AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 33-87874
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 10
---------------
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
---------------
320 PARK AVENUE
NEW YORK, NEW YORK 10022
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(212) 224-1939
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------
DOLORES J. MORRISSEY, PRESIDENT
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
320 PARK AVENUE, NEW YORK, NEW YORK 10022
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
COPY TO:
STANLEY M. LENKOWICZ
SENIOR VICE PRESIDENT, DEPUTY GENERAL COUNSEL AND SECRETARY
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
320 PARK AVENUE
NEW YORK, NEW YORK 10022
---------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of the Registration Statement.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
[ ] immediately upon filing pursuant to paragraph (b).
[ ] on (date) pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of
Rule 485.
[ ] on May 1, 1998 pursuant to paragraph (a)(1) of Rule
485.
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
================================================================================
<PAGE>
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS IN
PART A OF
FORM N-1A CAPTION IN FORM N-1A CAPTION OR LOCATION IN PROSPECTUS
- ----------- ----------------------------------------- -----------------------------------------------------
<S> <C> <C>
1 Front and Back Cover Pages .............. Front and Back Covers
2 Risk/Return Summary:
Investments, Risks, and Performance ..... Summary of How Our Funds Invest
3 Risk/Return Summary:
Fee Table ............................... Summary of How Our Funds Invest - Annual Fees and
Expenses
4 Investment Objectives, Principal
Investment Strategies, and Related
Risks ................................... Details about How Our Funds Invest and Related Risks
5 Management's Discussion of Fund
Performance ............................. Not Applicable (Included in Annual Report)
6 Management, Organization, and
Capital Structure ....................... Management of the Funds
7 Shareholder Information ................. Information on Fund Shares
8 Distribution Agreements ................. Not Applicable
9 Financial Highlights Information ........ Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
ITEMS IN
PART B OF CAPTION OR LOCATION IN
FORM N-1A CAPTION IN FORM N-1A STATEMENT OF ADDITIONAL INFORMATION
- ----------- ------------------------------------------ -------------------------------------------------------
<S> <C> <C>
10 Cover Page and Table of Contents ......... Cover
11 Fund History ............................. Investment Company's Form of Operations
12 Description of the Fund and Its
Investments and Risks .................... Investment Strategies and Related Risks; Fundamental
Investment Restrictions; Description of Corporate Bond
Ratings; Use of Standard & Poor's Indices
13 Management of the Fund ................... Management of the Investment Company
14 Control Persons and Principal Holders
of Securities ............................ Investment Company's Form of Operations
15 Investment Advisory and Other
Services ................................. Investment Advisory Arrangements; Administrative
Arrangements; Independent
Auditors; Custodian
16 Brokerage Allocation and Other
Practices ................................ Portfolio Transactions and Brokerage
17 Capital Stock and Other Securities ....... Investment Company's Form of Operations
18 Purchase, Redemption, and Pricing of
Shares ................................... Purchase, Redemption and Pricing of Shares
19 Taxation of the Fund ..................... Taxation of the Investment Company
20 Underwriters ............................. Distribution of Fund Services
21 Calculation of Performance Data .......... Yield and Performance Information
22 Financial Statements ..................... Financial Statements
</TABLE>
<TABLE>
<CAPTION>
ITEMS IN
PART C OF CAPTION IN FORM N-1A AND IN PART C
FORM N-1A OF REGISTRATION STATEMENT
- ----------- ----------------------------------
<S> <C>
23 Exhibits
24 Persons Controlled by or Under
Common Control with Registrant
25 Indemnification
26 Business and Other Connections of
the Investment Underwriter
27 Principal Underwriters
28 Location of Accounts and Records
29 Management Services
30 Undertakings
</TABLE>
<PAGE>
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
320 PARK AVENUE, NEW YORK, NEW YORK 10022 1-800-914-8716
----------------------------------------------------------------------
Mutual of America Institutional Funds, Inc. is a mutual fund. It has these
four Funds:
o EQUITY INDEX FUND
o ALL AMERICA FUND
o BOND FUND
o MONEY MARKET FUND
Institutional investors, such as endowments, foundations and other
not-for-profit organizations, corporations and municipalities and other
public entities, may purchase shares of the Funds. An initial investment
must be at least $25,000, and each subsequent investment must be at least
$5,000.
There is no sales charge due upon the purchase or sale of Fund shares. An
investor must send the payment price for shares purchased, and will
receive redemption proceeds for shares sold, by wire transfer of Federal
Funds.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT 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.
----------------------------------------------------------------------
PROSPECTUS DATED MAY 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
SUMMARY OF HOW OUR FUNDS INVEST ................................... 2
General Risks of Investing ....................................... 2
Stock Funds:
Equity Index Fund ............................................... 3
All America Fund ................................................ 3
Bond Fund ........................................................ 3
Money Market Fund ................................................ 4
Annual Total Returns ............................................. 5
Average Annual Total Returns ..................................... 6
Annual Fees and Expenses ......................................... 6
Performance of Similar Funds .....................................
MANAGEMENT OF THE FUNDS ........................................... 9
The Adviser ...................................................... 9
Subadvisers for a Portion of the All America Fund ................ 9
Administrative Arrangements ......................................
Portfolio Managers ............................................... 10
Year 2000 Considerations ......................................... 10
DETAILS ABOUT HOW OUR FUNDS INVEST AND RELATED RISKS .............. 11
Investment Objectives and Strategies:
Equity Index Fund ............................................... 11
All America Fund ................................................ 11
Bond Fund ....................................................... 12
Money Market Fund ............................................... 13
Risks of Investing in a Stock Fund ............................... 13
Risks of Investing in a Bond Fund ................................ 14
Specific Investments or Strategies and Related Risks ............. 15
INFORMATION ON FUND SHARES ........................................ 17
Pricing of Funds' Shares ......................................... 17
Purchases of Fund Shares ......................................... 17
How to Purchase Shares of the Funds .............................. 18
Redemptions of Fund Shares ....................................... 18
Exchanges of Fund Shares ......................................... 19
How to Place a Redemption or Exchange Order ...................... 19
Shareholder Reports and Confirmation Statements .................. 20
Dividends, Capital Gains Distributions and Taxation of Funds ..... 20
Shareholder Taxation ............................................. 21
FINANCIAL HIGHLIGHTS .............................................. 22
YOU MAY OBTAIN MORE INFORMATION ................................... Back cover
</TABLE>
-- AN APPLICATION IS INCLUDED WITH THIS PROSPECTUS --
<PAGE>
SUMMARY OF HOW OUR FUNDS INVEST
Each Fund of Mutual of America Institutional Funds, Inc. (the INVESTMENT
COMPANY) has its own investment objective and tries to achieve its objective
with certain investment strategies. A Fund may not achieve its objective, or
it may achieve its objective during some time periods but not during other
time periods.
The value of an investment in any of the Funds could decline, or it could
increase.
o As a very general rule, over longer investment periods the investment
returns for stock funds tend to be higher than the returns for bond funds
and money market funds.
o Stock funds have a higher risk for declines in value, especially over
shorter investment periods, than bond funds and money market funds, and a
stock fund's returns may vary significantly from year-to-year.
o Money market funds have the lowest risk for a decline in value, but they
tend to have the lowest investment returns over longer investment
periods.
GENERAL RISKS OF INVESTING
----------------------------------------------------------------------------
The Funds' different investment strategies will affect the return of the
Funds and the risks of investing in each Fund. The Funds have certain
general risks from investing, including:
MARKET RISK, which refers to how much the value of a security changes
(volatility of price) when conditions in the securities markets change or
the economic environment changes.
o For debt securities, market risk includes changes in the overall level of
interest rates. Interest rate increases usually cause a decline in the
value of debt securities, while interest rate decreases usually cause an
increase in the value of debt securities. Generally, the market risk for
debt securities increases as the term to maturity (or expected redemption
date) lengthens.
o Lower rated and unrated debt securities may be subject to a greater
market risk than higher rated (investment grade) debt securities, and
zero coupon securities or discount notes may be subject to a greater
market risk than securities that pay interest on a regular basis.
o For equity securities, market risk may vary with a security's
characteristics. Stocks of companies with smaller market capitalizations
generally have more market risk than stocks of companies with larger
market capitalizations. Blue chip, growth or value securities may have
different market risks at a given time, depending on the type of
security(ies) that are then in favor with investors.
o Equity securities that trade over-the-counter may be more difficult to
sell and may be subject to more market risk in declining markets than
equity securities that trade on a national securities exchange.
FINANCIAL (OR CREDIT) RISK, which refers to the ability to pay principal and
interest by an issuer of a debt security and to the earning stability and
overall financial soundness of an issuer of an equity security.
o Debt securities issued by the U.S. Government or its agencies are
considered to have no or very little financial risk, and debt securities
with higher ratings are considered to have less financial risk than
lower-rated debt securities.
CURRENT INCOME VOLATILITY, which refers to how much and how quickly changes in
the overall level of interest rates become reflected in the level of a fund's
current income.
o Income volatility applies primarily to debt securities. When a fund holds
a security that matures or prepays, the fund will invest the proceeds at
current interest rates. For this reason, a fund's income volatility
increases as the average maturity of its portfolio holdings shortens.
-2-
<PAGE>
STOCK FUNDS
----------------------------------------------------------------------------
An investment in the Equity Index Fund or All America Fund is subject to
market risk and financial risk. Approximately 20% of the All America Fund's
assets are invested in small capitalization growth and value stocks, and
this portion of its portfolio will have more market and financial risk than
the portion invested in mid and large capitalization stocks.
EQUITY INDEX FUND: The Fund seeks investment results that are the same as
the performance of the Standard & Poor's Composite Index of 500 Stocks (the
S&P 500(R) INDEX*). The Fund invests in the 500 common stocks included in
the S&P 500 Index and in futures contracts on the S&P 500 Index.
o Securities in the S&P 500 Index generally are issued by companies with
large and mid-sized market capitalizations.
o Securities are included in the Index based on industry weightings and the
issuers' leading positions in those industries.
ALL AMERICA FUND: The Fund attempts to outperform the S&P 500 Index*, by
investing primarily in common
stocks.
o Approximately 60% of the Fund's assets are invested to replicate the S&P
500 Index. This portion of the Fund purchases the 500 common stocks
included in the S&P 500 Index and futures contracts on the S&P 500 Index.
o Approximately 40% of the Fund's assets are invested by the Adviser and
three Subadvisers, each having approximately 10% of the Fund's assets,
with an objective of capital appreciation and, to a lesser extent,
current income. The Adviser invests primarily in small capitalization
value stocks. One Subadviser invests primarily in small capitalization
growth stocks. Another Subadviser invests primarily in mid- and large
capitalization growth stocks. The third Subadviser invests primarily in
large capitalization value stocks.
BOND FUND
----------------------------------------------------------------------------
The Fund seeks current income, by investing primarily in publicly-traded,
investment grade debt securities.
o The Fund invests in corporate, U.S. Government securities and U.S.
Government agency securities, such as bonds, notes, debentures, zero
coupon securities and mortgage-backed securities.
o Depending on market conditions, the Fund may have a significant portion
of its assets invested in a particular type of debt security, such as
U.S. Government agency mortgage-backed securities or zero coupon
securities.
o The Adviser generally selects securities based on interest income to be
generated and generally does not time purchases and sales based on
interest rate predictions.
Because the Fund purchases primarily investment grade debt securities,
including securities issued by the U.S. Government and its agencies, it
should have a moderate amount of financial risk. If the Fund holds a
significant percentage of mortgage-backed securities or zero coupon
securities, the market risk for an investment in the Fund may increase.
An investment in the Bond Fund is subject to market risk, with the amount of
market risk increasing as the average maturity of the Fund's portfolio
lengthens. The Fund also has current income volatility risk, with the risk
decreasing as the average maturity of the Fund's portfolio lengthens.
----------
* Standard & Poor's Corporation (S&P) does not sponsor, endorse, sell or
promote the Equity Index Fund or All America Fund. S&P has licensed to the
Investment Company certain trademarks and trade names of S&P and the S&P
500 Index. S&P has no obligation or liability for the sale or operation of
the Equity Index Fund and All America Fund.
-3-
<PAGE>
MONEY MARKET FUND
----------------------------------------------------------------------------
The Fund seeks current income and preservation of principal by investing in
money market instruments that meet certain requirements for liquidity,
investment quality and stability of capital.
o The dollar-weighted average maturity of the instruments the Fund holds
will be 90 days or less.
o The Fund will purchase only securities that are rated in one of the two
highest categories by two rating agencies, and most of the securities
will be rated in the highest category by two rating agencies.
The Money Market Fund does not operate in a way to maintain a stable net
asset value of $1.00, because it pays dividends of income earned on a
semi-annual basis. The Fund's net asset value will generally rise during the
year as the Fund earns income and will decline when dividends are declared
and income is paid to shareholders.
A shareholder's investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Money Market Fund has a small amount of market risk and
financial risk, because the Fund holds high quality securities with short
terms to maturity. The Fund has a high level of current income volatility,
because its securities holdings are short term and it reinvests as its
holdings mature.
-4-
<PAGE>
ANNUAL TOTAL RETURNS
----------------------------------------------------------------------------
The bar charts below show the annual return of each Fund for the life of the
Fund, except that the Equity Index Fund is not included because it began
operations on May 1, 1999. A chart indicates the risks of investing in a
particular Fund by showing changes in the Fund's performance from
year-to-year during the period, but a Fund's past performance does not
necessarily indicate how it will perform in the future.
Next to each chart is the Fund's highest total return for any calendar
quarter during the period covered by the chart, called the BEST QUARTER
RETURN, and the Fund's lowest total return for any calendar quarter during
the period covered, called the WORST QUARTER RETURN. These returns are an
indication of the volatility of a Fund's total returns.
<TABLE>
<CAPTION>
ALL AMERICA FUND:
1998 1997
<S> <C> <C> <C>
30%
26.0%
25%
21% The All America Fund began operations on May 1, 1996.
20% Best quarter: 22.0% during fourth quarter 1998
Worst quarter: (13.1)% during third quarter 1998
15%
10%
5%
0%
BOND FUND:
1998 1997
15%
10%
8.3% 8.9% The Bond Fund began operations on May 1, 1996.
Best quarter: 4.8% during third quarter 1998
5% Worst quarter: (0.7)% during first quarter 1997
0%
MONEY MARKET FUND:
1998
8% The Money Market Fund began operations on May 1, 1997.
Best quarter: 1.3% during first, second and third quarters 1998
6% Worst quarter: 1.2% during fourth quarter 1998
4% 5.3%
2%
0%
</TABLE>
-5-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DECEMBER 31, 1998)
----------------------------------------------------------------------------
The table below shows the average annual total returns of each Fund for the
past one year period and the return for the period of the Fund's operations,
except that the Equity Index Fund is not included because it began
operations on May 1, 1999. The table indicates the risks of investing in the
Funds by comparing, for the same periods, each Fund's returns to those of a
broad-based, unmanaged index, or to Treasury Bills for money market
investments. A Fund's past performance does not necessarily indicate how it
will perform in the future.
<TABLE>
<CAPTION>
PAST FOR LIFE
FUND/COMPARATIVE INDEX(ES) ONE YEAR OF FUND*
===========================================================================================
<S> <C> <C>
All America Fund ..................................... 21.0% 21.6%
S&P 500 Index ...................................... 28.6% 29.1%
===========================================================================================
Bond Fund ............................................ 8.3% 8.3%
Lehman Brothers Gov't./Corp. Bond Index ............ 9.5% 9.5%
===========================================================================================
Money Market Fund .................................... 5.3% 5.3%
90-day Treasury Bill Rate .......................... 5.1% 5.2%
7-day effective yield for period ended 12/29/98 was 5.0%
===========================================================================================
</TABLE>
* The All America and Bond Funds began operations on May 1, 1996, and the
Money Market Fund began operations on May 1, 1997.
The S&P 500(R) is the Standard & Poor's Composite Index of 500 Stocks, a
market value-weighted index of the common stock prices of companies included
in the S&P 500.
The Lehman Brothers Government/Corporate Bond Index is an index of U.S.
Government and corporate bond prices of investment grade bonds with
maturities greater than one year and face values over $1 million.
ANNUAL FEES AND EXPENSES
===============================================================================
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Funds. Annual operating expenses are shown as a percentage
of average net assets.
<TABLE>
<CAPTION>
EQUITY INDEX ALL AMERICA BOND MONEY MARKET
FUND FUND FUND FUND
-------------- ------------- --------- -------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES .................. none none none none
ANNUAL FUND OPERATING EXPENSES
Investment Advisory Fees .......................... .125% .50% .45% .20%
Other Expenses (before reimbursement)* ............ .34% .52% 3.01%
---- ---- -----
Other Expenses (after reimbursement)** ............ .20% .32% .25% .20%
---- ---- ---- -----
TOTAL OPERATING EXPENSES (before reimbursement)*... .84% .97% 3.21%
===== ===== =====
TOTAL OPERATING EXPENSES (after reimbursement)**... .325% .82% .70% .40%
===== ===== ===== =====
</TABLE>
* The 1999 Other Expenses and Total Operating Expenses of the Equity Index Fund,
which began operations on May 1, 1999, have been estimated by the Adviser.
**The Adviser has contractually agreed for 1999 to limit each Fund's total
expenses (excluding taxes, brokerage commissions and extraordinary expenses)
to an annual rate of .325% of the net assets of the Equity Index Fund, .85% of
net assets for the All America Fund, .70% of net assets for the Bond Fund and
.40% of net assets for the Money Market Fund. The Adviser's obligation will
continue for each following calendar year unless the Adviser gives notice of
termination to the Investment Company at least two weeks before the next year
begins.
-6-
<PAGE>
EXAMPLE:
This Example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds. The Example assumes
for each Fund that:
o you make an investment of $10,000,
o you have a 5% annual return on your investment,
o Fund operating expenses stay the same during the periods shown, and
o you redeem all of your shares at the end of the periods shown.
Although your costs may be higher or lower, your cost based on these
assumptions would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equity Index Fund ......... $ $ -- --
All America Fund .......... $ $ $ $
Bond Fund ................. $ $ $ $
Money Market Fund ......... $ $ $ $
</TABLE>
The expenses used in the Example are those shown in the table above and
reflect the Adviser's contractual obligation to pay the Funds' expenses.
Because the Equity Index Fund is a new fund, the Example covers only a 1
Year and 3 Year period for the Fund.
COMPARISON WITH AVERAGE ANNUAL TOTAL RETURNS OF SIMILAR FUNDS
----------------------------------------------------------------------------
The investment policies, objectives and strategies of the Investment
Company's Equity Index Fund, All America Fund, Bond Fund and Money Market
Fund are substantially identical to those of Mutual of America Investment
Corporation's Equity Index Fund, All America Fund, Bond Fund and Money
Market Fund (called the VP or VARIABLE PRODUCTS Funds). In addition, the
Adviser and Subadvisers for these Variable Products Funds are the same as
for the corresponding Investment Company Fund, and the portfolio managers
are the same.
Shares of the Mutual of America Investment Corporation's funds are sold only
to separate accounts of Mutual of America Life Insurance Company and its
indirect wholly owned subsidiary, The American Life Insurance Company of New
York, as a funding medium for variable accumulation annuity contracts and
variable life insurance policies issued by these companies.
Below are average annual total returns for the VP Funds, based on
information about the VP Funds that the Adviser has provided, compared to
returns for the Investment Company's Funds for the periods indicated, other
than for the Equity Index Fund which began operations on May 1, 1999. Past
performance of the Variable Products Funds is not predictive of future
performance. Investors should not consider performance data for the VP Funds
as an indication of the future performance of the Equity Index, All America,
Bond and Money Market Funds offered under this Prospectus.
AVERAGE ANNUAL TOTAL RETURNS OF THE FUNDS AND THE VP FUNDS
FOR PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SINCE INCEPTION OF
VP FUND ONE YEAR FIVE YEARS TEN YEARS INSTITUTIONAL FUND (1)
- ------------------------------ ---------- ------------ -------------- -----------------------
<S> <C> <C> <C> <C>
VP Equity Index ............ 28.6% 23.8% N/A --
VP All America ............. 21.3% N/A(2) N/A(2) 22.3%
VP Bond .................... 7.2% 7.2% 9.1%(3) 8.8%
VP Money Market (4) ........ 5.4% 5.2% 5.4% 5.5%
===============================================================================================
INSTITUTIONAL FUND
All America ................ 21.0% N/A N/A 21.6%
Bond ....................... 8.3% N/A N/A 8.3%
Money Market (4) ........... 5.3% N/A N/A 5.3%
</TABLE>
-7-
<PAGE>
(1) For comparison purposes, the average annual total return for the VP All
America Fund and VP Bond Fund are given from May 1, 1996, and average
annual total return for the VP Money Market Fund is given from May 1,
1997.
(2) The VP All America Fund began operations in its current form on May 2,
1994. Since then, its investment policies, objectives and strategies have
been substantially identical to those of the All America Fund. VP All
America Fund's average annual total return for the period May 2, 1994
through December 31, 1998 was 22.9%.
(3) The current portfolio manager of the VP Bond Fund, who has been the
portfolio manager of the Bond Fund since its inception, became the VP Bond
Fund's portfolio manager in February 1991.
(4) 7-day effective yield for the period ended 12/29/98 was 5.0% for the
Investment Company's Money Market Fund and 5.2% for the Variable Products
Money Market Fund. The average maturity of the portfolio holdings was 17
days for Investment Company's Money Market Fund and 13 days for the
Variable Products Money Market Fund.
Results for the Variable Products Funds are different than the results that
were or would have been obtained for the Investment Company Funds.
o The total operating expenses for each of the VP All America Fund and VP
Bond Fund were .50% of average net assets during the periods shown above
and for the VP Money Market Fund were .25% of average net assets
(additional expenses were paid at the separate account level), while the
annual total operating expenses (after reimbursement) of the All America
Fund, Bond Fund and Money Market Fund of the Investment Company were
.82%, .70% and .40%, respectively, of average net assets.
o The VP All America Fund, from May 1994 until June 1995, had a Subadviser
for approximately 10% of the Fund's assets currently managed by the
Adviser.
o At year end 1998, VP Equity Index Fund had net assets of $411 million,
VP All America Fund had net assets of $732 million, VP Bond Fund had net
assets of $465 million, and VP Money Market Fund had net assets of $81
million.
