earn income on
uninvested cash for periods as short as overnight, is an arrangement under which
the purchaser (i.e., the Fund) purchases securities (the "Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. 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 a custodian appointed by the
Fund. The Fund attempts to assure that the value of the purchased securities,
including any accrued interest, will at all times exceed the value of the
repurchase agreement. 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 Subadvisor 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. No
Fund will invest more than 10% of its net assets (taken at current market value)
in repurchase agreements maturing in more than seven days.

Each Fund may enter into reverse repurchase agreements with banks or
broker-dealers, which involve the sale of a security by a Fund and its agreement
to repurchase the instrument at a specified time and price. The Fund will
maintain a segregated account consisting of liquid assets to cover its
obligations under reverse repurchase agreements. Each Fund will limit its
investments in reverse repurchase agreements and other borrowing to no more than
one-third of its total assets.

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<PAGE> 39
The use of reverse repurchase agreements by a Fund creates leverage which
increases a Fund's investment risk. If the income and gains on securities
purchased with the proceeds of reverse repurchase agreements exceed the cost of
the agreements, the Fund's earnings or net asset value will increase faster than
otherwise would be the case; conversely, if the income and gains fail to exceed
the costs, earnings or net asset value would decline faster than otherwise would
be the case.

The Directors have reviewed and approved certain sellers who they
believe to be creditworthy and have authorized each Fund to enter into
repurchase agreements with such sellers. If the other party to a repurchase
agreement were to become bankrupt, a Fund could experience delays in recovering
its investment or losses.

U.S. 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 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.

CORPORATE DEBT SECURITIES

A Fund's investments in U.S. dollar- or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments) which meet the credit quality and maturity criteria
set forth for the particular Fund. The rate of return or return of principal on
some debt obligations may be linked to indexes or stock prices or indexed to the
level of exchange rates between the U.S. dollar and foreign currency or
currencies.

Corporate debt securities with a rating lower than BBB by S&P, and
corporate debt securities rated Baa or lower by Moody's, have speculative
characteristics and changes in economic conditions or individual corporate
developments are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of high grade bonds. Should any
individual bond held by a Fund, fall below a rating of BBB by S&P or Baa by
Moody's, the Fund's Subadvisor will dispose of such bond as soon as reasonably
practicable in light of then-existing market and tax considerations.

LENDING OF PORTFOLIO SECURITIES

In accordance with guidelines adopted by the Board of Directors, each
Fund may seek to, increase its income by lending portfolio securities. Under
present regulatory policies, such loans may be made to institutions, such as
broker-dealers, and would be required to be secured continuously by collateral
in cash or U.S. government securities maintained on a current basis at an amount
at least equal to the market value of the securities loaned. The total market
value of securities loaned will not exceed 33% of the total assets of a Fund.
The Fund would have the right to call a loan and obtain the securities loaned at
any time generally on less than five days' notice. For the duration of a loan,
the Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive compensation
from the investment of the collateral. The Fund would not, however, have the
right to vote any securities having voting rights during the existence of the
loan, but the Fund would call the loan in anticipation of an important vote to
be taken among holders of the securities or of the giving or withholding of
their consent on a material matter affecting the investment. The Company, on
behalf of certain of the Funds, has entered into an agency agreement with
Metropolitan West Securities, Inc. which acts as the Funds' agent in making
loans of portfolio securities and short-term money market investments of the
cash collateral received, subject to the supervision and control of the Funds'
Subadvisor.

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 or breach its agreement with a Fund. However,
the loans would be made only to firms deemed by a Subadvisor to be creditworthy
and approved by the Board, and when, in the judgment of a Subadvisor, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If a Subadvisor determines to make securities
loans, it is intended that the value of the securities loaned will not exceed
33%

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<PAGE> 40
of the value of the total assets of the lending Fund. Under the guidelines
adopted by the Board of Directors, a Fund is prohibited from lending more than
5% of the Fund's total assets to any one counterparty.

RESTRICTED SECURITIES

To the extent that they invest in restricted securities, the Funds may
be exposed to additional risks. "Restricted" securities are those securities
which have not been registered under the Securities Act of 1933, as amended (the
"Securities 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. A Fund attempting to
dispose of restricted securities may incur additional transaction costs in
finding a buyer or, in an extreme case, the cost of registering the security.

MUNICIPAL SECURITIES

The Tax Free Bond Fund may purchase municipal securities which are debt
obligations of state and local governments, agencies and authorities. Municipal
securities, which may be issued in various forms, including notes and bonds, are
issued to obtain funds for various public purposes. The other Funds may purchase
municipal securities for temporary defensive purposes. Two principal
classifications of municipal bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities, or, in some cases, from the proceeds of a special excise or
specific revenue source. Industrial development bonds or private activity bonds
are issued by or on behalf of public authorities to obtain funds for privately
operated facilities and are, in most cases, revenue bonds which do not generally
carry the pledge of the full faith and credit of the issuer of such bonds, but
depend for payment on the ability of the industrial user to meet its obligations
(or any property pledged as security).

BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS

Each Fund may invest in certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by commercial
banks and in certificates of deposit, time deposits and other short-term
obligations issued by savings and loan associations.

Certificates of deposit are receipts from a bank or savings and loan
association ("S&L"), for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally similar
to certificates of deposit, but are uncertificated. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. Each Fund may not invest in time deposits
maturing in more than seven days which are subject to withdrawal penalties. Each
Fund will limit its investment in time deposits for which there is a penalty for
early withdrawal to 10% of its net assets.

Each Fund will not invest in any obligation of a domestic or foreign
bank unless (i) the bank has capital, surplus, and individual profits (as of the
date of the most recently published financial statements) in excess of $100
million, or the equivalent in other currencies, and (ii) in the case of a U.S.
bank, its deposits are insured by the Federal Deposit Insurance Corporation.
These limitations do not prohibit investments in the securities issued by
foreign branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.

FLOATING AND VARIABLE RATE SECURITIES

Each Fund may invest in floating rate debt instruments. Floating and
variable rate securities provide for a periodic adjustment in the interest rate
paid on the obligations. The terms of such obligations must provide that
interest rates are adjusted periodically based upon an interest rate adjustment
index as provided in the respective obligations. The adjustment intervals may be
regular, and range from daily up to annually, or may be event based, such as
based on a change in the prime rate.

The interest rate on a floating rate debt instrument ("floater") is a
variable rate which is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater resets periodically,
typically every

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<PAGE> 41
six months. While, because of the interest rate reset feature, floaters provide
a Fund with a certain degree of protection against rises in interest rates, a
Fund will participate in any declines in interest rates as well.

Each Fund may invest in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater resets
in the opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater volatility in their
market values. Accordingly, the duration of an inverse floater may exceed its
stated final maturity. Certain inverse floaters may be determined to be illiquid
securities for purposes of a Fund's limitation on investments in such
securities.

FOREIGN SECURITIES

The Core Bond Plus Fund and Mid Cap Core Fund may invest in securities
of foreign issuers. Each Fund may invest, without limit, subject to the other
investment policies applicable to the Fund, in U.S. dollar-denominated and
non-dollar denominated foreign debt securities and in certificates of deposit
issued by foreign banks and foreign branches of United States banks, to any
extent deemed appropriate by MacKay Shields. Securities of issuers within a
given country may be denominated in the currency of another country.

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 custodial costs
than domestic securities transactions. In addition, the foreign securities
markets of many of the countries in which the Funds may invest may also be
smaller, less liquid and subject to greater price volatility than those in the
United States.

Many of the foreign securities in which the Funds (other than the Tax
Free Bond Fund) invest will be denominated in foreign currencies. Changes in
foreign exchange rates will affect the value of securities denominated or quoted
in foreign currencies. Exchange rate movements can be large and can endure for
extended periods of time, affecting either favorably or unfavorably the value of
the Funds' assets. A Fund may, however, engage in foreign currency transactions
to protect itself against fluctuations in currency exchange rates in relation to
the U.S. dollar. Such foreign currency transactions may include forward foreign
currency contracts, currency exchange transactions on a spot (i.e., cash) basis,
put and call options on foreign currencies, and foreign exchange futures
contracts.

Each Fund may invest in emerging market countries, which presents risks
in greater degree than, and in addition to, those presented by investment in
foreign issuers in general. A number of emerging market countries restrict, to
varying degrees, foreign investment in stocks. Repatriation of investment
income, capital and the proceeds of sales by foreign investors may require
governmental registration and/or approval in some emerging market countries. A
number of the currencies of developing countries have experienced significant
declines against the U.S. dollar in recent years and devaluation may occur
subsequent to investments in these currencies by the Fund. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries.

Many of the emerging securities markets are relatively small, have low
trading volumes, suffer periods of relative illiquidity, and are characterized
by significant price volatility. There is a risk in emerging market countries
that a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization or creation of government monopolies, any of which may have a
detrimental effect on the Fund's investments.

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To a different degree, each Fund is permitted to invest in debt
securities or obligations of foreign governments, agencies, and supranational
organizations ("Sovereign Debt"). Investments in Sovereign Debt can involve
greater risks than investing in U.S. Government Securities. The issuer of the
debt or the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited legal recourse in the
event of default.

The occurrence of political, social or diplomatic changes in one or
more of the countries issuing Sovereign Debt could adversely affect a Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While the investment advisers intend to manage the Funds'
portfolios in a manner that will minimize the exposure to such risks, there can
be no assurance that adverse political changes will not cause a Fund to suffer a
loss of interest or principal on any of its holdings.

FORWARD FOREIGN CURRENCY CONTRACTS

A forward foreign currency contract (a "forward contract") is an
obligation to purchase or sell a specific currency for an agreed price at a
future date (usually less than a year), which is individually negotiated and
privately traded by currency traders and their customers. These contracts may be
used to gain exposure to a particular currency or to hedge against the risk of
loss due to changing currency exchange rates.

A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. Although foreign exchange
dealers do not charge a fee for commissions, they do realize a profit based on
the difference between the price at which they are buying and selling various
currencies. Although these contracts are intended, when hedging, to minimize the
risk of loss due to a decline in the value of the hedged currencies, at the same
time, they tend to limit any potential gain which might result should the value
of such currencies increase.

While a Fund (other than the Tax Free Bond Fund) may enter into forward
contracts to reduce currency exchange risks, changes in currency exchange rates
may result in poorer overall performance for the Fund than if it had not engaged
in such transactions. Moreover, there may be an imperfect correlation between a
Fund's portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Fund. Such imperfect correlation may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.

A Fund will hold liquid assets in a segregated account with its
custodian in an amount equal (on a daily marked-to-market basis) to the amount
of the commitments under these contracts. At the maturity of a forward contract,
a Fund may either accept or make delivery of the currency specified in the
contract, or prior to maturity, enter into a closing purchase transaction
involving the purchase or sale of an offsetting contract. Closing purchase
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract. A Fund will
only enter into such a forward contract if it is expected that there will be a
liquid market in which to close out the contract. However, there can be no
assurance that a liquid market will exist in which to close a forward contract,
in which case the Fund may suffer a loss.

Generally, consideration of the prospect for currency parities will be
incorporated in a longer term investment decision made with regard to overall
diversification strategies. However, each Subadvisor believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interest of a Fund will be served by entering into such
a contract. Generally, the Subadvisor believes that the best interest of a Fund
will be served by entering into such a contract under various circumstances,
some of which are described below. For example, when a Fund enters into, or
anticipates going into, a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollars
price of the security. By entering into a forward contract for the purpose or
sale, for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, a Fund will be able to insulate
itself from a possible loss resulting from a change in the relationship between
the U.S. dollar and the subject foreign currency during the period between the
date on which payment is made or received, although a Fund would also forego any
gain it might have realized had rates moved in the opposite direction. This
technique is sometimes referred to as a "settlement" hedge or "transaction"
hedge.

In addition, when the Subadvisor believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of a Fund's portfolio securities denominated in such foreign

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currency. Such a hedge (sometimes referred to as a "position hedge") will tend
to offset both positive and negative currency fluctuations, but will not offset
changes in security values caused by other factors. The Fund also may hedge the
same position by using another currency (or a basket of currencies) expected to
perform in a manner substantially similar to the hedged currency ("proxy"
hedge). The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. With respect to positions that
constitute "transaction" or "position" hedges (including "proxy" hedges), a Fund
will not enter into forward contracts to sell currency or maintain a net
exposure to such contracts if the consummation of such contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency (or the
related currency, in the case of a "proxy" hedge).

A Fund also may enter into forward contracts to shift its investment
exposure from one currency into another currency that is expected to perform
inversely with respect to the hedged currency relative to the U.S. dollar. This
type of strategy, sometimes known as a "cross-currency" hedge, will tend to
reduce or eliminate exposure to the currency that is sold, and increase exposure
to the currency that is purchased, much as if the Fund had sold a security
denominated in one currency and purchased an equivalent security denominated in
another. "Cross-currency" hedges protect against losses resulting from a decline
in the hedged currency, but will cause the Fund to assume the risk of
fluctuations in the value of the currency it purchases.

A Fund may also enter into currency transactions to profit from
changing exchange rates based upon the Subadvisor's assessment of likely
exchange rate movements. These transactions will not necessarily hedge existing
or anticipated holdings of foreign securities and may result in a loss if the
Subadvisor's currency assessment is incorrect.

At the consummation of the forward contract, a Fund may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract obligating it
to purchase at the same maturity date the same amount of such foreign currency.
If a Fund chooses to make delivery of the foreign currency, it may be required
to obtain such currency for delivery through the sale of portfolio securities
denominated in such currency, or through conversion of other assets of the Fund
into such currency. If a Fund engages in an offsetting transaction, the Fund
will realize a gain or a loss to the extent that there has been a change in
forward contract prices. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.

A Fund's dealing in forward contracts will be limited to the
transactions described above. Of course, a Fund is not required to enter into
such transactions with regard to its foreign currency-denominated securities and
will not do so unless deemed appropriate by a Subadvisor. A Fund generally will
not enter into a forward contract with a term of greater than one year.

In cases of transactions which constitute "transaction" or "settlement"
hedges or "position" hedges (including "proxy" hedges) or "cross-currency"
hedges that involve the purchase and sale of two different foreign currencies
directly through the same forward foreign currency contact, a Fund may deem its
forward currency hedge position to be covered by underlying Fund portfolio
securities or may establish a Segregated Account with its Custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the subject hedge. The Segregated Account will consist of liquid assets. In the
case of "anticipatory" hedges and "cross-currency" hedges that involve the
purchase and sale of two different foreign currencies indirectly through
separate forward currency contracts, the Fund will establish a Segregated
Account with its Custodian as described above. In the event a Fund establishes a
Segregated Account, the Fund will mark-to-market the value of the assets in the
Segregated Account. If the value of the assets placed in the Segregated Account
declines, additional liquid assets will be placed in the account by the Fund on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts.

It should be realized that this method of protecting the value of a
Fund's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. It also reduces any potential gain which may have otherwise occurred had
the currency value increased above the settlement price of the contract.

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<PAGE> 44
Forward contracts are intended to minimize the risk of loss to a Fund
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. Such contracts do not eliminate fluctuations in the underlying
prices of securities held by the Funds. Although such contracts tend to minimize
the risk of loss due to a decline in the value of a currency that has been sold
forward, and the risk of loss due to an increase in the value of a currency that
has been purchased forward, at the same time they tend to limit any potential
gain that might be realized should the value of such currency increase.

The Funds cannot assure that their use of forward contracts will always
be successful. Successful use of forward contracts depends on the Subadvisor's
skill in analyzing and predicting relative currency values. Forward contracts
alter a Fund's exposure to currency exchange rate activity and could result in
losses to the Fund if currencies do not perform as the Subadvisor anticipates. A
Fund may also incur significant costs when converting assets from one currency
to another. Contracts to sell foreign currency would limit any potential gain
which might be realized by a Fund if the value of the hedged currency increases.

The Subadvisor believes that active currency management can enhance
portfolio returns through opportunities arising from interest rate differentials
between securities denominated in different currencies and/or changes in value
between currencies. Moreover, the Subadvisor believes active currency management
can be employed as an overall portfolio risk management tool. For example, in
their view, foreign currency management can provide overall portfolio risk
diversification when combined with a portfolio of foreign securities, and the
market risks of investing in specific foreign markets can at times be reduced by
currency strategies which may not involve the currency in which the foreign
security is denominated.

The Funds cannot assure that their use of forward contracts will always
be successful. Successful use of forward contracts depends on the Subadvisor's
skill in analyzing and predicting relative currency values. Forward contracts
alter a Fund's exposure to currency exchange rate activity and could result in
losses to the Fund if currencies do not perform as the Subadvisor anticipates. A
Fund may also incur significant costs when converting assets from one currency
to another. Contracts to sell foreign currency would limit potential gain which
might be realized by a Fund if the value of the hedged currency increases.

A Fund's foreign currency transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company.

FOREIGN INDEX-LINKED INSTRUMENTS

As part of its investment program, and to maintain greater flexibility,
each Fund may, subject to compliance with its respective limitations applicable
to its investment in debt securities, invest in instruments issued by the U.S.
or a foreign government or by private issuers that return principal and/or pay
interest to investors in amounts which are linked to the level of a particular
foreign index ("foreign index-linked instruments"). Foreign index-linked
instruments have the investment characteristics of particular securities,
securities indexes, futures contracts or currencies. Such instruments may take a
variety of forms, such as debt instruments with interest or principal payments
determined by reference to the value of a currency or commodity at a future
point in time. Foreign index-linked instruments have the investment
characteristics of particular securities, securities indexes, futures contracts
or currencies. Such instruments may take a variety of forms, such as debt
instruments with interest or principal payments determined by reference to the
value of a currency or commodity at a future point in time.

A foreign index may be based upon the exchange rate of a particular
currency or currencies or the differential between two currencies, or the level
of interest rates in a particular country or countries or the differential in
interest rates between particular countries. In the case of foreign index-linked
instruments linking the interest components to a foreign index, the amount of
interest payable will adjust periodically in response to changes in the level of
the foreign index during the term of the foreign index-linked instrument. The
risks of such investments would reflect the risks of investing in the index or
other instrument, the performance of which determines the return for the
instrument. Tax considerations may limit the Funds' ability to invest in foreign
index-linked instruments.

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AMERICAN DEPOSITARY RECEIPTS ("ADRS")

ADRs (sponsored or unsponsored) are receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying foreign securities.
Most ADRs are traded on a U.S. stock exchange. Issuers of unsponsored ADRs are
not contractually obligated to disclose material information in the U.S. and,
therefore, there may not be a correlation between such information and the
market value of the unsponsored ADR. European Depositary Receipts and
International Depositary Receipts are receipts typically issued by a European
bank or trust company evidencing ownership of the underlying foreign securities.
Global Depositary Receipts are receipts issued by either a U.S. or non-U.S.
banking institution evidencing ownership of the underlying foreign securities.

WHEN-ISSUED AND FIRM OR STANDBY COMMITMENT AGREEMENTS

Each Fund 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 (60 days for municipal bonds and notes). During the period
between purchase and settlement, no payment is made by the Fund and no interest
accrues to the Fund. To the extent that assets of a Fund are held in cash
pending the settlement of a purchase of securities, that Fund would earn no
income; however, it is the Company's intention that each Fund will be fully
invested to the extent practicable and subject to the policies stated herein.
Although when-issued, or firm or standby commitment securities may be sold prior
to the settlement date, the Company intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons.

The transactions are entered into in order to secure what is considered
to be an advantageous price and yield to a Fund and not for purposes of
leveraging the Fund's assets. However, a Fund will not accrue any income on
these securities prior to delivery. The value of when-issued securities and firm
and standby commitment agreements may vary prior to and after delivery depending
on market conditions and changes in interest rate levels. There is a risk that a
party with whom a Fund has entered into such transactions will not perform its
commitment, which could result in a gain or loss to the Fund.