-8-
<PAGE>
MANAGEMENT OF THE FUNDS
THE ADVISER
----------------------------------------------------------------------------
Mutual of America Capital Management Corporation, 320 Park Avenue, New York,
New York 10022 (the ADVISER or CAPITAL MANAGEMENT) is the investment adviser
for the Funds of the Investment Company. The Adviser had total assets under
management of approximately $7.7 billion at December 31, 1998, including
$2.3 billion for the Mutual of America Investment Corporation. As Adviser,
Capital Management:
o places orders for the purchase and sale of securities,
o engages in securities research,
o makes recommendations to and reports to the Investment Company's Board
of Directors,
o provides certain administrative services for the Funds, and
o provides the office space, facilities, equipment, material and personnel
necessary to perform its duties.
For its investment management services to the Funds, the Adviser receives
compensation at the following annual
rates of net assets, calculated as a daily charge:
o Equity Index Fund -- .125%
o All America Fund -- .50%
o Bond Fund -- .45%
o Money Market Fund -- .20%
SUBADVISERS FOR A PORTION OF THE ALL AMERICA FUND
----------------------------------------------------------------------------
The Adviser has delegated its investment advisory responsibilities for a
portion of the All America Fund to three Subadvisers. Each Subadviser
provides investment advice for approximately 10% of the assets of the All
America Fund. The Adviser pays the Subadvisers for their advisory services
to the All America Fund.
o Fred Alger Management, Inc., One World Trade Center, New York, New York
10048, is a small capitalization growth adviser for its portion of the
All America Fund. It provides investment management services to
institutional, corporate and individual clients, including other
registered management investment companies. At December 31, 1998, Alger
Management had assets under management of approximately $10.6 billion.
o Oak Associates, 3875 Embassy Parkway, Suite 250, Akron, Ohio 44333, is a
mid- and large capitalization growth adviser for its portion of the All
America Fund. It provides investment management services for individual
and corporate clients, primarily in connection with retirement plans. At
December 31, 1998, Oak Associates had assets under management of
approximately $11.4 billion.
o Palley-Needelman, 800 Newport Center Drive, Suite 450, Newport Beach,
California 92660, is a large capitalization value adviser for its
portion of the All America Fund. It provides investment management
services to institutional, corporate and individual clients and other
registered investment companies. At December 31, 1998, Palley-Needelman
had assets under management of approximately $3.6 billion.
-9-
<PAGE>
PORTFOLIO MANAGERS
----------------------------------------------------------------------------
The person(s) primarily responsible for the day-to-day management of the
Funds' investment portfolios are listed below. No information is given for
the Money Market Fund because of the type of investments it makes. No
information is given for the Equity Index Fund or the Indexed Assets of the
All America Fund, because the investment objective for each is to replicate
the performance of an index.
ALL AMERICA FUND
THOMAS P. LARSEN, Executive Vice President of the Adviser, is responsible
for managing the Adviser's portion of the actively managed assets of the
Fund. Mr. Larsen joined the Adviser in June 1998, after serving as Senior
Vice President of Desai Capital Management. He has almost 30 years of
experience in selecting securities for and managing equity portfolios.
DAVID D. ALGER, President and Chief Executive Officer of Alger Management,
is primarily responsible for the day-to-day management of the Alger
Management portion of the Fund. He has been employed by Alger Management as
Executive Vice President and Director of Research since 1971 and as
President since 1995, and he serves as portfolio manager for other mutual
funds and investment accounts managed by Alger Management.
JAMES D. OELSCHLAGER is the portfolio manager of the Oak Associates portion
of the Fund. Since establishing Oak Associates in 1985, Mr. Oelschlager has
served as its portfolio manager. Previously, he served as the Assistant
Treasurer of Firestone Tire & Rubber Company, where he was directly
responsible for the management of the company's pension assets. Mr.
Oelschlager is assisted with portfolio management responsibilities by Donna
Barton, trading, Margaret Ballinger, new accounts, and Doug MacKay, equity
research. These individuals have combined experience of over seventy years
in the investment business and play a key role in the day-to-day management
of the firm's portfolios.
CHET J. NEEDELMAN, Chief Executive Officer and Senior Investment Officer of
Palley-Needelman, is responsible for the day-to-day management of the
Palley-Needelman portion of the Fund. Mr. Needelman has over 30 years of
investment experience as a security analyst, research director and portfolio
manager. He has managed funds for foundations, corporations, endowments and
mutual funds. He is the co-founder of Palley-Needelman Asset Management and
its predecessor company, where he held various positions during the last 24
years. All investment decisions for Palley-Needelman Asset Management are
made by an investment committee which includes Mr. Needelman, Mr. Palley and
two other senior investment professionals.
BOND FUND
ANDREW L. HEISKELL, Executive Vice President of the Adviser, has
responsibility for setting the fixed income investment strategy and
overseeing the day-to-day operations of the Bond Fund. Mr. Heiskell has been
the portfolio manager for the Bond Fund of the Mutual of America Investment
Corporation since February 1991 and of its Mid-Term and Short-Term Bond
Funds since their inceptions in 1993. He has more than 30 years of
experience in selecting securities for and managing fixed-income portfolios.
YEAR 2000 CONSIDERATIONS
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Many computers cannot distinguish the year 2000 from the year 1900, and this
inability could adversely impact the handling of securities trades, the
payment of interest and dividends, pricing, accounting and other
recordkeeping services by the Adviser or the outside service providers for
the Investment Company and the Adviser.
The Adviser has reviewed its computer systems and has made modifications and
replacements to prepare for the year 2000. It has begun testing the modified
systems and will continue testing throughout 1999. The Adviser has received
confirmation from the Adviser's and the Investment Company's outside service
providers that they expect to modify or replace their systems to prepare for
the year 2000. The Investment Company anticipates that the Adviser's
computer systems and those of the outside providers will be adapted in time
for the year 2000. It is possible that the Investment Company, or its
outside service providers, could experience some computer processing
problems when the year 2000 arrives. We are developing written contingency
plans to ensure business continuity through the year 2000.
-10-
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DETAILS ABOUT HOW OUR FUNDS INVEST AND RELATED RISKS
INVESTMENT OBJECTIVES AND STRATEGIES
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EQUITY INDEX FUND: The investment objective of the Equity Index Fund is to
provide investment results that to the extent practicable
correspond to the price and yield performance of publicly
traded common stocks in the aggregate, as represented by the
S&P 500 Index.
The Fund seeks to achieve its objective primarily by:
o Purchasing shares of the 500 common stocks that are included in the S&P
500 Index.
- Stocks are selected in the order of their weightings in the S&P 500
Index, beginning with the heaviest weighted stocks.
- The percentage of the Fund's assets invested in each of the selected
stocks will be approximately the same as the percentage the stock
represents in the S&P 500 Index.
- The Fund attempts to be fully invested at all times, and at least 80%
of the Fund's net assets will be invested in the stocks that comprise
the S&P 500 Index.
o Purchasing futures contracts on the S&P 500 Index and options on futures
contracts on the S&P 500 Index to invest cash prior to the purchase of
common stocks, in an attempt to have the Fund's performance more closely
correlate with the performance of the S&P 500 Index.
The Adviser uses a computer program to determine which stocks are to be
purchased or sold to copy the S&P 500 Index. From time to time, the Fund
makes adjustments in its portfolio (rebalances) because of changes in the
composition of the S&P 500 Index or in the valuations of the stocks within
the Index relative to other stocks within the Index.
The Fund's investment performance may not precisely duplicate the
performance of the S&P 500 Index, due to cash flows in and out of the Fund
and investment timing considerations. The Fund also pays investment advisory
expenses that are not applicable to an unmanaged index such as the S&P 500
Index.
The Fund's ability to duplicate the performance of the S&P 500 Index depends
to some extent on the size of the Fund's portfolio. Mutual of America Life
Insurance Company (MUTUAL OF AMERICA) the indirect parent corporation of the
Adviser, and an affiliate invested a total of $25 million in the Equity
Index Fund when the Fund began operations. Mutual of America (directly or
through an affiliate) currently intends to maintain an investment in the
Fund so that the Fund's assets are at least $25 million at any time.
ALL AMERICA FUND: The investment objective of the All America
Fund is to outperform the S&P 500 Index by providing a
diversified portfolio of Active Assets with diversified
management and a broad exposure to the market.
At least 65% of the All America Fund's total assets will be invested in
equity securities under normal market conditions. The issuers of at least
80% of the Fund's total assets will be United States corporations or
entities.
INDEXED ASSETS. The investment objective for approximately 60% of the assets
of the All America Fund is to provide investment results that to the extent
practicable correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the S&P 500 Index. The
Fund invests Indexed Assets in the 500 common stocks included in the S&P 500
Index and in futures contracts on the S&P 500 Index. The Fund attempts to
match the weightings of stocks in the Indexed Assets with the weightings of
those stocks in the S&P 500 Index.
The Indexed Assets are invested in the same manner as the Equity Index Fund,
discussed above. The Fund's ability to duplicate the performance of the S&P
500 Index depends to some extent on the size of the Fund's portfolio. Mutual
of America invested $50 million in the All America Fund when the Fund began
operations. Mutual of America (directly or through an affiliate) currently
intends to maintain an investment in the Fund so that the Fund's assets are
at least $25 million at any time.
ACTIVE ASSETS. The investment objective for the remaining approximately 40%
of the assets of the Fund is to achieve a high level of total return,
through both appreciation of capital and, to a lesser extent, current
income, by means of a diversified portfolio of primarily common stocks.
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<PAGE>
The Fund tries to maintain, to the extent possible, approximately equal
amounts with the Adviser and the three Subadvisers. The Adviser periodically
rebalances assets in the All America Fund to retain the approximate 60%/40%
relationship between Indexed Assets and Active Assets.
Adviser. The Adviser generally invests in stocks that it considers
undervalued and with the potential for above average investment returns,
issued by companies with small market capitalizations (small cap value
stocks). Some of the companies whose stocks the Adviser selects may have
limited Wall Street coverage and low institutional ownership, which may make
the stocks more difficult to sell in certain market conditions.
o The Adviser seeks securities with a depressed valuation compared to
their previous valuations or compared to a universe of peer companies.
The Adviser determines depressed valuation primarily through
consideration of earnings, cash flow or net equity.
o Issuers must have executive management that the Adviser considers strong
and capable of executing a clear business strategy for the company.
Fred Alger Management, Inc. This Subadviser invests in stocks that it
considers to be fundamentally sound with the potential for strong growth and
for earnings in excess of market expectations, issued by companies with
small market capitalizations (small cap growth stocks).
o The securities of these companies often are traded in the
over-the-counter market.
o Except during temporary defensive periods, at least 65% of the assets in
the Fred Alger portfolio will be invested in equity securities of
companies that, at the time of the Fund's purchase, have total market
capitalization within the range of capitalization of the companies
included in the Russell 2000 Growth Index or the S&P SmallCap 600 Index,
updated quarterly.
Fred Alger Management, Inc. actively trades the securities in its portion of
the All America Fund, and its portfolio
turnover rate generally will be higher than the portfolio turnover rate for
the other Subadvisers.
Oak Associates, Ltd. This Subadviser invests in mid- and large-sized
capitalization stocks, which often have low current income and the potential
for significant growth (mid- and large capitalization growth stocks). Its
approach is to:
o monitor 400 stocks,
o at any one time to invest in approximately 15-25 common stocks without
regard for market industry weighting, and
o usually hold securities that have appreciated in value, rather than
selling them to realize capital gains.
Palley-Needelman Asset Management, Inc. This Subadviser invests its portion
of Active Assets in stocks it considers to be of high quality with lower
than average price volatility and low price/earning ratios, issued by
companies with large market capitalizations (large cap value stocks).
Companies generally will have:
o below market debt levels,
o earnings growth of 10% or more,
o current yield greater than the average of the S&P 500, and
o market capitalization of at least $5 billion.
BOND FUND: The primary investment objective of the Bond Fund is to
provide as high a level of current income over time as is believed
to be consistent with prudent investment risk. A secondary
objective is preservation of shareholders' capital.
The average maturity of the debt securities held by the Bond Fund will vary
according to market conditions and the stage of the interest rate cycle.
The Fund invests at least 80% of its assets in investment grade debt
obligations issued by U.S. corporations or issued by the U.S. Government or
its agencies.
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<PAGE>
o The Fund may invest in various types of debt securities, including
bonds, mortgage-backed securities, zero coupon securities and
asset-backed securities,with ratings that range from AAA to BBB.
o The percentage of the Fund's portfolio invested in particular types of
securities will vary, depending on market conditions and the Adviser's
assessment of the income and returns available from corporate securities
in relation to the risks of investing in these securities.
o At December 31, 1998, the Bond Fund had approximately 4% of its assets
invested in zero coupon securities, 24% of its assets in U.S. Treasury
Securities, 11% of its assets in U.S. Government agency mortgage-backed
securities and 26% of its assets in corporate obligations rated BBB.
The Adviser uses a "bottom-up" approach in selecting debt securities for the
Fund. This means that the Adviser evaluates each issuer of securities before
making an investment, rather than selecting securities or industries based
on possible changes in the economy.
The Adviser's approach generally is to purchase securities for income,
instead of purchasing and selling securities in anticipation of interest
rate changes in the economy. The Adviser may sell a security that it
considers to have become overvalued relative to alternative investments, and
reinvest in an alternative security.
MONEY MARKET FUND: The investment objective of the Fund is to realize high
current income to the extent consistent with the
maintenance of liquidity, investment quality and stability
of capital.
o The Fund invests only in high quality money market instruments and other
short-term debt securities, including commercial paper issued by U.S.
corporations and in U.S. Government and U.S. Government agency
securities. At December 31, 1998, more than 80% of the Fund's assets
were invested in commercial paper, with the remainder invested in U.S.
Government agency securities.
o All of the securities the Fund purchases have a rating in one of the two
highest rating categories from at least two nationally recognized rating
agencies, and substantially all (at least 95%) have a rating in the
highest category from at least two of these rating agencies.
o At the time of purchase, a security must mature in 13 months or less (or
25 months for U.S. Government securities). The dollar-weighted average
maturity of the Fund's securities must be 90 days or less.
The Fund does not maintain a stable net asset value. Income the Fund earns
on its portfolio holdings increases the Fund's net asset value per share
until the Fund declares a dividend. The Fund declares a dividend of net
investment income at least semi-annually, and the Fund's net asset value per
share declines as a result of the distribution to its shareholders.
The Fund uses the amortized cost method of valuing securities that have a
remaining term to maturity of 60 days or less. Because the Fund uses market
value for securities that mature in more than 60 days, the Fund does not
invest more than 20% of its assets in these securities, to limit the
possibility of a decline in the Fund's net asset value.
An investment in the Fund has little market or financial risk but a
relatively high level of current income volatility, because its portfolio
holdings are high quality instruments that have a short time to maturity.
INVESTMENTS IN THE MONEY MARKET FUND ARE NOT INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT OR ANY OF ITS AGENCIES
RISKS OF INVESTING IN A STOCK FUND
----------------------------------------------------------------------------
When you invest in a stock fund, you should consider that:
o The fund is subject to market risk -- the value of your investment will
go up or down, depending on movements in the stock markets. As a result,
you may lose money from your investment, or your investment may increase
in value.
o The investment results for a particular Fund may be better or worse than
the results for the stock markets taken as a whole, depending on the
type of securities in which the Fund invests.
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<PAGE>
o The investment results for a particular Fund may be better or worse than
the results of other funds that invest in the same types of securities.
In other words, stock selection by a Fund's investment adviser(s) will
impact the Fund's performance.
o The prices and investment performance of stocks that are issued by
companies with smaller market capitalizations may fluctuate more than
the prices and investment performance of stocks that are issued by
companies with larger market capitalizations.
o A Fund may have more difficulty selling a small cap stock or any stock
that trades "over-the-counter", as compared to larger capitalization
stocks or stocks that trade on a national or regional stock exchange.
o Value stocks and growth stocks usually have different investment
results, and either investment style may become out of favor with stock
investors at a given time.
RISKS OF INVESTING IN A BOND FUND
----------------------------------------------------------------------------
When you invest in a bond fund, you should consider that:
o The fund has market risk -- the value of your investment will go up or
down depending on movements in the bond markets. As a result, you may
lose money from your investment, or your investment may increase in
value.
o The investment results for a particular Fund may be better or worse than
the results for the comparable bond market taken as a whole, depending
on the type of debt securities in which the Fund invests.
o The investment results for a particular Fund may be better or worse than
the results of other funds that invest in the same types of securities.
In other words, security selection by a Fund's investment adviser will
impact the Fund's performance.
o Changes in prevailing interest rates usually will impact the value of
debt securities. The longer the time period before the security matures
(or is expected to be redeemed), the more impact interest rate changes
will have on the price of the bond. When interest rates rise, the prices
of outstanding debt securities tend to fall. When interest rates fall,
the prices of outstanding debt securities tend to rise.
o Mortgage-backed securities or certificates are subject to prepayment or
extension risk when interest rates change. When interest rates fall, the
underlying mortgages may be prepaid at a faster rate than previously
assumed in pricing the mortgage-backed security, which would shorten the
period to maturity. When interest rates rise, the underlying mortgages
may be prepaid at a slower rate than previously assumed, which would
lengthen the period to maturity.
o In periods of economic uncertainty, investors may favor U.S. government
debt securities over debt securities of corporate issuers, in which case
the value of corporate debt securities would decline in relation to the
value of U.S. government debt securities.
o Zero coupon securities and discount notes do not pay interest, and they
may fluctuate more in market value and be more difficult for a Fund to
resell during periods of interest rate changes than comparable
securities that pay interest in cash at regular intervals. In addition,
the Fund may lose a portion of the principal amount of a zero coupon
security if it sells the security after an increase in interest rates.
o Unrated securities or securities rated below investment grade may be
subject to a greater market risk than higher rated (lower yield)
securities. Since lower rated and unrated securities are generally
issued by corporations that are not as creditworthy or financially
secure as issuers of higher rated securities, there is a greater risk
that issuers of lower rated (higher yield) securities will not be able
to pay the principal and interest due on such securities, especially
during periods of adverse economic conditions.
o The market for debt securities may be subject to significant volatility,
and volatility has generally increased in recent years.
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<PAGE>
SPECIFIC INVESTMENTS OR STRATEGIES, AND RELATED RISKS
----------------------------------------------------------------------------
This section provides additional information about certain of the principal
investment strategies used by the Funds and additional investment strategies
the Funds may use from time to time.
OPTIONS AND FUTURES CONTRACTS
All of the Funds may purchase and sell put and call options contracts,
futures contracts and options on futures contracts. Depending on the types
of securities in which a Fund invests, the contracts relate to fixed-income
securities (including U.S. Government and agency securities), equity
securities or indexes of securities. All contracts must be traded on
securities or commodities exchanges located in the United States.
A put option on a security gives the Fund the right to sell the security at
a certain price. The purchase of a put option on a security protects the
Fund against declines in the value of the security.
A call option on a security gives the Fund the right to buy the security at
a certain price. The purchase of a call option on a security protects the
Fund against increases in the value of the security that it is considering
purchasing.
A Fund may use futures contracts, or options on futures contracts, to
protect against general increases or decreases in the levels of securities
prices:
o When a Fund anticipates a general decrease in the market value of
portfolio securities, it may sell futures contracts. If the market value
falls, the decline in the Fund's net asset value may be offset, in whole
or in part, by corresponding gains on the futures position.
o When a Fund projects an increase in the cost of fixed-income securities
or stocks to be acquired in the future, the Fund may purchase futures
contracts on fixed-income securities or stock indexes. If the hedging
transaction is successful, the increased cost of securities subsequently
acquired may be offset, in whole or in part, by gains on the futures
position.
Risks to a Fund in options and futures transactions include the following:
o There may be a lack of liquidity, which could make it difficult for a
Fund to close out existing positions.
o The securities held in a Fund's portfolios may not exactly duplicate the
security or securities underlying the options, futures contracts or
options on futures contracts traded by the Fund, and as a result the
price of the portfolio securities being hedged will not move in the same
amount or direction as the underlying index, securities or debt
obligation.
o A Fund purchasing an option may lose the entire amount of the premium
plus related transaction costs.
o If a Fund has written a covered call option and the price of the
security underlying the option moves adversely to the Fund's position,
the option may be exercised. The Fund will be required to sell the
security at a disadvantageous price, and the resulting loss may be
offset only by the amount of the premium the Fund received from writing
the option.
ZERO COUPON SECURITIES AND DISCOUNT NOTES
The Bond Funds, as well as the All America Fund to the extent it invests in
fixed income securities, may invest in discount notes and zero coupon
securities. Discount notes mature in one year or less from the date of
issuance. Zero coupon securities may be issued by corporations, the U.S.
Government or certain U.S. Government agencies. Discount notes and zero
coupon securities do not pay interest. Instead, they are issued at prices
that are discounted from the principal (par) amount due at maturity.
Zero coupon securities and discount notes may fluctuate more in market value
and be more difficult for a Fund to resell during periods of interest rate
changes in the economy than comparable securities that pay interest in cash
at regular intervals. The market values of outstanding debt securities
generally decline when interest rates are rising, and during such periods a
Fund may lose more investment capital if it sells zero coupon securities
prior to their maturity date or expected redemption date than if it sells
comparable interest-bearing securities. In general, the longer the remaining
term to maturity or expected redemption of a security, the greater the
impact on market value from rising interest rates.
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<PAGE>
REDEEMABLE SECURITIES
An issuer of debt securities, including zero coupon securities, often has
the right after a period of time to redeem (call) securities prior to their
stated maturity date, either at a specific date or from time to time. When
interest rates rise, an issuer of debt securities generally is less likely
to redeem securities that were issued at a lower interest rate, or for a
lower amount of original issue discount in the case of the zero coupon
securities. In such instance, the period until redemption or maturity of the
security may be longer than the purchaser initially anticipated, and the
market value of the debt security may decline. If an issuer redeems a
security when prevailing interest rates are relatively low, a Fund may be
unable to reinvest proceeds in comparable securities with similar yields.
AMERICAN DEPOSITORY RECEIPTS ("ADRS")
ADRs are dollar-denominated receipts that U.S. banks generally issue. An ADR
represents the deposit with the bank of a security of a foreign issuer. ADRs
are publicly traded on exchanges or are traded over-the-counter in the
United States. An ADR has currency risk, because its value is based on the
value of the security issued by a foreign issuer. The All America Fund
intends to invest a small percentage of its total assets in ADRs.
ADRs are subject to many of the same risks as foreign securities, such as
possible:
o unavailablity of financial information,
o changes in currency or exchange rates,
o lack of Year 2000 preparedness by the issuer, and
o difficulty by the Adviser or a Subadviser in assessing economic or
political trends in a foreign country.
MORTGAGE-BACKED SECURITIES
The Bond Fund, as well as the All America Fund to the extent it invests in
debt securities, may invest in mortgage-backed securities. These securities
represent interests in pools of mortgage loans, or they may be
collateralized mortgage obligations secured by pools of mortgage loans
("CMOs"). Holders of mortgage-backed securities receive periodic payments
that consist of both interest and principal from the underlying mortgages.
Some mortgage-backed securities are issued by private corporations.
Mortgage-backed securities also include securities guaranteed by the
Government National Mortgage Association ("Ginnie Maes"), securities issued
by the Federal National Mortgage Association ("Fannie Maes"), participation
certificates issued by the Federal Home Loan Mortgage Corporation ("Freddie
Macs"). The timely payment of principal and interest is backed by the full
faith and credit of the U.S. Government in the case of Ginnie Maes, but
Fannie Maes and Freddie Macs are not full faith and credit obligations.
Characteristics of underlying mortgage pools will vary, and it is not
possible to precisely predict the realized yield or average life of a
particular mortgage-backed security, because of the principal prepayment
feature inherent in the security.
o A decline in interest rates may lead to increased prepayment of the
underlying mortgages, and the securityholder may have to reinvest
proceeds received at lower yields. Unscheduled or early payments on the
underlying mortgages may shorten the effective maturity of a
mortgage-backed security and could negatively affect the yield and price
of the security.
o An increase in interest rates may lead to prepayment of the underlying
mortgages at a lower rate than was assumed when the mortgage-backed
security was purchased, and the securityholder may not receive payments
to reinvest at higher rates of return. Delay in payments on the
underlying mortgages may lengthen the effective maturity of the security
and could negatively affect the price and yield of the security.
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<PAGE>
INFORMATION ABOUT FUND SHARES
PRICING OF FUNDS' SHARES
----------------------------------------------------------------------------
The purchase or redemption price of a Fund share is equal to its net asset
value that we next calculate after we receive the purchase or redemption
order. The Adviser determines a Fund's net asset value as of the close of
trading on the New York Stock Exchange on each day the New York Stock
Exchange is open for trading (a VALUATION DAY). The Exchange usually closes
at 4:00 p.m. Eastern Time but sometimes closes earlier before a holiday.
o In determining a Fund's net asset value, the Adviser uses market value.
o If a money market security has a remaining maturity of 60 days or less,
the Adviser will use the amortized cost method of valuation to
approximate market value (the Adviser assumes constant proportionate
amortization in value until maturity of any discount or premium).
o If there are any equity or debt securities or assets for which market
quotations are not readily available, the Adviser will use fair value
pricing, as determined in good faith by, or under the direction of, the
Board of Directors of the Investment Company.
PURCHASES OF FUND SHARES
----------------------------------------------------------------------------
Only institutional investors may purchase Fund shares. Institutional
investors include endowments, foundations, corporations, not-for-profit
corporations, municipalities and other public entities and trusts. There is
no sales charge for the purchase of Fund shares.
Mutual of America Securities Corporation, 320 Park Avenue, New York, New
York 10022 (the DISTRIBUTOR), is the principal underwriter and distributor
of Fund shares. The Distributor has field offices throughout the United
States for the offering and sale of shares of the Investment Company's
Funds.
A shareholder must pay the purchase amount by wire transfer of Federal
Funds. Wire transfers can be made on any day on which the Investment
Company, Federal Reserve Bank of New York and the Investment Company's
custodian and transfer agent are open and the New York Stock Exchange is
open.
The Investment Company reserves the right to reject any purchase order, to
increase or decrease the minimum required initial and subsequent investments
and to waive the minimum for an initial investment or for subsequent
investments.
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<PAGE>
HOW TO PURCHASE SHARES OF THE FUNDS
----------------------------------------------------------------------------
APPLICATION: A prospective purchaser must complete an
application, including any required resolutions,
attached to this Prospectus. You may obtain
additional applications by calling the Investment
Company at 1-800-914-8716.
APPLICATION DELIVERY:
A prospective purchaser should deliver a completed
application to a registered representative of the
Distributor. Registered representatives are
employees of Mutual of America Life Insurance
Company or The American Life Insurance Company of
New York.
APPLICATION APPROVAL: After the Investment Company and Distributor have
approved an application, the registered
representative (or the Investment Company) will
notify the prospective purchaser that the account
has been established and that the purchaser may
transmit the initial purchase amount.
MINIMUM PURCHASE: A shareholders' initial purchase must total at
least $25,000, and subsequent
purchases must total at least $5,000.
WIRE TRANSFER OF FUNDS: An investor must send all purchase amounts by wire
transfer of Federal Funds to the Investment
Company's account at its transfer agent. Your bank
may charge you a fee for the wire transfer. You may
contact the Investment Company by telephone at
1-800-914-8716 between the hours of 9:00 am and 8:00
p.m. Eastern Time, Monday through Friday on any
business day, to advise of an anticipated wire
transfer. Your bank should wire funds according to
these instructions:
State Street Bank and Trust Company
Boston, Massachusetts 02101
ABA #011-000028
BNF = AC-49097181, Mutual Funds F/B/O Mutual of
America
OBI = Purchaser: Acct. No.:
$ to the Equity Fund; $ to the All America
Fund;
$ to the Bond Fund; $ to the Money Market
Fund
YOUR FUNDS MAY BE RETURNED TO YOU IF THE INVESTMENT
COMPANY OR ITS TRANSFER AGENT DOES NOT HAVE
SUFFICIENT INFORMATION TO INSURE THE CORRECT
PROCESSING OF THE FUNDS OR IF YOUR APPLICATION HAS
NOT YET BEEN APPROVED.
RECEIPT OF ORDER:
Wire transfer funds received by the Investment
Company in its account prior to 4:00 p.m. Eastern
Time will be considered received that day. Purchase
amounts received after 4:00 p.m. Eastern Time will
be considered received on the next Valuation Day.
WIRE TRANSFER DAYS: Wire transfers for the purchase of Fund shares can
be made on days when banks (including the transfer
agent) and the New York Stock Exchange are open for
business. The Investment Company anticipates that
wire transfers cannot be made on Saturdays and
Sundays, and the holidays of Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans' Day, Thanksgiving Day, Christmas Day
and New Year's Day.
REDEMPTIONS OF FUND SHARES
----------------------------------------------------------------------------
A shareholder at any time may redeem (sell) shares of the Fund(s) that the
shareholder owns. There is no deferred sales charge when a shareholder
redeems shares of the Funds.
If a shareholder's redemption order is received by 4:00 p.m. Eastern Time on
a Valuation Day, the redemption proceeds usually will be transmitted on a
trade date-plus-one basis (the next Valuation Day). Wire transfers of
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<PAGE>
redemption proceeds cannot be made on days the transfer agent is closed. See
"Wire transfer days" above under "How to Purchase Shares of the Funds".
We pay redemption proceeds normally within seven days of receipt of the
redemption request, unless the Investment Company suspends or delays payment
of redemption proceeds as permitted in accordance with SEC regulations.
A shareholder will receive redemption proceeds in cash deposited to its bank
account, except that the Investment Company reserves the right to redeem
shares by the delivery, in whole or in part, of readily marketable
securities instead of cash when a shareholder's redemption proceeds total
more than 10% of the net asset value of a Fund.
The Investment Company reserves the right to change or waive the minimum
amount for a redemption, which currently is $5,000.
EXCHANGES OF FUND SHARES
----------------------------------------------------------------------------
A shareholder may exchange shares of one Fund for shares of another Fund. An
exchange is the redemption of the shares from one Fund and the application
of the redemption proceeds to the immediate purchase of shares of another
Fund.
The Investment Company may terminate or modify the terms of the exchange
privilege upon 30 days' written notice to shareholders. The Investment
Company may refuse to implement the purchase side of any exchange request
that it concludes is based on a market timing or asset allocation strategy
if the Investment Company determines the exchange would be disruptive to a
Fund.
The Investment Company reserves the right to change or waive the minimum
amount for an exchange, which currently is $5,000.
HOW TO PLACE A REDEMPTION OR EXCHANGE ORDER
----------------------------------------------------------------------------
WHO MAY GIVE AN ORDER: Only a shareholder's authorized person using a
Personal Identification Number ("PIN") that we have
assigned may place a redemption order or exchange
order. A shareholder must list authorized persons in
the initial application to purchase Fund shares, an
amended application, or in another written form that
is acceptable to the Investment Company.
MINIMUM AMOUNT: A redemption or exchange order must be for at least
$5,000.
ORDERS BY TELEPHONE:
A shareholder may place a redemption or exchange
order by telephone if the shareholder elected the
option for telephone orders in its initial
application to purchase Fund shares or in an amended
application.
A shareholder should call the Investment Company at
1-800-914-8716 between the hours of 9:00 am and 8:00
p.m. Eastern Time, Monday through Friday on any
Valuation Day to place an order. If a shareholder
places a redemption or exchange order after 4:00
p.m. Eastern Time on a Valuation Day or on a day
that is not a Valuation Day, the order will be
considered received on the next Valuation Day.
The Investment Company will verify the shareholder's
name, the PIN assigned by the Investment Company to
the authorized person calling for the account, the
shareholder's account number, and record telephone
requests.
The Investment Company and the Funds' transfer agent
will not be liable for any losses or expenses
resulting from any telephone redemption or exchange
order reasonably believed to be genuine or for the
inability of a shareholder to make a telephone
request on any particular day. The Investment
Company reserves the right to add to or modify its
procedures in the future.
-19-
<PAGE>
ORDERS IN WRITING:
A shareholder may make a redemption or exchange
request in writing. The shareholder must specify the
account name, the account number, the Fund from
which shares are to be redeemed, the dollar amount
or number of shares to be redeemed, and for exchange
orders, the Fund or Funds whose shares will be
purchased with the exchange proceeds.
The necessary authorized person(s) must sign the
order, and each signer should print his or her name
and title under the signature.
A shareholder should send a written request to
Mutual of America Institutional Funds, Inc., 320
Park Avenue, New York, New York 10022. A shareholder
may send a written request to the Regional Office of
the Distributor, which will foward the request to
the Investment Company. The Valuation Day for the
order will be the Valuation Day the Investment
Company receives the request at its 320 Park Avenue
offices.
REDEMPTION PROCEEDS: A shareholder will receive redemption proceeds by
wire transfer of Federal Funds to the bank account
stated in the shareholder's initial application, or
in an amended application. An authorized person may
not specify a different bank account by telephone.
EXCHANGE PROCEEDS: The proceeds from the shares of the Fund being
exchanged are immediately
applied for the purchase of shares in another Fund.
SHAREHOLDER REPORTS AND CONFIRMATION STATEMENTS
----------------------------------------------------------------------------
The Investment Company will send each shareholder a quarterly statement,
which will include Fund shares purchased, exchanged or redeemed during the
month, the net asset value per share and total dollar amount for each
transaction, and the shareholder's account balance in each Fund at the end
of the period.
The Investment Company, on behalf of the Distributor, will send to
shareholders confirmation statements for each purchase, exchange or
redemption transaction. A confirmation statement will show the Fund, number
of shares, order date, net asset value per share and dollar amount for the
transaction. A shareholder must report any error on a confirmation statement
within two weeks after the mailing or other transmission of the statement to
the shareholder.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXATION OF FUNDS
----------------------------------------------------------------------------
For each Fund, the Investment Company declares dividends at the end of June
and end of December to pay out substantially all of the Fund's net
investment income (dividends) and declares dividends at the end of December
to pay out substantially all of the Fund's net realized short and long term
capital gains (capital gains distributions). A Fund may make a special
distribution in September of each year to comply with Federal tax law
requirements for mutual funds.
A shareholder may elect, in its application to purchase Fund shares or in
an amended application, to:
o automatically reinvest dividends and distributions from a Fund in
additional shares of the Fund;
o receive dividends and distributions in cash; or
o automatically reinvest dividends from any Fund in shares of the Money
Market Fund.
The Investment Company is not subject to Federal income tax on ordinary
income and net realized capital gains that it distributes to shareholders,
as long as the distributions meet Federal tax law requirements for amount
and source of income. Each Fund is treated as a separate corporation for
Federal income tax purposes and must satisfy the tax requirements
independently.
-20-
<PAGE>
SHAREHOLDER TAXATION
----------------------------------------------------------------------------
Each shareholder should consult its own tax adviser about the Federal, state
and local tax consequences of investing in Fund shares, because investors'
tax situations will vary. Below are general rules about Federal income
taxation for an investor to consider.
When a shareholder redeems (sells) shares of a Fund, including in an
exchange transaction, the shareholder will have a gain or a loss on its
investment in those shares.
o If the shareholder owned the shares sold for more than a year, it will
have a capital gain or loss from the sale.
o If the shareholder owned the shares sold for less than a year, any gain
will be considered ordinary income, and any loss will be subject to
special tax rules.
When a shareholder receives income dividends or capital gains distributions
from a Fund, the shareholder (to the extent it is taxable) will owe tax on
the amount received, even if the shareholder automatically reinvests the
dividend or distribution in additional Fund shares.
o Ordinary income rates apply to a Fund's dividends of ordinary income and
net realized short-term capital gains.
o Capital gain rates apply to a Fund's distributions of net realized
long-term capital gains.
o A potential investor, depending on its tax situation, may want to
consider the tax impact of purchasing Fund shares when the Fund is
expected to pay dividends or distributions in the near future.
WITHHOLDING FOR FEDERAL INCOME TAXES. A shareholder on its application to
purchase Fund shares may make representations and provide information to be
exempt from withholding for Federal income tax on the Investment Company's
distributions and dividends and payment of redemption proceeds. Corporate
shareholders and certain other entities named in the Internal Revenue Code
are exempt from withholding under certain circumstances.
The Investment Company will withhold for Federal income tax if:
o a shareholder has not provided a correct taxpayer identification number,
or
o a shareholder has not made the certifications required to be exempt from
withholding, or
o the Investment Company or the shareholder has been notified by the
Internal Revenue Service that the shareholder is subject to back-up
withholding.
A shareholder may credit any amount withheld by the Investment Company
against the Federal income tax liability
of the shareholder.
Each January, the Investment Company will provide reports to Fund
shareholders of the Federal income tax status of distributions and dividends
made by the Funds during the previous year.
-21-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Funds' financial performance. They show performance for the period of a
Fund's operations, because the Funds have operated less than five years.
Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would
have earned or lost on an investment in the particular Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Arthur Andersen LLP, whose report, along with the Investment
Company's financial statements, are included in the annual report, which is
available upon request.
ALL AMERICA FUND
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996(E)
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........................................ $ 12.65 $ 10.98 $ 10.00
------- ------- --------
Income From Investment Operations
Net Investment Income ...................................................... .08 .06
Net Gains or Losses on Securities (both realized and unrealized) ........... 2.77 .98
------- --------
Total From Investment Operations .......................................... 2.85 1.04
------- --------
Less Distributions
Dividends (from net investment income) ..................................... (.08) (.06)
Distributions (from capital gains) ......................................... (1.10) --
------- --------
Total Distributions ....................................................... (1.18) (.06)
------- --------
NET ASSET VALUE, END OF PERIOD .............................................. $ $ 12.65 $ 10.41
======= ======= ========
Total Return (a) ............................................................ 26.0% 10.4%
Net Assets, End of Period ($ millions)....................................... $ $ 56.7 $ 55.5
Ratio of Net Investment Income to Average Net Assets (b) .................... .59% .95%
Ratio of Expenses to Average Net Assets (b) ................................. .84% .87%
Ratio of Expenses to Average Net Assets after Expense Reimbursement (b) ..... .81% .85%
Portfolio Turnover Rate (a) ................................................. 35.96% 9.33%
</TABLE>
-22-
<PAGE>
BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996(E)
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.41 $ 10.13 $ 10.01
------- ------- -------
Income From Investment Operations
Net Investment Income ...................................................... .59 .38
Net Gains or Losses on Securities (both realized and unrealized) ........... .29 .12
------- -------
Total From Investment Operations .......................................... .88 .50
------- -------
Less Distributions
Dividends (from net investment income) ..................................... (.59) (.38)
Distributions (from capital gains) ......................................... (.01) --
------- -------
Total Distributions ....................................................... (.60) (.38)
------- -------
NET ASSET VALUE, END OF PERIOD .............................................. $ $ 10.41 $ 10.13
======= ======= =======
Total Return (a) ............................................................ 8.9% 5.0 %
Net Assets, End of Period ($ millions)....................................... $ $ 22.1 $ 21.0
Ratio of Net Investment Income to Average Net Assets (b) .................... 5.69% 5.63%
Ratio of Expenses to Average Net Assets (b) ................................. 1.00% .90%
Ratio of Expenses to Average Net Assets After Expense Reimbursement (b) ..... .70% .40%
Portfolio Turnover Rate (a) ................................................. 56.18% 17.85%
</TABLE>
MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997(F)
----------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........................................ $ 10.15 10.00
------- -----
Income From Investment Operations
Net Investment Income ...................................................... .35
Net Gains or Losses on Securities (both realized and unrealized) ........... --
-----
Total From Investment Operations .......................................... .35
-----
Less Distributions
Dividends (from net investment income) ..................................... (.20)
Distributions (from capital gains) ......................................... --
-----
Total Distributions ....................................................... (.20)
-----
NET ASSET VALUE, END OF PERIOD .............................................. $ 10.15
======= =====
Total Return (a) ............................................................ 3.5%
Net Assets, End of Period ($ millions)....................................... $ $ 7.5
Ratio of Net Investment Income to Average Net Assets (b) .................... 5.17%
Ratio of Expenses to Average Net Assets (b) ................................. 2.47%
Ratio of Expenses to Average Net Assets after Expense Reimbursement (b) ..... .40%
Portfolio Turnover Rate (a) ................................................. N/A
</TABLE>
- ----------
(a) Not annualized.
(b) Annualized
(c) Portfolio turnover rate excludes all short-term securities.
(d) Average commission rate paid per share of common and preferred stock.
(e) Commenced operations May 1, 1996.
(f) Commenced operations May 1, 1997.
-23-
<PAGE>
Investment Company
Mutual of America Institutional Funds, Inc.
Distributor
Mutual of America Securities Corporation
Investment Adviser
Mutual of America Capital Management Corporation
Subadvisers for a portion of the All America Fund
Fred Alger Management, Inc.
Oak Associates Ltd.
Palley-Needelman Asset Management, Inc.
Independent Auditors
Arthur Andersen LLP
Counsel
Swidler Berlin Shereff Friedman, LLP
Custodian
The Chase Manhattan Bank
Transfer Agent
State Street Bank and Trust Company
The Investment Company sells shares of its Funds only to institutional
investors.
<PAGE>
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
320 PARK AVENUE, NEW YORK, NEW YORK 10022 1-800-914-8716
YOU MAY OBTAIN MORE INFORMATION
----------------------------------------------------------------------
REGISTRATION STATEMENT. We have filed with the Securities and Exchange
Commission (the COMMISSION) a Registration Statement about the Investment
Company. The Registration Statement includes this prospectus, a Statement
of Additional Information (the SAI), and exhibits. You may examine and
copy the Registration Statement at the Commission's Public Reference Room
in Washington, DC You may call 1-800-SEC-0330 to learn about the operation
of the Public Reference Room.
STATEMENT OF ADDITIONAL INFORMATION. The SAI contains additional
information about the Investment Company and its Funds. We incorporate the
SAI into this Prospectus by reference.
SEMI-ANNUAL AND ANNUAL REPORTS. Additional information about the Funds'
investments is available in the Investment Company's annual and
semi-annual reports to shareholders. In the annual reports, you will find
a discussion (for all Funds except the Money Market Fund) of the market
conditions and investment strategies that significantly affected the
Funds' performance during its last fiscal year.
HOW TO OBTAIN THE SAI AND REPORTS. You may obtain a free copy of the SAI
or of the Investment Company's most recent annual and semi-annual
financial statements, by:
o writing to us at 320 Park Avenue, New York, NY 10022, Attn:
Institutional Funds, or
o calling 1-800-914-8716 and asking for the Investment Company.
The Commission has an Internet web site at http://www.sec.gov. You may
obtain the Investment Company's Registration Statement, including the SAI,
and its semi-annual and annual reports through the Commission's Internet
site. You also may obtain copies of these documents, upon your payment of
a duplicating fee, by writing to the Commission's Public Reference
Section, Washington, DC 20549-6009.
WHERE TO DIRECT QUESTIONS. If you have questions about the operations of
the Investment Company, you should contact your representative at Mutual
of America Securities Corporation. You may call 1-800-914-8716 for the
address and phone number of the office nearest you.
Investment Company Act of 1940 Act File Number 811-08922
----------------------------------------------------------------------
PROSPECTUS DATED MAY 1, 1999
<PAGE>
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
320 PARK AVENUE, NEW YORK, NEW YORK 10022
(800) 914-8716
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information is not a prospectus. You should
read it in conjunction with the Mutual of America Institutional Funds, Inc.
Prospectus dated May l, 1999, and you should retain this Statement of
Additional Information for future reference.
A copy of the Prospectus to which this Statement of Additional Information
relates is available to you at no charge. To obtain the Prospectus, you may
write to Mutual of America Institutional Funds, Inc. at the above address or
call the telephone number listed above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Company's Form of Operations .................... 2
Investment Strategies and Related Risks .................... 3
Additional Permitted Investments ......................... 3
Additional Investment Strategies ......................... 5
Additional Information about Specific Types of Securities 9
Fundamental Investment Restrictions ........................ 13
Management of the Investment Company ....................... 14
Investment Advisory Arrangements ........................... 15
Administrative Arrangements ................................ 17
Portfolio Transactions and Brokerage ....................... 18
Purchase, Redemption and Pricing of Shares ................. 19
Taxation of the Investment Company ......................... 21
Taxation of Shareholders ................................... 21
Yield and Performance Information .......................... 23
Description of Corporate Bond Ratings ...................... 26
Distribution of Fund Shares ................................ 28
Custodian .................................................. 28
Use of Standard & Poor's Indices ........................... 28
Financial Statements ....................................... 28
</TABLE>
<PAGE>
INVESTMENT COMPANY'S FORM OF OPERATIONS
HISTORY AND OPERATING FORM
----------------------------------------------------------------------------
Mutual of America Institutional Funds, Inc. (the INVESTMENT COMPANY) was
formed on October 27, 1994 as a Maryland corporation. It is a diversified,
open-end management investment company registered under the Investment
Company Act of 1940 (THE 1940 ACT).