At the time the Company makes the commitment on behalf of a Fund to
purchase a security on a when-issued, or firm or standby commitment basis, it
will record the transaction and reflect the amount due and the value of the
security in determining the Fund's net asset value. The market value of the
when-issued, or firm or standby commitment securities may be more or less than
the purchase price payable at the settlement date. The Directors do not believe
that a Fund's net asset value or income will be exposed to additional risk by
the purchase of securities on a when-issued or firm commitment basis. Each Fund
will establish a segregated account in which it will maintain liquid assets at
least equal in value to any commitments to purchase securities on a when-issued,
firm, or standby commitment basis. Such segregated securities either will mature
or, if necessary, be sold on or before the settlement date.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES

Mortgage-related and asset-back securities, which include
mortgage-backed securities, are securities that derive their value from
underlying pools of loans that may include interests in pools of lower-rate debt
securities, consumer loans or mortgages, or complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed securities. The
value of these securities may be significantly affected by changes in interest
rates, the market's perception of issuers and the creditworthiness of the
parties involved. The ability of a Fund to successfully utilize these
instruments may depend in part upon the ability of the Fund's Subadvisor to
forecast interest rates and other economic factors correctly. Some securities
may have a structure that makes their reaction to interest rate changes and
other factors difficult to predict, making their value highly volatile. These
securities may also be subject to prepayment risk and if the security has been
purchased at a premium the amount of the premium would be lost in the event of
prepayment. While principal and interest payments on some mortgage-related
securities may be guaranteed by the U.S. government, government agencies or
other guarantors, the market value of such securities is not guaranteed.

A Fund will invest only in mortgage-related (or other asset-backed)
securities either (i) issued by U.S. government-sponsored corporations
(currently the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC")), or (ii) privately issued securities rated Baa or better
by Moody's or BBB by S&P or, if not rated, of comparable investment

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quality as determined by the Fund's investment adviser. In addition, if any such
security is determined to be illiquid, a Fund will limit its investments in
these and other illiquid instruments to not more than 10% of its net assets.

MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities,
which are securities interests in pools of mortgage-related securities, differ
from other forms of debt securities, which normally provide for periodic payment
of interest in fixed amounts with principal payments at maturity or specified
call dates. Instead, these securities provide a monthly payment which consists
of both interest and principal payments. In effect these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by the GNMA) 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. Some mortgage pass-through certificates may include
securities backed by adjustable-rate mortgages which bear interest at a rate
that will be adjusted periodically.

Early repayment of principal on mortgage pass-through securities
(arising from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose a Fund to a lower rate of return upon reinvestment of principal. Also, if
a security subject to prepayment has been purchased at a premium, in the event
of prepayment, the value of the premium would be lost.

Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. government (in the case of
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. government (in the case of securities guaranteed by the FNMA or the
FHLMC, which are supported only by the discretionary authority of the U.S.
government to purchase the agency's obligations).

The principal governmental guarantor of mortgage-related securities is
the GNMA. GNMA is a wholly-owned U.S. government corporation within the U.S.
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 ("FHA")-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 FNMA and the 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
and acts as a government instrumentality under authority granted by Congress.
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. FNMA is authorized to borrow from the U.S. Treasury to
meet its obligations.

FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation and acts as a government instrumentality under authority
granted by Congress. FHLMC was formerly owned by the twelve Federal Home Loan
Banks and is now owned entirely by private stockholders. 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.

If either fixed or variable rate pass-through securities issued by the
U.S. government or its agencies or instrumentalities are developed in the
future, the Funds, reserve the right to invest in them.

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

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<PAGE> 47
mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government or agency guarantees of
payments in the former pools. However, timely payment of interest and principal
of these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets a Fund's investment quality standards.
There can be no assurance that the private insurers or guarantors can meet their
obligations under the insurance policies or guarantee arrangements. A Fund may
buy mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, the Fund's Subadvisor determines that the securities meet the Fund's
quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. No Fund will purchase mortgage-related securities or any
other assets which in the opinion of the Fund's Subadvisor 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 eligible Funds 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 a 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 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 FHLMCs
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of 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.

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<PAGE> 48
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. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals and stripped mortgaged-backed
securities, and may be structured in classes with rights to receive varying
proportions of principal and interest. Other mortgage-related securities may be
equity or debt 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, partnerships, trusts and special purpose
entities of the foregoing.

The Funds' Subadvisor 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, a Fund's
Subadvisor will, consistent with the Fund's investment objectives, policies and
quality standards, consider making investments in such new types of
mortgage-related securities.

CMO RESIDUALS. CMO residuals are derivative mortgage securities issued
by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks
and special purpose entities of the foregoing.

The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Stripped
Mortgage-Backed Securities." In addition, if a series of a CMO includes a class
that bears interest at an adjustable rate, the yield to maturity on the related
CMO residual will also be extremely sensitive to changes in the level of the
index upon which interest rate adjustments, are based. As described below with
respect to stripped mortgage-backed securities, in certain circumstances, a
portfolio may fail to recoup fully its initial investment in a CMO residual.

CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act. CMO residuals, whether or not
registered under the Securities Act, may be subject to certain restrictions on
transferability, and may be deemed "illiquid" and subject to a portfolio's
limitations on investment in illiquid securities. Each of the Funds limits its
investment in CMO residuals to less than 5% of its net assets.

CMOs may offer a higher yield than U.S. government securities, but they
may also be subject to greater price fluctuation and credit risk. In addition,
CMOs typically will be issued in a variety of classes or series, which have
different maturities and are retired in sequence. Privately issued CMOs are not
government securities nor are they supported in any way by any governmental
agency or instrumentality. In the event of a default by an issuer of a CMO,
there is no assurance that the collateral securing such CMO will be sufficient
to pay principal and interest. It is possible that there will be limited

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opportunities for trading CMOs in the over-the-counter market, the depth and
liquidity of which will vary from time to time.

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 IO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, a
Fund may fail to fully recoup its initial investment in these securities even if
the security is in one of the highest rating categories.

Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.

RISKS ASSOCIATED WITH MORTGAGE-RELATED SECURITIES. As in the case with
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-related securities in which the Funds may invest may be particularly
sensitive to changes in prevailing interest rates, and, like the other
investments of the Funds, the ability of a Fund to successfully utilize these
instruments may depend in part upon the ability of a Subadvisor to forecast
interest rates and other economic factors correctly. If the Subadvisor
incorrectly forecasts such factors and has taken a position in mortgage-related
securities that is or becomes contrary to prevailing market trends, the Funds
could be exposed to the risk of a loss.

Investment in mortgage-related 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 overtime. The price of mortgage-related 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-related securities, and a Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.

Credit risk reflects the chance that a Fund may not receive all or part
of its principal because the issuer or credit enhance 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-related securities, issued by private institutions, is based on
the financial health of those institutions.

OTHER ASSET-BACKED SECURITIES. The Funds' Subadvisor 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 Receivables
("CARs(SM)"). CARs(SM) represent undivided fractional interests in a trust
("trust") whose assets consist of a pool of motor vehicle retail installment
sales contracts and

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security interests in the vehicles securing the contracts. Payments of principal
and interest on CARs(SM) are passed-through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARs(SM) may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the trust may be prevented from realizing the
full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of Federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

Consistent with a Fund's investment objective and policies a Fund 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-related securities.

MORTGAGE DOLLAR ROLLS

A mortgage dollar roll ("MDR") is a transaction in which a Fund sells
mortgage-related securities ("MBS") from its portfolio to a counter party from
whom it simultaneously agrees to buy a similar security on a delayed delivery
basis. The Fund maintains a segregated account with its custodian containing
securities from its portfolio having a value not less than the repurchase price,
including accrued interest. MDR transactions involve certain risks, including
the risk that the MBS returned to the Fund at the end of the roll, while
substantially similar, could be inferior to what was initially sold to the
counter party.

BRADY BONDS

Each Fund may invest a portion of its assets in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructurings.
Brady Bonds may be collateralized or uncollateralized and are issued in various
currencies (primarily the U.S. dollar). Brady Bonds are not considered U.S.
Government securities. U.S. dollar-denominated, collateralized Brady Bonds,
which may be fixed rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized on a one-year or longer rolling-forward basis by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk").

Brady Bonds involve various risk factors, including the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds. Investments in Brady Bonds are to be viewed as
speculative. There can be no assurance that Brady Bonds in which the Fund may
invest will not be subject to restructuring arrangements or to requests for new
credit, which may cause the Fund to suffer a loss of interest or principal on
any of its holdings.

LOAN PARTICIPATION INTERESTS

The Funds may invest in participation interests in loans. A Fund's
investment in loan participation interests may take the form of participation
interests in, assignments of or novations of a corporate loan ("Participation
Interests"). The Participation Interests may be acquired from an agent bank,
co-lenders or other holders of Participation Interests ("Participants"). In a
novation, a Fund would assume all of the rights of the lender in a corporate
loan, including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a lender
directly against the borrower. As an alternative, a Fund may purchase an
assignment of all or a portion of a lender's interest in a corporate loan, in
which case, the Fund may be required generally to rely on the assigning lender
to demand payment and enforce its rights against the borrower, but would
otherwise be entitled to all of such lender's rights in the

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<PAGE> 51
corporate loan. A Fund also may purchase a Participation Interest in a portion
of the rights of a lender in a corporate loan. In such a case, the Fund will be
entitled to receive payments of principal, interest and fees, if any, but
generally will not be entitled to enforce its rights directly against the agent
bank or the borrower; rather the Fund must rely on the lending institution for
that purpose. A Fund will not act as an agent bank, a guarantor or sole
negotiator 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 agreement.
The agent bank in such cases will be qualified under the 1940 Act to serve as a
custodian for a registered investment company such as the Company. A Fund
generally will rely on the agent bank or an intermediate Participant to collect
its portion of the payments on the corporate loan. The agent bank monitors the
value of the collateral and, if the value of the collateral declines, may take
certain action, including accelerating the corporate loan, giving the borrower
an opportunity to provide additional collateral or seeking other protection for
the benefit of the Participants in the corporate loan, depending on the terms of
the corporate loan agreement. Furthermore, unless under the terms of a
participation agreement a Fund has direct recourse against the borrower (which
is unlikely), the Fund will rely on the agent bank to use appropriate creditor
remedies against the borrower. The agent bank also is responsible for monitoring
compliance with covenants contained in the corporate loan agreement and for
notifying holders of corporate loans of any failures of compliance. Typically,
under corporate loan agreements, the agent bank is given broad discretion in
enforcing the corporate loan agreement, and is obligated to use only the same
care it would use in the management of its own property. For these services, the
borrower compensates the agent bank. Such compensation may include special fees
paid on structuring and funding the corporate loan and other fees paid on a
continuing basis.

A financial institution's employment as an agent bank may be terminated
in the event that it fails to observe the requisite standard of care or becomes
insolvent, or has a receiver, conservator, or similar official appointed for it
by the appropriate bank regulatory authority or becomes a debtor in a bankruptcy
proceeding. A successor agent bank generally will be appointed to replace the
terminated bank, and assets held by the agent bank under the corporate loan
agreement should remain available to holders of corporate loans. If, however,
assets held by the agent bank for the benefit of a Fund were determined by an
appropriate regulatory authority or court to be subject to the claims of the
agent bank's general or secured creditors, the Fund might incur certain costs
and delays in realizing payment on a corporate loan, or suffer a loss of
principal and/or interest. In situations involving intermediate Participants
similar risks may arise.

When a Fund acts as co-lender in connection with a Participation
Interest or when a Fund acquires a Participation Interest the terms of which
provide that the Fund will be in privity of contract with the corporate
borrower, the Fund will have direct recourse against the borrower in the event
the borrower fails to pay scheduled principal and interest. In all other cases,
the Fund will look to the agent bank to enforce appropriate credit remedies
against the borrower. In acquiring Participation Interests a Fund's Subadvisor
will conduct analysis and evaluation of the financial condition of each such
co-lender and participant to ensure that the Participation Interest meets the
Fund's qualitative standards. There is a risk that there may not be a readily
available market for loan Participation Interests and, in some cases, this could
result in a Fund disposing of such securities at a substantial discount from
face value or holding such security until maturity. When a Fund is required to
rely upon a lending institution to pay the Fund principal, interest, and other
amounts received by the lending institution for the loan participation, the Fund
will treat both the borrower and the lending institution as an "issuer" of the
loan participation for purposes of certain investment restrictions pertaining to
the diversification and concentration of the Fund's portfolio. The Funds
consider Participation Interests not subject to puts to be illiquid.

The principal credit risk associated with acquiring Participation
Interests from a co-lender or another Participant is the credit risk associated
with the underlying corporate borrower. A Fund may incur additional credit risk,
however, when it is in the position of participant rather than a co-lender
because the Fund must assume the risk of insolvency of the co-lender from which
the Participation Interest was acquired and that of any person interpositioned
between the Fund and the co-lender.

REAL ESTATE INVESTMENT TRUSTS

The Asset Manager Fund may invest in securities issued by equity real
estate investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in income-producing commercial real estate or real-estate related
loans. REITs are similar to holding companies in that they are essentially
holding companies that rely on professional managers to supervise their
investments. A REIT is not taxed on income distributed to shareholders if it
complies with several

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requirements relating to its organization, ownership, assets, and income and the
requirement that it distribute to its shareholders at least 95% of its taxable
income (other than net capital gains) for each taxable year.

Investment in REITs may be subject to many of the same risks as a
direct investment in real estate. This is due to the fact that the value of the
REIT may be affected by the value of the real estate owned by the companies in
which it invests. These risks include changes in economic conditions, interest
rates, property values, property tax increases, overbuilding and increased
competition, environmental contamination zoning and natural disasters.

RISK MANAGEMENT TECHNIQUES

The Funds can use various techniques to increase or decrease their
exposure to changing security prices, interest rates, currency exchange rates,
commodity price or other factors that affect security values. These techniques
may involve derivative transactions such as buying and selling futures contracts
and options on futures contracts, entering into foreign currency transactions
(such as forward foreign currency exchange contracts and options on foreign
currencies) and purchasing or writing put or call options on securities and
securities indexes.

The Funds can use these practices in an attempt to adjust the risk and
return characteristics of their portfolios of investments. When a Fund uses such
techniques in an attempt to reduce risk it is known as "hedging". If a Funds
Subadvisor judges market conditions incorrectly or employs a strategy that does
not correlate well with the Funds investments, these techniques could result in
a loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counter party to the transaction
does not perform as promised.

OPTIONS ON SECURITIES

WRITING CALL OPTIONS. Subject to any limitations stated in the
Prospectus or in this SAI, each Fund may sell ("write") covered call options on
its portfolio securities in an attempt to enhance investment performance. A call
option sold by a Fund is a short-term contract, having a duration of nine months
or less, which gives the purchaser of the option the right to buy, and the
writer of the option--in return for a premium received--the obligation to sell,
the underlying security at the exercise price upon the exercise of the option at
any time prior to the expiration date, regardless of the market price of the
security during the option period. A call option on a stock or bond index gives
the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option. A call option may be covered
by, among other things, the writer's owning the underlying security throughout
the option period, or by holding, on a share-for-share basis, a call on the same
security as the call written, where the exercise price of the call held is equal
to or less than the price of the call written, or greater than the exercise
price of a call written if the difference is maintained by the Fund in liquid
assets in a segregated account with its custodian.

A Fund will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Fund will give up the opportunity to profit from an increase in the market price
of the underlying security above the exercise price so long as its obligations
under the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, the Fund will retain the risk of loss
should the price of the security decline, which loss the premium is intended to
offset in whole or in part. A Fund, in writing "American Style" call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligations as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price. In contrast, "European Style"
options may only be exercised on the expiration date of the option. Covered call
options and the securities underlying such options will be listed on national
securities exchanges, except for certain transactions in options on debt
securities and foreign securities.

During the option period, the covered call writer has, in return for
the premium received an option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise price, but, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline.

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<PAGE> 53
A Fund may protect itself from further losses due to a decline in value
of the underlying security or from the loss of ability to profit from
appreciation by buying an identical option, in which case the purchase cost may
offset the premium. In order to do this, the Fund makes a "closing purchase
transaction"--the purchase of a call option on the same security with the same
exercise price and expiration date as the covered call option which it has
previously written on any particular security. The Fund will realize a gain or
loss from a closing purchase transaction if the amount paid to purchase a call
option in a closing transaction is less or more than the amount received from
the sale of the covered call option. Also, because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the closing out of a call option is
likely to be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Fund. When a security is to be sold from the
Fund's portfolio, the Fund will first effect a closing purchase transaction so
as to close out any existing covered call option on that security.

A closing purchase transaction may be made only on a national or
foreign securities exchange (an "Exchange") which provides a secondary market
for an option with the same exercise price and expiration date, except as
discussed below. There is no assurance that a liquid secondary market on an
Exchange or otherwise will exist for any particular option, or at any particular
time, and for some options no secondary market on an Exchange or otherwise may
exist. If a Fund is unable to effect a closing purchase transaction involving an
exchange-traded option, the Fund will not sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller, and generally do not have as much market liquidity as exchange-traded
options. Therefore, a closing purchase transaction for an over-the-counter
option may in many cases only be made with the other party to the option. Once
an option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver or purchase the underlying securities at the exercise price.

Each Fund pays brokerage commissions and dealer spreads in connection
with writing covered call options and effecting closing purchase transactions,
as well as for purchases and sales of underlying securities. The writing of
covered call options could result in significant increases in a Fund's portfolio
turnover rate, especially during periods when market prices of the underlying
securities appreciate.

WRITING PUT OPTIONS. Subject to any limitations in the Prospectus or in
this SAI, each Fund may also write covered put options. A put option is a
short-term contract which gives the purchaser of the put option, in return for a
premium, the right to sell the underlying security to the seller of the option
at a specified price during the term of the option. A put option written by a
Fund is "covered" if the Fund maintains liquid assets with a value equal to the
exercise price in a segregated account with its custodian. A put option is also
"covered" if the Fund holds on a share-for-share basis a put on the same
security as the put written, where the exercise price of the put held is equal
to or greater than the exercise price of the put written, or less than the
exercise price of the put written if the difference is maintained by the Fund in
liquid assets in a segregated account with its custodian.

The premium which the Funds receive from writing a put option will
reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to such market price, the
historical price volatility of the underlying security, the option period,
supply and demand and interest rates.

A covered put writer assumes the risk that the market price for the
underlying security will fall below the exercise price, in which case the writer
would be required to purchase the security at a higher price than the
then-current market price of the security. In both cases, the writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option.

The Funds may effect a closing purchase transaction to realize a profit
on an outstanding put option or to prevent an outstanding put option from being
exercised. The Funds may also effect a closing purchase transaction, in the case
of a put option, to permit the Funds to maintain their holdings of the deposited
U.S. Treasury obligations, to write another put option to the extent that the
exercise price thereof is secured by the deposited U.S. Treasury obligations, or
to utilize the proceeds from the sale of such obligations to make other
investments.

If a Fund is able to enter into a closing purchase transaction, the
Fund will realize a profit or loss from such transaction if the cost of such
transaction is less or more than the premium received from the writing of the
option, respectively. After writing a put option, the Fund may incur a loss
equal to the difference between the exercise price of the option and the sum of
the market value of the underlying security plus the premium received from the
sale of the option.

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In addition, the Funds may also write straddles (combinations of
covered puts and calls on the same underlying security). The extent to which the
Funds may write covered put and call options and enter into so-called "straddle"
transactions involving put or call options may be limited by the requirements of
the Code for qualification as a regulated investment company and the Company's
intention that each Fund qualify as such.

PURCHASING OPTIONS. Each Fund, as specified for the Fund in the
Prospectus, may purchase put or call options which are traded on an Exchange or
in the over-the-counter market. Options traded in the over-the-counter market
may not be as actively traded as those listed on an Exchange. Accordingly, it
may be more difficult to value such options and to be assured that they can be
closed out at any time. The Funds will engage in such transactions only with
firms the Subadvisor deems to be of sufficient creditworthiness so as to
minimize these risks.