The Investment Company issues separate classes (or series) of stock, each of
which represents a separate Fund of investments. There are currently four
Funds: the Equity Index Fund, All America Fund, Bond Fund and Money Market
Fund.
OFFERING OF SHARES
----------------------------------------------------------------------------
The Investment Company is designed primarily as an investment vehicle for
endowments, foundations, corporations, municipalities or other public
entities and other institutional investors. Currently, the Investment
Company requires a minimum initial investment of $25,000, except that the
Investment Company may waive this requirement in its discretion. The minimum
amount for additional purchases of Fund shares currently is $5,000.
Shares of the Fund are offered on a continuous basis. There is no sales
charge or deferred sales charge for the purchase of Fund shares.
As of the date of this Statement of Additional Information, substantially
all of the outstanding shares of the All America and Bond Funds, and a
significant portion of the shares of the Money Market Fund, were owned by
Mutual of America Life Insurance Company (MUTUAL OF AMERICA LIFE), the
indirect parent corporation of the Adviser, which made the initial
investment for the Investment Company's operations. Mutual of America Life
and its wholly-owned subsidiary, The American Life Insurance Company of New
York (AMERICAN LIFE) are providing the initial investment for the Equity
Index Fund. As of May 1, 1999 when the Equity Fund begins operations, Mutual
of America Life and American Life will own 100% of the Equity Fund's shares.
DESCRIPTION OF SHARES
----------------------------------------------------------------------------
The authorized capital stock of the Investment Company consists of one
billion shares of common stock, $.01 par value. The Investment Company
currently has four classes of common stock, and it may establish additional
classes and allocate its authorized shares either to new classes or to one
or more of the existing classes.
The Investment Company reserves the right to redeem, upon not less than 30
days' written notice, all shares in a shareholder's Fund account when the
aggregate value of the shares is less than $5,000.
All shares of common stock, of whatever class, are entitled to one vote. The
votes of all classes are cast on an aggregate basis, except that if the
interests of the Funds differ, the voting is on a Fund-by-Fund basis.
Examples of matters that would require a Fund-by-Fund vote are changes in
the fundamental investment policy of a particular Fund and approval of the
Investment Advisory Agreement or a Subadvisory Agreement for the Fund.
The Investment Company is not required to hold annual meetings. It will call
a special meeting of shareholders when a meeting is requested by
shareholders holding at least 25% of the outstanding shares of the
Investment Company entitled to vote at the meeting except that a meeting to
remove one or more directors shall be called when requested by 10% of the
outstanding shares of the Investment Company entitled to vote at the
meeting.
The shares of each Fund, when issued, will be fully paid and nonassessable
and will have no preference, preemptive, conversion, exchange or similar
rights. Shares do not have cumulative voting rights. Each issued and
outstanding share in a Fund is entitled to participate equally in dividends
and distributions declared by such Fund and, upon liquidation or
dissolution, in the net assets of such Fund remaining after satisfaction of
outstanding liabilities. Accrued liabilities which are not allocable to one
or more Funds will generally be allocated among the Funds in proportion to
their relative net assets. In the unlikely event that any Fund incurred
liabilities in excess of its assets, each other Fund could be liable for
such excess.
-2-
<PAGE>
INVESTMENT STRATEGIES AND RELATED RISKS
The Prospectus describes each Fund's principal investment strategy(ies) and
the related risks. You should refer to "Summary of How Our Funds Invest" and
"Details about How Our Funds Invest and Related Risks" in the Prospectus to
learn about those strategies and risks.
ADDITIONAL PERMITTED INVESTMENTS
----------------------------------------------------------------------------
The Investment Company's Funds may use investment strategies and purchase
types of securities in addition to those discussed in the Prospectus.
EQUITY INDEX FUND: In addition to common stocks and futures contracts, the
Fund may invest in:
o money market instruments and
o U.S. Government and U.S. Government agency obligations.
ALL AMERICA FUND -- In addition to common stocks, the Active Assets of the
All America Fund may be invested
in:
o securities convertible into common stocks, including warrants and
convertible bonds,
o bonds,
o money market instruments,
o U.S. Government and U.S. Government agency obligations,
o foreign securities and ADRs,
o futures and options contracts,
o preferred stock,
o equipment trust certificates, and
o mortgage-backed and asset-backed securities.
The Indexed Assets may be invested in:
o money market instruments, and
o U.S. Government and U.S. Government agency obligations.
The Adviser may manage cash allocated to the Active Assets prior to
investment in securities by the Subadvisers.
BOND FUND: In addition to investment grade debt securities of the type
described in the Prospectus, the Bond Fund may invest in :
o asset-backed securities,
o non-investment grade securities, for up to 20% of its assets,
o foreign securities,
o cash and money market instruments,
o stocks acquired either by conversion of fixed-income securities or by
the exercise of warrants attached to fixed income securities,
o preferred stock
o options, futures contracts and options on futures contracts on United
States Treasury securities and Government National Mortgage Association
("Ginnie Mae") securities, and
o equipment trust certificates.
MONEY MARKET FUND: In addition to commercial paper and U.S. Treasury Bills,
the Fund may invest in any of
the following kinds of money market instruments, payable in United States
dollars:
o securities issued or guaranteed by the U.S. Government or a U.S.
Government agency or instrumentality;
-3-
<PAGE>
o negotiable certificates of deposit, bank time deposits, bankers'
acceptances and other short-term debt obligations of domestic banks and
foreign branches of domestic banks and U.S. branches of foreign banks,
which at the time of their most recent annual financial statements show
assets in excess of $5 billion;
o certificates of deposit, time deposits and other short-term debt
obligations of domestic savings and loan associations, which at the time
of their most recent annual financial statements show assets in excess
of $1 billion;
o repurchase agreements covering government securities, certificates of
deposit, commercial paper or bankers' acceptances;
o variable amount floating rate notes; and
o debt securities issued by a corporation.
The Money Market Fund may enter into transactions in options, futures
contracts and options on futures, contracts
on United States Treasury securities.
Under the Money Market Fund's investment policy, MONEY MARKET INSTRUMENTS
AND OTHER SHORT-TERM DEBT SECURITIES means securities that have a remaining
term to maturity of up to 13 months (25 months in the case of government
securities). The dollar-weighted average maturity of the securities held by
the Money Market Fund will not exceed 90 days.
The securities in the Money Market Fund must meet the following quality
requirements --
o All of the securities held by the Money Market Fund must have received
(or be of comparable quality to securities which have received), at the
time of the purchase, a rating in one of the two highest categories by
any two nationally recognized statistical rating agencies; and
o At least 95% of the securities held by the Money Market Fund must have
received (or be of comparable quality to securities which have
received), at the time of purchase, a rating in the highest category by
any two such rating agencies.
The Board of Directors of the Investment Company must approve or ratify the
purchase of any security (other than any U.S. government security) that has
not received a rating or that has been rated by only one rating agency. The
Fund will sell any securities that are subsequently downgraded below the two
highest categories as soon as practicable, unless the Board of Directors
determines that sale of those securities would not be in the best interests
of the Fund.
The Money Market Fund will not invest more than 5% of its total assets in
securities of, or subject to puts from, any one issuer (other than
government securities and repurchase agreements fully collateralized by
government securities) provided that (x) the Fund may invest up to 10% of
its total assets in securities issued or guaranteed by a single issuer with
respect to which the Fund has an unconditional put and (y) with respect to
25% of its total assets the Fund may, with respect to securities meeting the
highest investment criteria, exceed the 5% limit for up to three business
days.
-4-
<PAGE>
ADDITIONAL INVESTMENT STRATEGIES
----------------------------------------------------------------------------
LENDING OF SECURITIES
The Funds have the authority to lend their securities, under the conditions
described below. The Funds will not lend any securities until the Investment
Company's Board of Directors approves a form of securities lending
agreement.
A Fund may lend its securities, constituting up to 30% of its total assets,
to brokers, dealers and financial institutions, other than any affiliate of
the Investment Company. A Fund may pay reasonable fees to persons
unaffiliated with the Fund for services or for arranging such loans.
Upon lending securities, a Fund must receive as collateral cash, securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities, or letters of credit of certain banks selected by the
Adviser. The collateral amount at all times while the loan is outstanding
must be maintained in amounts equal to at least 100% of the current market
value of the loaned securities.
The Fund will continue to receive interest or dividends on the securities
lent. In addition, it will receive a portion of the income generated by the
short-term investment of cash received as collateral, or, alternatively,
where securities or a letter of credit are used as collateral, a lending fee
paid directly to the Fund by the borrower of the securities. A Fund will
have the right to terminate a securities loan at any time. The Fund will
have the right to regain record ownership of loaned securities in order to
exercise beneficial rights, such as voting rights or subscription rights.
Loans of securities will be made only to firms that the Adviser deems
creditworthy. There are risks of delay in recovery and even loss of rights
in the collateral, however, if the borrower of securities defaults, becomes
the subject of bankruptcy proceedings or otherwise is unable to fulfill its
obligations or fails financially.
REPURCHASE AGREEMENTS
The Funds have the authority to enter into repurchase agreements. A Fund may
not invest more than 10% of its total assets in repurchase agreements or
time deposits that mature in more than seven days. The Funds will not enter
into any repurchase agreements until the Investment Company's Board of
Directors approves a form of Repurchase Agreement and authorizes entities as
counterparties.
Under a repurchase agreement, a Fund acquires underlying debt instruments
for a relatively short period (usually not more than one week and never more
than one year) subject to an obligation of the seller to repurchase (and the
Fund to resell) the instrument at a fixed price and time, thereby
determining the yield during the Fund's holding period. This results in a
fixed rate of return insulated from market fluctuation during such period.
Accrued interest on the underlying security will not be included for
purposes of valuing a Fund's assets.
Repurchase agreements have the characteristics of loans by a Fund and will
be fully collateralized (either with physical securities or evidence of book
entry transfer to the account of the custodian bank) at all times. During
the term of the repurchase agreement, the Fund retains the security subject
to the repurchase agreement as collateral securing the seller's repurchase
obligation, continually monitors the market value of the security subject to
the agreement and requires the Fund's seller to deposit with the Fund
additional collateral equal to any amount by which the market value of the
security subject to the repurchase agreement falls below the resale amount
provided under the repurchase agreement.
The Funds will enter into repurchase agreements only with member banks of
the Federal Reserve System and with dealers in U.S. Government securities
whose creditworthiness has been reviewed and found satisfactory by the
Adviser and the Board of Directors of the Investment Company.
Securities underlying repurchase agreements will be limited to certificates
of deposit, commercial paper, bankers' acceptances, or obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities, in which the Funds may otherwise invest.
A seller of a repurchase agreement could default and not repurchase from a
Fund the security that is the subject of the agreement. The Fund would look
to the collateral underlying the seller's repurchase agreement, including
the securities subject to the repurchase agreement, for satisfaction of the
seller's obligation to the Fund. In such event, the Fund might incur
disposition costs in liquidating the collateral and might suffer a loss if
the value of the collateral declines. There is a risk that if the issuer of
the repurchase agreement becomes involved in bankruptcy
-5-
<PAGE>
proceedings, the Fund might be delayed or prevented from liquidating the
underlying security or otherwise obtaining it for its own purposes, if the
Fund did not have actual or book entry possession of the security.
RULE 144A INVESTMENTS, SECTION 4(2) COMMERCIAL PAPER AND ILLIQUID
SECURITIES
Each Fund, with respect to not more than 10% of its total assets, may
purchase securities that are not readily marketable, or are "illiquid".
Repurchase agreements of more than seven days' duration and variable and
floating rate demand notes not requiring receipt of the principal note
amount within seven days' notice are considered illiquid. A Fund may incur
higher transaction costs and require more time to complete transactions for
the purchase and sale of illiquid securities than for readily marketable
securities.
The Adviser will make a factual determination as to whether securities with
contractual or legal restrictions on resale purchased by a Fund are liquid,
based on the frequency of trades and quotes, the number of dealers and
potential purchasers, dealer undertakings to make a market, and the nature
of the security and the marketplace, pursuant to procedures adopted by the
Board of Directors of the Investment Company.
Securities that are eligible for purchase and sale under Rule 144A of the
Securities Act of 1933 (the "1933 Act") shall be considered liquid, provided
the Adviser has not made a contrary determination regarding liquidity in
accordance with the Board's procedures. Rule 144A permits certain qualified
institutional buyers to trade in securities even though the securities are
not registered under the 1933 Act. In addition, commercial paper privately
placed in accordance with Section 4(2) of the 1933 Act also will be
considered liquid, provided the requirements set forth in the Board's
procedures are satisfied.
OPTIONS AND FUTURES CONTRACTS
Each of the Funds may purchase and sell options and futures contracts, as
described below, as long as the contracts are traded on a domestic exchange.
Each of the Funds may:
o Sell a call option contract on a security it holds in its portfolio
(called a covered call), and it may buy a call option contract on the
security to close out a position created by the sale of a covered call;
o Buy a put option contract on a security it holds in its portfolio, and
it may sell a put option contract on the security to close out a
position created by the purchase of the put option contract;
o Purchase and sell futures contracts, and purchase options on futures
contracts, on fixed-income securities; and
o Purchase and sell futures contracts, and purchase options on futures
contracts, on indexes of securities.
A Fund may use futures contracts to protect against general increases or
decreases in the levels of securities prices, in the manner described below.
o When a Fund anticipates a general decrease in the market value of
portfolio securities, it may sell futures contracts. If the market value
falls, the decline in the Fund's net asset value may be offset, in whole
or in part, by corresponding gains on the futures position.
- A Fund may sell futures contracts on fixed-income securities in
anticipation of a rise in interest rates, that would cause a decline
in the value of fixed-income securities held in the Fund's portfolio.
- A Fund may sell stock index futures contracts in anticipation of a
general market wide decline that would reduce the value of its
portfolio of stocks.
o When a Fund projects an increase in the cost of fixed-income securities
or stocks to be acquired in the future, the Fund may purchase futures
contracts on fixed-income securities or stock indexes. If the hedging
transaction is successful, the increased cost of securities subsequently
acquired may be offset, in whole or in part, by gains on the futures
position.
o Instead of purchasing or selling futures contracts, a Fund may purchase
call or put options on futures contracts in order to protect against
declines in the value of portfolio securities or against increases in
the cost of securities to be acquired.
-6-
<PAGE>
- Purchases of options on futures contracts may present less risk in
hedging a portfolio than the purchase and sale of the underlying
futures contracts, since the potential loss is limited to the amount
of the premium paid for the option, plus related transaction costs.
- As in the case of purchases and sales of futures contracts, a Fund
may be able to offset declines in the value of portfolio securities,
or increases in the cost of securities acquired, through gains
realized on its purchases of options on futures.
o The Funds also may purchase put options on securities or stock indexes
for the same types of hedging purposes. The purchase of a put option on
a security or stock index permits a Fund to protect against declines in
the value of the underlying security or securities in a manner similar
to the sale of futures contracts.
o In addition, the Funds may write call options on portfolio securities or
on stock indexes for the purpose of increasing their returns and/or to
protect the value of their portfolios.
- When a Fund writes an option which expires unexercised or is closed
out by the Fund at a profit, it will retain the premium paid for the
option, less related transaction costs, which will increase its gross
income and will offset in part the reduced value of a portfolio
security in connection with which the option may have been written.
- If the price of the security underlying the option moves adversely to
the Fund's position, the option may be exercised and the Fund will be
required to sell the security at a disadvantageous price, resulting
in losses which may be only partially offset by the amount of the
premium.
- A call option on a security written by a Fund will be covered through
ownership of the security underlying the option or through ownership
of an absolute and immediate right to acquire such security upon
conversion or exchange of other securities held in its portfolio.
RISKS IN FUTURES AND OPTIONS TRANSACTIONS INCLUDE THE FOLLOWING:
o There may be a lack of liquidity, which could make it difficult or
impossible for a Fund to close out existing positions and realize gains
or limit losses.
The liquidity of a secondary market in futures contracts or options on
futures contracts may be adversely affected by "daily price fluctuation
limits," established by the exchanges on which such instruments are
traded, which limit the amount of fluctuation in the price of a
contract during a single trading day. Once the limit in a particular
contract has been reached, no further trading in such contract may
occur beyond such limit, thus preventing the liquidation of positions,
and requiring traders to make additional variation margin payments.
Market liquidity in options, futures contracts or options on futures
contracts may also be adversely affected by trading halts, suspensions,
exchange or clearing house equipment failures, government intervention,
insolvency of a brokerage firm or clearing house or other disruptions
of normal trading activity.
o The securities held in a Fund's portfolios may not exactly duplicate the
security or securities underlying the options, futures contracts or
options on futures contracts traded by the Fund, and as a result the
price of the portfolio securities being hedged will not move in the same
amount or direction as the underlying index, securities or debt
obligation.
o A Fund purchasing an option may lose the entire amount of the premium
plus related transaction costs.
o For options on futures contracts, changes in the value of the underlying
futures contract may not be fully reflected in the value of the option.
o With respect to options and options on futures contracts, the Funds are
subject to the risk of market movements between the time that the option
is exercised and the time of performance thereunder.
o In writing a covered call option on a security or a stock index, a Fund
may incur the risk that changes in the value of the instruments used to
cover the position will not correlate precisely with changes in the
value of the option or underlying the index or instrument.
o The opening of a futures position and the writing of an option are
transactions that involve substantial leverage. As a result, relatively
small movements in the price of the contract can result in substantial
unrealized gains or losses.
-7-
<PAGE>
A CALL OPTION is a short-term contract (generally having a duration of nine
months or less) which gives the purchaser of the option the right to
purchase the underlying security at a fixed exercise price at any time prior
to the expiration of the option regardless of the market price of the
security during the option period. As consideration for the call option, the
purchaser pays a Fund (the seller) a premium, which the Fund retains whether
or not the option is exercised. The seller of the call option has the
obligation, upon the exercise of the option by the purchaser, to sell the
underlying security at the exercise price at any time during the option
period. The selling of a call option will benefit a Fund if, over the option
period, the underlying security declines in value or does not appreciate
above the aggregate of the exercise price and the premium. However, the Fund
risks an "opportunity loss" of profits if the underlying security
appreciates above the aggregate value of the exercise price and the premium.
A PUT OPTION is a similar short-term contract that gives the purchaser of
the option the right to sell the underlying security at a fixed exercise
price at any time prior to the expiration of the option regardless of the
market price of the security during the option period. As consideration for
the put option a Fund (the purchaser) pays the seller a premium, which the
seller retains whether or not the option is exercised. The seller of the put
option has the obligation, upon the exercise of the option by the purchaser,
to purchase the underlying security at the exercise price at any time during
the option period. The buying of a covered put contract limits the downside
exposure for the investment in the underlying security to the combination of
the exercise price less the premium paid. The risk of purchasing a put is
that the market price of the underlying stock prevailing on the expiration
date may be above the option's exercise price. In that case the option would
expire worthless and the entire premium would be lost.
In addition to options (both calls and puts) on individual securities, the
Funds may purchase and sell OPTIONS ON INDEXES OF SECURITIES such as the
Standard & Poor's 100 Index, the Standard & Poor's 500 Index and the New
York Stock Exchange Composite Index. Options on stock indexes, like options
on individuals securities, are traded on national securities exchanges, such
as the Chicago Board Options Exchange, the American Stock Exchange and the
New York Stock Exchange.
A FUTURES CONTRACT ON FIXED INCOME SECURITIES requires the seller to
deliver, and the purchaser to accept delivery of, a stated quantity of a
given type of fixed income security for a fixed price at a specified time in
the future. A futures contract or option on a stock index provides for the
making and acceptance of a cash settlement equal to the change in value of a
hypothetical portfolio of stocks between the time the contract is entered
into and the time it is liquidated, times a fixed multiplier. Futures
contracts may be traded domestically only on exchanges which have been
designated as "contract markets" by the Commodity Futures Trading Commission
("CFTC"), such as the Chicago Board of Trade.
An OPTION ON A FUTURES CONTRACT provides the purchaser with the right, but
not the obligation, to enter into a "long" position in the underlying
futures contract (in the case of a call option on a futures contract), or a
"short" position in the underlying futures contract (in the case of a put
option on a futures contract), at a fixed price up to a stated expiration
date. Upon exercise of the option by the holder, the contract market
clearing house establishes a corresponding short position for the writer of
the option, in the case of a call option, or a corresponding long position
in the case of a put option. In the event that an option is exercised, the
parties are subject to all of the risks associated with the trading of
futures contracts, such as payment of margin deposits.
A Fund does not pay or receive a payment upon its purchase or sale of a
futures contract. Initially, a Fund will be required to deposit with the
Fund's custodian in the broker's name an amount of cash or U.S. Treasury
bills equal to approximately 5% of the contract amount. This amount is known
as "initial margin."
While a futures contract is outstanding, there will be subsequent payments,
called "maintenance margin", to and from the broker. These payments will be
made on a daily or intraday basis as the price of the underlying instrument
or stock index fluctuates making, the long and short positions in the
futures contract more or less valuable. This process is known as "mark to
market. At any time prior to expiration of the futures contract, a Fund may
elect to close the position by taking an opposite position, which will
operate to terminate the Fund's position in the futures contract. A final
determination of margin is then made, additional cash is required to be paid
by or released to the Fund, and the Fund realizes a loss or a gain.
-8-
<PAGE>
ADDITIONAL INFORMATION ABOUT SPECIFIC TYPES OF SECURITIES
----------------------------------------------------------------------------
NON-INVESTMENT GRADE SECURITIES
The Bond Fund may purchase non-investment grade debt securities. In
addition, the Bond Fund and the other Funds that purchase debt securities
may hold a security that becomes non-investment grade as a result of
impairments of the issuer's credit.
Fixed-income securities that are rated in the lower rating categories of the
nationally recognized rating services (Ba or lower by Moody's and BB or
lower by Standard & Poor's), or unrated securities of comparable quality,
are commonly known as non-investment grade securities or "junk bonds". Junk
bonds are regarded as being predominantly speculative as to the issuer's
ability to make payments of principal and interest. Investment in
non-investment grade securities involves substantial risk. Junk bonds may be
issued by less creditworthy companies or by larger, highly leveraged
companies, and are frequently issued in corporate restructurings, such as
mergers and leveraged buy-outs. Such securities are particularly vulnerable
to adverse changes in the issuer's industry and in general economic
conditions. Junk bonds frequently are junior obligations of their issuers,
so that in the event of the issuer's bankruptcy, claims of the holders of
junk bonds will be satisfied only after satisfaction of the claims of senior
security holders.
Non-investment grade bonds tend to be more volatile than higher-rated
fixed-income securities, so that adverse economic events may have a greater
impact on the prices of junk bonds than on higher-rated fixed-income
securities. Junk bonds generally are purchased and sold through dealers who
make a market in such securities for their own accounts. However, there are
fewer dealers in the non-investment grade bond market, and the market may be
less liquid than the market for higher-rated fixed-income securities, even
under normal economic conditions. Also, there may be significant disparities
in the prices quoted for junk bonds by various dealers. Adverse economic
conditions or investor perceptions (whether or not based on economic
fundamentals) may impair the liquidity of this market, and may cause the
prices that a Fund may receive for any non-investment grade bonds to be
reduced, or might cause a Fund to experience difficulty in liquidating a
portion of its portfolio.
The Investment Company currently anticipates than no Fund will invest more
than 5% of its total assets in non-investment grade debt securities.
U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY OBLIGATIONS
All of the Funds may invest in U.S. Government and U.S. Government agency
obligations. Some of these securities also may be considered money market
instruments. Some also may be mortgage-backed securities or zero coupon
securities.
U.S. GOVERNMENT OBLIGATIONS: These securities are issued or guaranteed as to
principal and interest by the United States Government. They include a
variety of Treasury securities, which differ only in their interest rates,
maturities and times of issuance. Treasury bills have a maturity of one year
or less. Treasury notes have maturities of one to seven years and Treasury
bonds generally have a maturity of greater than five years.
U.S. GOVERNMENT AGENCY OBLIGATIONS: Agencies of the United States Government
that issue or guarantee obligations include, among others, Export-Import
Bank of the United States, Farmers Home Administration, Federal Housing
Administration, Government National Mortgage Association, Student Loan
Marketing Association, Maritime Administration, Small Business
Administration and the Tennessee Valley Authority. Instrumentalities of the
United States Government that issue or guarantee obligations include, among
others, Federal Farm Credit Banks, Federal National Mortgage Association,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks and Banks for Cooperatives.
Some of the securities issued by U.S. Government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
Treasury, while others are supported only by the credit of the
instrumentality that issued the obligation.
MONEY MARKET INSTRUMENTS
All of the Funds may purchase money market instruments, which include the
following.
CERTIFICATES OF DEPOSIT. Certificates of deposit are generally short term,
interest-bearing negotiable certificates issued by banks or savings and loan
associations against funds deposited in the issuing institution.
TIME DEPOSITS. Time deposits are deposits in a bank or other financial
institution for a specified period of time at fixed interest rate, for which
no negotiable certificate is received.
-9-
<PAGE>
BANKERS' ACCEPTANCE. A bankers' acceptance is a draft drawn on a commercial
bank by a borrower usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the
maturity date. Most acceptances have maturities of six months or less and
are traded in secondary markets prior to maturity.
COMMERCIAL PAPER. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at
the time of issuance not exceeding nine months.
VARIABLE AMOUNT FLOATING RATE NOTES. Variable floating rate notes are
short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs. These are interest-bearing notes on which the
interest rate generally fluctuates on a weekly basis.
CORPORATE DEBT SECURITIES. Corporate debt securities with a remaining
maturity of less than one year tend to become extremely liquid and are
traded as money market securities.
TREASURY BILLS. See "U.S. Government and U.S. Government Agency
Obligations" above.
ZERO COUPON SECURITIES AND DISCOUNT NOTES; REDEEMABLE SECURITIES
The Bond Fund, and the All America Fund to the extent it invests in fixed
income securities, may invest in discount notes and zero coupon securities.
Discount notes mature in one year or less from the date of issuance. Zero
coupon securities may be issued by corporations or by certain U.S.
Government agencies.
Discount notes and zero coupon securities do not pay interest. Instead, they
are issued at prices that are discounted from the principal (par) amount due
at maturity. The difference between the issue price and the principal amount
due at maturity (or the amount due at the expected redemption date in some
cases if the securities are callable) is called "original issue discount". A
Fund must accrue original issue discount as income, even if the Fund does
not actually receive any payment under the security during the accrual
period. The purchase price paid for zero coupon securities at the time of
issuance, or upon any subsequent resale, reflects a yield-to-maturity
required by the purchaser from the purchase date to the maturity date (or
expected redemption date).
FOREIGN SECURITIES
In addition to investing in domestic securities, each of the Funds other
than the Equity Index Fund and the Money Market Fund, may invest in
securities of foreign issuers, including securities traded outside the
United States. Foreign issues guaranteed by domestic corporations are
considered to be domestic securities.
The Investment Company has a fundamental investment restriction that limits
foreign securities, including foreign exchange transactions, to 20% of a
Fund's total assets. (See "Fundamental Investment Restrictions", paragraph
2.) The Investment Company currently anticipates that no Fund will invest
more than 10% of its total assets in foreign securities or foreign exchange
transactions.
The Investment Company will consider special factors before investing in
foreign securities. These include:
o Year 2000 preparedness by the issuer and the foreign exchange where the
security is traded,
o changes in currency rates or currency exchange control regulations,
o the possibility of expropriation,
o the unavailability of financial information or the difficulty of
interpreting financial information prepared under foreign accounting
standards,
o less liquidity and more volatility in foreign securities markets,
o the impact of political, social or diplomatic developments, and
o the difficulty of assessing economic trends in foreign countries.
The Funds could encounter greater difficulties in bringing legal processes
abroad than would be encountered in the United States. In addition,
transaction costs in foreign securities may be higher.
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<PAGE>
AMERICAN DEPOSITARY RECEIPTS
ADRs are dollar-denominated receipts issued generally by domestic banks and
representing the deposit with the bank of a security of a foreign issuer.
ADRs are publicly traded on exchanges or over-the-counter in the United
States. ADRs are not considered foreign securities for purposes of the
restriction on the amount of foreign securities.
The Investment Company will consider special factors before investing in
ADRs: These include:
o Year 2000 preparedness by the issuer,
o changes in currency rates or currency exchange control regulations,
o the possibility of expropriation,
o the unavailability of financial information or the difficulty of
interpreting financial information prepared under foreign accounting
standards,
o the impact of political, social or diplomatic developments, and
o the difficulty of assessing economic trends in foreign countries.
CONVERTIBLE SECURITIES
The Bond Fund, as well as the All America Fund to the extent it invests in
debt securities, may invest in convertible securities, which normally
provide a higher yield than the underlying stock but a lower yield than a
fixed-income security without the convertibility feature. The price of the
convertible security normally will vary to some degree with changes in the
price of the underlying stock, although the higher yield tends to make the
convertible security less volatile than the underlying common stock. The
price of the convertible security also will vary to some degree inversely
with interest rates.
EQUIPMENT TRUST CERTIFICATES
The Bond Fund, as well as the All America Fund to the extent it invests in
debt securities, may invest in equipment trust certificates. The proceeds of
those certificates are used to purchase equipment, such as railroad cars,
airplanes or other equipment, which in turn serve as collateral for the
related issue of certificates.
The equipment subject to a trust generally is leased by a railroad, airline
or other business, and rental payments provide the projected cash flow for
the repayment of the equipment trust certificates. Holders of equipment
trust certificates must look to the collateral securing the certificates,
and any guarantee provided by the lessee or any parent corporation for the
payment of lease amounts, in the case of default in the payment of principal
and interest on the certificates.
The Investment Company currently anticipates that no Fund will invest more
than 5% of its total assets in equipment trust certificates.
ASSET-BACKED SECURITIES
The Bond Fund, as well as the All America Fund to the extent it invests in
debt securities, may invest in securities backed by consumer or credit card
loans or other receivables or may purchase interests in pools of such
assets.
Changes in interest rates may significantly affect the value of these
securities, and prepayment rates will impact the yield and price of the
securities. A decline in interest rates may result in increases in
prepayment, although asset-backed securities generally are not expected to
prepay to the same extent as mortgage-backed securities in such
circumstances. An increase in interest rates may result in prepayment at a
rate slower than was assumed when the security was purchased. The
creditworthiness of an issuer of asset-backed securities also may impact the
value of they securities.
The Investment Company currently anticipates that no Fund will:
o invest more than 10% of its total assets in asset-backed securities,
o invest in interest-only strips or principal-only strips ("IOs" or "POs")
of asset-backed securities, or
o purchase the final or most speculative tranche of asset-backed
securities issues.
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<PAGE>
MORTGAGE-BACKED SECURITIES
The Bond Fund, as well as the All America Fund to the extent it invests in
debt securities, may invest in mortgage-backed securities. You should refer
to the discussion of Mortgage-Backed Securities in the Prospectus under
"Details about How Our Funds Invest and Related Risks -- Specific
Investments or Strategies and Related Risks".
The Investment Company currently anticipates that no Fund will:
o invest more than 10% of its total assets in mortgage-backed securities
that are not also considered to be U.S. Government or U.S. Government
agency securities,
o invest in interest-only strips or principal-only strips ("IOs" or "POs")
of mortgage-backed securities, or
o purchase the final or most speculative tranche of CMO or other
mortgage-backed securities issues.
WARRANTS
The All America Fund and Bond Fund may acquire warrants. A warrant is an
option to purchase common stock of an issuer and is issued in conjunction
with another security, such as a debt obligation. A warrant specifies the
price at which the holder may purchase shares of common stock and usually
expires after a period of time. A warrantholder generally has the option of
paying cash for the common stock to be purchased or of surrendering a
portion of the security already owned (such as a debt obligation).
The common stock underlying a warrant may not increase in value after the date
the warrant was issued, or may not increase up to the warrant exercise price.
In this case, the warrant generally would have little value and could expire
unexercised.
The Investment Company currently anticipates that no Fund will invest more
than 5% of its assets in warrants.
PREFERRED STOCK
The All America Fund and Bond Fund may purchase preferred stock. A
corporation may issue a form of equity security called preferred stock.
Compared to common stock, preferred stock has advantages in the receipt of
dividends and in the receipt of the corporation's assets upon liquidation.
Preferred stockholders, however, usually do not have voting rights at
meetings of the corporation's shareholders.
An issuer of preferred stock must pay a dividend to holders of preferred
stock before it distributes a dividend to holders of common stock. When a
corporation issues preferred stock, it sets a dividend rate, or a formula to
determine the rate. If a corporation does not have sufficient earnings to
pay the specified dividend to preferred stockholders, the unpaid dividend
may accrue (cumulate) and become payable when the corporation's earnings
increase. Bondholders, in contrast, are entitled to receive interest and
principal due, regardless of the issuer's earnings.
Some issues of preferred stock give the holder the right to convert the
preferred stock into shares of common stock, when certain conditions are
met. A holder of preferred stock that is not convertible, or of preferred
stock that is convertible but has not met the conditions for conversion,
does not share in the earnings of the issuer other than through the receipt
of dividends on the preferred stock. The market value of convertible
preferred stock generally fluctuates more than the market value of
nonconvertible preferred stock, because the value of the underlying common
stock will affect the price of the convertible stock.
Preferred stock has the risk that a corporation may not have earnings from
which to pay the dividends as they become due. Even if a corporation is
paying dividends, if the dividend rate is fixed (and not variable), changes
in interest rates generally will affect the market value of the preferred
stock in the same manner as for debt obligations.
The Investment Company presently anticipates that no Fund will invest more
than 10% of its assets in preferred stock.
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<PAGE>
FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies and may not be
changed without the approval of a majority of the outstanding voting shares of
the affected Fund. No Fund will:
1. purchase or sell options or futures except those listed on a domestic
exchange;
2. trade in foreign exchange, or invest in securities of foreign issuers if
at the time of acquisition more than 20% of its total assets, taken at
market value at the time of the investment, would be invested in such
securities;
3. make an investment in order to exercise control of management over a
company (either singly or together with any other Fund);
4. underwrite the securities of other companies;
5. make short sales, except when the Fund has, by reason of ownership of
other securities, the right to obtain securities of equivalent kind and
amount that will be held so long as they are in a short position;
6. purchase commodities or commodity contracts, except to the extent
described in the Prospectus and herein with respect to futures and related
options;
7. with respect to at least 75% of the value of its total assets, invest more
than 5% of its total assets in the securities of any one issuer (including
repurchase agreements with any one institution), other than securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities;
8. with respect to at least 75% of the value of its total assets, purchase
more than 10% of the outstanding voting securities of an issuer, except
that such restriction shall not apply to securities issued or guaranteed
by the United States Government or its agencies or instrumentalities;
9. issue senior securities, except that each Fund may borrow as described in
restriction 13 below (the issuance and sale of options and futures not
being considered the issuance of senior securities) and except as
permitted by the rules and regulations of the Investment Company Act or an
exemption thereunder and with any required approval of the shareholders of
the Investment Company;
10. make an investment in an industry if that investment would make the Fund's
holding in that industry exceed 25% of the Fund's total assets, except
that this policy does not apply to obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
11. purchase real estate or mortgages directly, except that the All America
Fund may buy shares of real estate investment trusts listed on stock
exchanges or reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") system, and the Bond Fund may buy
mortgage-backed debt issues;
12. purchase any securities issued by any other investment company except as
permitted under the Investment Company Act and in accordance with
applicable state law;
13. purchase any security on margin, except for short-term credit necessary
for clearance of portfolio transactions or in connection with permitted
options and futures contracts, or borrow money, except from banks for
temporary purposes, or pledge its assets unless to secure such borrowing.
The Funds may borrow money from or pledge their assets to banks in order
to transfer funds for various purposes, as required, without interfering
with the orderly liquidation of securities in their portfolios, but not
for leveraging purposes. Such borrowings may not exceed 5% of the value of
a Fund's total assets at market value;
14. make loans, except loans of portfolio securities (not exceeding 30% of the
value of its total assets at market value) or loans through entry into
repurchase agreements (the purchase of publicly traded debt obligations
not being considered the making of a loan);
15. invest more than 10% of its total assets in repurchase agreements or time
deposits maturing in more than seven days or in portfolio securities not
readily marketable; or
16. purchase oil, gas or mineral interests, except that the Funds may purchase
securities of issuers that invest in oil, gas or mineral interests.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from
a change in values of portfolio securities or amount of net assets will not
be considered a violation.
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MANAGEMENT OF THE INVESTMENT COMPANY
The Directors of the Investment Company consist of five individuals, four of
whom are not "interested persons" of the Investment Company as defined in
the Investment Company Act of 1940. The Directors of the Investment Company
are responsible for the overall supervision of the operations of the
Investment Company and perform the various duties imposed on the directors
of investment companies by the Investment Company Act of 1940. The Board of
Directors elects officers of the Investment Company annually.
The Directors and Officers of the Investment Company and their principal
employment are as follows:
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS INVESTMENT COMPANY DURING PAST FIVE YEARS
<S> <C> <C>
Kevin M. Kearney Director Partner, Wingate, Kearney & Cullen (law firm)
Brooklyn, NY
Dolores J. Morrissey* Chairman of the President and Chief Executive Officer of
320 Park Avenue Board, President and Mutual of America Securities Corporation
New York, NY 10022 Director ("Distributor") since August 1996; Executive
Vice President and Assistant to the President of
the Adviser from March 1996 to December
1996; President and Chief Executive Officer of
the Adviser June 1994 to March 1996; prior
thereto, Executive Vice President and Chief
Investment Officer -- General Account of the
Adviser
John T. Sharkey Director Vice President -- Corporate National Accounts,
New York, NY MCI Communications
John R. Silber Director Chancellor, Boston University.
Boston, MA
Stanley Shmishkiss Director Shmishkiss Associates; Chairman Emeritus of
Lynn, MA the Board of Trustees of the American Cancer
Society Foundation
Patrick J. Waide, Jr. Director President, The Drucker Foundation since
New York, New York January 1999; Chief Operating Officer,
Sullivan & Company, New York, New York
from September 1996 to December 1998;
Executive Vice President and Chief Financial
Officer of the Bessemer Group, Inc., and
Senior Vice President and Chief Financial
Officer of Bessemer Securities, until January
1996.
Manfred Altstadt Senior Executive Vice Senior Executive Vice President and Chief
320 Park Avenue President and Financial Officer, Mutual of America Life and
New York, NY 10022 Treasurer American Life.
Patrick A. Burns Senior Executive Vice Senior Executive Vice President and General
320 Park Avenue President, General Counsel Counsel of the Adviser, Mutual of America
New York, NY 10022 Life and American Life.
John Greed Executive Vice President Executive Vice President and Treasurer, Mutual
320 Park Avenue and Chief Financial Officer of America Life and American Life since May
New York, NY 10022 1997; Senior Vice President and Deputy
Treasurer from July 1996 to May 1997; prior
thereto, Partner, Arthur Andersen, LLP
Stanley M. Lenkowicz Senior Vice President, Senior Vice President and Deputy General
320 Park Avenue Deputy General Counsel, Mutual of America, since March
New York, NY 10022 Counsel and Secretary 1995; prior thereto, Senior Vice President and
Associate General Counsel
</TABLE>
----------
* Ms. Morrissey is an "interested person" within the meaning of the Investment
Company Act.
The officers and directors of the Investment Company own none of its
outstanding shares. The Investment Company has no Audit Committee.
-14-
<PAGE>
Set forth below is a table showing compensation paid to the directors during
1998.
<TABLE>
<CAPTION>
AGGREGATE PENSION OR TOTAL COMPENSATION FROM
COMPENSATION FROM RETIREMENT BENEFITS ESTIMATED INVESTMENT COMPANY AND
INVESTMENT ACCRUED AS PART OF BENEFITS OTHER INVESTMENT
NAME OF DIRECTOR COMPANY FUND EXPENSES UPON RETIREMENT COMPANIES IN COMPLEX
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kevin M. Kearney ...... $ (2) None None $(2)
Dolores J.
Morrissey ............ None(1) None None None (1)
John T. Sharkey ....... $ (2) None None $(2)
John R. Silber ........ $ (2) None None $(2)
Stanley Shmishkiss .... $ (2) None None $(2)
Patrick J. Waide, Jr. $ (2) None None $(2)
</TABLE>
----------
(1) As an employee of an affiliates of the Adviser and an "interested person"
of the Investment Company, Ms. Morrissey serves as director of the
Investment Company and of Mutual of America Investment Corporation without
compensation.
(2) Directors who are not "interested persons" of the Investment Company
receive from the Investment Company an annual retainer of $10,000, a fee
of $1,000 for each Board or Committee meeting attended and business travel
and accident insurance and life insurance. Mr. Shmishkiss was elected as a
director in August 1998.
As of the date of this Prospectus, the Adviser owned approximately 90% of
the outstanding shares of the Investment Company. The Adviser has the right
to vote its shares at any meeting of shareholders.
INVESTMENT ADVISORY ARRANGEMENTS
INVESTMENT ADVISER. The Investment Company's investment adviser is Mutual of
America Capital Management Corporation (the "Adviser" or "Capital
Management"), an indirect wholly-owned subsidiary of Mutual of America Life.
The Adviser's address is 320 Park Avenue, New York, New York 10022. The
Adviser is a registered investment adviser under the Investment Advisers Act
of 1940. The Adviser provides investment management services to the
Investment Company, Mutual of America Investment Corporation and the General
Accounts of Mutual of America Life and American Life.
The Adviser provides advisory services for the Investment Company's Funds,
in accordance with the Funds' investment policies, objectives and
restrictions as set forth in the Prospectus and this Statement of Additional
Information. The Adviser has delegated some of its advisory responsibilities
for a portion of the All America Fund to the Subadvisers named below. The
Adviser's activities are subject at all times to the supervision and
approval of the Investment Company's Board of Directors.
Under the Investment Advisory Agreement, the Adviser agrees to provide
investment management services to the Investment Company. These services
include:
o performing investment research and evaluating pertinent economic,
statistical and financial data;
o consultation with the Investment Company's Board of Directors and
furnishing to the Investment Company's Board of Directors
recommendations with respect to the overall investment plan;
o implementation of the overall investment plan, including carrying out
decisions to acquire or dispose of investments;
o management of investments;
o reporting to the Investment Company's Board of Directors on a regular
basis on the implementation of the investment plan and the management of
investments;
o maintaining all required records;
o making arrangements for the safekeeping of assets; and
o providing office space facilities, equipment, material and personnel
necessary to fulfill its obligations.
The Adviser is responsible for all expenses incurred in performing the
investment advisory services, including compensation of officers and payment
of office expenses, and for providing investment management services.
-15-
<PAGE>
ADVISORY FEES. As compensation for its services to each of the Funds of the
Investment Company, the Funds pay the Adviser a fee at the following annual
rates of net assets, calculated as a daily charge:
Equity Index Fund -- .125%
All America Fund -- .50%
Bond Fund -- .45%
Money Market Fund -- .20%
INVESTMENT ADVISORY FEES PAID BY FUNDS TO ADVISER*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
FUND 1998 1997 1996
================================================================
<S> <C> <C> <C>
All America $311,258 $291,620 $171,293
- ----------------------------------------------------------------
Bond $106,164 $ 94,370 $ 60,994
- ----------------------------------------------------------------
Money Market $ 8,216 $ 3,930 N/A
- ----------------------------------------------------------------
Total Fees $425,638 $389,920 $232,287
- ----------------------------------------------------------------
</TABLE>
* Excludes Equity Index Fund, which began operations on May 1, 1999.
OTHER FUND EXPENSES. Each Fund is responsible for paying its advisory fee
and other expenses incurred in its operation, including:
o brokers' commissions, transfer taxes and other fees relating to the
Fund's portfolio transactions,
o directors' fees and expenses,
o fees and expenses of its independent certified public accountants
o fees and expenses of its legal counsel,
o the cost of the printing and mailing semi-annual reports to
shareholders, Proxy Statements, Prospectuses, Prospectus Supplements and
Statements of Additional Information,
o the cost of preparation and filing registration statements and
amendments thereto,
o bank transaction charges and custodian's fees,
o any proxy solicitors' fees and expenses,
o SEC filing fees,
o any federal, state or local income or other taxes,
o any membership or licensing fees of the Investment Company Institute and
similar organizations,
o fidelity bond and directors' liability insurance premiums, and
o any extraordinary expenses, such as indemnification payments or damages
awarded in litigation or settlements made.