The Funds may purchase put options on securities to protect their
holdings in an underlying or related security against a substantial decline in
market value. Securities are considered related if their price movements
generally correlate with one another. The purchase of a put option would entitle
the Fund, in exchange for the premium paid, to sell a security at a specified
price upon exercise of the option during the option period. The purchase of put
options on securities held in the portfolio or related to such securities will
enable a Fund to preserve, at least partially, unrealized gains occurring prior
to the purchase of the option on a portfolio security without actually selling
the security. In addition, the Fund will continue to receive interest or
dividend income on the security. The put options purchased by the Fund may
include, but are not limited to, "protective puts," in which the security to be
sold is identical or substantially identical to a security already held by the
Fund or to a security which the Fund has the right to purchase. The Fund would
ordinarily recognize a gain if the value of the securities decreased during the
option period below the exercise price sufficiently to cover the premium. The
Fund would recognize a loss if the value of the securities remained above the
difference between the exercise price and the premium.

The Funds may also purchase call options on securities, which the Funds
intend to purchase, to protect against substantial increases in prices of such
securities pending their ability to invest in an orderly manner in such
securities. The purchase of a call option would entitle the Fund, in exchange
for the premium paid, to purchase a security at a specified price upon exercise
of the option during the option period. The Fund would ordinarily realize a gain
if the value of the securities increased during the option period above the
exercise price sufficiently to cover the premium. The Fund would have a loss if
the value of the securities remained below the sum of the premium and the
exercise price during the option period. In order to terminate an option
position, the Funds may sell put or call options identical to those previously
purchased, which could result in a net gain or loss depending on whether the
amount received on the sale is more or less than the premium and other
transaction costs paid on the put or call option when it was purchased.

SPECIAL RISKS ASSOCIATED WITH OPTIONS ON SECURITIES. Exchange markets
in the U.S. government securities options are a relatively new and untested
concept, and it is impossible to predict the amount of trading interest that may
exist in such options. The same types of risk apply to over-the-counter trading
in options. There can be no assurance that viable markets will develop or
continue in the United States or abroad.

A Fund's purpose in selling covered options is to realize greater
income than would be realized on portfolio securities transactions alone. A Fund
may forego the benefits of appreciation on securities sold pursuant to call
options, or pay a higher price for securities acquired pursuant to put options
written by the Fund. If a put or call option purchased by a Fund is not sold
when it has remaining value, and if the market price of the underlying security,
in the case of a put, remains equal to or greater than the exercise price, or,
in the case of a call, remains less than or equal to the exercise price, the
Fund will not be able to exercise profitably the option and will lose its entire
investment in the option. Also, the price of a put or call option purchased to
hedge against price movements in a related security may move more or less than
the price of the related security.

The Fund would ordinarily realize a gain if the value of the securities
increased during the option period above the exercise price sufficiently to
cover the premium. The Fund would have a loss if the value of the securities
remained below the sum of the premium paid and the exercise price during the
option period.

The ability of a Fund to successfully utilize options may depend in
part upon the ability of the Subadvisor to forecast interest rates and other
economic factors correctly.

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The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets.

OPTIONS ON FOREIGN CURRENCIES

Subject to any limitation stated in the Prospectus or this SAI, the
Core Bond Plus Fund and Mid Cap Core Fund may purchase and write options on
foreign currencies. A Fund may use foreign currency options contracts for
various reasons, including: to manage its exposure to changes in currency
exchange rates; as an efficient means of adjusting its overall exposure to
certain currencies; or in an effort to enhance its return. A Fund may purchase
and write put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio securities
and against increases in the U.S. dollar cost of foreign securities to be
acquired. A Fund may also use foreign currency options to protect against
potential losses in positions denominated in one foreign currency against
another foreign currency in which the Fund's assets are or may be invested. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such declines in the value of portfolio securities, a Fund may purchase
put options on the foreign currency. If the value of the currency does decline,
that Fund will have the right to sell such currency for a fixed amount of
dollars which exceeds the market value of such currency, resulting in a gain
that may offset, in whole or in part, the negative effect of currency
depreciation on the value of the Fund's securities denominated in that currency.

Conversely, if a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may purchase call options on such currency. If
the value of such currency does increase, the purchase of such call options
would enable the Fund to purchase currency for a fixed amount of dollars which
is less than the market value of such currency, resulting in a gain that may
offset, at least partially, the effect of any currency-related increase in the
price of securities the Fund intends to acquire. As in the case of other types
of options transactions, however, the benefit a Fund derives from purchasing
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not move
in the direction or to the extent anticipated, a Fund could sustain losses on
transactions in foreign currency options which would deprive it of a portion or
all of the benefits of advantageous changes in such rates.

If a Fund anticipates a decline in the dollar value of foreign
currency-denominated securities due to declining exchange rates, it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received by the Fund.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency. If rates move in the manner
projected, the put option will expire unexercised and allow the Fund to offset
such increased cost up to the amount of the premium. As in the case of other
types of options transactions, however, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, and only
if rates move in the expected direction. If unanticipated exchange rate
fluctuations occur, the option may be exercised and a Fund would be required to
purchase or sell the underlying currency at a loss which may not be fully offset
by the amount of the premium. As a result of writing options on foreign
currencies, a Fund also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
currency exchange rates.

A call option written on foreign currency by a Fund is "covered" if
that Fund owns the underlying foreign currency subject to the call or securities
denominated in that currency or has an absolute and immediate right to acquire
that foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A call
option is also covered if a Fund holds a call on the same foreign currency for
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the amount of the
difference is maintained by a Fund in liquid assets in a segregated account with
its custodian.

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Options on foreign currencies to be written or purchased by a Fund will
be traded on U.S. and foreign exchanges or over-the-counter. Exchange-traded
options generally settle in cash, whereas options traded over-the-counter may
settle in cash or result in delivery of the underlying currency upon exercise of
the option. As with other kinds of option transactions, however, the writing of
an option on foreign currency will constitute only a partial hedge up to the
amount of the premium received and a Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations, although, in the event of rate movements
adverse to a Fund's position, a Fund may forfeit the entire amount of the
premium plus related transaction costs.

There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position.

Currency options traded on U.S. or other exchanges may be subject to
position limits which may limit the ability of a Fund to reduce foreign currency
risk using such options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller and generally do not have as much market liquidity as
exchanged-related options. Foreign currency exchange-traded options generally
settle in cash, whereas options traded over-the-counter may settle in cash or
result in delivery of the underlying currency upon exercise of the option.

FUTURES TRANSACTIONS

Subject to any limitations in the Prospectus or this SAI, each Fund, as
specified for the Fund in the Prospectus, may purchase and sell futures
contracts on securities, interest rates, foreign currency and on indexes of
securities to hedge against anticipated changes in interest rates and other
economic factors that might otherwise have an adverse effect upon the value of a
Fund's portfolio securities or to gain market experience to particular segments
of the market represented by the futures contract. An interest rate or stock
index futures contract is an agreement to take or make delivery of an amount of
cash based on the difference between the value of the index at the beginning and
at the end of the contract period. A futures contract on a foreign currency is
an agreement to buy or sell a specified amount of a currency for a set price on
a future date. The Funds may also enter into such futures contracts in order to
lengthen or shorten the average maturity or duration of the Fund's portfolio.
For example, a Fund may purchase futures contracts as a substitute for the
purchase of longer-term debt securities to lengthen the average duration of a
Fund's portfolio of fixed-income securities. A Fund may purchase and sell stock
index futures to hedge its securities portfolio with regard to market
(systematic) risk (involving the market's assessment of overall economic
prospects), as distinguished from stock-specific risk (involving the market's
evaluation of the merits of the issuer of a particular security).

The Funds, as specified for the Fund in the Prospectus, may also
purchase and sell other futures when deemed appropriate, in order to hedge the
equity or non-equity portions of their portfolios. In addition, each Fund, as
specified for the Fund in the Prospectus, may enter into contracts for the
future delivery of foreign currencies to hedge against changes in currency
exchange rates. Each of the Funds may also purchase and write put and call
options on futures contracts of the type into which such Fund is authorized to
enter and may engage in related closing transactions. In the United States, all
such futures on securities, debt index futures, stock index futures, foreign
currency futures and related options will be traded on exchanges that are
regulated by the Commodity Futures Trading Commission ("CFTC"). Subject to
compliance with applicable CFTC rules, the Funds also may enter into futures
contracts traded on foreign futures exchanges as long as trading on the
aforesaid foreign futures exchanges does not subject a Fund to risks that are
materially greater than the risks associated with trading on U.S. exchanges.

A futures contract is an agreement to buy or sell a security or
currency (or to deliver a final cash settlement price in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts), for a set price at a future date. When interest
rates are changing and portfolio values are falling, futures contracts can
offset a decline in the value of a Fund's current portfolio securities. When
interest rates are changing and portfolio values are rising, the purchase of
futures contracts can secure better effective rates or purchase prices of the
Fund than might later be available in the market when the Fund makes anticipated
purchases. In the United States, futures contracts are traded on boards of trade
which have been designated "contract markets" by the CFTC. Futures contracts
trade on these markets through an "open outcry" auction on the exchange floor.
Currently, there are futures contracts based on a variety of instruments,
indexes and currencies, including long-term U.S. Treasury bonds, Treasury notes,
GNMA

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certificates, three-month U.S. Treasury bills, three-month domestic bank
certificates of deposit, a municipal bond index and various stock indexes.

When a purchase or sale of a futures contract is made by a Fund, the
Fund is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of liquid assets ("initial margin") as a partial guarantee of
its performance under the contract. The margin required for a futures contract
is set by the exchange on which the contract is traded and may be modified
during the term of the contract. The initial margin is in the nature of a
performance bond or good faith deposit on the futures contract which is returned
to the Fund upon termination of the contract assuming all contractual
obligations have been satisfied. Each Fund expects to earn interest income on
its initial margin deposits. A futures contract held by a Fund is valued daily
at the official settlement price of the exchange on which it is traded. Each
day, as the value of the security, currency or index fluctuates, the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking-to-market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark-to-market its open futures positions.

A Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.

Positions taken in the futures markets are not normally held until
delivery or final cash settlement is required, but are instead liquidated
through offsetting transactions which may result in a gain or a loss. While
futures positions taken by a Fund will usually be liquidated in this manner, the
Fund may instead make or take delivery of underlying securities or currencies
whenever it appears economically advantageous to the Fund to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing-out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.

FUTURES ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. By purchasing
futures on debt securities--assuming a "long" position--a Fund will legally
obligate itself to accept the future delivery of the underlying security and pay
the agreed-upon price. By selling futures on debt securities--assuming a "short"
position--it will legally obligate itself to make the future delivery of the
security against payment of the agreed-upon price. Open futures positions on
debt securities will be valued at the most recent settlement price, unless such
price does not appear to the Subadvisor to reflect the fair value of the
contract, in which case the positions will be valued by or under the direction
of the Directors.

Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position.

On other occasions, a Fund may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Fund
intends to purchase particular securities and it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities will be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase. A Fund may also purchase futures contracts as a substitute for the
purchase of longer-term securities to lengthen the average duration of the
Fund's portfolio.

The Fund could accomplish similar results by selling securities with
long maturities and investing in securities with short maturities when interest
rates are expected to increase or by buying securities with long maturities and
selling securities with short maturities when interest rates are expected to
decline. However, by using futures contracts as a risk

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<PAGE> 58
management technique, given the greater liquidity in the futures market than in
the cash market, it may be possible to accomplish the same result more easily
and more quickly.

SECURITIES INDEX FUTURES. A securities index futures contract does not
require the physical delivery of securities, but merely provides for profits and
losses resulting from changes in the market value of the contract to be credited
or debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contracts expiration date a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the contract is based. A stock
index is designed to reflect overall price trends in the market for equity
securities.

Stock index futures may be used to hedge the equity portion of a Fund's
securities portfolio with regard to market (systematic) risk, as distinguished
from stock-specific risk. The Funds may enter into stock index futures to the
extent that they have equity securities in their portfolio. Similarly, the Funds
may enter into futures on debt securities indexes (including the municipal bond
index) to the extent they have debt securities in their portfolios. By
establishing an appropriate "short" position in securities index futures, a Fund
may seek to protect the value of its portfolio against an overall decline in the
market for securities. Alternatively, in anticipation of a generally rising
market, a Fund can seek to avoid losing the benefit of apparently low current
prices by establishing a "long" position in securities index futures and later
liquidating that position as particular securities are in fact acquired. To the
extent that these hedging strategies are successful, the Fund will be affected
to a lesser degree by adverse overall market price movements, unrelated to the
merits of specific portfolio securities, than would otherwise be the case. A
Fund may also purchase futures on debt securities or indexes as a substitute for
the purchase of longer-term debt securities to lengthen the average duration of
the Fund's debt portfolio.

CURRENCY FUTURES. A sale of a currency futures contract creates an
obligation by a Fund, as seller, to deliver the amount of currency called for in
the contract at a specified future time for a specified price. A purchase of a
currency futures contract creates an obligation by a Fund, as purchaser, to take
delivery of an amount of currency at a specified future time at a specified
price. A Fund may sell a currency futures contract if the Subadvisor anticipates
that exchange rates for a particular currency will fall, as a hedge against a
decline in the value of the Fund's securities denominated in such currency. If
the Subadvisor anticipates that exchange rates will rise, the Fund may purchase
a currency futures contract to protect against an increase in the price of
securities denominated in a particular currency the Fund intends to purchase.
Although the terms of currency futures contracts specify actual delivery or
receipt, in most instances the contracts are closed out before the settlement
date without the making or taking of delivery of the currency. Closing out of a
currency futures contract is effected by entering into an offsetting purchase or
sale transaction. To offset a currency futures contract sold by a Fund, the Fund
purchases a currency futures contract for the same aggregate amount of currency
and delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is immediately paid the difference. Similarly, to close out a
currency futures contract purchased by the Fund, the Fund sells a currency
futures contract. If the offsetting sale price exceeds the purchase price, the
Fund realizes a gain, and if the offsetting sale price is less than the purchase
price, the Fund realizes a loss.

A risk in employing currency futures contracts to protect against the
price volatility of portfolio securities denominated in a particular currency is
that changes in currency exchange rates or in the value of the futures position
may correlate imperfectly with changes in the cash prices of a Fund's
securities. The degree of correlation may be distorted by the fact that the
currency futures market may be dominated by short-term traders seeking to profit
from changes in exchange rates. This would reduce the value of such contracts
for hedging purposes over a short-term period. Such distortions are generally
minor and would diminish as the contract approached maturity. Another risk is
that the Subadvisor could be incorrect in its expectation as to the direction or
extent of various exchange rate movements or the time span within which the
movements take place.

OPTIONS ON FUTURES. For bona fide hedging and other appropriate risk
management purposes, the Funds also may purchase and write call and put options
on futures contracts which are traded on exchanges that are licensed and
regulated by the CFTC for the purpose of options trading, or, subject to
applicable CFTC rules, on foreign exchanges. A "call" option on a futures
contract gives the purchaser the right, in return for the premium paid, to
purchase a futures contract (assume a "long" position) at a specified exercise
price at any time before the option expires. A "put" option gives the purchaser
the right, in return for the premium paid, to sell a futures contract (assume a
"short" position), for a specified exercise price at any time before the option
expires.

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Upon the exercise of a "call," the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a "put,"
the writer of the option is obligated to purchase the futures contract (deliver
a "short" position to the option holder) at the option exercise price, which
will presumably be higher than the current market price of the contract in the
futures market. When an entity exercises an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," its gain will be credited to its futures margin account, while the loss
suffered by the writer of the option will be debited to its account. However, as
with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the writer or holder of an option will usually realize a gain or loss
by buying or selling an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.

Options on futures contracts can be used by a Fund to hedge
substantially the same risks and for the same duration and risk management
purposes as might be addressed or served by the direct purchase or sale of the
underlying futures contracts. If the Fund purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself.

The purchase of put options on futures contracts is a means of hedging
a Fund's portfolio against the risk of rising interest rates, declining
securities prices or declining exchange rates for a particular currency. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance affecting securities prices or currency exchange rates
when the Fund is not fully invested or of lengthening the average maturity or
duration of a Fund's portfolio. Depending on the pricing of the option compared
to either the futures contract upon which it is based or upon the price of the
underlying securities or currencies, it may or may not be less risky than
ownership of the futures contract or underlying securities or currencies.

In contrast to a futures transaction, in which only transaction costs
are involved, benefits received in an option transaction will be reduced by the
amount of the premium paid as well as by transaction costs. In the event of an
adverse market movement, however, the Fund will not be subject to a risk of loss
on the option transaction beyond the price of the premium it paid plus its
transaction costs, and may consequently benefit from a favorable movement in the
value of its portfolio securities or the currencies in which such securities are
denominated that would have been more completely offset if the hedge had been
effected through the use of futures.

If a Fund writes options on futures contracts, the Fund will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by or to be acquired for the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities or the
currencies in which such securities are denominated.

The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the underlying securities or the
currencies in which such securities are denominated. If the futures price at
expiration is below the exercise price, the Fund will retain the full amount of
the option premium, which provides a partial hedge against any decline that may
have occurred in the Funds holdings of securities or the currencies in which
such securities are denominated.

The writing of a put option on a futures contract is analogous to the
purchase of a futures contract. For example, if the Fund writes a put option on
a futures contract on debt securities related to securities that the Fund
expects to acquire and the market price of such securities increases, the net
cost to a Fund of the debt securities acquired by it will be reduced by the
amount of the option premium received. Of course, if market prices have
declined, the Fund's purchase price upon exercise may be greater than the price
at which the debt securities might be purchased in the securities market.

While the holder or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, a Fund's ability to establish and close out options positions
at fairly established prices will be subject to the maintenance of a liquid
market. The Funds will not purchase or write options on futures contracts unless
the market for such options has sufficient liquidity such that the risks
associated with such options transactions are not at unacceptable levels.

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LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS. A Fund will only enter into futures contracts or related
options which are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. In
general, the Funds will engage in transactions in futures contracts and related
options only for bona fide hedging and other appropriate risk management
purposes, and not for speculation. The Funds will not enter into futures
contracts for which the aggregate contract amounts exceed 100% of the Fund's net
assets. In addition, with respect to positions in futures and related options
that do not constitute bona fide hedging positions, a Fund will not enter into a
futures contract or futures option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus premiums paid
by it for open futures option positions, less the amount by which any such
options are "in-the-money," would exceed 5% of the Fund's total assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.

When purchasing a futures contract, a Fund will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amounts deposited with a futures commission merchant as margin, are equal
to the market value of the futures contract. Alternatively, the Fund may "cover"
its position by purchasing a put option on the same futures contract with a
strike price as high or higher than the price of the contract held by the Fund.

When selling a futures contract, a Fund will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
the Fund may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Fund to purchase
the same futures contract at a price no higher than the price of the contract
written by the Fund (or at a higher price if the difference is maintained in
liquid assets with the Fund's custodian).

When selling a call option on a futures contract, a Fund will maintain
with its custodian (and mark-to-market on a daily basis) liquid assets that,
when added to the amounts deposited with a futures commission merchant as
margin, equal the total market value of the futures contract underlying the call
option. Alternatively, the Fund may cover its position by entering into a long
position in the same futures contract at a price no higher than the strike price
of the call option, by owning the instruments underlying the futures contract,
or by holding a separate call option permitting the Fund to purchase the same
futures contract at a price not higher than the strike price of the call option
sold by the Fund.