CONTRACTUAL EXPENSE REIMBURSEMENT BY THE ADVISER. The Adviser voluntarily
limits the expenses of each Fund, other than for brokers' commissions,
transfer taxes and other fees relating to the Fund's portfolio transactions,
to the amount of the investment advisory fee paid by the Fund to the
Adviser. The Adviser may discontinue or modify its policy of paying expenses
of the Funds at any time.
VOLUNTARY EXPENSE REIMBURSEMENT BY THE ADVISER. The Adviser voluntarily
limits the expenses of each Fund, other than for brokers' commissions,
transfer taxes and other fees relating to portfolio transactions and
extraordinary expenses, to an annual rate of .85% of the value of net assets
of the All America Fund and .70% of the value of net assets of the Bond Fund
and .40% of the value of the net assets of the Money Market Fund. The
Adviser may discontinue such policy at any time.
SUBADVISERS FOR PORTION OF THE ALL AMERICA FUND. For approximately 30% of
the assets of the All America Fund (the ACTIVE ASSETS), the Adviser has
entered into Subadvisory Agreements with Fred Alger Management, Inc. (ALGER
MANAGEMENT), Oak Associates, Ltd. (OAK ASSOCIATES) and Palley-Needelman
Asset Management,
-16-
<PAGE>
Inc. (PALLEY-NEEDELMAN) (each a SUBADVISER, and together the SUBADVISERS).
Each Subadviser is registered as an investment adviser under the Investment
Advisers Act of 1940.
Each of the Subadvisers for its portion of the All America Fund provides
investment advisory services, including research, making recommendations and
regular reports to the Board of Directors of the Investment Company,
maintenance of records, and providing all the office space, facilities,
equipment, material and personnel necessary to fulfill its obligations under
the Subadvisory Agreement. The Subadvisers are subject to the supervision of
the Adviser and the Board of Directors of the Investment Company.
SUBADVISORY FEES. The Adviser, not the Investment Company, pays the
Subadvisers for the advisory services they provide to the All America Fund
at the following annual rates of net assets, calculated as a daily charge:
o Fred Alger Management -- .45%
o Oak Associates -- 30%
o Palley-Needelman Asset Management -- .30%
FEES PAID BY ADVISER TO SUBADVISERS
FOR PAST THREE YEARS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUBADVISER 1998 1997 1996
===============================================================================
<S> <C> <C> <C>
Fred Alger Management, Inc. $25,762 $23,984 $14,362
- -------------------------------------------------------------------------------
Oak Associates, Ltd. $18,433 $17,285 $10,835
- -------------------------------------------------------------------------------
Palley-Needelman Asset Management, Inc. $17,917 $17,131 $ 9,910
- -------------------------------------------------------------------------------
Total $62,112 $58,400 $35,107
- -------------------------------------------------------------------------------
</TABLE>
ADMINISTRATIVE AGREEMENTS
ACCOUNTING AND RECORDKEEPING AGENT
The Adviser serves as accounting and recordkeeping agent for the Funds.
Under its Investment Accounting Agreement with the Investment Company, the
Adviser performs accounting and recordkeeping functions related to portfolio
transactions as required by the Investment Company Act, provides the
Investment Company with accounting and related reports on a periodic basis,
and calculates the net asset value of each Fund in the manner described in
the Prospectus.
As compensation for its services, the Adviser receives from each Fund a
monthly base fee of $500 plus a monthly minimum fee of $2,000, or if an
asset-based fee of .0225% of the Investment Company net assets would result
in a fee greater than the aggregate of the Fund minimums, the Fund's
proportion of the asset-based fee, and is reimbursed for out-of-pocket
expenses it incurs in performing its services to the Investment Company. The
Adviser has entered into an arrangement with Mutual of America for the
provision of investment accounting and recordkeeping, legal and certain
other services in connection with the Investment Company.
TRANSFER AGENT
State Street Bank and Trust Company, Boston, Massachusetts (STATE STREET)
serves as transfer agent and dividend disbursing agent for Fund shares.
Under its Transfer Agency and Service Agreement with the Investment Company,
State Street is obligated to maintain shareholder accounts to reflect
purchases and redemptions of Fund shares; prepare and transmit payments for
dividends and distributions declared by the Investment Company; mail proxy
materials, shareholder reports and prospectuses to current shareholders; and
prepare and mail account and confirmation statements for shareholders.
For its services, State Street receives from each Fund a monthly maintenance
fee based on the number of holders of Fund shares, ranging from a minimum of
$1,000 per month for 0-15 shareholders to $2,500 per month for 51-200
shareholders, and a trade processing fee for each trade and is reimbursed
for out-of-pocket expenses.
-17-
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
SELECTION OF BROKERS AND DEALERS
----------------------------------------------------------------------------
The Adviser and each Subadviser are responsible for decisions to buy and
sell securities for the Funds of the Investment Company for which they
provide services as well as for selecting brokers and, where applicable,
negotiating the amount of the commission rate paid.
o The Adviser and Subadvisers select broker-dealers which, in their best
judgment, provide prompt and reliable execution at favorable security
prices and reasonable commission rates.
o They may select broker-dealers which provide them with research services
and may cause a Fund to pay such broker-dealers commissions which exceed
those other broker-dealers may have charged, if in their view the
commissions are reasonable in relation to the value of the brokerage
and/or research services provided by the broker-dealer.
o When purchasing or selling securities trading on the over-the-counter
market, the Adviser and Subadvisers will generally execute the
transaction with a broker engaged in making a market for such
securities.
o The Adviser and Subadvisers may place certain orders with their
affiliates, subject to the requirements of the 1940 Act.
o No transactions may be effected by a Fund with an affiliate of the
Adviser or a Sub-Adviser acting as principal for its own account.
Brokerage commissions are negotiated, as there are no standard rates. All
brokerage firms provide the service of execution of the order made. Some
brokerage firms also provide research and statistical data, and research
reports on particular companies and industries are customarily provided by
brokerage firms to large investors.
The Adviser, and each Subadviser, will place orders with brokers providing
useful research and statistical data services if reasonable commissions can
be negotiated for the total services furnished even though lower commissions
may be available from brokers not providing such services. The Adviser, and
each Subadviser, uses these services in connection with all of its
investment activities, and some of the data or services obtained in
connection with the execution of transactions for the Investment Company may
be used in managing other investment accounts. Conversely, data or services
obtained in connection with transactions in other accounts may be used by
the Adviser, and each Subadviser, in providing investment advice to the
Investment Company. To the extent that the Adviser, and each Subadviser,
uses research and statistical data services so obtained, its expenses may be
reduced and such data has therefore been and is one of the factors
considered by the Adviser, and each Subadviser, in determining its fee for
investment advisory services.
At times, transactions for the Investment Company may be executed together
with purchases or sales of the same security for other accounts of the
Adviser or a Subadviser. When making concurrent transactions for several
accounts, an effort is made to allocate executions fairly among them.
Transactions of this type are executed only when the Adviser, or a
Subadviser, believes it to be in the best interests of the affected Fund(s),
as well as any other accounts involved. However, the possibility exists that
concurrent executions may work out to the disadvantage of the Fund(s)
involved.
-18-
<PAGE>
COMMISSIONS TO AFFILIATED BROKERS
----------------------------------------------------------------------------
During the past three years, the Investment Company has paid brokerage
commissions to Mutual of America Securities Corporation (SECURITIES
CORPORATION), an affiliate of the Adviser, through an introducing brokerage
arrangement with Bear Stearns Securities Corp., and to Fred Alger & Co.
(FRED ALGER), an affiliate of Alger Management, Inc., as follows:
<TABLE>
<CAPTION>
YEAR OF COMMISSIONS % OF TOTAL % OF AGGREGATE DOLLARS
PAYMENT/BROKER PAID COMMISSIONS PAID OF TRANSACTIONS
<S> <C> <C> <C>
1998 -- Securities Corporation $ 0 0% 0%
1997 -- Securities Corporation $ 2,070 4.15% 4.0%
1996 -- Securities Corporation
1998 -- Fred Alger $15,470 27.4% 23.0%
1997 -- Fred Alger $18,793 37.6% 30.8%
1996 -- Fred Alger $ 5,490 10.7% 5.8%
</TABLE>
The purchases and sales placed for the Indexed Assets of the All America
Fund, including through the Securities Corporation, related primarily to
large capitalization stocks, many of which are included in the S&P 500
Index. The purchases and sales placed through Fred Alger related primarily
to stocks issued by companies with smaller market capitalizations, for which
execution may be more difficult.
PORTFOLIO TURNOVER
----------------------------------------------------------------------------
The Adviser and the Subadvisers do not consider portfolio turnover rate to
be a limiting factor when they deem it appropriate to purchase or sell
securities for a Fund. The portfolio turnover rate for a Fund in any year
will depend on market conditions, and the rate may increase depending on
market conditions or if a new portfolio manager for a Fund restructures the
Fund's holdings. The Insurance Companies' Separate Accounts do not pay taxes
on the investment gains of the Funds. As a consequence, the Adviser and
Subadvisers do not consider how long a Fund has held a security, or how
capital gain upon sale would be characterized, in deciding whether to sell
that security.
The Equity Index Fund and the Indexed Assets of the All America Fund each
attempt to duplicate the investment results of the S&P 500 Index. As a
result, the Adviser anticipates that these Funds will hold investments
generally for longer periods than actively managed funds.
PURCHASE, REDEMPTION AND PRICING OF SHARES
CALCULATION OF NET ASSET VALUE
----------------------------------------------------------------------------
An investor purchases or redeems shares of a Fund at net asset value. A Fund's
net asset value is equal to:
o the sum of the value of the securities the Fund holds,
-19-
<PAGE>
o plus any cash or other assets, including interest and dividends accrued,
and
o minus all liabilities, including accrued expenses.
The net asset value of each Fund is determined once daily immediately after the
declaration of dividends, if any, and is determined as of the time of the close
of the regular trading session on the New York Stock Exchange (generally 4:00
p.m. Eastern Time) on each day during which such Exchange is open for trading.
A Fund's net asset value per share is equal to the Fund's net asset value
divided by the number of Fund shares outstanding.
PRICING OF SECURITIES HELD BY THE FUNDS
- --------------------------------------------------------------------------------
In determining a Fund's net asset value, the Adviser must value the securities
and other assets the Fund owns.
1) If market quotations are readily available for an investment, the Adviser
uses market value as follows:
o An equity security will be valued at the last sale price for the
security on the principal exchange on which the security is traded, or
at the last bid price on the principal exchange on which such security
is traded if such bid price is of a more recent day than the last sale
price.
o For any equity security not traded on an exchange but traded in the
over-the-counter market, the value will be the last sale price
available, or if no sale, at the latest available bid price.
o Debt securities will be valued at a composite fair market value,
"evaluated bid," which may be the last sale price, by a valuation
service selected by the Adviser and approved by the Investment Company's
Board of Directors.
2) If there are any portfolio securities or assets for which market
quotations are not readily available, the Adviser will use fair value
pricing, as determined in good faith by or under the direction of the Board
of Directors of the Investment Company.
3) If a money market security has a remaining maturity of 60 days or less,
the Adviser will use the amortized cost method of valuation to approximate
market value, as follows:
o A security is initially valued at cost on the date of purchase (or at
market value on the 61st day prior to maturity if the security had more
than 60 days remaining to maturity at date of purchase by a Fund), and
the Adviser assumes constant proportionate amortization in value until
maturity of any discount or premium.
o The maturity of a variable rate certificate of deposit is deemed to be
the next coupon date on which the interest rate is to be adjusted.
o Market value will be used instead if the amortized cost value is
materially different from the actual market value of the security.
4) For stock options and futures contracts, these valuations apply:
o Stock options written by a Fund are valued at the mean of the last bid
and asked price on the principal exchange where the option is traded, as
of the close of trading on that exchange.
o When a Fund writes a call option, the amount of the premium is included
in the Fund's assets and an amount is included in its liabilities. The
liability thereafter is adjusted to the current market value of the
call.
- If a call expires or if the Fund enters into a closing purchase
transaction, it realizes a gain (or a loss if the cost of the
transaction exceeds the premium received when the call was written)
without regard to any unrealized appreciation or depreciation in the
underlying securities, and the liability related to such call is
extinguished.
- If a call is exercised, the Fund realizes a gain or loss from the
sale of the underlying securities and the proceeds of the sale
increased by the premium originally received.
o A premium a Fund pays on the purchase of a put will be deducted from a
Fund's assets and an equal amount will be included as an investment and
subsequently adjusted to the current market value of the put.
-20-
<PAGE>
o Futures contracts, and options thereon, traded on commodities exchanges
are valued at their official settlement price as of the close of such
commodities exchanges.
TAXATION OF THE INVESTMENT COMPANY
TAXES ON FUNDS' INVESTMENT EARNINGS AND INCOME
----------------------------------------------------------------------------
The Investment Company has in the past elected the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code, and it intends to continue to qualify under Subchapter M. The
Investment Company will not owe Federal income tax on the ordinary income
and net realized capital gains that it distributes to shareholders, if it
qualifies as a regulated investment company.
If the Investment Company were to fail to qualify as a regulated investment
company, it would be subject to Federal income tax on the Funds' ordinary
income and net realized capital gains, whether or not it distributes the
income and gains to shareholders. If the Funds were to pay Federal income
tax, their investment performance would be negatively affected.
Section 4982 of the Code imposes an excise tax of 4% on a regulated
investment company that does not make a "required distribution" to
shareholders of 98% of its ordinary income for each calendar year and 98% of
its capital gain income for the one year period ending October 31 of each
year. The Investment Company intends to make the "required distributions"
and to thereby avoid the excise tax. If a Fund were to distribute less than
the required amount, then the 4% excise tax would apply to the deficiency,
wh.ich would reduce the investment performance of the Funds.
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
----------------------------------------------------------------------------
The Investment Company declares dividend distributions semi-annually (at the
end of June and end of December) in the case of net investment income and
annually (at the end of December) in the case of net realized short or
long-term capital gains. A shareholder's dividend distributions are
automatically reinvested in full or fractional shares of the Fund to which
they relate, unless the shareholder elects on its application or an
amendment to the application either (1) to receive dividend distributions in
cash or, (2) in the case of distributions by the Equity Index, All America
and Bond Funds, to purchase shares of the Money Market Fund (in which case
the $5,000 minimum is waived).
Cash dividend distributions are paid by wire transfer of Federal funds.
Payment of dividends normally will be made on the first business day of the
following month at the net asset value as of the last business day of the
month in which the dividend distribution is declared. Dividends and other
distributions are taxable to a Fund's shareholders even though they are
reinvested in additional shares of the Fund.
TAXATION OF SHAREHOLDERS
The discussion below provides information that may be helpful to a
shareholder, but it is not a detailed explanation of the Federal, state or
local income tax treatment of a shareholder. Potential purchasers of shares
of a Fund are encouraged to consult their tax advisers regarding specific
questions as to Federal, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in a
Fund as well. Many of the rules set forth below do not apply to
not-for-profit organizations and other entities that are not subject to
Federal income taxation.
CHARACTERIZATION OF FUNDS' DISTRIBUTIONS. Dividends paid by a Fund out of
its ordinary income and distributions of a Fund's net realized short-term
capital gains (jointly, the "ordinary income dividends") are taxable to its
shareholders as ordinary income. Distributions made from a Fund's net
realized long-term capital gains, including long-term gains from certain
transactions in futures and options, (the "capital gain dividends") are
taxable to the Fund's shareholders as long-term capital gain.
PASSIVE FOREIGN INVESTMENT COMPANY ("PFIC"). Due to investment laws in
certain foreign countries, it is anticipated that a Fund's investments in
equity securities in such countries may consist of shares of investment
companies (or similar investment entities) organized under foreign law or of
ownership interests in special accounts, trusts or partnerships. If the Fund
purchases shares of an investment company (or similar investment entity)
organized under foreign law, the Fund will be treated as owning shares in a
PFIC for U.S. federal income tax purposes. The Fund may be subject to U.S.
federal income tax, and an additional tax in the nature of interest,
-21-
<PAGE>
on a portion of distributions from such company and on gain from the
disposition of such shares (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election
with respect to certain PFICs in which it owns shares that will allow it to
avoid the taxes on excess distributions. However, such election may cause
the Fund to recognize income in a particular year in excess of the
distributions received from such PFICs. Alternatively, under proposed
regulations the Fund would be able to elect to "mark to market" at the end
of each taxable year all shares that it holds in PFICs. If it made this
election, the Fund would recognize as ordinary income any increase in the
value of such shares. Unrealized losses, however, would not be recognized.
By making the mark-to-market election, the Fund could avoid imposition of
the interest charge with respect to its distributions from PFICs, but in any
particular year might be required to recognize income in excess of the
distributions it received from PFICs and its proceeds from dispositions of
PFIC stock.
FOREIGN CURRENCY GAINS OR LOSSES. Foreign currency gains or losses from
certain debt instruments are generally treated as ordinary income or loss.
These gains or losses will generally increase or decrease the amount of a
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if losses of this nature
exceed a Fund's other investment company taxable income during a taxable
year, a Fund would not be able to make any ordinary income dividend
distributions. Any such distribution made before the losses were realized
(but in the same taxable year) would be recharacterized as a return of
capital to a Fund's shareholders, thereby reducing the shareholders' basis
in the Fund's shares, and resulting in a capital gain for any shareholder
who received a distribution greater than that shareholder's basis in the
Fund's shares (assuming the shares were held as capital assets).
TAXATION OF FOREIGN COUNTRY INCOME. Dividends and interest received by a
Fund may be subject to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States
may reduce or eliminate these foreign taxes. These foreign taxes will reduce
the amount of funds available for distributions by a Fund, but are included
in the taxable income reported by the Fund's shareholders. Since stock and
securities of foreign issuers will account for less than 50% of the assets
of each Fund, the Fund's shareholders will not be able to claim a credit or
deduction for these foreign taxes paid by a Fund.
ORIGINAL ISSUE DISCOUNT. The Funds may purchase debt securities that contain
original issue discount. Original issue discount that accrues in a taxable
year is treated as income earned by a Fund and is subject to the
distribution requirements of the Internal Revenue Code. A Fund, however,
generally will not receive any cash income for the original issue discount
income it earns in a taxable year. Debt securities that a Fund acquires also
may be subject to the market discount rules.
CAPITAL GAINS RATES FOR ENTITIES OTHER THAN INDIVIDUALS. Capital gains of
corporations are subject to tax at the same rates applicable to ordinary
income. Capital losses may be used only to offset capital gains and excess
net capital loss may be carried back three years and forward five years.
DIVIDENDS RECEIVED DEDUCTIONS. Certain corporations are entitled to a 70%
dividends received deduction for distributions from certain domestic
corporations. The Equity Index Fund and All America Fund will designate the
portion of any distributions that qualify for the 70% dividends received
deduction. The amount designated may not exceed the amount received by the
Equity Index Fund or All America Fund for its taxable year that qualifies
for the dividends received deduction. (Since none of the income of the Bond
Fund or the Money Market Fund is expected to be derived from dividends from
domestic corporations, it is not anticipated that any portion of the
ordinary income dividends of the Bond Fund or the Money Market Fund will
qualify for the dividends received deduction.)
STATE AND LOCAL TAXATION. In addition to Federal income taxation, ordinary
income and capital gain dividends, along with gain from the sale of Fund
shares, may be subject to state and local taxes. State law varies as to
whether dividend income paid by a Fund attributable to U.S. Government
obligations is exempt from state income tax, and a shareholder should
consult its tax adviser with respect to this issue.
PRIVATE FOUNDATIONS. Private foundations and their managers are subject to
excise taxes under the Code if they invest "any amount in such a manner as
to jeopardize the carrying out of any of the foundation's exempt purposes."
This rule requires a foundation manager, in making an investment, to
exercise "ordinary business care and prudence" under the facts and
circumstances prevailing at the time of making the investment, in providing
for the short-term and long-term needs of the foundation in carrying out its
exempt purposes.
The factors that a foundation manager may take into account in assessing an
investment under this standard include the expected rate of return (both
income and capital appreciation), the risks of rising and falling price
levels, and the need for diversification within the foundation's portfolio.
A substantial percentage of investments
-22-
<PAGE>
of certain "private operating foundations", as defined in the Code, may be
restricted to assets directly devoted to their tax-exempt purposes. Each
manager of a private foundation should consult the manager's and the
foundation's tax advisers regarding the foregoing considerations.
ENDOWMENT FUNDS. Investment managers of endowment funds should consider
whether the acquisition by such funds of shares in the Funds is legally
permissible. This is not a matter of federal law, but is determined under
applicable state statutes. It should be noted, however, that under the
Uniform Management of Institutional Funds Act, which has been adopted in
various forms by a large number of states, participation in mutual funds or
similar organizations, in which funds are commingled and investment
determinations are made by persons other than the governing board of the
endowment fund, is permitted. Each investment manager of an endowment fund
should consult the endowment fund's counsel regarding the foregoing
considerations.
RETIREMENT TRUSTS, INCLUDING QUALIFIED PLANS. The Funds may accept
investments from tax-qualified pension, profit-sharing or stock bonus plans,
governmental plans and units, and Taft-Hartley plans (all such entities
hereinafter being referred to as "Retirement Trusts"). A fiduciary of a
Retirement Trust other than a governmental plan or unit (a "Qualified Plan")
is subject to certain requirements under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), including the discharge of
duties solely in the interest of, and for the exclusive purpose of providing
benefits to, the Qualified Plan's participants and beneficiaries.
In considering an investment in the Funds of a portion of the assets of any
Qualified Plan, a fiduciary should consider, among other factors: (a)
whether the investment is permitted by the documents and instruments
governing the Qualified Plan; (b) whether the investment satisfies the
diversification requirements of Section 404(a)(1)(C) of ERISA, if
applicable; (c) whether the investment provides sufficient liquidity to
permit benefit payments to be made as they become due; (d) whether the
investment is for the exclusive purpose of providing benefits to
participants and their beneficiaries; and (e) whether the investment may
constitute a "prohibited transaction" (within the meaning of Section 406 of
ERISA and Section 4975(c) of the Code). Each fiduciary of a Qualified Plan
(and any other person subject to ERISA) should consult such person's tax or
other advisers regarding the foregoing considerations.
SHAREHOLDER WITHHOLDING
The Investment Company may be required to withhold for Federal income tax
("back-up withholding") from distributions made and the proceeds of
redemptions to a shareholder who is not exempt from back-up withholding,
because the shareholder has not provided a correct taxpayer identification
number or made required certifications, or when the Investment Company or
the shareholder has been notified by the Internal Revenue Service that the
shareholder is subject to back-up withholding.