When selling a put option on a futures contract, a Fund will maintain
with its custodian (and mark-to-market on a daily basis) liquid assets that
equal the purchase price of the futures contract, less any margin on deposit.
Alternatively, the Fund may cover the position either by entering into a short
position in the same futures contract, or by owning a separate put option
permitting it to sell the same futures contract so long as the strike price of
the purchased put option is the same or higher than the strike price of the put
option sold by the Fund.

The requirements for qualification as a regulated investment company
also may limit the extent to which a Fund may enter into futures, futures
options or forward contracts. See "Tax Information."

RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several
risks associated with the use of futures contracts and futures options as
hedging techniques. There can be no assurance that hedging strategies using
futures will be successful. A purchase or sale of a futures contract may result
in losses in excess of the amount invested in the futures contract, which in
some cases may be unlimited. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the Fund's
securities being hedged. An incorrect correlation could result in a loss on both
the hedged securities or currencies and the hedging vehicle so that the
portfolio return might have been better had hedging not been attempted. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends. It is also possible that, when a
Fund has sold stock index futures to hedge its portfolio against a decline in
the market, the market may advance while the value of the particular

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securities held in the Fund's portfolio may decline. If this occurred, the Fund
would incur a loss on the futures contracts and also experience a decline in the
value of its portfolio securities.

Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.

There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures or a futures option position, and that
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Lack of a liquid market for any reason may prevent the Fund from liquidating an
unfavorable position and the Fund would remain obligated to meet margin
requirements until the position is closed.

In addition to the risk that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid market in the options. It is not certain
that such a market will develop. Although the Funds generally will purchase only
those options and futures contracts for which there appears to be an active
market, there is no assurance that a liquid market on an exchange will exist for
any particular option or futures contract at any particular time. In the event
no such market exists for particular options, it might not be possible to effect
closing transactions in such options with the result that a Fund would have to
exercise options it has purchased in order to realize any profit and would be
less able to limit its exposure to losses on options it has written.

Many of the contracts discussed above are relatively new instruments
without a significant trading history. As a result, there can be no assurance
that an active secondary market will develop or continue to exist. If the price
of a futures contract changes more than the price of the securities or
currencies, the Fund will experience either a loss or a gain on the futures
contracts which will not be completely offset by changes in the price of the
securities or currencies which are the subject of the hedge. In addition, it is
not possible to hedge fully or perfectly against currency fluctuations affecting
the value of securities denominated in foreign currencies because the value of
such securities is likely to fluctuate as a result of independent factors not
related to currency fluctuations.

Additional Risks of Options on Securities, Futures Contracts, Options
on Futures Contracts, and Forward Currency Exchange Contracts and Options
Thereon. Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (i) other complex foreign political, legal and economic
factors; (ii) lesser availability than in the United States of data on which to
make trading decisions; (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and (v) lesser
trading volume.

WARRANTS

The holder of a warrant has the right to purchase a given number of
shares of a particular issuer at a specified price until expiration of the
warrant. Such investments can provide a greater potential for profit or loss
than an equivalent investment in the underlying security. Prices of warrants do
not necessarily move in tandem with the prices of the underlying securities, and
are speculative investments. Warrants pay no dividends and confer no rights
other than a purchase option. If a warrant is not exercised by the date of its
expiration, the Fund will lose its entire investment in such warrant.

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SHORT SALES AGAINST THE BOX

A short sale is a transaction in which a Fund sells through a broker a
security it does not own in anticipation of a possible decline in market price.
A short sale "against the box" is a short sale in which, at the time of the
short sale, a Fund owns or has the right to obtain securities equivalent in kind
and amount. Each of the Funds will only enter into short sales against the box.
A Fund may enter into a short sale against the box among other reasons, to hedge
against a possible market decline in the value of a security owned by the Fund.
If the value of a security sold short against the box increases, the Fund would
suffer a loss when it purchases or delivers to the selling broker the security
sold short. The proceeds of the short sale are retained by the broker pursuant
to applicable margin rules. In addition, the Fund may segregate assets, equal in
value to 50% of the value of the short sale, in a special account with the
Fund's custodian. The segregated assets are pledged to the broker pursuant to
applicable margin rules. If a broker, with which the Fund has open short sales,
were to become bankrupt, a Fund could experience losses or delays in recovering
gains on short sales. The Funds will only enter into short sales against the box
with brokers the Subadvisor believes are creditworthy. Short sales against the
box will be limited to no more than 25% of a Fund's total assets.

RISKS ASSOCIATED WITH DEBT SECURITIES

To the extent that a Fund invests in debt securities, it will be
subject to certain risks. The value of the debt securities held by a Fund, and
thus the net asset value of the shares of beneficial interest of the Fund,
generally will fluctuate depending on a number of factors, including, among
others, changes in the perceived creditworthiness of the issuers of those
securities, movements in interest rates, the average maturity of the Fund's
investments, changes in the relative values of the currencies in which the
Fund's investments are denominated relative to the U.S. dollar, and the extent
to which the Fund hedges its interest rate, credit and currency exchange rate
risks. Generally, a rise in interest rates will reduce the value of fixed income
securities held by a Fund, and a decline in interest rates will increase the
value of fixed income securities held by a Fund. Longer term debt securities
generally pay higher interest rates than do shorter term debt securities but
also may experience greater price volatility as interest rates change.

Since shares of the Funds represent an investment in securities with
fluctuating market prices, the value of shares of each Fund will vary as the
aggregate value of the Funds' portfolio securities increases or decreases.
Moreover, the value of lower rated debt securities that a Fund purchases may
fluctuate more than the value of higher rated debt securities. Lower rated debt
securities generally carry greater risk that the issuer will default on the
payment of interest and principal. Lower rated fixed income securities generally
tend to reflect short-term corporate and market developments to a greater extent
than higher rated securities which react primarily to fluctuations in the
general level of interest rates. Changes in the value of securities subsequent
to their acquisition will not affect cash income or yields to maturity to the
Funds but will be reflected in the net asset value of the Funds' shares.

Corporate debt securities may bear fixed, contingent, or variable rates
of interest and may involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the same or a different
issuer, participations based on revenues, sales or profits, or the purchase of
common stock in a unit transaction (where corporate debt securities and common
stock are offered as a unit).

When and if available, debt securities may be purchased at a discount
from face value. From time to time, each Fund may purchase securities not paying
interest or dividends at the time acquired if, in the opinion of the Subadvisor,
such securities have the potential for future income (or capital appreciation,
if any).

SWAP AGREEMENTS

The Tax Free Bond Fund may enter into interest rate, index and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return or for other
portfolio management purposes. Swap agreements are two party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to more than one year. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a

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particular index. The "notional amount" of the swap agreement is only a fictive
basis on which to calculate the obligations that the parties to a swap agreement
have agreed to exchange.

Consequently, a Fund's obligations (or rights) under a swap agreement
will generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). A Fund's obligations under a swap agreement
will be accrued daily (offset against any amounts owing to the Fund) and any
accrued but unpaid net amounts owed to a swap counter party will be covered by
the maintenance of a segregated account consisting of liquid assets to avoid any
potential leveraging of the Fund's portfolio. The Funds will not enter into
a swap agreement with any single party if the net amount owed or to be
received under existing contracts with that party would exceed [__]% of
the Fund's total assets.

Commonly used swap agreements include interest rate caps, under which,
in return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap"; interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates fall below a specified level, or
"floor"; and interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding given minimum or maximum levels.

Whether the Funds use of swap agreements will be successful in
furthering its investment objective will depend on the Subadvisor's ability to
correctly predict whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, the Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counter party. The Subadvisor will
cause the Fund to enter into swap agreements only with counter parties that
would be eligible for consideration as repurchase agreement counter parties
under the Fund's repurchase agreement guidelines. Certain restrictions imposed
on the Fund by the Code may limit the Fund's ability to use swap agreements. The
swaps market is a relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect the Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.

Certain swap agreements are exempt from most provisions of the
Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the CFTC. To qualify for this exemption, a swap agreement must be entered into
by "eligible participants," which includes the following, provided the
participants' total assets exceed established levels: a bank or trust company,
savings association or credit union, insurance company, investment company
subject to regulation under the 1940 Act, commodity pool, corporation,
partnership, proprietorship, organization, trust or other entity, employee
benefit plan, governmental entity, broker-dealer, futures commission merchant,
natural person, or regulated foreign person. To be eligible, natural persons and
most other entities must have total assets exceeding $10 million; commodity
pools and employee benefit plans must have assets exceeding $5 million. In
addition, an eligible swap transaction must meet three conditions. First, the
swap agreement may not be part of a fungible class of agreements that are
standardized as to their material economic terms. Second, the creditworthiness
of parties with actual or potential obligations under the swap agreement must be
a material consideration in entering into or determining the terms of the swap
agreement including pricing, cost or credit enhancement terms. Third, swap
agreements may not be entered into and traded on or through a multilateral
transaction execution facility.

This exemption is not exclusive, and participants may continue to rely
on existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a safe harbor for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.

29
<PAGE> 64
HIGH YIELD/HIGH RISK SECURITIES

Securities rated below BBB by S&P or Baa by Moody's (sometimes called
"junk bonds") are not considered "investment grade". There is more price
volatility, more risk of losing your principal interest, a greater possibility
of the issuer going bankrupt, plus additional risks. These securities are
considered speculative.

Each Fund may invest up to 25% of its net assets in debt securities,
including short-term instruments, which are rated below investment grade (i.e.,
below BBB by S&P or Baa by Moody's) or, if not rated, determined to be of
equivalent quality by the Subadvisor. The lower the ratings of such securities,
the greater their risks render them like equity securities. Moody's considers
bonds it rates Baa to have speculative elements as well as investment grade
characteristics. The Funds may invest in securities which are rated D by S&P or,
if unrated, are of equivalent quality. Securities rated D may be in default with
respect to payment of principal or interest.

Investors should be willing to accept the risk associated with
investment in high yield/high risk securities. Investment in high yield/high
risk bonds involves special risks in addition to the risks associated with
investments in higher rated debt securities. High yield/high risk bonds may be
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Moreover, such securities may
under certain circumstances be less liquid than higher rated debt instruments.

Analysis of the creditworthiness of issuers of high yield/high risk
bonds may be more complex than for issuers of higher quality debt securities,
and the ability of the Fund to achieve its investment objective may, to the
extent of its investment in high yield/high risk bonds, be more dependent upon
such creditworthiness analysis than would be the case if the Fund were investing
in higher quality bonds.

High yield/high risk bonds may be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher grade bonds.
The prices of high yield/high risk bonds have been found to be less sensitive to
interest rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. If the issuer
of high yield/high risk bonds defaults, the Fund may incur additional expenses
to seek recovery. In the case of high yield/high risk bonds structured as zero
coupon or payment-in-kind securities, the market prices of such securities are
affected to a greater extent by interest rate changes and, therefore, tend to be
more volatile than securities which pay interest periodically and in cash.

The secondary market on which high yield/high risk bonds are traded may
be less liquid than the market for higher grade bonds. Less liquidity in the
secondary trading market could adversely affect the price at which the Fund
could sell a high yield/high risk bond, and could adversely affect and cause
large fluctuations in the daily net asset value of the Fund's shares. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield/high risk bond prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high yield/high risk bonds, especially in a
thinly traded market.

Legislation designed to limit the use of high yield/high risk bonds in
corporate transactions may have a material adverse effect on a Fund's net asset
value and investment practices. In addition, there may be special tax
considerations associated with investing in high yield/high risk bonds
structured as zero coupon or payment-in-kind securities. Interest on these
securities is recorded annually as income even though no cash interest is
received until the security's maturity or payment date. As a result, the amounts
which have accrued each year are required to be distributed to shareholders and,
such amounts will be taxable to shareholders. Therefore, the Fund may have to
sell some of its assets to distribute cash to shareholders. These actions are
likely to reduce the Fund's assets and may thereby increase its expense ratios
and decrease its rate of return.

The use of credit ratings as the sole method for evaluating high
yield/high risk bonds also involves certain risks. For example, credit ratings
evaluate the safety of principal and interest payments, not the market value
risk of high yield/high risk bonds. Also, credit rating agencies may fail to
change credit ratings on a timely basis to reflect subsequent events.

30
<PAGE> 65
ZERO COUPON BONDS

Zero coupon bonds are debt obligations issued without any requirement
for the periodic payment of interest. Zero coupon bonds are issued at a
significant discount from the face value. The discount approximates the total
amount of interest the bonds would accrue and compound over the period until
maturity at a rate of interest reflecting the market rate at the time of
issuance. Cash to pay dividends representing unpaid, accrued interest may be
obtained from sales proceeds of portfolio securities and Fund shares and from
loan proceeds. Because interest on zero coupon obligations is not paid to the
Fund on a current basis but is, in effect, compounded, the value of the
securities of this type is subject to greater fluctuations in response to
changing interest rates than the value of debt obligations which distribute
income regularly. Zero coupon bonds tend to be subject to greater market risk
than interest paying securities of similar maturities. The discount represents
income, a portion of which a Fund must accrue and distribute every year even
though the Fund receives no payment on the investment in that year. Zero coupon
bonds tend to be more volatile than conventional debt securities.

FUNDAMENTAL INVESTMENT RESTRICTIONS

The Funds' investment restrictions set forth below are fundamental
policies of each Fund; i.e., they may not be changed with respect to a Fund
without a majority vote of the outstanding shares of that Fund, as defined in
the 1940 Act. Except for those investment policies of a Fund specifically
identified as fundamental in the Prospectus and this Statement of Additional
Information, and the Funds objectives as described in the Prospectus, 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 each Fund
on an individual basis, and apply only at the time a transaction is entered
into. Accordingly, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in the percentage which results from a
relative change in values or from a change in a Fund's net assets will not be
considered a violation.

EACH FUND MAY NOT:

(1) invest in a security if, as a result of such investment, 25% or
more of its total assets would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply to securities
issued or guaranteed by the U.S. government or its agencies or instrumentalities
(or repurchase agreements with respect thereto) and at such time that the 1940
Act is amended to permit a registered investment company to elect to be
"periodically industry concentrated," (i.e., a fund that does not concentrate
its investments in a particular industry would be permitted, but not required,
to invest 25% or more of its assets in a particular industry) the Funds elect to
be so classified and the foregoing limitation shall no longer apply with respect
to the Funds;

(2) invest in a security if, with respect to 75% of its total assets,
more than 5% of its total assets would be invested in the securities of any one
issuer, except that this restriction does not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities;

(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;

(4) borrow money or issue senior securities, except that a Fund may (i)
borrow from banks or enter into reverse repurchase agreements, but only if
immediately after each borrowing there is asset coverage of 300%, and (ii) issue
senior securities to the extent permitted under the 1940 Act;

(5) lend any funds or other assets, except that a Fund may, consistent
with its investment objectives and policies: (i) invest in debt obligations
including bonds, debentures or other debt securities, bankers' acceptances and
commercial paper, even though the purchase of such obligations may be deemed to
be the making of loans; (ii) enter into repurchase agreements; and (iii) lend
its portfolio securities in accordance with applicable guidelines established by
the Securities and Exchange Commission and any guidelines established by the
Company's Directors;

(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);

31
<PAGE> 66
(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) a Fund may enter into futures contracts on
securities, currencies or on indexes of such securities or currencies, or any
other financial instruments and options on such futures contracts; (ii) a Fund
may enter into spot or forward foreign currency contracts and foreign currency
options; or

(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.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS

In addition to the Company's fundamental investment restrictions, the
Directors of the Company have voluntarily adopted certain policies and
restrictions which are observed in the conduct of the affairs of the Funds.
These represent intentions of the Directors based upon current circumstances.
They differ from fundamental investment policies in that the following
additional investment restrictions may be changed or amended by action of the
Directors without requiring prior notice to or approval of shareholders.

Unless otherwise indicated, all percentage limitations apply to each
Fund on an individual basis, and apply only at the time a transaction is entered
into. Accordingly, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in the percentage which results from a
relative change in values or from a change in a Fund's net assets will not be
considered a violation.

UNDER THESE RESTRICTIONS, A FUND MAY NOT:

(1) 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 ("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) a Fund may not purchase securities on margin, except that the Fund
may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin;

(6) a Fund may not sell securities short, except for covered short
sales or unless it owns or has the right to obtain securities equivalent in kind
and amount to the securities sold short, and provided that transactions in
options, futures and forward contracts are deemed not to constitute short sales
of securities.

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 Subadvisor,
pursuant to guidelines approved by the Directors.

Each Subadvisor takes into account a number of factors in determining
whether a Rule 144A security being considered for purchase by a Fund is liquid,
including at least the following:

32
<PAGE> 67
(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 Subadvisor 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
nationally recognized statistical rating organizations ("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 Subadvisor 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).

DIRECTORS AND OFFICERS

The Board of Directors oversees the Funds, the Manager and the
Subadvisor. Information pertaining to the Directors and Officers of the Company
is set forth below. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal
POSITION(S) WITH Occupation(s) During
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS
--------------------- ----------- ------------
<S> <C> <C>
Stephen C. Roussin*, 36 Director and President and Chief Operating Officer, New
51 Madison Avenue Chairman York Life Investment Management LLC, 1999
New York, NY 10010 to present; President, Chief Executive
Officer and Trustee, The MainStay Funds,
1997-present; Senior Vice President, New York Life
Insurance Company, 1997 to present; Director, New
York Life Trust Company, 1997 to present; Director,
New York Life Benefit Services LLC, 1997 to present;
Director, NYLIFE Securities, Inc., 1997 to present;
Director, MainStay Shareholder Services LLC, 1997 to
present; Director, Eagle Strategies Corp., 1997 to
present; Director, President and Chief
</TABLE>

33
<PAGE> 68
<TABLE>
<CAPTION>
Principal
POSITION(S) WITH Occupation(s) During
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS
--------------------- ----------- ------------
<S> <C> <C>
Executive Officer, MainStay Management LLC, 1997 to
present; Senior Vice President Smith Barney, 1994 to
1997.

Patrick G. Boyle*, 46 Director Senior Vice President, New York Life
51 Madison Avenue Investment Management Operating Company
New York, NY 10010 LLC, 1999 to present; Senior Vice
President, Pension Department New York Life
Insurance Company, 1991 to present; Director, NYLIFE
Distributors, Inc., 1993 to 1996; Chairman, Monitor
Capital Advisors LLC, 1996 to 1998, and Director,
1991 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 1998; Director,
MBL Life Assurance Co., Inc., 1997 to present.

Lawrence Glacken, 72 Director Retired, 1987 to present; Vice President
353 Canterbury Drive Investment Banking, The First Boston
Ramsey, NJ 07446 Corporation, 1964-1987.

Robert P. Mulhearn, 52 Director Private Investor, 1987 to present; Managing
60 Twin Brooks Road Director, Morgan Stanley, 1979-1987.
Saddle River, NJ 07458

Susan B. Kerley, 48 Director President, Global Research Associates, 1990
P.O. 9572 to present; Director, Citifunds, 1991 to
present.

Linda M. Livornese, 48 President Vice President Pension Department, New York
51 Madison Avenue Life Insurance Company, 1990 to present;
Vice President, NYLIFE Distributors Inc.,
1993 to present; Vice President, NYLIFE
Securities Inc., 1992 to present

Marc J. Brookman, 36 Executive Vice President, New York Life Insurance
51 Madison Avenue Vice President Company, 1998 to present; Senior Vice
New York, NY 10010 President-Product Development MainStay
Institutional Funds, Inc. and Retirement
Plans, 1998 to present; National Sales
Director, Vice President, United Asset
Management Retirement Plan Services, 1996
to 1998.
</TABLE>

34
<PAGE> 69
<TABLE>
<CAPTION>
Principal
POSITION(S) WITH Occupation(s) During
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS
--------------------- ----------- ------------
<S> <C> <C>
Jefferson C. Boyce, 42 Senior Vice Senior Vice President New York Life
51 Madison Avenue President Insurance Company, 1994 to present; Senior
New York, NY 10010 Vice President The MainStay Funds, 1995 to
present; Director, Monitor Capital Advisors
LLC, 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 LLC, 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, LLC, 1994 to present;
Director, NYLIFE Depositary Corporation,
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 LLC., 1997 to present.

Richard W. Zuccaro, 50 Tax Vice Vice President, New York Life Insurance
51 Madison Avenue President Company, 1995 to present; 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 LLC,
1990 to present; Tax Vice President NYLIFE
Insurance Company of Arizona, 1990 to
present; Tax Vice President, NYLIFE Realty
Inc., 1991 to present; Tax Vice President
NYLICO Inc., 1991 to present; Tax Vice
President, New York Life Fund Inc., 1991 to
present, Tax Vice President, New York Life
International Investment, Inc., 1991 to
present; Tax Vice President NYLIFE Funding
Inc., 1991 to present Tax Vice President,
NYLCO, 1991 to present; Tax Vice President,
NYLIFE Equity Inc., 1991 to present; Tax
Vice President MainStay VP Series Fund,
Inc., 1991 to present; Tax Vice President,
CNP Realty Investments, Inc., 1991 to
present;
</TABLE>

35
<PAGE> 70
<TABLE>
<CAPTION>
Principal
POSITION(S) WITH Occupation(s) During
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS
--------------------- ----------- ------------
<S> <C> <C>
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; 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 LLC, 1996 to present; Tax
Vice President, NYLINK Insurance Agency
Incorporated, 1996 to present; Tax Vice President,
MainStay Shareholder Services LLC, 1997 to present.

John Flanagan, 53 Treasurer Vice President and Treasurer, New York Life
51 Madison Avenue (Principal Financial Investment Management LLC, 1999 to present;
New York, NY 10010 and Accounting Vice President, New York Life Insurance
Officer) Company, 1999 to present; Vice President
and Chief Financial Officer, The MainStay
Funds, 1999 to present; Director, Vice
President and Chief Financial Officer,
MainStay Management LLC, 1999 to present;
Director, Vice President and Chief
Financial Officer, MainStay Shareholder
Services LLC, 1999 to present; Senior Vice
President and Chief Financial Officer,
NYLIFE Distributors, Inc., 1999 to present;
Treasurer, Strong Funds and Senior Vice
President, Strong Capital Management, Inc.,
1997 to 1998; Partner, predecessor to
PricewaterhouseCoopers LLP, 1994 to 1997.
</TABLE>

* Messrs. Boyle and Roussin are Directors who are "interested persons" of
the Company as that term is defined in the 1940 Act.

As indicated in the above table, certain Directors and Officers also
hold positions with the Manager, MacKay Shields, New York Life Insurance Company
("New York Life"), NYLIFE Securities, Inc. ("NYLIFE Securities") and/or the
Distributor.

36
<PAGE> 71
The majority of the Directors on the Board of Directors are not
"interested persons" (as defined in the 1940 Act) of the Company or the
Distributor (the "Independent Directors"). The Independent Directors of the
Company receive from the Company an annual retainer of $24,000 and a fee of
$1,000 for each Board of Directors meeting and for each Board committee meeting
attended and are reimbursed for all out-of-pocket expenses related to attendance
at such meetings. Directors who are affiliated with New York Life do not receive
compensation from the Company.

For the fiscal period ended October 31, 1999, the Directors received
the following compensation from the Company and from certain other investment
companies (as indicated) that have the same investment advisers as the Company
or an investment adviser that is an affiliated person of one of the Company's
investment advisers:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM REGISTRANT AND
AGGREGATE COMPENSATION FUND COMPLEX PAID
NAME AND POSITION FROM COMPANY DIRECTORS
----------------- --------------------------- -------------------
<S> <C> <C>
Lawrence Glacken $ 24,000 $ 24,000
Director

Robert P. Mulhearn $ 23,000 $ 23,000
Director

Susan B. Kerley $ 23,000 $ 23,000
Director
</TABLE>

As of January 31, 2000, the Directors and Officers of the Company as a
group owned less than 1% of the outstanding shares of any Class of each of the
Funds.

THE MANAGER, THE SUBADVISOR AND THE DISTRIBUTOR

MANAGEMENT AGREEMENT

Pursuant to the Management Agreement for all of the MainStay
Institutional Funds dated November 21, 1997, as amended ________, 2000 to
include the Core Bond Plus Fund, Mid Cap Core Fund and Tax Free Bond Fund, the
Manager, subject to the supervision of the Directors of the Company and in
conformity with the stated policies of the MainStay Institutional Funds,
including the Funds, administers the funds' business affairs and investment
advisory responsibilities. The Manager is a direct subsidiary of New York Life.

The Directors, including the Independent Directors, approved the
Management Agreement with respect to the MainStay Funds at an in-person meeting
held on September 9, 1997 and for the Core Bond Plus Fund, Mid Cap Core Fund and
Tax Free Bond Fund on __________, 2000. On November 17, 1997, the shareholders
of the MainStay Funds approved the Management Agreement for each of the funds
except the Core Bond Plus Fund, the Mid Cap Core Fund, and the Tax Free Bond
Fund. The shareholders of the Core Bond Plus Fund, Mid Cap Core Fund and Tax
Free Bond Fund approved the Management Agreement on __________, 2000. The
Management Agreement for the Core Bond Plus Fund, Mid Cap Core Fund and Tax Free
Bond Fund will remain in effect for two years following its effective date, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Directors or by a vote of a majority of the
outstanding voting securities of each of the Funds (as defined in the 1940 Act
and the rules thereunder) and, in either case by a majority of the Directors who
are not "interested persons" of the Company or the Manager (as the term is
defined in the 1940 Act). The Directors, including the Independent Directors,
approved an amendment to the Management Agreement at an in-person meeting held
on September 7, 1999 to reflect the conversion of MainStay Management from a
corporation to a limited liability company under the laws of the State of
Delaware.

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.

37
<PAGE> 72
The Management Agreement provides that the Manager shall not be liable
to a Fund for any error or judgment by the Manager or for any loss sustained by
a Fund except in the case of the Manager's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Management Agreement also provides
that it shall terminate automatically if assigned and that it may be terminated
without penalty by either party upon no more than 60 days' nor less than 30
days' written notice.

In connection with its administration of the business affairs of each
of the Funds, and except as indicated in the Prospectus under the heading "Know
With Whom You're Investing," 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 Subadvisor;

(b) the fees to be paid to the Subadvisor pursuant to the Sub-Advisory
Agreements; and

(c) all expenses incurred by the Manager in connection with
administering the ordinary course of the Funds' business, other than those
assumed by the Company.

For its services, each Fund pays the Manager a monthly fee. (See the
Prospectus, "Know With Whom You're Investing".)

As long as expense limitations continue, they may lower the Funds'
expenses and increase their respective yields. The voluntary expense limitations
of the other Funds may be terminated or revised at any time, at which time the
Funds' expenses may increase and their respective yields may be reduced,
depending on the total assets of each of the Funds.

SUB-ADVISORY AGREEMENTS

Pursuant to the Sub-Advisory Agreements between the Manager and the
Subadvisor, and subject to the supervision of the Directors of the Company and
the Manager in conformity with the stated policies of the Core Bond Plus Fund,
the Tax Free Bond Fund and the Company, the Subadvisor manages the Funds'
portfolios, including the purchase, retention, disposition and loan of
securities. As compensation for service, the Manager, not the Funds, pays the
Funds' Subadvisor a monthly fee calculated on the basis of each Fund's average
daily net assets at the following annual rates:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
FUND DAILY NET ASSETS
-------------------- ---------------------
<S> <C>
Core Bond Plus Fund .30%
Tax Free Bond Fund .25%
</TABLE>

The Directors, including the Independent Directors, approved the
Sub-Advisory Agreements at an in person meeting held [_______________, 2000]. On
[_______________, 2000], the shareholders of the Core Bond Plus Fund and the Tax
Free Bond Fund approved the Sub-Advisory Agreements with MacKay Shields. The
Sub-Advisory Agreements will remain in effect for two years following their
effective date, and will continue in effect thereafter only if such continuance
is specifically approved at least annually by the Directors or by a vote of a
majority of the outstanding voting securities of each of the Funds (as defined
in the 1940 Act and the rules thereunder) and, in either case by a majority of
the Directors who are not "interested persons" of the Company, the Manager, or
the Subadvisor (as the term is defined in the 1940 Act).

The Subadvisor has authorized any of its directors, officers and
employees who have been elected or appointed as Directors or officers of the
Company to serve in the capacities in which they have been elected or appointed.
In connection with the services it renders, the Subadvisor bears the salaries
and expenses of all of its personnel.

The Sub-Advisory Agreements provide that the Subadvisor shall not be
liable to a Fund for any error of judgment by the Subadvisor or for any loss
sustained by a Fund except in the case of the Subadvisor's willful misfeasance,
bad faith, gross negligence or reckless disregard of duty. The Sub-Advisory
Agreements also provide that it shall terminate

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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.

Because the Funds have not yet commenced operations, no fees were
payable under the Management Agreement or Sub-Advisory Agreements.

DISTRIBUTION AGREEMENT

NYLIFE Distributors, Inc., a corporation organized under the laws of
Delaware, 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, an affiliated company, had acted as
principal underwriter. NYLIFE Securities sells shares of the Funds pursuant to a
dealer agreement with the Distributor. The Distributor is not obligated to sell
any specific amount of the Company's shares, and receives no compensation from
the Company pursuant to the Distribution Agreement. The Distributor is a wholly
owned subsidiary of NYLIFE LLC and an indirect wholly owned subsidiary of New
York Life.

The Company anticipates making a continuous offering of its shares,
although it reserves the right to suspend or terminate such offering at any
time. The Distribution Agreement was most recently approved by the Board of
Directors, including the Independent Directors who do not have any direct or
indirect financial interest in the operation of the distribution plan or in any
related agreement, at a meeting held on March 2, 1999 for the MainStay Funds,
and on __________, 2000 for the Core Bond Plus Fund, Mid Cap Core Fund and Tax
Free Bond Fund.

The Distribution Agreement is subject to annual approval by the Board
of Directors. The Distribution Agreement is terminable with respect to a Fund at
any time, without payment of a penalty, by vote of a majority of the Company's
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Company, upon 60 days' written notice to the Distributor, by vote of a majority
of the outstanding voting securities of that Fund, upon 60 days' written notice
to the Distributor, or by the Distributor, upon 60 days' written notice to the
Company. The Distribution Agreement will terminate in the event of its
assignment.

SHAREHOLDER INVESTMENT ACCOUNT

A Shareholder Investment Account is established for each investor in
the Funds, under which a record of the shares of each Fund held is maintained by
MainStay Shareholder Services LLC ("MSS"). If a share certificate is desired, it
must be requested in writing for each transaction. There is no charge to the
investor for issuance of a certificate. Whenever a transaction takes place in a
Fund, the shareholder will be mailed a confirmation showing the transaction.
Shareholders will be sent a quarterly statement showing the status of the
Account. In addition, shareholders will be sent a monthly statement for each
month in which a transaction occurs.

SHAREHOLDER TRANSACTIONS

MSS may accept written requests from at least one of the owners of a
Shareholder Investment Account for the following account transactions and/or
maintenance's:

- dividend and capital gain changes (including moving dividends
between account registrations);

- address changes;

- certain Systematic Investment Plan and Systematic Withdrawal
Plan changes (including increasing or decreasing amounts and
plan termination);

- exchange requests between identical registrations; and

- redemptions less than $100,000 to the record address only.

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<PAGE> 74
PURCHASES, REDEMPTIONS, EXCHANGES AND REPURCHASE

Purchases and redemptions are discussed in the Prospectus under the
heading "Shareholder Guide," and that information is incorporated herein by
reference.

HOW TO PURCHASE SHARES OF THE FUNDS

GENERAL INFORMATION

BY MAIL

Initial purchases of shares of the Funds should be made by mailing the
completed application form to the [Fund or the Distributor]. Shares of any Fund
may be purchased at the NAV per share next determined after receipt in good
order of the purchase order by that Fund plus any applicable sales charge.

BY WIRE

For both initial and subsequent investments, federal funds should be
wired to:

State Street Bank and Company Company

225 Franklin Street

Boston, Massachusetts 02110

ABA No.: 011 0000 28 Attn.: Custody and Shareholder Services

For Credit: MainStay ________________ Fund-Class______

Shareholder Account No.____________________________

Shareholder Registration ____________________________

DDA Account Number 99029415

An application must be received by MSS within three business days.

The investor's bank may charge the investor a fee for the wire. To make
a purchase effective the same day, the Registered Representative must call MSS
by 12:00 noon Eastern time, and federal funds must be received by the MSS before
4:00 PM Eastern time.

Wiring money to the Company will reduce the time a shareholder must
wait before redeeming or exchanging shares, because when a shareholder purchases
by check or by ACH payment, the Company may withhold payment for up to 10 days
from the date the check is received.

ADDITIONAL INVESTMENTS

Additional investments in a Fund may be made at any time by mailing a
check payable to The MainStay Funds, P.O. Box 8401, Boston, Massachusetts
02266-8401. The shareholder's account number and the name of the Fund and class
of shares must be included with each investment. Purchases will be effected at
the NAV per share plus any applicable sales charge as described above.

The Company's officers may waive the initial and subsequent investment
minimums for certain purchases when they deem it appropriate, including, but not
limited to, purchases through certain qualified retirement plans; purchases by
the Directors; New York Life and its subsidiaries and their employees, officers,
directors or agents; through financial

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<PAGE> 75
services firms that have entered into an agreement with the Funds or New York
Life Distributors; New York Life employee and agent investment plans;
investments resulting from distributions by other New York Life products and
NYLIFE Distributors, Inc. products; and purchases by certain individual
participants.

SYSTEMATIC INVESTMENT PLANS

Investors whose bank is a member of the Automated Clearing House
("ACH") may purchase shares of a Fund through AutoInvest. AutoInvest facilitates
investments by using electronic debits, authorized by the shareholder, to a
checking or savings account, for share purchases. When the authorization is
accepted (usually within two weeks of receipt) a shareholder may purchase shares
by calling MSS, toll free at 1-800-MAINSTAY (between 8:00 AM and 4:00 PM,
Eastern time). The investment will be effected at the NAV per share next
determined after receipt in good order of the order, and normally will be
credited to the shareholder's Fund account within two business days thereafter.
Shareholders whose bank is an ACH member also may use AutoInvest to
automatically purchase shares of a Fund on a scheduled basis by electronic debit
for an account designated by the shareholder on an application form. The initial
investment must be in accordance with the investment amounts previously
mentioned. Subsequent minimum investments are $50 monthly, $100 quarterly, $250
semiannually, or $500 annually. The investment day may be any day from the first
through the twenty-eighth of the respective month. Redemption proceeds from Fund
shares purchased by AutoInvest may not be paid until 10 days or more after the
purchase date. Fund shares may not be redeemed by AutoInvest.

OTHER INFORMATION

Investors may, subject to the approval of the Company, the Distributor,
the Manager and the Subadvisor to the particular Fund, purchase shares of a Fund
with liquid securities that are eligible for purchase by that Fund and that have
a value that is readily ascertainable. These transactions will be effected only
if the Manager or the Subadvisor intends to retain the security in the Fund as
an investment. The Company reserves the right to amend or terminate this
practice at any time. An investor must call MAINSTAY at 1-800-MAINSTAY before
sending any securities.

An investor in certain qualified retirement plans may open an account
with a minimum investment of a lesser amount when permitted under such qualified
retirement plan. The Company and the Distributor reserve the right to redeem
shares of any shareholder who has failed to provide the Company with a certified
Taxpayer I.D. number or such other tax-related certifications as the Company may
require. A notice of redemption, sent by first class mail to the shareholder's
address of record, will fix a date not less than 30 days after the mailing date,
and shares will be redeemed at the NAV determined as of the close of business on
that date unless a certified Taxpayer I.D. number (or such other information as
the Company has requested) has been provided.

REDEMPTIONS AND EXCHANGES

Shares may be redeemed directly from a Fund or through your Registered
Representative. Shares redeemed will be valued at the NAV per share next
determined after MSS receives the redemption request in "good order." "Good
order" with respect to a redemption request generally means that for
certificated shares, a stock power or certificate must be endorsed, and for
uncertificated shares a letter must be signed by the record owner(s) exactly as
the shares are registered, and the signature(s) must be guaranteed by an
eligible guarantor institution. In cases where redemption is requested by a
corporation, partnership, Company, fiduciary or any other person other than the
record owner, written evidence of authority acceptable to MSS must be submitted
before the redemption request will be accepted. The requirement for a signed
letter may be waived on a redemption of $100,000 or less which is payable to the
shareholder(s) of record and mailed to the address of record, or under such
other circumstances as the Company may allow. Send your written request to The
MainStay Funds, P.O. Box 8401, Boston, MA 02266-8401.

Upon the redemption of shares the redeeming Fund will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, less any applicable
contingent deferred sales charge.

In times when the volume of telephone redemptions and exchanges is
heavy, additional phone lines will be added by MSS. However, in times of very
large economic or market changes, redemptions and exchanges may be difficult to

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<PAGE> 76
implement by the telephone. When calling MSS to make a telephone redemption or
exchange, shareholders should have available their account number and Social
Security or Taxpayer I.D. numbers.

The value of the shares redeemed from a Fund may be more or less than
the shareholder's cost, depending on portfolio performance during the period the
shareholder owned the shares.

SYSTEMATIC WITHDRAWAL PLAN

MSS acts as agent for the shareholder in redeeming sufficient full and
fractional shares to provide the amount of the systematic withdrawal

DISTRIBUTIONS IN KIND

The Company has agreed to redeem shares of each Fund solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder. The Company reserves the right to pay
other redemptions, either total or partial, by a distribution in kind of
securities (instead of cash) from the applicable Fund's portfolio. The
securities distributed in such a distribution would be valued at the same value
as that assigned to them in calculating the NAV of the shares being redeemed. If
a shareholder receives a distribution in kind, he or she should expect to incur
transaction costs when he or she converts the securities to cash.

SUSPENSION OF REDEMPTIONS

The Company may suspend the right of redemption of shares of any Fund
and may postpone payment for any period: (i) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings or during
which trading on the New York Stock Exchange is restricted; (ii) when the SEC
determines that a state of emergency exists which may make payment or transfer
not reasonably practicable; (iii) as the SEC may by order permit for the
protection of the security holders of the Company; or (iv) at any other time
when the Company may, under applicable laws and regulations, suspend payment on
the redemption or repurchase of its shares.

TAX-DEFERRED RETIREMENT PLANS

CASH OR DEFERRED PROFIT SHARING PLANS UNDER SECTION 401(k) FOR CORPORATIONS AND
SELF-EMPLOYED INDIVIDUALS

Shares of a Fund, except the Tax Free Bond Fund, may also be purchased
as an investment under a specimen cash or deferred profit sharing plan intended
to qualify under Section 401(k) of the Code (a "401(k) Plan") adopted by a
corporation, a self-employed individual (including sole proprietors and
partnerships), or other organization. All Funds, except the Tax Free Bond Fund,
may be used as funding vehicles for qualified retirement plans including 401(k)
plans, which may be administered by third-party administrator organizations.
NYLIFE Distributors does not sponsor or administer such qualified plans at this
time.

INDIVIDUAL RETIREMENT ACCOUNT ("IRA")

Shares of a Fund, except the Tax Free Bond Fund, may also be purchased
as an underlying investment for an IRA made available by NYLIFE Distributors.
Three types of IRAs are available -- a traditional IRA, the Roth IRA and the
Education IRA.

An individual may contribute as much as $2,000 of his or her earned
income to a traditional IRA. A married individual filing a joint return may also
contribute to a traditional IRA for a nonworking spouse. The maximum deduction
allowed for a contribution to a spousal IRA is the lesser of (i) $2,000 or (ii)
the sum of (a) the compensation includible in the working spouse's gross income
plus (b) any compensation includible in the gross income of the nonworking
spouse, reduced by the amount of the deduction taken by the working spouse. The
maximum deduction for an IRA contribution by a married couple is $4,000.