Ordinary income dividends paid by a Fund to a shareholder that is a
nonresident alien or a foreign entity will be subject to a 30% U.S.
withholding tax applicable to foreign persons, unless a reduced rate of
withholding or a withholding exemption is provided under applicable law or
an applicable tax convention between the United States and a particular
foreign country. Foreign shareholders are urged to consult their own tax
advisers concerning the applicability of the U.S. withholding tax.
YIELD AND PERFORMANCE INFORMATION
Performance information is computed separately for each Fund in accordance
with the formulas described below. At any time in the future, total return
and yields may be higher or lower than in the past and there can be no
assurance that any historical results will continue.
YIELD OF THE MONEY MARKET FUND. The Money Market Fund calculates a seven-day
"current yield" (eight days when the seventh prior day has no net asset
value because the Investment Company is closed on that day) based on a
hypothetical shareholder account containing one share at the beginning of
the seven-day period. The return is calculated for the period by determining
the net change in the hypothetical account's value for the period, excluding
capital changes. The net change is divided by the share value at the
beginning of the period to give the base period return. This base period
return is then multiplied by 365/7 to annualize the yield figure, which is
carried to the nearest one-hundredth of one percent.
Realized capital gains or losses and unrealized appreciation or depreciation
of the assets of the Money Market Fund are included in the hypothetical
account for the beginning of the period but changes during the period are
not included in the value for the end of the period. Values also reflect
asset charges (for advisory fees) as well as brokerage fees and other
expenses.
-23-
<PAGE>
Current yields will fluctuate daily. Accordingly, yields for any given
seven-day period do not necessarily represent future results. It should be
remembered that yield depends on the type, quality, maturities and rates of
return of the Money Market Fund's investments, among other factors. The
Money Market Fund yield does not reflect the cost of insurance and other
insurance company separate account charges. It also should not be compared
to the yield of money market funds made available to the general public
because they may use a different method to calculate yield. In addition,
their yields are usually calculated on the basis of a constant one dollar
price per share and they pay out earnings and dividends which accrue on a
daily basis.
The following is an example of the calculation of the Money Market Fund's
yield for the seven-day period ended December 31, 1998. Yields may fluctuate
substantially from the example shown.
1. Value for December 22, 1998
2. Value for December 29, 1998 (exclusive of capital changes)
3. Net change equals Line 1 subtracted from Line 2
4. Base period return equals Line 3 divided by Line 1
5. Current yield equals Line 4 annualized (multiplied by 365/7)
The Money Market Fund calculates effective yield by following Steps 1 - 4
above to obtain a base period return, then compounding the base period
return as follows:
Effective Yield = [(Base Period Return + 1) 365/7] - 1
CALCULATION OF TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN. Total Return
with respect to the shares of a Fund is a measure of the change in value of
an investment in a Fund over the period covered, which assumes that any
dividends or capital gains distributions are reinvested in that Fund's
shares immediately rather than paid to the investor in cash.
The formula for Total Return with respect to a Fund's shares used herein
includes four steps:
(1) adding to the total number of shares purchased by a hypothetical $1,000
investment the number of shares which would have been purchased if all
dividends and distributions paid or distributed during the period had been
immediately reinvested;
(2) calculating the value of the hypothetical initial investment of $1,000 as
of the end of the period by multiplying the total number of shares on the
last trading day of the period by the net asset value per share on the
last trading day of the period;
(3) assuming redemption at the end of the period; and
(4) dividing this account value for the hypothetical investor by the initial
$1,000 investment. Average Annual Total Return is measured by annualizing
Total Return over the period.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1998*
<TABLE>
<CAPTION>
FUND ONE YEAR LIFE OF FUND*
- ---------------- ---------- --------------
<S> <C> <C>
All America 21.0% 21.6%
Bond 8.3% 8.3%
Money Market 5.3% 5.3%
</TABLE>
CUMULATIVE TOTAL RETURN FOR
PERIODS ENDED DECEMBER 31, 1998*
<TABLE>
<CAPTION>
FUND ONE YEAR LIFE OF FUND
- ---------------- ---------- -------------
<S> <C> <C>
All America 21.0% 68.4%
Bond 8.3% 23.8%
Money Market 5.3% 9.0%
</TABLE>
----------
* The All America and Bond Funds commenced operations on May 1, 1996, and the
Money Market Fund began operations on May 1, 1997.
-24-
<PAGE>
YIELD OF THE BOND FUND. Yield of the shares of the Bond Fund will be
computed by annualizing net investment income, as determined by the
Commission's formula, calculated on a per share basis, for a recent
one-month or 30-day period and dividing that amount by the net asset value
per share of the Fund on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) over such period and may include recognition of a pro rata portion
of the stated dividend rate of dividend paying portfolio securities. The
Yield of the Fund will vary from time to time depending upon market
conditions, the composition of the portfolio and operating expenses
allocated to the Fund.
PERFORMANCE COMPARISONS. Each Fund may from time to time include the Total
Return, the Average Annual Total Return and Yield of its shares in
advertisements or in information furnished to shareholders. The Money Market
Fund may also from time to time include the Yield and Effective Yield of its
shares in information furnished to shareholders.
Each Fund may from time to time also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services ("Lipper") as having the same or similar
investment objectives or by similar services that monitor the performance of
mutual funds. Each Fund may also from time to time compare its performance
to average mutual fund performance figures compiled by Lipper in Lipper
Performance Analysis.
Advertisements or information the Investment Company furnishes to current or
prospective investors also may include evaluations of a Fund published by
nationally recognized ranking services and by financial publications that
are nationally recognized. These publications may include BARRON'S, BUSINESS
WEEK, CDA TECHNOLOGIES, INC., CHANGING TIMES, DOW JONES INDUSTRIAL AVERAGE,
FINANCIAL PLANNING, FINANCIAL WORLD, FORBES, FORTUNE, HULBERT'S FINANCIAL
DIGEST, INSTITUTIONAL INVESTOR, INVESTORS DAILY, MONEY, MORNINGSTAR MUTUAL
FUNDS, THE NEW YORK TIMES, STANGER'S INVESTMENT ADVISER, VALUE LINE, THE
WALL STREET JOURNAL, WIESENBERGER INVESTMENT COMPANY SERVICE and USA TODAY.
In reports or other communications to shareholders, the Investment Company
also may describe general economic and market conditions affecting the Funds
and may compare the performance of the Funds with (1) that of mutual funds
included in the rankings prepared by Lipper or similar investment services
that monitor the performance of insurance company separate accounts or
mutual funds, (2) IBC/Donoghue's Money Fund Report, (3) other appropriate
indices of investment securities and averages for peer universe of funds
which are described in this Statement of Additional Information, or (4) data
developed by the Adviser or any of the Subadvisers derived from such indices
or averages.
COMPARATIVE INDICES FOR THE FUNDS
----------------------------------------------------------------------------
The Investment Company compares the performance of each Fund (other than the
Money Market Fund) against a widely recognized index or indices for stock or
bond market performance, based on the type of securities the Fund purchases.
The annual and semi-annual financial reports that the Investment Company
prepares will contain graphs with the Funds' performances compared to their
indices.
It is not possible for an investor to directly invest in an unmanaged index.
Performance comparisons to indices are for informational purposes and do not
reflect any actual investment. The Funds pay investment advisory and other
expenses that are not applicable to unmanaged indices.
EQUITY INDEX FUND AND ALL AMERICA FUND: Performance of each of these Funds
is compared to the Standard & Poor's Composite Index of 500 Stocks (the "S&P
500 Index").
The S&P 500 Index is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the base
period 1941-43. The S&P 500 Index is composed almost entirely of common
stocks of companies listed on the NYSE, although the common stocks of a few
companies listed on the American Stock Exchange or traded OTC are included.
The 500 companies represented include approximately 400 industrial concerns,
as well as financial services, utility and transportation concerns. The S&P
500 Index represents about 80% of the market value of all issues traded on
the NYSE.
BOND FUND: Performance is compared to the Lehman Brothers
Government/Corporate Bond Index (the "Lehman Government/Corporate Index").
-25-
<PAGE>
The Lehman Government/Corporate Index is a measure of the market value of
approximately 5,300 bonds with a face value currently in excess of $1
million, which have at least one year to maturity and are rated "Baa" or
higher ("investment grade") by a nationally recognized statistical rating
agency.
DESCRIPTION OF CORPORATE BOND RATINGS
Description of Corporate bond ratings of Moody's Investors Services, Inc.:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt-edge". 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 in 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
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Description of corporate bond ratings of Standard & Poor's Corporation:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is very strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
-26-
<PAGE>
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB-B-CCC-CC-Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
-27-
<PAGE>
DISTRIBUTION OF FUND SHARES
Mutual of America Securities Corporation, 320 Park Avenue, New York, New
York 10022 (the "Distributor"), an indirect, wholly-owned subsidiary of
Mutual of America Life, serves as the principal underwriter and distributor
of Fund shares. The Distributor does not receive compensation for
distributing Fund shares, and it is not obligated to distribute any specific
amount of Fund shares.
The Distributor is registered with the Securities and Exchange Commission as
a broker-dealer and is a member of the National Association of Securities
Dealers, Inc. Registered representatives of the Distributor, located in 36
field offices throughout the United States, participate in the distribution
of shares of the Funds.
INDEPENDENT AUDITORS
The financial statements included in this Statement of Additional
Information have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
CUSTODIAN
The Chase Manhattan Bank, New York, New York, acts as Custodian of the
Investment Company's assets.
FINANCIAL STATEMENTS
Financial statements of the Investment Company for the year ended December 31,
1998 are included as follows:
<TABLE>
<S> <C>
Portfolio Management Discussions .................
Portfolio of Investments in Securities:
All America Fund ................................
Bond Fund .......................................
Money Market Fund ...............................
Statement of Assets and Liabilities ..............
Statement of Operations ..........................
Statements of Changes in Net Assets ..............
Financial Highlights .............................
Notes to Financial Statements ....................
Report of Independent Public Accountants .........
</TABLE>
-28-
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Financial highlights table to be updated for 1998 in the Prospectus and
Financial Statements as of December 31, 1998 to be included in the
Statement of Additional Information by Post-Effective amendment in April
1999.
(b) EXHIBITS
<TABLE>
<S> <C>
1 Articles of Incorporation of Mutual of America Institutional Funds, Inc. (the Fund), the Registrant
(1)
2 By-Laws of the Fund (1)
3 Not applicable
4 Not applicable
5(a) Form of Investment Advisory Agreement, as amended effective May 1, 1999, between the Fund
and Mutual of America Capital Management Corporation (the Adviser)
5(b) Form of Subadvisory Agreement between the Adviser and Fred Alger Management, Inc. (3)
5(c) Form of Subadvisory Agreement between the Adviser and Oak Associates, Ltd. (3)
5(d) Form of Subadvisory Agreement between the Adviser and Palley-Needelman Asset
Management, Inc. (3)
6 Form of Distribution Agreement between the Fund and Mutual of America Securities Corporation
(the Distributor) (1)
7 Not applicable
8 Form of custody Agreement between the Fund and The Chase Manhattan Bank, N.A. (2)
9(a) Form of Transfer Agency and Service Agreement between the Fund and State Street Bank and
Trust Company (2)
(b) Form of Investment Accounting Agreement between the Fund and Mutual of America Capital
Management Corporation (4)
10 Consent of Swidler Berlin Shereff Friedman, LLP
11(a) Consent of Arthur Andersen LLP*
11(b) Power of Attorney of Patrick J. Waide, Jr. (4)
11(c) Powers of Attorney of John R. Greed and Stanley Shmishkiss
12 Not applicable
13 Not applicable
14 Not applicable
15 Not applicable
16 Not applicable
</TABLE>
- ---------
* To be filed by Post-Effective Amendment.
(1) Included in the Registration Statement filed with the Commission on
December 22, 1994.
(2) Included in the Pre-Effective Amendment No. 2 and No. 3 filed with the
Commission on January 23 and 29, 1996, respectively.
(3) Included in the Pre-Effective Amendment No. 4 filed with the Commission on
March 15, 1996.
(4) Included in Post-Effective Amendment No. 2 filed with the Commission on
February 28, 1997.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Adviser is an indirect wholly-owned subsidiary of Mutual of America
Life Insurance Company (Mutual of America Life). Mutual of America Life is a
New York mutual life insurance company, and as such no person has the direct of
indirect power to control Mutual of America Life except by virtue of a persons
capacity as a director or executive officer. Each holder of an in-force
insurance policy or annuity contract issued by Mutual of America Life has the
right to vote for the election of directors of Mutual of America Life at annual
elections and upon other corporate matters where policyholders' votes are
taken. Set forth on the following page is a diagram of the companies owned
directly or indirectly by Mutual of America Life.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of January 31, 1999, there were record owners of securities
registered pursuant to this Registration Statement.
ITEM 27. INDEMNIFICATION
ARTICLES OF INCORPORATION OF THE FUND. The Articles of Incorporation of
the Fund provide in substance that no director or officer of the Fund shall be
liable to the Fund or its shareholders for money damages, unless the director
or officer is subject to liability by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of duties in the conduct of his or her
office.
BY-LAWS OF THE FUND. The By-Laws of the Fund provide for the
indemnification of present and former officers and directors of the Fund
against liability by reason of service to the Fund, unless the officer or
director is subject to liability by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office (Disabling Conduct). No indemnification shall be made to an
officer or director unless there has been a final adjudication on the merits, a
dismissal of a proceeding for insufficiency of evidence of Disabling Conduct,
or a reasonable determination has been made that no Disabling Conduct occurred.
The Fund may advance payment of expenses only if the officer or director to be
indemnified undertakes to repay the advance unless indemnification is made and
if one of the following applies: the officer of director provides a security
for his or her undertaking, the Fund is insured against losses from any lawful
advances, or a reasonable determination has been made that there is reason to
believe the officer or director ultimately will be entitled to indemnification.
INSURANCE. Coverage for officers and director of the Adviser, Distributor
and the Fund is provided under an Investment Management insurance policy issued
by American International Specialty Lines Insurance Company, with excess
coverage by Chubb custom Insurance Company, to Mutual of America Life Insurance
Company et al. The aggregate limit of liability under the policy per year is
$10 million, with a $200,000 deductible per entity insured and a $1,000
deductible for individual insureds.
BY-LAWS OF THE ADVISER. The By-Laws of Mutual of America Capital
Management Corporation, the Fund's Adviser, provide for the indemnification by
the Corporation of present and former directors and officers of the Corporation
and of any organization for which service is rendered at the request of the
Corporation and permits the advance payment of expenses in certain
circumstances for covered persons in connection with suits by third parties and
derivative suits. Each covered person must have acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. If in
connection with a derivative suit a covered person shall have been adjudged to
be liable to the Corporation, indemnification shall not be made unless and only
to the extent that the Delaware Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is entitled to indemnity. Thus, the officers and directors of the
fund and the Adviser are indemnified by the Adviser for their services in
connection with the Fund to the extent set forth in the By-Laws.
BY-LAWS OF THE DISTRIBUTOR. The By-laws of Mutual of America Securities
Corporation, the principal underwriter and distributor for the fund, provide
for the indemnification by the Corporation of present and former directors and
officers of the Corporation and of any organization for which service is
rendered at the request of the Corporation and permits the advance payment of
expenses in certain circumstances for covered persons in connection with suits
by third parties and derivative suits. Each covered person must have acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the conduct
was unlawful. If in connection with a derivative suit a covered person shall
have been adjudged to be liable to the Corporation, indemnification shall not
be made unless and only to the extent that the
C-2
<PAGE>
Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
entitled to indemnity. Thus, the officers and directors of the Distributor are
indemnified by the Distributor for their services in connection with the Fund
to the extent set forth in the By-Laws.
UNDERTAKING. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, 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 director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, 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 its it against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
Mutual of America Capital Management corporation (the Adviser) is the
investment adviser to the Fund and is registered as an investment adviser under
the Investment Advisers Act of 1940. The names, addresses and positions with
the Adviser of each director and officer of the Adviser are set forth below.
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATION
NAME WITH ADVISER DURING PAST TWO YEARS
- ------------------------------- ----------------------- -----------------------------------------------
<S> <C> <C>
Thomas J. Moran ............... Director, Chairman of President, Chief Executive Officer and
320 Park Avenue the Board Director, Mutual of America Life
NY, NY 10022
F. Harlan Batrus .............. Director Partner, Lazard Freres
30 Rockefeller Plaza
NY, NY 10020
Roger E. Birk ................. Director Past President and Director, Federal National
Merrill Lynch Mortgage Association, Chairman Emeritus,
77 Broad Street Merrill Lynch & Co. Inc.
Red Bank, NJ 07701
Robert X. Chandler ............ Director Director, Archdiocese of Boston
Director, Development Office
Archdiocese of Boston
2121 Commonwealth Ave.
Brighton, MA 02135
Nathaniel A. Davis ............ Director Vice President, Network Engineering
17680 Old Meadow Rd. Operations, Nextel Communications
McLean, VA 22102
Anthony F. Earley ............. Director President and Chief Operating Officer, Detroit
Detroit Edison Company Edison; prior thereto, President and Chief
2000 Second Avenue Operating Officer, Long Island Lighting
Room 2407 WCB Company (LILCO)
Detroit, MI 48226
William T. Knowles ............ Director Consultant
Orr's Island, ME 04066
Walter A. McDougal ............ Director Former Chairman and President, Richmond
Garden City, NY 11530 Hill Savings Bank
James E. Quinn ................ Director Vice Chairman, Tiffany & Co.
727 Fifth Avenue
NY, NY 10022
Richard J. Ciecka ............. President and Chief Vice Chairman of the Board, Mutual of
320 Park Avenue Financial Officer; America Life, until October 1998
NY, NY 10022 Director
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATION
NAME WITH ADVISER DURING PAST TWO YEARS
- ----------------------------- ------------------------ ----------------------------------------------
<S> <C> <C>
Manfred Altstadt ............ Senior Executive Vice Senior Executive Vice President and Chief
320 Park Avenue President and Chief Financial Officer of Mutual of America Life
NY, NY 10022 Financial Officer and American Life
Patrick A. Burns ............ Senior Executive Vice Senior Executive Vice President and General
320 Park Avenue President and Counsel of Mutual of America Life and
NY, NY 10022 General Counsel American Life
Amir Lear ................... Executive Vice Senior Vice President, Mutual of America
320 Park Avenue President and Life, until October 1998
NY, NY 10022 Assistant to the
President and CEO
Andrew L. Heiskell .......... Executive Vice Executive Vice President of the Adviser
320 Park Avenue President
NY, NY 10022
Joseph Brunken .............. Senior President Senior Vice President of the Adviser since
320 Park Avenue November, 1997; prior thereto, Vice
NY, NY 10022 President, Nikko Capital Management
(USA), Inc.
Jon J. LaBerge .............. Senior Vice President/ Senior Vice President of the Adviser
320 Park Avenue Adminstration
NY, NY 10022
Thomas Larsen ............... Executive Vice Executive Vice President of the Adviser since
320 Park Avenue President June 1998; prior thereto, Senior
NY, NY 10022 Vice President, Desai Capital Management
Stanley M. Lenkowicz ........ Senior Vice President, Senior Vice President and Deputy General
320 Park Avenue Deputy General Counsel, Mutual of America Life
NY, NY 10022 Counsel & Secretary
Nancy McAvey ................ Senior Vice President Senior Vice President of the Adviser
320 Park Avenue
NY, NY 10022
Paul Travers ................ Senior Vice President Senior Vice President of the Adviser
320 Park Avenue
NY, NY 10022
Gary P. Wetterau ............ Senior Vice President Vice President of the Adviser
320 Park Avenue
NY, NY 10022
David Wood .................. Senior Vice President Senior Vice President of the Adviser
320 Park Avenue
NY, NY 10022
Aline Couture ............... Vice President Vice President of the Adviser
320 Park Avenue
NY, NY 10022
Doris Klug .................. Vice President Vice President of the Adviser
320 Park Avenue
NY, NY 10022
Jonathan Lee ................ Vice President/ Vice President of the Adviser
320 Park Avenue Quantitative Analyst
NY, NY 10022
Robert H. Stewart ........... Vice President Vice President of the Adviser
320 Park Avenue
NY, NY 10022
</TABLE>
Each of Palley-Needelman Asset Management, Inc. ("Palley-Needelman"), Oak
Associates, Ltd. ("Oak Associates") and Fred Alger Management, Inc. ("Alger
Management") is a subadviser for a portion of the Active Assets of the All
America Fund allocated to it. Each subadviser is registered as an investment
adviser under the Investment Advisers Act of 1940. The names, addresses and
positions of each director and officer of each subadviser are incorporated by
reference to the Form ADV of the subadviser filed with the Securities and
Exchange Commission, as set forth below.
C-4
<PAGE>
Palley-Needelman Asset Management, Inc., Form ADV, SEC File No. 801-9755.
Oak Associates, Ltd., Form ADV, SEC File No. 801-23632.
Fred Alger Management, Inc., Form ADV, SEC File No. 801-06709.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Mutual of America Securities Corporation (the "Distributor"), a
Delaware corporation, is the principal underwriter and distributor for Fund
shares.
(b) The names of the officers and directors of the Distributor, and their
positions with the Distributor and the Fund, are as follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME DISTRIBUTOR POSITION WITH THE FUND
- ---------------------------- ---------------------------------- ---------------------------------
<S> <C> <C>
Thomas J. Moran ........ Chairman of the Board --
and Director
Dolores J. Morrissey ... President and CEO President and Director
Amir Lear .............. Senior Vice President and CFO --
Manfred Altstadt ....... Senior Executive Vice Senior Executive Vice President,
President, Treasurer and Treasurer and Director
Director
Patrick A. Burns ....... Senior Executive Vice Senior Executive Vice President,
President, General Counsel and General Counsel and Director
Director
Salvatore R. Curiale ... Senior Executive Vice --
President and Director
Stanley M. Lenkowicz ... Senior Vice President, Secretary Senior Vice President, Deputy
and Director General Counsel and Secretary
Howard Lichtenstein .... Director --
William S. Conway ...... Executive Vice President/ --
Marketing
Paul J. Costagliola .... Vice President and --
Compliance Officer
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-3 promulgated thereunder, will be maintained
by the Adviser at its offices at 320 Park Avenue, New York, New York 10022 or
with its custodian.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
The Fund hereby undertakes, if requested to do so by the holders of at
least 10% of the Fund's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal of a director or
directors and to assist in communications with other shareholders as required
by applicable law and regulations.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York on the 12th day
of February, 1999.