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An individual who has not attained age 70-1/2 may make a contribution
to a traditional IRA which is deductible for federal income tax purposes. For
the 1999 tax year, a contribution is deductible only if the individual (and his
or her spouse, if applicable) has an adjusted gross income below a certain level
($51,000 for married individuals filing a joint return, with a phase-out of the
deduction for adjusted gross income between $51,000 and $61,000; $31,000 for a
single individual, with a phase-out for adjusted gross income between $31,000
and $41,000). These phase-out limits will gradually increase, eventually
reaching $50,000 - $60,000 for single filers in 2005 and thereafter (and
reaching $80,000 - $100,000 if married filing jointly in 2007 and thereafter).
In addition, a married individual may make a deductible IRA contribution even
though the individual's spouse is an active participant in a qualified
employer's retirement plan, subject to a phase-out for adjusted gross income
between $150,000 - $160,000 ($0-$10,000 for non-participant spouses filing a
separate return). However, an individual not permitted to make a deductible
contribution to an IRA may nonetheless make nondeductible contributions up to
the maximum contribution limit for that year. The deductibility of IRA
contributions under state law varies from state to state.

Distributions from IRAs (to the extent they are not treated as a
tax-free return of nondeductible contributions) are taxable under federal income
tax laws as ordinary income. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, all traditional IRAs are aggregated and treated as one IRA,
all withdrawals are treated as one withdrawal, and then a proportionate amount
of the withdrawal will be deemed to be made from nondeductible contributions;
amounts treated as a return of nondeductible contributions will not be taxable.
Certain early withdrawals are subject to an additional penalty tax. However,
there are exceptions for certain withdrawals, including: withdrawals up to a
total of $10,000 for qualified first-time homebuyer expenses or withdrawals used
to pay "qualified higher education expenses" of the taxpayer or his or her
spouse, child or grandchild. There are also special rules governing when IRA
distributions must begin and the minimum amount of such distributions; failure
to comply with these rules can result in the imposition of an excise tax.

Roth IRAs. Roth IRAs are a form of individual retirement account which
feature nondeductible contributions that may be made even after the individual
attains the age of 70-1/2. In certain cases, distributions from a Roth IRA may
be tax free. The Roth IRA, like the traditional IRA, is subject to a $2,000
($4,000 for a married couple) contribution limit (taking into account both Roth
IRA and traditional IRA contributions). The maximum contribution that can be
made is phased-out for taxpayers with adjusted gross income between $95,000 and
$110,000 ($150,000 - $160,000 if married filing jointly). If the Roth IRA has
been in effect for five years, and distributions are (1) made on or after the
individual attains the age of 59-1/2; (2) made after the individual's death; (3)
attributable to disability; or (4) used for "qualified first-time home buyer
expenses," they are not taxable. If these requirements are not met,
distributions are treated first as a return of contributions and then as taxable
earnings. Taxable distributions may be subject to the same excise tax described
above with respect to traditional IRAs. All Roth IRAs, like traditional IRAs,
are treated as one IRA for this purpose. Unlike the traditional IRA, Roth IRAs
are not subject to minimum distribution requirements during the account owner's
lifetime. However, the amount in a Roth IRA is subject to required distribution
rules after the death of the account owner.

Education IRAs. A taxpayer may make non-deductible contributions of up
to $500 per year per beneficiary to an Education IRA. Contributions cannot be
made after the beneficiary becomes 18 years old. The maximum contribution is
phased out for taxpayers with adjusted gross income between $95,000 and $110,000
($150,000 - $160,000 if married filing jointly). Earnings are tax-deferred until
a distribution is made. If a distribution does not exceed the beneficiary's
"qualified higher education expenses" for the year, no part of the distribution
is taxable. If part of a distribution is taxable, a penalty tax will generally
apply as well. Any balance remaining in an Education IRA when the beneficiary
becomes 30 years old must be distributed and any earnings will be taxable and
subject to a penalty tax upon distribution.

All income and capital gains deriving from IRA investments in the Fund
are reinvested and compounded tax-deferred until distributed from the IRA. The
combination of annual contributions to a traditional IRA, which may be
deductible, and tax-deferred compounding can lead to substantial retirement
savings. Similarly, the combination of tax free distributions from a Roth IRA or
Education IRA combined with tax-deferred compounded earnings on IRA investments
can lead to substantial retirement and/or education savings.

403(b)(7) TAX SHELTERED ACCOUNT

Shares of a Fund, except Tax Free Bond Fund, may also be purchased as
the underlying investment for tax sheltered custodial accounts (403(b)(7) TSA
plans) made available by NYLIFE Distributors. In general, employees of
tax-exempt organizations described in Section 501(c)(3) of the Code (such as
hospitals, churches, religious, scientific, or

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<PAGE> 78
literary organizations and educational institutions) or a public school system
are eligible to participate in a 403(b)(7) TSA plan.

GENERAL INFORMATION

Shares of a Fund, except the Tax Free Bond Fund, may also be a
permitted investment under profit sharing, pension, and other retirement plans,
IRAs, and tax-deferred annuities other than those offered by the Fund depending
on the provisions of the relevant plan. Third-party administrative services,
available for some corporate plans, may limit or delay the processing of
transactions.

The custodial agreements and forms provided by the Funds' Custodian and
Transfer Agent designate New York Life Company Company as custodian for IRAs and
403(b)(7) TSA plans (unless another Companyee or custodian is designated by the
individual or group establishing the plan) and contain specific information
about the plans. Each plan provides that dividends and distributions will be
reinvested automatically. For further details with respect to any plan,
including fees charged by New York Life Company Company, tax consequences and
redemption information, see the specific documents for that plan.

The federal tax laws applicable to retirement plans, IRAs and 403(b)(7)
TSA plans are extremely complex and change from time to time. Therefore, an
investor should consult with his or her own professional tax adviser before
establishing any of the tax-deferred retirement plans described above.

ADDITIONAL REDEMPTION INFORMATION

Certain of the Funds have entered into a committed line of credit with
The Bank of New York, as agent, and various other lenders, from whom a Fund may
borrow up to 5% of its net assets in order to honor redemptions. The credit
facility is expected to be utilized in periods when the Funds experience
unusually large redemption requests.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Purchases and sales of securities on a securities exchange are effected
by brokers, and the Funds pay a brokerage commission for this service. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are fixed.
In the over-the-counter markets, securities (i.e., municipal bonds and other
debt securities) are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. Transactions in certain
over-the-counter securities also may be effected on an agency basis when the
total price paid (including commission) is equal to or better than the best
total prices available from other sources. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid.

In effecting purchases and sales of portfolio securities for the
account of a Fund, the Fund's Subadvisor will seek the best execution of the
Fund's orders. The Subadvisor 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. Consistent with the foregoing primary considerations, the Conduct
Rules of the NASD and such other policies as the Directors may determine, the
Subadvisor may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute the Funds' portfolio transactions.

NYLIFE Securities (the "Affiliated Broker") may act as broker for the
Funds. In order for the Affiliated Broker to effect any portfolio transactions
for the Funds 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.

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The Funds will not deal with the Affiliated Broker in any portfolio transaction
in which the Affiliated Broker acts as principal.

Under the Sub-Advisory Agreements and as permitted by Section 28(e) of
the Securities Exchange Act of 1934, the Subadvisor may cause a Fund to pay a
broker-dealer (except the Affiliated Broker) which provides brokerage and
research services to the Subadvisor an amount of commission for effecting a
securities transaction for a Fund in excess of the amount other broker-dealers
would have charged for the transaction if the Subadvisor determines in good
faith that the greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker-dealer viewed
in terms of either a particular transaction or the Subadvisor's overall
responsibilities to the Company or to its other clients. The term "brokerage and
research services" includes advice as to the value of securities, the
advisability of investing in, purchasing, or selling securities, and the
availability of securities or of purchasers or sellers of securities; furnishing
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts; and
effecting securities transactions and performing functions incidental thereto
such as clearance and settlement.

Although commissions paid on every transaction will, in the judgment of
the Subadvisor, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers (except the Affiliated Broker) who were selected to
execute transactions on behalf of the Company and the Subadvisor's other clients
in part for providing advice as to the availability of securities or of
purchasers or sellers of securities and services in effecting securities
transactions and performing functions incidental thereto such as clearance and
settlement.

Broker-dealers may be willing to furnish statistical research and other
factual information or services ("Research") to the Subadvisor for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless otherwise
directed by the Trust, a commission higher than one charged elsewhere will not
be paid to such a firm solely because it provided Research to a Subadvisor.
Research provided by brokers is used for the benefit of all of the Subadvisor's
clients and not solely or necessarily for the benefit of the Company. The
Subadvisor's investment management personnel attempt to evaluate the quality of
Research provided by brokers. Results of this effort are sometimes used by the
Subadvisor as a consideration in the selection of brokers to execute portfolio
transactions.

In certain instances there may be securities which are suitable for a
fund's portfolio as well as for that of another Fund or one or more of the other
clients of the Subadvisor. Investment decisions for a Fund and for the
Subadvisor's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security in a particular
transaction as far as a Fund is concerned. The Company believes that over time
its ability to participate in volume transactions will produce better executions
for the Funds.

The Sub-Advisory fee that the Manager pays on behalf of each Fund to
the Subadvisor will not be reduced as a consequence of the Subadvisor's receipt
of brokerage and research services. To the extent a Fund's portfolio
transactions are used to obtain such services, the brokerage commissions paid by
the Fund will exceed those that might otherwise be paid, by an amount which
cannot be presently determined. Such services would be useful and of value to
the Subadvisor in serving both the Funds and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients would
be useful to the Subadvisor in carrying out its obligations to the Funds.

Because they have not commenced operations, the Funds have not paid any
brokerage commissions.

A Fund's portfolio turnover rate is calculated by dividing the lesser
of sales or purchases of portfolio securities by the average monthly value of
the Fund's portfolio securities. For purposes of this calculation, portfolio
securities will exclude purchases and sales of debt securities having a maturity
at the date of purchase of one year or less.

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<PAGE> 80
The turnover rate for a Fund will vary from year-to-year and depending
on market conditions, turnover could be greater in periods of unusual market
movement and volatility. A higher turnover rate generally would result in
greater brokerage commissions or other transaction expenses which must be
borne, directly or indirectly, by the Fund and, ultimately, by the Fund's
shareholders, High portfolio turnover may result in increased brokerage
commissions and in the realization of a substantial increase in net short-term
gains by the Fund which, when distributed to non tax-exempt shareholders, will
be treated as dividends (ordinary income).

NET ASSET VALUE

The Company determines the net asset value per share of each class of
the Core Bond Plus Fund, Mid Cap Core Fund and Tax Free Bond Fund on each day
the New York Stock Exchange is open for trading. Net asset value per share is
calculated as of the close of the first session of the New York Stock Exchange
(currently 4:00 p.m., New York City time) for each class of shares of each Fund,
by dividing the current market value of the total assets attributable to a
class, less liabilities attributable to that class, by the total number of
outstanding shares of that class. For the Capital Appreciate Fund, the value of
the Wrapper Agreement is also included in the calculation of NAV.

Portfolio securities of the Funds are valued (a) by appraising common
and preferred stocks which are traded on the New York Stock Exchange at the last
sale price of the first session on that day or, if no sale occurs, at the mean
between the closing bid price and asked price; (b) by appraising other common
and preferred stocks as nearly as possible in the manner described in clause (a)
if traded on any other exchange, including the National Association of
Securities Dealers National Market System and foreign securities exchanges; (c)
by appraising over-the-counter common and preferred stocks quoted on the
National Association of Securities Dealers NASDAQ system (but not listed on the
National Market System) at the closing bid price supplied through such system;
(d) by appraising over-the-counter common and preferred stocks not quoted on the
NASDAQ system and securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market at prices supplied by
a pricing agent selected by a Fund's Subadvisor if the prices are deemed by the
Subadvisor to be representative of market values at the close of the first
session of the New York Stock Exchange; (e) by appraising debt securities at
prices supplied by a pricing agent or, determined using pricing procedures
approved by the Board of Directors, which prices reflect broker-dealer-supplied
valuations or electronic data processing techniques and/or matrix pricing if
those prices are deemed by a Fund's Subadvisor to be representative of market
values at the close of the first session of the New York Stock Exchange; (f) by
appraising exchange-traded options and futures contracts at the last posted
settlement price on the market where any such option or futures contract is
principally traded, and (g) by appraising all other securities and other assets,
including over-the-counter common and preferred stocks not quoted on the NASDAQ
system, securities [not] listed or traded on foreign exchanges whose operations
are similar to the U.S. over-the-counter market and debt securities for which
prices are supplied by a pricing agent but are not deemed by a Fund's Subadvisor
to be representative of market values, but excluding money market instruments
with a remaining maturity of 60 days or less and including restricted securities
and securities for which no market quotation is available, at fair value in
accordance with procedures approved by and determined in good faith by the
Directors, although the actual calculations may be done by others. Forward
foreign currency exchange contracts held by the funds are valued at their
respective fair market values determined on the basis of the mean between the
last current bid and asked prices based on dealer or exchange quotations.

Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined on the close of the
exchange representing the principal market for such securities. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values, using the W.M. Company exchange rates that have been adopted
as the standard for exchange rate valuations by major indices. If such
quotations are not available, the rate of exchange will be determined in
accordance with policies established by the Directors. For financial accounting
purposes, the Company recognizes dividend income and other distributions on the
ex-dividend date, except certain dividends from foreign securities are
recognized as soon as the Company is informed on or after the ex-dividend date.

Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the New York
Stock Exchange is open for trading). In addition, European or Far Eastern
securities trading in a particular country or countries may not take place on
all business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which are
not business days in New York and on which the Funds' net

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asset values are not calculated. Such calculation of net asset value does not
take place contemporaneously with the determination of the prices of the
portfolio securities used in such calculation.

Events affecting the values of portfolio securities that occur between
the time their prices are determined and the close of the New York Stock
Exchange generally will not be reflected in the Fund's calculation of net asset
values. However, a Subadvisor, in consultation with the Manager, may, in its
judgment, determine that an adjustment to a Fund's net asset value should be
made because intervening events have caused the Fund's net asset value to be
materially inaccurate.

The proceeds received by each Fund for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Fund and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to such Fund and with a share of the
general liabilities of the Company. Expenses with respect to any two or more
Funds will be allocated in proportion to the net asset values of the respective
funds except where allocation of direct expenses can otherwise be fairly made in
the judgment of the Manager.

TAX INFORMATION

TAXATION OF THE FUNDS

The following summarizes certain federal income tax considerations generally
affecting the Funds and their shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here is not intended as a substitute for careful tax
planning. The discussion is based upon provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the regulations promulgated thereunder, and
judicial and administrative ruling authorities, all of which are subject to
change, which change may be retroactive. Prospective investors should consult
their own tax advisors with regard to the federal tax consequences of the
purchase, ownership, and disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction.

Each Fund intends to be treated as a regulated investment company ("RIC") under
Subchapter M of the Code. To qualify as a regulated investment company, each
Fund must, among other things: (i) derive in each taxable year at least 90% of
its gross income from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities, or currencies ("Qualifying
Income Test"); (ii) diversify its holdings so that, at the end of each quarter
of the taxable year, (a) 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 (b) not more than 25% of
the value of its total assets is invested in the securities on 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 (as
that term is defined in the relevant provisions of the Code) and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses; and (iii) distribute at least 90% of the sum of its
investment company taxable income (which includes, among other items, dividends,
interest and net short-term capital gains in excess of any net long-term capital
losses) and its net tax-exempt interest each taxable year. The Treasury
Department is authorized to promulgate regulations under which foreign currency
gains would constitute qualifying income for purposes of the Qualifying Income
Test only if such gains are directly related to investing in securities (or
options and futures with respect to securities). To date, no such regulations
have been issued.

Certain requirements relating to the qualification of a Fund as a regulated
investment company may limit the extent to which a Fund will be able to engage
in certain investment practices, including transactions in futures contracts and
other types of derivative securities transactions. In addition, if a Fund were
unable to dispose of portfolio securities due to settlement problems relating to
foreign investments or due to the holding of illiquid securities, the Fund's
ability to qualify as a regulated investment company might be affected.

A Fund qualifying as a regulated investment company generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (any net long-term capital gains in excess of the net
short-term

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capital losses), if any, that it distributes to shareholders. Each Fund intends
to distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and any net capital gains. In determining the
amounts of capital gains to be distributed, any capital loss carryovers from
prior years will generally be applied against capital gains.

Generally, regulated investment companies, like the Funds, must distribute
amounts on a timely basis in accordance with a calendar year distribution
requirement in order to avoid a nondeductible 4% excise tax. Generally, to avoid
the tax, a regulated investment company must distribute during each calendar
year, (i) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (ii) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the 12-month period ending on October 31 of the calendar year, and (iii) all
ordinary income and capital gains for previous years that were not distributed
during such years. To avoid application of the excise tax, each Fund currently
intends to make its distributions in accordance with the calendar year
distribution requirement. A distribution is treated as paid on December 31 of
the calendar year if it is declared by a Fund in October, November or December
of that year to shareholders of record on a date in such a month and paid by the
Fund during January of the following calendar year. Such distributions are
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.

A Fund's investments, if any, in REMIC residual interests or in Passive Foreign
Investment Companies, as explained below, may cause the Fund to become liable
for certain taxes. Investors that are tax-exempt organizations should carefully
consider whether distributions of a Fund's earnings will be subject to tax in
their hands.

CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- GENERAL

Assuming a Fund qualifies as a RIC, distributions of taxable net investment
income and net short-term capital gains in excess of net long-term capital
losses will be treated as ordinary income in the hands of shareholders, whether
received in cash or reinvested in Fund shares.

If a Fund's investment income is derived exclusively from sources (such
as interest) other than dividends, no portion of such distributions will be
eligible for the dividends-received deduction available to corporations. If a
portion of a Fund's net investment income is derived from dividends from
domestic corporations, then a portion of such distributions may be eligible for
the corporate dividends-received deduction. The dividends-received deduction is
reduced to the extent shares of a Fund are treated as debt-financed under the
Code and is generally eliminated unless such shares are deemed to have been held
for more than 45 days. The 45-day holding period must occur during the 90-day
period beginning 45 days before the date on which the shares become ex-dividend.
In the case of dividends on certain preferred stock, the holding period
requirement is 90 days during a 180-day period. In addition, the entire dividend
(including the deducted portion) is includable in the corporate shareholder's
alternative minimum taxable income. Finally, if such dividends are large enough
to constitute "extraordinary dividends" under Section 1059 of the Code and the
applicable holding period requirements are not met, the shareholder's basis in
its shares could be reduced by all or a portion of the amount of the dividends
that qualifies for the dividends-received deduction. A portion of the dividends
paid by the Mid Cap Core Fund may qualify for the dividends-received deduction
available to corporations. The dividends paid by the other Funds are not
expected to so qualify. The alternative minimum tax and environmental tax
applicable to corporations may reduce the value of the dividends-received
deduction.

Distributions of a Fund's net capital gains, if any, designated by a Fund as
capital gain dividends, will generally be taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held the Fund's shares.
Any distributions by a Fund of net capital gains from assets held for one year
or less (i.e., short-term capital gains) will be taxed to a shareholder as
ordinary income. Capital gain distributions will not be eligible for the
dividends-received deduction. All distributions are includable in the gross
income of a shareholder whether reinvested in additional shares or received in
cash. Shareholders will be notified annually as to the Federal tax status of
distributions.