MUTUAL OF AMERICA INSTITUTIONAL FUNDS, INC.
(Registrant)
By: /s/ DOLORES J. MORRISSEY
-------------------------------------
TITLE: PRESIDENT
Pursuant to the requirement of the Securities Act of 1933, this amendment
to Registration Statement has been signed below by the following persons in the
capacities indicated on April 21, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ---------------------------------------------------------- -----------------------------------------------------
<S> <C>
/s/ DOLORES J. MORRISSEY President and Director
- -------------------------------------- (Principal Executive Officer)
(DOLORES J. MORRISSEY) Director
*
- -------------------------------------- Director
KEVIN M. KEARNEY
*
- -------------------------------------- Director
JOHN T. SHARKEY
*
- -------------------------------------- Director
JOHN R. SILBER
*
- -------------------------------------- Director
STANLEY SHMISHKISS
*
- --------------------------------------
PATRICK J. WAIDE, JR.
/s/ JOHN R. GREED
- -------------------------------------- Executive Vice President and Chief Financial Officer
JOHN R. GREED (Principal Financial and Accounting Officer)
*
- -------------------------------------- Senior Executive Vice President and General Counsel
PATRICK A. BURNS
*By /s/ DOLORES J. MORRISSEY
----------------------------------
(DOLORES J. MORRISSEY, ATTORNEY-IN-FACT)
</TABLE>
C-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ----------- -----
<S> <C> <C>
5(a) Form of Investment Advisory Agreement, as amended effective May 1, 1999
10 Consent of Swidler Berlin Shereff Friedman, LLP ........................
11(c) Powers of Attorney of John R. Greed and Stanley Shmishkiss .............
</TABLE>
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, made the 1st day of May, 1996, as amended
May 1, 1997 with respect to the Money Market Fund and May 1, 1999 with respect
to the Equity Index Fund, by and between Mutual of America Capital Management
Corporation (the "Adviser"), a Delaware corporation, and Mutual of America
Institutional Funds, Inc. (the "Company"), a Maryland corporation.
W I T N E S S E T H
WHEREAS, the Company is engaged in business as a diversified open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Investment Company Act");
WHEREAS, the Company is comprised of separate series or funds, each of
which pursues its investment objective through separate investment policies, and
the Board of Directors may from time to time establish or terminate one or more
funds;
WHEREAS, the Adviser renders advisory services and is registered as an
investment adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Company desires to retain the Adviser to render investment
advisory and supervisory services and corporate administration to the Company in
the manner and on the terms hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Adviser and the Company agree as follows:
1. General. For the period and on the terms set forth in this Agreement, the
Adviser shall manage the investment and reinvestment of the assets of the
existing funds of the Company, namely the All America Fund and the Bond Fund,
and of any additional funds created in the future (collectively, the existing
and any additional funds are hereinafter referred to as "Funds"). The Adviser
agrees during such period, at its own expense and subject to the supervision of
the Board of Directors of the Company, to render the investment advisory
services and assume the obligations herein set forth, for the compensation
provided by this Agreement.
The Adviser is authorized to enter into sub-advisory agreements (each a
"Sub-Advisory Agreement" and collectively the "Sub-Advisory Agreements") with
registered investment advisers (each a "Sub-Adviser" and collectively the
"Sub-Advisers") pursuant to which the Adviser delegates to the Sub-Advisers its
obligations for providing investment advisory and certain other services in
connection with one or more of the Funds; provided, that the Adviser, and not
the Company, shall be responsible for any compensation payable under the
Sub-Advisory Agreements. Any such Sub-Advisory Agreement may be entered into by
the Adviser on such terms and in such manner as may be permitted by the
Investment Company Act and the
<PAGE>
-2-
rules and regulations thereunder. For any Fund for which the Adviser has entered
into a Sub-Advisory Agreement, the Sub-Adviser shall have the primary
responsibility for providing investment advisory services as set forth in
Paragraph 2(a),(b) and (c) and shall be responsible for broker-dealer selection
as set forth in Paragraph 4 and maintaining books and records as set forth in
Paragraph 9, and the Adviser will have supervisory responsibility for investment
advisory services furnished by the Sub-Adviser pursuant to the Sub-Advisory
Agreement. The Adviser will review the performance of each Sub-Adviser and make
recommendations to the Board of Directors of the Company with respect to the
retention and renewal of Sub-Advisory Agreements.
2. Investment Advisory Services. (a) In carrying out its obligations to
manage the investment and reinvestment of the assets of the Company, the Adviser
shall as appropriate and consistent with the limitations set forth in Paragraph
3 hereof:
(i) perform research and obtain and evaluate pertinent economic,
statistical and financial data relevant to the investment policies of
each of the Funds as set forth in the then effective registration
statement for the Company, as amended from time to time ("Registration
Statement"), filed with the Securities and Exchange Commission (the
"SEC");
(ii) consult with the Board of Directors of the Company and furnish to the
Board of Directors of the Company recommendations with respect to an
overall investment plan for each of the Funds for approval,
modification or rejection by the Board of Directors of the Company;
(iii) determine the composition of the assets of each Fund and implement
specific investment and sale opportunities, consistent with any overall
investment plans approved by the Board of Directors of the Company;
(iv) take such steps as are necessary to implement any overall investment
plans approved by the Board of Directors of the Company, including
making and carrying out decisions to acquire or dispose of permissible
investments, management of investments, cash and any other property of
the Company, and providing or obtaining such services as may be
necessary in managing, acquiring or disposing of investments;
(v) regularly report to the Board of Directors of the Company with respect
to the implementation of any approved overall investment plans and any
other activities in connection with management of the assets of the
Company; and
(vi) maintain all required accounts, records, memoranda, instructions or
authorizations relating to the acquisition or disposition of
investments for each Fund.
(b) In connection with the purchase and sale of securities for each Fund,
the Adviser will arrange for the transmission to the custodian, transfer agent,
dividend disbursing agent and/or recordkeeping agent for the Fund (such
custodian and agent or agents hereinafter referred
<PAGE>
-3-
to as the "Agent" or collectively the "Agents"), on a daily basis, such
confirmations, trade tickets (which shall state industry classifications unless
the Adviser has previously furnished a list of classifications for portfolio
securities), and other documents and information, including, but not limited to,
Cusip or other numbers that identify securities to be purchased or sold on
behalf of each Fund and, with respect to mortgage derivative and asset-backed
securities purchased by the Adviser for a Fund, 1066Q reports and supplemental
information as required to be available pursuant to Internal Revenue Service
requirements, as may be reasonably necessary to enable the Agent to perform its
administrative and recordkeeping responsibilities with respect to such Fund.
With respect to portfolio securities to be purchased or sold through the
Depository Trust Company, the Adviser will arrange for the automatic
transmission of the confirmation of such trades to the Company's Agent.
(c) If the Company has arranged for the valuation of Fund securities to be
performed by an Agent, the Adviser will monitor on a daily basis, by review of
daily pricing reports provided by the Agent to the Adviser, the determination by
the Agent of the valuation of portfolio securities and other investments of each
Fund. The Adviser shall not be obligated to independently verify the Agent's
pricing determinations, and the Agent's responsibility for accurate pricing
determinations of the value of each Fund's securities shall not be reduced by
the Adviser's duty to monitor such determinations. The Adviser will assist the
Agent in determining or confirming, consistent with the procedures and policies
stated in the Registration Statement, the value of any portfolio securities or
other assets of each Fund for which the Agent seeks assistance from or
identifies for review by the Adviser.
d) The Adviser shall provide all the office space, facilities, equipment,
material and personnel necessary to fulfill its obligations under this Agreement
and shall provide management services to the Company as follows:
(i) coordinate all matters relating to the functions of the Company's
Agents, accountants, attorneys, Sub-Advisers, if any, and other parties
performing services or operational functions for the Funds;
(ii) provide, without remuneration from or other cost to the Company, the
services of a sufficient number of individuals competent to perform all
of the Company's executive, administrative and clerical functions as
are necessary to ensure compliance with federal securities laws as well
as other applicable laws and to provide effective supervision and
administration of the Company, when such services are not performed by
employees or other agents engaged by the Company pursuant to a separate
agreement or arrangement with the Company;
(iii) assist in the preparation of all periodic reports to the shareholders
of the Company and all reports and filings required to maintain the
registration and qualification of the Company's shares, or to meet
other regulatory or tax requirements applicable to the Company, under
federal and state securities and tax laws;
<PAGE>
-4-
(iv) prepare and, after approval by the Company, file and arrange for the
distribution of proxy materials and periodic reports to Company
shareholders as required by applicable law;
(v) prepare, or cause the preparation of, and, after approval by the
Company, arrange for the filing of such registration statements and
other documents with the SEC and other federal and state regulatory
authorities as may be required by applicable law; and
(vi) take such other action with respect to the Funds, after approval by
the Company, as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state
securities commissions and other regulatory agencies.
3. Limitations on Advisory Services. The Adviser shall render investment
advisory services with respect to assets held by the Funds of the Company and
effect all purchases and sales of investments for each Fund thereof in a manner
consistent with:
(a) the investment objectives, policies and restrictions for each Fund as
stated in the Registration Statement;
(b) the Rules and Regulations of the Company;
(c) the provisions of the Investment Company Act and the rules and
regulations thereunder; and
(d) the qualification of each Fund as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended.
Any investment program undertaken by the Adviser pursuant to this
Agreement shall at all times be subject to any directives of the Board of
Directors of the Company or any duly constituted committee thereof acting
pursuant to like authority.
4. Brokerage and Research Services. The Adviser shall, subject to the
supervision of the Board of Directors of the Company, arrange for the placement
of orders for each of the Funds, either directly with the issuer, with any
broker-dealer or underwriter that specializes in the securities for which the
order is made, or with any other broker or dealer selected by the Adviser,
subject to the following limitations.
The Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Funds and will
use its best efforts to obtain the most favorable net results, taking into
account all appropriate factors, including price, dealer spread or commission,
if any, size of the transaction and difficulty of execution. However, in
addition to seeking the best price and execution, the Adviser may also take into
consideration research and statistical information and wire and other quotation
services provided to the Adviser. In any
<PAGE>
-5-
event, the Adviser shall select only brokers whose commissions it believes are
reasonable. The Adviser will periodically evaluate the statistical data,
research and other investment services provided by brokers and dealers to it.
Such services may be used by the Adviser in connection with the performance of
its obligations under this Agreement or in connection with other advisory
activities or investment operations. In accordance with Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2('I') thereunder, and subject to
any other applicable laws and regulations including Section 17(e) of the
Investment Company Act and Rule 17e-1 thereunder, the Adviser may engage its
affiliates, or any Sub-Adviser to the Company and its respective affiliates, as
broker-dealers or futures commission merchants to effect portfolio transactions
in securities and other investments for a Fund.
5. Compensation. As compensation for its investment advisory services to the
Company, the Adviser shall receive an amount calculated as a daily charge at the
annual rate of 0.125% of the value of the net assets of the Equity Index Fund,
0.50% of the value of the net assets of the All America Fund, 0.45% of the value
of the net assets of the Bond Fund and 0.20% of the value of the net assets of
the Money Market Fund, computed in accordance with the Investment Company Act
and the Registration Statement.
6. Expenses. (a) The Adviser shall be responsible for all expenses incurred
in performing the investment advisory and management services herein set forth
(other than costs and expenses payable by any Sub-Adviser under a Subadvisory
Agreement), including costs of compensating and furnishing office space for
officers and employees of the Adviser connected with investment and economic
research, trading and investment management for the Funds and expenses of all
Company personnel other than the fees and expenses of directors who are not
"interested persons" of the Company.
(b) Each Fund is responsible for and bears all expenses incurred in its
operation that are not specifically assumed by the Adviser or by Mutual of
America Securities Corporation pursuant to its Distribution Agreement with the
Company. General expenses of the Company not readily identifiable as belonging
to one of the Funds will be allocated among the Funds by or under the direction
of the Company's Board of Directors in such manner as the Board shall determine
to be fair and equitable. Expenses borne by each Fund include, but are not
limited to, the following (or the Fund's allocated share of the following):
(i) the cost (including brokerage commissions, if any) of securities
purchased or sold by the Fund and any losses incurred in connection
therewith;
(ii) investment advisory fees due hereunder (but not Sub-Advisory fees,
which are payable by the Adviser);
(iii) filing fees and expenses relating to the registration and qualification
of the Company or the shares of a Fund under federal or state
securities laws and maintenance of such registration and
qualifications;
<PAGE>
-6-
(iv) fees and expenses payable to the Company's Directors who are not
"interested persons" of the Company;
(v) taxes (including any transfer, income or franchise taxes) and
governmental fees;
(vi) costs of any liability, directors' and officers', uncollectible items
of deposit and other insurance and of fidelity bonds;
(vii) legal, accounting and auditing expenses;
(viii)charges of custodians, transfer agents, recordkeeping and other
agents;
(ix) expenses of setting in type and providing to the distributor of the
Fund's shares a camera-ready copy of the Company's prospectuses,
statements of additional information, and supplements thereto, and
expenses of setting in type and printing or otherwise reproducing
prospectuses, statements of additional information, supplements
thereto, and reports and proxy materials for existing shareholders;
(x) fees, voluntary assessments and other expenses incurred in connection
with membership in investment company organizations;
(xi) costs of meetings of shareholders; and
(xii) extraordinary expenses.
(c) In the event the expenses of the Company for any fiscal year
(including the fees payable to the Adviser but excluding interest, taxes,
brokerage commissions and litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Company's
business) exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statute or regulations of any applicable jurisdictions,
the compensation due the Adviser hereunder will be reduced by the amount of such
excess. If such excess amount exceeds the compensation payable to the Adviser
hereunder, the Adviser will not be required to make any additional payments to
the Company in reimbursement of such expenses.
7. Services Not Exclusive. The services rendered by the Adviser pursuant to
this Agreement are not to be deemed exclusive, and the Adviser may render
similar services to other entities so long as its services under this Agreement
are not impaired or interfered with.
It is understood that the Adviser or its affiliates may use any investment
research obtained for the benefit of the Company in providing investment advice
to its other investment advisory accounts or for use in managing their own
accounts. Conversely, such supplemental information obtained by the placement of
business for the Company or other entities advised by the Adviser may be
considered by and may be useful to the Adviser in carrying out its obligations
to the Company.
<PAGE>
-7-
When the Adviser deems the purchase or sale of a security to be in the
best interests of a Fund as well as other accounts or companies, it may, to the
extent permitted by applicable laws and regulations, but will not be obligated
to, aggregate the securities to be sold or purchased for such Fund with those to
be sold or purchased for other accounts or companies in order to obtain
favorable execution and low brokerage commissions. In that event, allocation of
the securities purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Company and to
such other accounts or companies. The Company recognizes that in some cases this
procedure may adversely affect the size of the position obtainable for it.
8. Term of Agreement. This Agreement will continue for two years from the
date of its execution and thereafter from year to year but only so long as such
continuance is specifically approved with respect to each Fund at least annually
either (i) by the Board of Directors of the Company or (ii) by a vote of a
majority of the outstanding voting securities of the Fund, provided that in
either event such continuance will also be approved by the vote of a majority of
the directors who are not interested persons (as defined in the Investment
Company Act) of the Company, cast in person at a meeting called for the purpose
of voting on such approval. In connection with such approvals, the Board of
Directors of the Company shall request and evaluate, and the Adviser shall
furnish, such information as may be reasonably necessary to evaluate the terms
of this Agreement. This Agreement:
(a) shall not be terminated by the Adviser without the prior approval of a
new investment advisory agreement by vote of a majority of the outstanding
shares of each Fund of the Company;
(b) shall be subject to termination, without the payment of any penalty,
by the Board of Directors of the Company, or by vote of a majority of the
outstanding shares of the Company, or with respect to a particular Fund by vote
of a majority of the outstanding shares of that Fund, in each case on sixty
days' written notice to the Adviser;
(c) shall not be amended without specific approval of such amendment by
(i) the Board of Directors of the Company, or by the vote of a majority of the
outstanding shares of each Fund affected by such amendment, and (ii) a majority
of those members of the Board of Directors of the Company who are not parties to
this Agreement or interested persons of such a party, cast in person at a
meeting called for the purpose of voting on such approval; and
(d) shall automatically terminate upon assignment (as defined under the
Investment Company Act) by either party.
9. Recordkeeping. The Adviser shall keep the Company's books and records
required to be maintained by it pursuant to this Agreement, the Investment
Company Act or otherwise. The Adviser agrees that all accounts and records that
it maintains for the Company shall be the property of the Company and that it
will surrender promptly to the designated officers of the Company any or all
such accounts and records upon request. The Adviser further agrees to preserve
for the period prescribed by the rules and regulations of the SEC all such
records and
<PAGE>
-8-
accounts as are required to be maintained pursuant to said rules and
regulations. The Adviser also agrees that it will maintain all records and
accounts regarding the investment activities of each of the Funds in a
confidential manner. All such accounts or records shall be made available,
within five (5) business days of a written request, to the Company's accountants
or auditors during regular business hours at the Adviser's offices. In addition,
the Adviser will provide any materials as are required to be maintained pursuant
to said rules and regulations. The Adviser also agrees that it will maintain all
records and accounts reasonably related to the investment advisory services
provided hereunder, as may reasonably be requested in writing by the members of
the Board of Directors of the Company or as may be required by any governmental
agency having jurisdiction over the Adviser or the Company.
10. Interested and Affiliated Persons. It is understood that members,
officers, employees or agents of the Company may also be interested in the
Adviser as directors, officers, employees, agents or otherwise.
11. Liability of the Adviser. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties on the
part of the Adviser (or its officers, directors, agents, employees, controlling
persons, and any other person or entity affiliated with the Adviser or retained
by it to perform or assist in the performance of its obligations under this
Agreement), neither the Adviser nor any of its officers, directors, employees or
agents shall be subject to liability to the Company or any shareholder of the
Company for any act or omission in the course of, or connected with, rendering
services hereunder, including without limitation, any error of judgment or
mistake of law or for any loss suffered by the Company or any shareholder of the
Company in connection with the matters to which this Agreement relates, except
to the extent specified in Section 36(b) of the Investment Company Act
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
12. Use of Name "Mutual of America"; Marks or Symbols. If the Adviser ceases
to act as the investment adviser, or, in any event, if the Adviser so requests
in writing, the Company agrees it will take all necessary action to change the
name of the Company to a name not including the words "Mutual of America". The
Adviser may from time to time make available without charge to the Company for
its use such marks or symbols owned or employed by the Adviser including marks
or symbols containing the name "Mutual of America" or any variation thereof, as
it may consider appropriate. Any such marks or symbols so made available will
remain the Adviser's property and it shall have the right, upon notice in
writing to, require the Company to cease the use of such marks or symbols at any
time.
13. Governing Law. This Agreement is subject to the provisions of the
Investment Company Act, as amended, and the rules and regulations of the SEC
thereunder, including such exemptions therefrom as the SEC may grant. Words and
phrases used herein shall be interpreted in accordance with that Act and those
rules and regulations, and such exemptions. Without limiting the generality of
the foregoing, (a) the term "assignment" shall not include any transaction
exempted from Section 15(a)(4) of the Investment Company Act by an order of the
SEC, and (b) as used with respect to the Company or any of its Funds, the term
"majority of the outstanding
<PAGE>
-9-
shares" means the lesser of (i) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are represented, or (ii) more than
50% of the outstanding shares.
14. Miscellaneous. The Adviser shall submit to all regulatory and
administrative bodies having jurisdiction over the operations of the Adviser or
the Company, present or future, any materials, reasonably related to the
investment advisory services provided hereunder, as may be reasonably requested
in writing by the Board of Directors of the Company or as may be required by any
governmental agency having jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Investment Advisory
Agreement to be signed by their duly authorized officers as of the date first
above written.
MUTUAL OF AMERICA MUTUAL OF AMERICA CAPITAL
INSTITUTIONAL FUNDS, INC. MANAGEMENT CORPORATION
By: ________________________________ By: _______________________________
Dolores J. Morrissey Richard Ciecka
President and Chairman President and CEO
EXHIBIT 99.10
CONSENT OF SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
We hereby consent of the reference to our firm included in the prospectus
filed as part of Registration Statement No.33-87874.
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
New York, New York
February 12, 1999
POWER OF ATTORNEY
The undersigned Executive Vice President and Chief Financial Officer of Mutual
of America Institutional Funds, Inc., a Maryland corporation, hereby constitutes
and appoints Dolores J. Morrissey, Manfred Altstadt, Patrick A. Burns and
Stanley M. Lenkowicz, and each of them (with full power to each of them to act
alone), his true and lawful attorney-in-fact and agent, with full power of
substitution to each, for him and on his behalf and in his name, place and
stead, to execute and file any of the documents referred to below relating to
registrations under the Securities Act of 1933 or the Investment Company Act of
1940 (the ACTS): registration statements on any form or forms under the Acts,
and any and all amendments and supplements thereto (including post-effective
amendments), with all exhibits and all agreements, consents, exemptive
applications and other documents and instruments necessary or appropriate in
connection therewith, each of said attorneys-in-fact and agents being empowered
to act with or without the others or other, and to have full power and authority
to do or cause to be done in the name and on behalf of the undersigned each and
every act and thing requisite and necessary or appropriate with respect thereto
to be done in and about the premises in order to effectuate the same, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney on the 9th
day of February, 1999.
__________________________
John R. Greed
<PAGE>
POWER OF ATTORNEY
The undersigned Director of Mutual of America Institutional Funds, Inc., a
Maryland corporation, hereby constitutes and appoints Dolores J. Morrissey,
Manfred Altstadt, Patrick A. Burns and Stanley M. Lenkowicz, and each of them
(with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him and
on his behalf and in his name, place and stead, to execute and file any of the
documents referred to below relating to registrations under the Securities Act
of 1933 or the Investment Company Act of 1940 (the ACTS): registration
statements on any form or forms under the Acts, and any and all amendments and
supplements thereto (including post-effective amendments), with all exhibits and
all agreements, consents, exemptive applications and other documents and
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents being empowered to act with or without the others
or other, and to have full power and authority to do or cause to be done in the
name and on behalf of the undersigned each and every act and thing requisite and
necessary or appropriate with respect thereto to be done in and about the
premises in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may do or cause to
be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 16th day of
November, 1998.
______________________________
Stanley Shmishkiss