If any net long-term capital gains in excess of net short-term capital losses
are retained by a Fund for reinvestment, requiring federal income taxes to be
paid thereon by that Fund, the Fund may elect to treat such capital gains as
having been distributed to shareholders. As a result, such capital gains would
be taxable to the shareholders. Shareholders would be able to claim their
proportionate share of the federal income taxes paid by the Fund on such gains
as a credit against their own federal income tax liabilities and would be
entitled to increase the adjusted tax basis of the relevant Fund shares by the
difference between their pro-rata share of such gains and their tax credit.

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Distributions by a Fund result in a reduction in the net asset value of a Fund's
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution nevertheless would generally be taxable to the
shareholder (except to the extent the distribution is an exempt interest
dividend as described below) as ordinary income or capital gain as described
above, even though, from an investment standpoint, it may constitute a partial
return of investment. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those investors purchasing shares just prior to a distribution
will then receive a partial return of their investment upon such distribution,
which may nevertheless be taxable to them.

Distributions of taxable net investment income and net realized capital gains
will be taxable as described above, whether received in shares or in cash. Any
distributions that are not from a Fund's net investment income or net capital
gain may be characterized as a return of capital to shareholders or, in some
cases, as capital gain. Shareholders electing to receive distributions in the
form of additional shares will have a cost basis for federal income tax purposes
in each share so received equal to the net asset value of such share on the
reinvestment date.

CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- TAX FREE BOND FUND

The Code permits the character of tax-exempt interest distributed by a regulated
investment company to "flow through" as tax-exempt interest to its shareholders,
provided that 50% or more of the value of its assets at the end of each quarter
of its taxable year is invested in state, municipal or other obligations the
interest on which is exempt under Section 103(a) of the Code. The Tax Free Bond
Fund intends to satisfy the 50% requirement to permit its distributions of
tax-exempt interest to be treated as such for regular Federal income tax
purposes in the hands of its shareholders. Exempt-interest dividends must be
taken into account by individual shareholders in determining whether their total
incomes are large enough to result in taxation of up to 85% of their social
security benefits and certain railroad retirement benefits. None of the income
distributions of the Tax Free Bond Fund will be eligible for the deduction for
dividends received by corporations.

Although a significant portion of the distributions by the Tax Free Bond Fund
generally is expected to be exempt from federal taxes, the Fund may under
certain circumstances invest in obligations the interest from which is fully
taxable, or, although exempt from the regular federal income tax, is subject to
the alternative minimum tax. Similarly, gains from the sale or exchange of
obligations the interest on which is exempt from regular Federal income tax will
constitute taxable gain, and a portion may be taxed as ordinary income if the
Fund acquired the obligation when it was trading at a market discount. Taxable
income or gain may also arise from securities lending transactions, repurchase
agreements and options and futures transactions. Accordingly, it is possible
that a significant portion of the distributions of the Tax Free Bond Fund will
constitute taxable rather than tax-exempt income in the hands of a shareholder.
Furthermore, investors should be aware that tax laws may change, and issuers may
fail to follow applicable laws, causing a tax-exempt item to become taxable.

In addition, a sale of shares in the Tax Free Bond Fund (including a redemption
of such shares and an exchange of shares between two mutual funds) will be a
taxable event, and may result in a taxable gain or loss to a shareholder.
Shareholders should be aware that redeeming shares of the Fund after tax-exempt
interest has been accrued by the Fund but before that income has been declared
as a dividend may be disadvantageous. This is because the gain, if any, on the
redemption will be taxable, even though such gains may be attributable in part
to the accrued tax-exempt interest which, if distributed to the shareholder as a
dividend rather than as redemption proceeds, might have qualified as an
exempt-interest dividend.

Exempt-interest dividends from the Tax Free Bond Fund; ordinary dividends from
the Tax Free Bond Fund, if any; capital gains distributions from the Tax Free
Bond Fund and any capital gains realized from the sale or exchange of shares may
be subject to state and local taxes. However, the portion of a distribution of
the Funds' tax-exempt income that is attributable to state and municipal
securities issued within the shareholder's own state may not be subject, at
least in some states, to state or local taxes.

Distributions derived from interest on certain private activity bonds which is
exempt from regular federal income tax are treated as a tax preference item and
may subject individual or corporate shareholders to liability (or increased
liability) for the alternative minimum tax. In addition, because a portion of
the difference between adjusted current earnings, as defined in the Code, and
alternative minimum taxable income is an addition to the alternative minimum tax
base, all distributions derived from interest which is exempt from regular
federal income tax are included in adjusted current earnings and may subject
corporate shareholders to or increase their liability for the alternative
minimum tax.

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Opinions relating to the validity of municipal securities and the exemption of
interest thereon from federal income tax are rendered by bond counsel to the
issuers. The Tax Free Bond Fund, the Subadvisor and its affiliates, and the
Funds' counsel make no review of proceedings relating to the issuance of state
or municipal securities or the bases of such opinions.

Due to the lack of adequate supply of certain types of tax-exempt obligations,
and other reasons, various instruments are being marketed which are not "pure"
state and local obligations, but which are thought to generate interest
excludable from taxable income under Code section 103. While the Tax Free Bond
Fund may invest in such instruments, it does not guarantee the tax-exempt status
of the income earned thereon or from any other investment. Thus, for example,
were the Fund to invest in an instrument thought to give rise to tax-exempt
interest but such interest ultimately were determined to be taxable, the Fund
might have invested more than 20% of its assets in taxable instruments. In
addition, it is possible in such circumstances that the Tax Free Bond Fund will
not have met the 50% investment threshold, described above, necessary for it to
pay exempt-interest dividends.

DISCOUNT

Certain of the bonds purchased by the Funds, such as zero coupon bonds, may be
treated as bonds that were originally issued at a discount. Original issue
discount represents interest for federal income tax purposes and can generally
be defined as the difference between the price at which a security was issued
(or the price at which it was deemed issued for federal income tax purposes) and
its stated redemption price at maturity. Original issue discount is treated for
federal income tax purposes as income earned by a Fund over the term of the
bond, and therefore is subject to the distribution requirements of the Code. The
annual amount of income earned on such a bond by a Fund generally is determined
on the basis of a constant yield to maturity which takes into account the
semiannual compounding of accrued interest.

In addition, some of the bonds may be purchased by a Fund at a discount which
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any bond having market discount generally will be
treated as taxable ordinary income to the extent it does not exceed the accrued
market discount on such bond (unless a Fund elects to include market discount in
income in tax years to which it is attributable). Realized accrued market
discount on obligations that pay tax-exempt interest is nonetheless taxable.
Generally, market discount accrues on a daily basis for each day the bond is
held by a Fund at a constant rate over the time remaining to the bond's
maturity.

USERS OF BOND-FINANCED FACILITIES

Section 147(a) of the Code prohibits exemption from taxation of interest on
certain governmental obligations to persons who are "substantial users" (or
persons related thereto) of facilities financed thereby. No investigation as to
the users of the facilities financed by bonds in the portfolio the Tax Free Bond
Fund has been or will be made by the Fund. Persons who may be "substantial
users" (or "related persons" of substantial users) of facilities financed by
private activity bonds should consult their tax advisers before purchasing
shares of the Tax Free Bond Fund since the acquisition of shares of the Fund may
result in adverse tax consequences to them.

TAXATION OF OPTIONS, FUTURES AND SIMILAR INSTRUMENTS

Many of the options, futures contracts and forward contracts entered into by a
Fund will be classified as "Section 1256 contracts." Generally, gains or losses
on Section 1256 contracts are considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Also, certain Section 1256 contracts held by
a Fund are "marked-to-market" at the times required pursuant to the Code with
the result that unrealized gains or losses are treated as though they were
realized. The resulting gain or loss generally is treated as 60/40 gain or loss,
except for foreign currency gain or loss on such contracts, which generally is
ordinary in character.

Distribution of Fund gains from any hedging transactions will be taxable to
shareholders. Generally, hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by a Fund may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on positions that are part of a straddle may be deferred under the
straddle rules rather than being taken into account in the taxable year in which
such losses are realized.

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Furthermore, certain transactions (including options, futures contracts,
notional principal contracts, short sales and short sales against the box) with
respect to an "appreciated position" in certain financial instruments may be
deemed a constructive sale of the appreciated position, requiring the immediate
recognition of gain as if the appreciated position were sold. Because only a few
regulations implementing the straddle rules have been promulgated, and
regulations relating to constructive sales of appreciated positions have yet to
be promulgated, the tax consequences of transactions in options, futures and
forward contracts to a Fund are not entirely clear. The hedging transactions in
which a Fund engages may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to shareholders.

A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
accelerate the recognition of gains or losses from the affected straddle
positions.

Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a Fund that did not engage in such hedging transactions. Any gains from such
transactions would also be taxable when distributed to the shareholders of the
Tax Free Bond Fund.

The diversification requirements applicable to a Fund's status as a regulated
investment company may limit the extent to which a Fund will be able to engage
in transactions in options, futures contracts or forward contracts, swaps or
other similar instruments and transactions.

The tax treatment of swap agreements is not entirely clear in certain respects.
Accordingly, while the Funds intend to account for such transactions in a manner
they deem to be appropriate, the IRS might challenge such treatment. If such a
challenge were successful, status of a Fund as a regulated investment company
might be affected. The Funds intend to monitor developments in this area.

PASSIVE FOREIGN INVESTMENT COMPANIES

The Mid Cap Core Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If the Mid Cap Core Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to Shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.

The Mid Cap Core Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. Alternatively, the Fund may elect to
mark to market its PFIC shares at the end of each taxable year, with the result
that unrealized gains are treated as though they were realized and reported as
ordinary income. Any mark-to-market losses and any loss from an actual
disposition of PFIC Shares would be deductible as ordinary losses to the extent
of any net mark-to-market gains included in income in prior years.

Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC shares, as well as subject the Mid Cap Core Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to

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shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a Fund that did not invest in PFIC
shares.

FOREIGN CURRENCY GAINS AND LOSSES

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time a Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward and other contracts, gain or
loss attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of a Fund's net investment income to be distributed to its shareholders. If
Section 988 losses exceed other 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) during the taxable
year, a Fund would not be able to make any ordinary dividend distributions, and
distributions made before the losses were realized would be recharacterized as a
return of capital to shareholders or, in some cases, as capital gain, rather
than as an ordinary dividend.

DISPOSITIONS OF FUND SHARES

Upon redemption, sale or exchange of shares of a Fund, a shareholder will
realize a taxable gain or loss, depending on whether the gross proceeds are more
or less than the shareholder's tax basis for the shares. Such gain or loss
generally will be a capital gain or loss if the shares of a Fund were capital
assets in the hands of the shareholder, and generally will be taxable to
shareholders as long-term capital gains if the shares had been held for more
than one year. A loss realized by a shareholder on the redemption, sale or
exchange of shares of a Fund with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less at the time of their disposition. Furthermore, a loss realized by
a shareholder on the redemption, sale or exchange of shares of a Fund with
respect to which exempt-interest dividends have been paid will, to the extent of
such exempt-interest dividends, be disallowed if such shares have been held by
the shareholder for six months or less at the time of their disposition. A loss
realized on a redemption, sale or exchange also will be disallowed to the extent
the shares disposed of are replaced (whether through 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 should be aware that redeeming shares of the Tax Free Bond Fund
after tax-exempt interest has been accrued by the Fund but before that income
has been declared as a dividend may be disadvantageous. This is because the
gain, if any, on the redemption will be taxable, even though such gains may be
attributable in part to the accrued tax-exempt interest which, if distributed to
the shareholder as a dividend rather than as redemption proceeds, might have
qualified as an exempt-interest dividend.

Under certain circumstances, the sales charge incurred in acquiring shares of a
Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new shares are
acquired without a sales charge or at a reduced sales charge pursuant to a right
acquired upon the initial purchase of shares. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. The portion of the sales charge affected by this rule will be
treated as a sales charge paid for the new shares and will be reflected in their
basis.

If reverse stock splits are done, a share may have a split holding period
reflecting the fact that part of the share represents a reinvested dividend or
distribution.

TAX REPORTING REQUIREMENTS

All distributions, whether received in shares or cash, must be reported by each
shareholder on his or her federal income tax return. Shareholders are also
required to report tax-exempt interest. Dividends declared and payable to
shareholders of record on a specified date in October, November or December, if
any, will be deemed to have been received by

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shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Fund, may
result in tax consequences (gain or loss) to the shareholder and generally are
also subject to these reporting requirements. Each shareholder should consult
his or her own tax adviser to determine the tax status of a Fund distribution in
his or her own state and locality (or foreign country).

Under the federal income tax law, a Fund will be required to report to the IRS
all distributions of income and capital gains as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, all such taxable distributions and proceeds from the redemption or
exchange of a Fund's shares may be subject to withholding of federal income tax
at the rate of 31% in the case of nonexempt shareholders who fail to furnish a
Fund with their taxpayer identification number and with required certifications
regarding their status under the federal income tax law or if the IRS or a
broker notifies a Fund that the number furnished by the shareholder is
incorrect. In addition, both the Fund and the shareholder are potentially
subject to a $50 penalty imposed by the IRS if a correct, certified taxpayer
identification number is not furnished and used on required information returns.

If the withholding provisions are applicable, any such distributions and
proceeds, whether taken in cash or reinvested in shares, will be reduced by the
amounts required to be withheld. Backup withholding is not an additional tax and
any amounts withheld are creditable against the shareholder's U.S. Federal tax
liability. Investors may wish to consult their tax advisers about the
applicability of the backup withholding provisions.

FOREIGN TAXES

Investment income and gains received by a Fund from sources outside the United
States may be subject to foreign taxes which were paid or withheld at the
source. The payment of such taxes will reduce the amount of dividends and
distributions paid to the Funds' stockholders. Since the percentage of each
Fund's total assets which will be invested in foreign stocks and securities is
not anticipated to be more than 50%, the Funds will not be able to pass through
to its shareholders the ability to claim any foreign tax credit. The effective
rate of foreign taxes to which a Fund will be subject depends on the specific
countries in which each Fund's assets will be invested and the extent of the
assets invested in each such country and, therefore, cannot be determined in
advance.

STATE AND LOCAL TAXES

The state and local tax treatment of distributions received from a Fund and any
special tax considerations associated with foreign investments of a Fund should
be examined by shareholders with regard to their own tax situations.
Shareholders of the Tax Free Bond Fund may be subject to state and local taxes
on distributions from the Fund, including distributions which are exempt from
federal income taxes. Some states exempt from the state personal income tax
distributions from a Fund derived from interest on obligations issued by the
U.S. government or by such state or its municipalities or political
subdivisions. Each investor should consult his or her own tax adviser to
determine the tax status of distributions from the Funds in his or her own state
and locality.

EXPLANATION OF FUND DISTRIBUTIONS

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, each Fund will issue to
each shareholder a statement of the federal income tax status of all
distributions.

GENERAL INFORMATION

The foregoing discussion generally relates to U.S. 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). Each shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and
non-U.S. tax consequences of ownership of shares of a Fund, including the
possibility that such a shareholder may be subject to a U.S. withholding tax at
a rate of 30% (or at a lower rate under an applicable U.S. income tax treaty) on
distributions of net investment income and short-term capital gains to him or
her.

53
<PAGE> 88
PERFORMANCE INFORMATION

The Company may, from time to time, include the yield of the Funds and
the total return of all Funds in advertisements, sales literature, or reports to
shareholders or prospective investors.

Quotations of yield for the Funds will be based on all investment
income per share earned during a particular 30-day period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and are computed by dividing net investment income by the maximum
offering price per share on the last day of the period, according to the
following formula:

2[((a - b)/cd + 1)(6) -1]

<TABLE>
<S> <C> <C>
where a dividends and interest earned during the period,
b expenses accrued for the period (net of reimbursements),
c the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d the maximum offering price per share on the last day of the period.
</TABLE>

Quotations of average annual total return for a Fund will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over certain periods that will include a period of one
year (or, if less, up to the life of the Fund), calculated pursuant to the
following formula: P(1 + T)(n) = ERV (where P = a hypothetical initial payment
of $1,000, T = the total return for the period, n = the number of periods, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). Quotations of total return may also be shown for other
periods. All total return figures reflect the deduction of a proportional share
of Fund expenses on an annual basis, reflect fee waivers or reimbursements in
effect for each period and assume that all dividends and distributions are
reinvested when paid.

Because the Funds began operation on January 2, 2001, they do not have
any performance history.

In addition, advertising for a Fund may indicate that investors may
consider diversifying their investment portfolios in order to seek protection of
the value of their assets against inflation. From time to time, advertising
materials for a Fund may refer to or discuss current or past business,
political, economic or financial conditions, including events as they relate to
those conditions, such as any U.S. monetary or fiscal policies and the current
rate of inflation. In addition, from time to time, advertising materials for a
Fund may include information concerning retirement and investing for retirement
and may refer to the approximate number of then-current Fund shareholders,
shareholder accounts and Fund assets.

From time to time, advertising and sales literature for a Fund may
discuss the investment philosophy, personnel and assets under management of the
Fund's Manager and Subadvisor, and other pertinent facts relating to the
management of the Fund by the Subadvisor.

From time to time any of the Funds may publish an indication of its
past performance as measured by independent sources such as Lipper Inc.,
Weisenberger Investment Companies Service, Donoghue's Money Fund Report, Spot
Market Prices, Barron's, Business Week, Kiplinger's Personal Finance, Financial
World, Forbes, Money, Morningstar, Personal Investor, Sylvia Porter's Personal
Finance, and The Wall Street Journal.

In addition, performance information for a Fund may be compared, in
advertisements, sales literature, and reports to shareholders to: (i) unmanaged
indexes, such as the Standard & Poor's 500 Composite Stock Price Index, the BIG
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 Smith Barney World Government
Benchmark Bond Index, the Salomon Smith Barney 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 Inc., 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

54
<PAGE> 89
the performance of the economy to assess the real rate of return from an
investment in the Funds. Advertisements for a Fund may also include general
information about the performance of unmanaged indexes with investment
parameters similar to the Fund's. Unmanaged indexes may assume the reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs and expenses.

From time to time, advertisements for the Funds may include general
information about the services and products offered by the Funds, The MainStay
Funds and New York Life and its subsidiaries. For example, such advertisements
may include statistical information about those entities including, but not
limited to, the number of current shareholder accounts, the amount of assets
under management, sales information, the distribution channels through which the
entities' products are available, marketing efforts and statements about this
information by the entities' officers, directors and employees.

OTHER INFORMATION

CAPITALIZATION

The Funds are separate portfolios of the Company, an open-end
management investment company, incorporated under the laws of Maryland on
September 21, 1990. The Company was formerly known as New York Life
Institutional Funds Inc. On January 3, 1995 the name of the Company was changed
to its present form. The Board of Directors may establish additional portfolios
(with different investment objectives and fundamental policies) at any time in
the future. Establishment and offering of additional portfolios will not alter
the rights of the Company's shareholders. When issued, shares are fully paid,
non-assessable, redeemable, and freely transferable.

EFFECTIVE MATURITY

Certain Funds may use an effective maturity for determining the
maturity of their portfolio. Effective maturity means the average expected
repayment date of the portfolio taking into account prospective calls, puts and
mortgage prepayments, in addition to the maturity dates of the securities in the
portfolio.

CONTROL PERSONS AND SHARE OWNERSHIP OF THE FUNDS

Because the Funds have not yet begun operations, there are no control
persons or beneficial and record owners of 5% or more of the Funds' 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 Subadvisor unless such
power is the result of their position with the Company or Manager or Subadvisor.
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. Subject to these restrictions, these persons are permitted
to invest in securities, including securities that may be purchased or held by
the Funds. The Company has developed procedures for administration of the Code
of Ethics.

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, 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.

55
<PAGE> 90
TRANSFER AGENT

MainStay Shareholder Services LLC ("MSS") is the Funds' 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. MSS provides customer service, is responsible for preparing
and sending statements, confirms and checks, and keeps certain financial and
accounting records. MSS is paid a per account fee and out-of-pocket expenses by
the Funds. 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 or MSS may contract with other service organizations, including affiliates
of MSS and 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 service fees for those services from the Fund.

CUSTODIAN

The Bank of New York, 90 Washington Street, New York, NY 10286, is
custodian of the Funds' investments and has subcustodial agreements for holding
the Funds' foreign investments.

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 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.

56
<PAGE> 91
APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

MOODY'S INVESTORS SERVICE, INC.

CORPORATE AND MUNICIPAL BOND RATINGS

Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gift edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic
rating classified from Aa through Caa. The modifier I indicates that the issue
ranks in the higher end of its generic rating category; the modifier 2 indicates
a midrange ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

Advance refunded issues that are secured by escrowed funds held in
cash, held in trust, reinvested in direct noncallable United States government
obligations or noncallable obligations unconditionally guaranteed by the U.S.
government are identified with a hatchmark (#) symbol, i.e., #Aaa.

Moody's assigns conditional ratings to bonds for which the security
depends upon the completion of some act or the fulfillment of some condition.
These are bonds secured by: (a) earnings of projects under construction; (b)
earnings of projects unseasoned in operating experience; (C) rentals that begin
when facilities are completed; or (d) payments to which

57
<PAGE> 92
some other limiting condition attaches. The parenthetical rating denotes
probable credit stature upon completion of construction or elimination of basis
of condition, e.g., Con.(Baa).

MUNICIPAL SHORT-TERM LOAN RATINGS

MIG I/VMIG 1: This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2: This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group-

MIG 3/VMIG 3: This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.

MIG 4/VMIG 4: This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

SG: This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

CORPORATE SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year, 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-I
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.

58
<PAGE> 93
STANDARD & POOR'S

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

INVESTMENT GRADE

AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA: Debt rated AA differs from the highest rated issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A: Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.

BBB: Debt rated BBB 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.

SPECULATIVE GRADE

Debt rated BB, B, CCC, CC, and C is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.

BB: Debt rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B: Debt rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.

CCC: Debt rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions for the
obligor. In the event of adverse business, financial or economic conditions, the
obligor is not likely to have the capacity to meet its financial commitment on
the obligation.

CC: An obligation rated CC is currently highly vulnerable to
nonpayment.

C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed or a similar action has been taken, but debt service
payments are continued.

D: Debt 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 S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition, or the taking of similar action, if debt
service payments are jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take,
into account currency exchange and related uncertainties.

59
<PAGE> 94
SHORT-TERM RATING DEFINITIONS

A-1: A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligors 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 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.

60
<PAGE> 95
PART C. OTHER INFORMATION

ITEM 23. EXHIBITS

a. Exhibits:

(1) Articles of Incorporation (1)

(2) Articles Supplementary (2)

(3) Articles of Amendment (4)

(4) Form of Articles Supplementary (6)

(5) Articles of Amendment (7)

(6) Form of Articles Supplementary (12)

(7) Articles of Amendment (to be filed by amendment)

b. By-laws (1)

c. Specimen Certificates for Common Stock (3)

d. (1) (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, Asset Manager Fund (formerly Multi-Asset Fund),
Short-Term Bond Fund and Value Equity Fund, and
MainStay Management LLC. (11)

(b) Form of (composite) Management Agreement between
MainStay Institutional Funds Inc., on behalf of the
Core Bond Plus Fund, Mid Cap Core Fund and Tax Free
Bond Fund, and New York Life Investment Management
LLC. (filed herewith)

(2) Form of (composite) Sub-Advisory Agreement between MainStay
Management LLC, 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
LLC. (11)

(3) Form of (composite) Sub-Advisory Agreement between MainStay
Management LLC, on behalf of the EAFE Index Fund, Indexed Bond
Fund, Indexed Equity Fund and Asset Manager Fund (formerly
Multi-Asset Fund), and Monitor Capital Advisors LLC. (11)

(4) Form of Sub-Advisory Agreement between MainStay Management
LLC, on behalf of the Money Market Fund and New York Life
Insurance Company. (11)

<PAGE> 96

(5) Form of Sub-Advisory Agreement between New York Life
Investment Management LLC, on behalf of the Core Bond Plus
Fund and the Tax Free Bond Fund, and MacKay Shields LLC.
(filed herewith)

e. Distribution Agreement (5)

f. Not Applicable

g. Form of Custodian Contract (6)

h. (1) Form of Transfer Agency and Service Agreement (2)

(2) Form of License Agreement (2)

(3) Form of Service Agreement with New York Life Benefit Services
LLC (10)

(4) Form of Service Agreement with New York Life Insurance Company
(10)

i. Opinion and Consent of Counsel (to be filed by amendment)

j. Not Applicable

k. Not Applicable

l. Initial Subscription Agreement (3)

m. (1) Form of Account Application (3)

(2) Shareholder Services Plan (10)

(3) Amended and Restated Shareholder Services Plan (12)

(4) Shareholder Services Plan for Money Market Fund Sweep Shares
(12)

(5) Plan of Distribution Pursuant to Rule 12b-1 for Money Market
Fund Sweep Shares (12)

n. Not Applicable

o. (1) Multiple Class Plan (11)
<PAGE> 97
(2) form of Amended and Restated Multiple Class Plan(12)

p. (1) Form of Code of Ethics for The MainStay Institutional Funds
Inc. (filed herewith)

(2) Form of Code of Ethics for MainStay Management LLC (filed
herewith)

(3) Form of Code of Ethics for MacKay Shields LLC (filed herewith)

(4) Form of Code of Ethics for Monitor Capital Advisors LLC (filed
herewith)

(5) Form of Code of Ethics for NYLIM (filed herewith)

(6) Form of Code of Ethics for NYLIFE Distributors, Inc. (filed
herewith)

* 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, with
Post-Effective Amendment No. 18 to the Registration Statement on April
30, 1998, and with Post-Effective Amendment No. 23 to the Registration
Statement on February 29, 2000.

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.
<PAGE> 98
11. Filed with Post-Effective Amendment No. 17 to Registration Statement
No. 33-36962 on May 1, 1997.

12. Filed with Post-Effective Amendment No. 19 to Registration Statement
No. 33-36962 on September 25, 1998.
<PAGE> 99
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

The following chart indicates the persons controlled by New
York Life. Ownership is 100% unless otherwise indicated. Subsidiaries of other
subsidiaries are indicated accordingly.

Name of Organization (Jurisdiction) (1)

MainStay VP Series Fund, Inc. (Maryland) (2)
The MainStay Funds (Massachusetts) (2)

New York Life Investment Management Holdings LLC (Delaware)
MacKay Shields LLC (Delaware)
MacKay Shields Domestic General Partner LLC (Delaware)
Madison Square Advisors LLC (Delaware)
NYLCAP Manager LLC (Delaware)
New York Life Capital Partners LLC (Delaware)
MainStay Management LLC (Delaware)
MainStay Shareholder Services LLC (Delaware)
Monitor Capital Advisors LLC (Delaware)
New York Life Investment Management LLC (Delaware)
New York Life Benefit Services LLC (Delaware)
New York Life International Investment Asia Ltd. (Mauritius)
NYLIFE Distributors Inc. (Delaware)
New York Life Insurance and Annuity Corporation (Delaware)

New York Life International, Inc. (Delaware)
GEO New York Life, S.A. (Mexico)
New York Life Insurance Ltd. (South Korea)
La Buenos Aires New York Life Seguros de Vida S.A. (Argentina) 40%
La Buenos Aires New York Life Seguros de Retiro S.A. (Argentina) 40%
Maxima S.A. AFJP (Argentina) 40%
New York Life Insurance Worldwide Ltd. (Hong Kong) [incorporated in
Bermuda]
New York Life International Holdings Ltd. (Mauritius)
New York Life International India Fund LLC (Mauritius) (90%)

--------------------
1 By including the indicated corporation in this list, New York Life is
not stating or admitting that said corporations are under its actual
control; rather, these corporations are listed here to ensure full
compliance with the requirements of this Form N-1A.

2 This entity is an unaffiliated registered investment company for which
New York Life and/or its subsidiaries perform investment management,
administrative, distribution and underwriting services. It is not a
subsidiary of New York Life but is included for informational purposes
only.
<PAGE> 100
New York Life Insurance (Philippines), Inc.
New York Life Worldwide Capital, Inc. (DE)
NYLife Thailand, Inc. (Thailand)
NYLI-VB Asset Management Co. LLC (Mauritius) (90%)
P.T. Asuransi Jiwa Sewu-New York Life (50.2%) (Indonesia)

Seguros Monterrey, S.A.
Corporativo Seguros
Centro Nacional de Servicios y Operaciones
Centro de Capacitacion Monterrey
Fianzas Monterrey, S.A.
Operadora FMA

Max New York Life Insurance Company PVD Ltd. (26%)
New York Life Settlement Corporation

New York Life Irrevocable Trust of 1996(3)

NYLIFE LLC (Delaware)
Avanti Corporate Health Systems, Inc. (Delaware)
Avanti of the District, Inc. (Maryland)
Eagle Strategies Corp. (Arizona)
New York Life Capital Corporation (Delaware)
New York Life (U.K.) Ltd. (England)(4) (99.97%)
Life Assurance Holding Corporation Limited (23%) (South Korea)
Windsor Life Assurance Company Limited (Indonesia)
Windsor Construction Company Limited
New York Life International Investment Inc. (Delaware)
Monetary Research Ltd. (Bermuda)
NYL Management Limited (formerly Quorum Capital Management
Limited) (England)
New York Life International Investment Asia Ltd. (Mauritius)
New York Life Trust Company (New York)
NYLCare NC Holdings, Inc. (Delaware)
WellPath Community Health Plans LLC (North Carolina) (NYLCare
NC Holdings, Inc. owns 25%; Duke Medical Strategies, Inc. owns
remaining 75%)
ETHIX Southeast, Inc. (North Carolina)
WPCHP Holdings, Inc. (formerly Sanus-New England, Inc.)
(Delaware)
WellPath Preferred Services LLC (99.9%; WPCHP
Holdings, Inc. owns other 0.1%) (Delaware)

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

(3) An unaffiliated trust formed solely for the purpose of holding shares
of New York Life Settlement Corporation. It is not a subsidiary of
New York Life but is included for informational purposes only.

(4) One Share is held in the name of a Nominee as required by British
law.
<PAGE> 101
WellPath Select Holdings LLC (99.9%; WPCHP Holdings,
Inc. owns other 0.1%) (North Carolina)
WellPath Select, Inc. (formerly WellPath Community
Health Plans, Inc.)

NYLIFE Administration Corp. (Delaware)
NYLIFE Structured Asset Management Company Ltd.
NYLIFE HealthCare Management, Inc. (Delaware)
Express Scripts, Inc. (39.4% of total combined stock and 89.6%
of the voting rights) (Delaware)
Express Scripts Vision Corporation (Delaware)
ESI Canada Holdings, Inc. (Canada)
ESI Canada, Inc. (Canada)
ESI/VRX Sales Development Co.
Diversified Pharmaceutical Services (P.R.), Inc.
Diversified Pharmaceutical Services, Inc.
Diversified NY IPA, Inc.
Express Scripts Specialty Distribution Services, Inc.
ESI Utilization Management Co.
ESI Claims, Inc.
ESI Mail Pharmacy Services, Inc.
Great Plains Reinsurance Company
IVTx, Inc.
Practice Patterns Science, Inc.
Value Health, Inc.
ValueRx of Michigan, Inc.
Your Pharmacy.com, Inc. (Delaware)
NYLIFE Refinery Inc.
NYLIFE Securities Inc. (Delaware)
NYLINK Insurance Agency Incorporated (Delaware)
NYLINK Insurance Agency of Alabama, Incorporated (Alabama)
NYLINK Insurance Agency of Hawaii, Incorporated (Hawaii)
NYLINK Insurance Agency of Idaho, Incorporated (Idaho)(5)(4)
NYLINK Insurance Agency of Massachusetts, Incorporated
(Massachusetts)
NYLINK Insurance Agency of Montana, Incorporated (Montana)
NYLINK Insurance Agency of Nevada, Incorporated (Nevada)
NYLINK Insurance Agency of New Mexico, Incorporated
(New Mexico)
NYLINK Insurance Agency of Ohio, Incorporated (Ohio)(4)
NYLINK Insurance Agency of Oklahoma, Incorporated
(Oklahoma)(4)
NYLINK Insurance Agency of Texas, Incorporated (Texas)(4)
NYLINK Insurance Agency of Washington, Incorporated
(Washington)
NYLINK Insurance Agency of Wyoming, Incorporated (Wyoming)

--------------------
(5) These entities are unaffiliated insurance agencies for which New York
Life and its subsidiaries perform administrative services. They are
not subsidiaries of New York Life but are included for informational
purposes only.
<PAGE> 102
NYLTEMPS Inc.
Prime Provider Corp.
Prime Provider Corp. of Texas
WellPath of Arizona Reinsurance company (formerly Sanus Reinsurance
Company)

NYLIFE Insurance Company of Arizona (Arizona)

ITEM 25. 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.

Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Securities Act") may be permitted to
trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISERS

The business of New York Life Investment Management LLC and
MacKay Shields LLC is summarized under "Know with Whom You're Investing" in the
Prospectus constituting Part A of this Registration Statement, which summary is
incorporated herein by reference.

The business or other connections of each manager and officer
of New York Life Investment Management LLC is currently listed in the investment
adviser registration on Form ADV for New York Life Investment Management LLC
(File No. 801-57396) and is hereby incorporated herein by reference.

The business or other connections of each manager and officer
of MacKay Shields LLC is currently listed in the investment adviser registration
on Form ADV for MacKay Shields LLC (File No. 801-5594) and is hereby
incorporated herein by reference.
<PAGE> 103
ITEM 27. PRINCIPAL UNDERWRITERS

a. NYLIFE Distributors Inc. also acts as the principal underwriter for:

The MainStay Funds (File No. 33-2610)

NYLIAC Variable Universal Life Separate Account I

NYLIAC Multi-Funded Annuity Separate Account I

NYLIAC Multi-Funded Annuity Separate Account II

NYLIAC Variable Annuity Separate Account I

NYLIAC Variable Annuity Separate Account II

NYLIAC Variable Annuity Separate Account III

NYLIAC Variable Life Insurance Separate Account

NYLIAC Corporate Sponsored Variable Universal Life Separate Account I

NYLIAC Institutionally Owned Life Insurance Separate Account

b.
<TABLE>
<CAPTION>
Name and Principal Position(s) and Office(s) with Position(s) and
Business Address NYLIFE Distributors, Inc. Office(s) with Registrant
---------------- ------------------------- -------------------------
<S> <C> <C>

Brady, Robert E. Director and Vice President None
260 Cherry Hill Road
Parsippany, NJ 07054

Boyce, Jefferson C. Director Senior Vice President
504 Carnegie Center
2nd Floor
Princeton, NJ 08540

Roussin, Stephen C. Senior Vice President and Director and Chairman
300 Interpace Parkway Director
Parsippany, NJ 07054

Gallo, Michael G. Director None
51 Madison Avenue
New York, NY 10010

Rock, Robert D. Director None
51 Madison Avenue
New York, NY 10010

Boccio, Frank M. Director None
51 Madison Avenue
New York, NY 10010
</TABLE>
<PAGE> 104
<TABLE>
<S> <C> <C>
Hildebrand, Phillip J. Director None
51 Madison Avenue
New York, NY 10010

Levy, Richard D. Director None
51 Madison Avenue
New York, NY 10010

Adasse, Louis H. Corporate Vice President None
51 Madison Avenue
New York, NY 10010

Flanagan, John A. Senior Vice President and Treasurer, Chief Financial
300 Interpace Parkway Chief Financial Officer and Accounting Officer
Parsippany, NJ 07054

Calhoun, Jay S. Senior Vice President and None
51 Madison Avenue Treasurer
New York, NY 10010

Warga, Thomas J. Senior Vice President and None
51 Madison Avenue General Auditor
New York, NY 10010

Livornese, Linda M. Vice President President
Morris Corporate Center I
Building A, 300
Interpace Parkway
Parsippany, NJ 27054

Murray, Thomas J. Corporate Vice President None
51 Madison Avenue
New York, NY 10010

Krystel, David J. Vice President None
51 Madison Avenue
New York, NY 10010

McInerney, Barbara Vice President None
51 Madison Avenue
New York, NY 10010

Leier, Albert W. Assistant Vice President None
300 Interpace Parkway
Parsippany, NJ 07054
</TABLE>
<PAGE> 105
<TABLE>
<S> <C> <C>
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, Geri Assistant Vice President Assistant Treasurer
300 Interpace Parkway
Parsippany, NJ 07054

Gomez, Mark A. Secretary None
51 Madison Avenue
New York, NY 10010

Whittaker, Lori S. Assistant Secretary None
51 Madison Avenue
New York, NY 10010
</TABLE>

c. Not Applicable.

ITEM 28. 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, as amended
(the "Investment Company Act"), 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 New York Life
Investment Management LLC and NYLIFE Distributors Inc., 300 Interpace Parkway,
Parsippany NJ 07054, and at the offices of MacKay Shields LLC, 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 29. MANAGEMENT SERVICES.

Not Applicable.

ITEM 30. UNDERTAKINGS.

None.
<PAGE> 106
SIGNATURES

Pursuant to the requirements of the Securities Act and the
Investment Company Act the Registrant has duly caused this Post-Effective
Amendment No. 24 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 18th day of October, 2000.

MAINSTAY INSTITUTIONAL FUNDS INC.

By: /s/ Linda M. Livornese
----------------------------
Linda M. Livornese
President

Pursuant to the requirements of the Securities Act, this
Post-Effective Amendment No. 24 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>
/s/ STEPHEN C. ROUSSIN
----------------------------------
Stephen C. Roussin* Chairperson and Director October 18, 2000

/s/ PATRICK G. BOYLE
----------------------------------
Patrick G. Boyle* Director October 18, 2000

/s/ LAURENCE GLACKEN
----------------------------------
Lawrence Glacken* Director October 18, 2000

/s/ ROBERT P. MULHEARN
----------------------------------
Robert P. Mulhearn* Director October 18, 2000

/s/ SUSAN B. KERLEY
----------------------------------
Susan B. Kerley* Director October 18, 2000

/s/ LINDA M. LIVORNESE
----------------------------------
Linda M. Livornese President (Principal October 18, 2000
Executive Officer)
</TABLE>
<PAGE> 107
<TABLE>
<S> <C> <C>
/s/ JOHN A. FLANAGAN
----------------------------------
John A. Flanagan Treasurer (Principal October 18, 2000
Financial and Accounting
Officer)
</TABLE>

*By: /s/ John A. Flanagan
--------------------------------
as Attorney-in-Fact
Power of Attorney filed herewith

* Pursuant to Powers of Attorney filed with Post-Effective Amendment No. 23 to
Registration Statement No. 33-36962 on February 29, 2000.
<PAGE> 108
EXHIBIT INDEX

<TABLE>
<S> <C>
23(d)(1)(b) Form of (composite) Management Agreement between MainStay
Institutional Funds Inc., on behalf of the Core Bond Plus
Fund, Mid Cap Core Fund and Tax Free Bond Fund, and New York
Life Investment Management LLC.

23(d)(5) Form of Sub-Advisory Agreement between New York Life
Investment Management LLC, on behalf of the Core Bond Plus
Fund and the Tax Free Bond Fund, and MacKay Shields LLC.

23(p)(1) Form of Code of Ethics for The MainStay Institutional Funds
Inc.

23(p)(2) Form of Code of Ethics for MainStay Management LLC

23(p)(3) Form of Code of Ethics for MacKay Shields LLC

23(p)(4) Form of Code of Ethics for Monitor Capital Advisors LLC

23(p)(5) Form of Code of Ethics for NYLIM

23(p)(6) Form of Code of Ethics for NYLIFE Distributors, Inc.
</TABLE>